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I.R.S. Breaks the Silence with Rev. Rul. 2017-09, Issues Guidance on “North-South” Transactions

Volume 4 No 6    /    Read Article

By Rusudan Shervashidze and Nina Krauthamer

In Rev. Rul. 2017-09, the I.R.S. addressed “north-south” transactions. In these transactions, a shareholder transfers property to a corporation in a transaction structured to be free of tax under Code §351. At about the same time, the corporation distributes shares of its subsidiary to the shareholder in a spinoff. If the transactions are considered separate for income tax purposes, each can be effected free of gain recognition and the imposition of income tax. On the other hand, if the transactions are integrated into a single multi-step transaction, gain will be recognized and tax imposed on each step of the arrangement. The ruling announces that the I.R.S. will once again rule on the status of these transactions and provides guidance on the standard that the I.R.S. will apply. Rusudan Shervashidze and Nina Krauthamer explain the factual context and the approach of the I.R.S. in granting relief.   See more →