Prop. regs. issued for spinoff transactions and their reporting

The IRS issued proposed regulations for certain corporate spinoff transactions (REG-112261-24). Proposed regulations also were issued that would require multiyear tax reporting for such transactions (REG-116085-23).

In connection with the proposed guidance, issued Monday, the IRS posted a draft version of new Form 7216, Multi-Year Reporting Related to Section 355 Transactions.

The first set of proposed regulations would “establish a comprehensive set of rules to implement certain core definitional and operative provisions of subchapter C that address corporate separations, incorporations, and reorganizations,” the preamble said. “The current regulatory framework underlying these provisions is incomplete, outdated, and not reflective of their importance to the federal corporate income tax system, given the trillions of dollars of corporate transactions governed by these statutory provisions. Due to the lack of up-to-date regulatory guidance, taxpayers and the IRS must rely on a patchwork of caselaw, IRS revenue rulings, and revenue procedures, and nonauthoritative IRS documents to discern the current state of the law with respect to these core provisions of subchapter C.”

The proposed regulations address matters relating to certain corporate separations, incorporations, and reorganizations qualifying, in whole or in part, for nonrecognition of gain or loss. Those matters include:

• distributions and retentions of controlled corporation stock;

• assumptions of liabilities by controlled corporations;

• exchanges of property between distributing corporations and controlled corporations; and

• distributions and transfers of consideration to distributing corporation shareholders and creditors.

The second set of proposed regulations, REG-116085-23, would require multiyear tax reporting for corporate separations and related transactions to establish the taxpayer’s position that the corporate separation and related transactions qualify for nonrecognition treatment under subchapter C of the Code.

These proposed regulations would affect corporations and their shareholders and security holders..

The proposed regulations revise Sec. 1.355-5, Records to be kept and information to be filed, to require all covered filers, as defined in proposed Sec.1.3555(b)(1), to file an annual report about each Sec. 355 transaction, which is the new Form 7216, that would be attached to the covered filer’s federal income tax return, the IRS said in the preamble.

Generally, filers that have to include the form would include the distributing corporation, the controlled corporation, and certain significant shareholders or security holders of the distributing corporation, the IRS said in a news release (IR-2025-11).

The IRS said it intends to follow these proposed regulations when it issues private letter rulings about certain corporate separations. The Service also plans to update Rev. Proc. 2024-24 to incorporate these proposed regulations into the procedures for requesting such private letter rulings.

Comments are due by March 17.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.