rp-16-45.pdf

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26 CFR 601.201: Rulings and determination letters.
(Also Part I, §§ 355, 368.)

Rev. Proc.
2016-45

SECTION 1. PURPOSE
This revenue procedure modifies Rev. Proc. 2016-3, 2016-1 I.R.B. 126, which
sets forth areas of the Internal Revenue Code (Code) on which the Internal Revenue
Service (Service) will not issue letter rulings or determination letters (no-rule areas), by
removing two no-rule areas relating to distributions of stock of controlled corporations
under § 355 of the Code. The two areas that are no longer no-rule areas are significant
legal issues relating to—
.01 The requirement under § 1.355-2(b) of the Income Tax Regulations that a
distribution be carried out for a corporate business purpose (the corporate business
purpose requirement), and
.02 The requirement under § 355(a)(1)(B) and § 1.355-2(d) that a transaction not
be used principally as a device for the distribution of earnings and profits of the
distributing corporation, the controlled corporation, or both (a device).
SECTION 2. CHANGES

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Section 4 of this revenue procedure modifies section 3.01(53) of Rev. Proc.
2016-3.
SECTION 3. BACKGROUND
.01 Current Procedures
In the interest of sound tax administration, the Service answers written inquiries
from individuals and organizations regarding the tax effects of their acts or transactions
by issuing letter rulings or determination letters. See section 2.01 and .03 of Rev. Proc.
2016-1, 2016-1 I.R.B. 1. There are, however, areas in which the Service will not issue
letter rulings or determination letters because the issues are inherently factual or for
other reasons. The Service publishes guidance setting forth these no-rule areas from
time to time and incorporates them annually into a revenue procedure, currently Rev.
Proc. 2016-3.
Section 3 of Rev. Proc. 2016-3 sets forth areas in which the Service will not issue
letter rulings or determination letters.
Section 3.01(50) of Rev. Proc. 2016-3 provides, among other things, that the
Service will not issue a letter ruling or determination letter with respect to whether a
transaction qualifies under § 355 for nonrecognition treatment or whether it constitutes a
corporate reorganization within the meaning of § 368, and whether various tax
consequences (such as nonrecognition and basis) result from the application of those
sections. The Service will instead rule only on significant issues presented in such a
transaction if a taxpayer submits a letter ruling request complying with all the
requirements set forth in section 6.03 of Rev. Proc. 2016-1, as well as Rev. Proc. 2016-
1, in general. A significant issue is defined in section 3.01(50) of Rev. Proc. 2016–3 as

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an issue of law the resolution of which is not essentially free from doubt and that is
germane to determining the tax consequences of the transaction.
Section 3.01(53) of Rev. Proc. 2016-3 provides, among other things, that the
Service will not issue a letter ruling or determination letter as to whether a distribution of
stock of a controlled corporation satisfies the corporate business purpose requirement
or whether it is used principally as a device.
.02 New Procedures
The Service has determined there are a number of unresolved legal issues under
§ 1.355-2(b) pertaining to the corporate business purpose requirement and under
§ 355(a)(1)(B) and § 1.355-2(d) pertaining to device that can be germane to determining
the tax consequences of a distribution. The Service has also determined that it is
appropriate and in the interest of sound tax administration to provide guidance to
taxpayers on significant issues (as defined in section 3.01(50) of Rev. Proc. 2016-3) in
these two areas.
Accordingly, the Service will issue a letter ruling with respect to a significant issue
under § 1.355-2(b) pertaining to the corporate business purpose requirement, and a
significant issue under § 355(a)(1)(B) and § 1.355-2(d) pertaining to device, provided
that the issue is a legal issue and is not inherently factual in nature. However, as with
other requests for letter rulings, the Service may decline to issue a letter ruling
addressing these significant issues when appropriate in the interest of sound tax
administration or on other grounds when warranted by the facts or circumstances of a
particular case. See section 6 of Rev. Proc. 2016-1 and section 3.02(10) of Rev. Proc.
2016-3.

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SECTION 4. PROCEDURES
Section 3.01(53) of Rev. Proc. 2016-3 is modified by deleting the following text:
“is being carried out for one or more corporate business purposes, whether the
transaction is used principally as a device, and whether the distribution”
SECTION 5. EFFECTIVE DATE
This revenue procedure applies to all ruling requests that are postmarked or,
if
not mailed, received on or after August 26, 2016, and relate to distributions that occur
after such date.
SECTION 6. EFFECT ON OTHER REVENUE PROCEDURES
Rev. Proc. 2016-3, 2016-1 I.R.B. 126, is modified.
SECTION 7. DRAFTING INFORMATION
The principal author of this revenue procedure is Grid R. Glyer of the Office of
Associate Chief Counsel (Corporate). For further information regarding this revenue
procedure, contact Mr. Glyer at (202) 317-6847 (not a toll-free call).