IRS Offers Safe Harbors for Acquisition of Corporate Control

The Internal Revenue Service has released a revenue procedure providing two safe harbors for corporate acquisitions.

In Revenue Procedure 2016-40, the IRS outlined two fact patterns under which it will not assert that a corporation lacks the requisite “control” for purposes of Section 355(a) of the Tax Code when a corporation acquires putative control of another corporation through the acquired corporation’s issuance of stock and later engages in a transaction that effectively reverses the effect of the stock issuance.

However, the IRS cautioned the safe harbors apply only to transactions described in the revenue procedure, and no inference should be drawn regarding the application of any federal tax principles outside the scope of the revenue procedure.

The revenue procedure also eliminates a prohibition against issuing letter rulings on transactions involving such an acquisition of “control.” However, the IRS said it may decline to issue a letter ruling addressing an acquisition of control when appropriate in the interest of sound tax administration or on other grounds when they are warranted by the facts or circumstances of a particular case.

The revenue procedure is effective for distributions occurring on or after Aug. 1, 2016, though taxpayers may also apply the revenue procedure for a distribution occurring before Aug. 1, 2016.