New IRS Guidance on Spin-Offs and CAMT: Expert Analysis
In the latest edition of the Weil, Gotshal & Manges Expert Focus series on US tax issues, the firm’s tax co-chair Joe Pari and international tax head Devon Bodoh discuss recent guidance on the procedural mechanisms for obtaining an IRS ruling with respect to a tax-free spin-off, covering both substance and procedure related to this guidance, as well as the long-awaited guidance on corporate alternative minimum tax.
New Guidance on Tax-Free Spin-Offs
Joe Pari begins the discussion by highlighting new IRS guidance that makes it more challenging to obtain private letter rulings (PLRs) for tax-free spin-offs. These transactions, where a parent corporation distributes stock of a subsidiary to its shareholders, are highly sensitive as any misstep can trigger substantial tax liabilities. The IRS has increased the stringency of its requirements, particularly concerning representations made by taxpayers, making it harder to get PLRs. This shift likely means more reliance on tax opinions rather than PLRs for spin-offs.
Pari delves into the new restrictions on spin-offs, particularly focusing on parent corporations’ handling of debt.
Corporate Alternative Minimum Tax (CAMT)
Devon Bodoh takes over the discussion to address the long-awaited guidance on the CAMT, introduced by the Inflation Reduction Act of 2022. This 15% minimum tax applies to large corporations with an average applicable financial statement income exceeding USD1 billion. Bodoh emphasises the significant shift towards using financial statement income as the basis for taxation, aligning with international tax policies like the OECD's Pillar Two.
Bodoh concludes by highlighting the sheer volume of recent IRS regulations, noting that even though the guidance runs to over 600 pages, it leaves important questions unanswered, and practitioners must be particularly diligent in interpreting how, for example, partnerships, mark-to-market measurements of value, and M&A transactions are handled under CAMT.
Both hosts agree that recent guidance on tax-free spin-offs and CAMT significantly alters the landscape for tax professionals.
Weil, Gotshal & Manges LLP
