IRS Withdraws Proposed Corporate Spinoff Regulations

On Sept. 30, the U.S. Department of the Treasury and the IRS withdrew two notices of proposed rulemaking published on Jan. 16, 2025, under Sections 355, 357, 361, and 368 regarding corporate separations, incorporations, and reorganizations and related multiyear reporting requirements. The withdrawal is in response to public comments that were critical of the proposed regulations.

Background

Corporate separations, including spinoffs under Section 355 and related reorganizations, are common tools for business realignment, capital markets positioning, and unlocking shareholder value. These transactions often involve complex fact patterns, debt movements, and continuity requirements.

In January 2025, Treasury and the IRS proposed technical regulations under Sections 355, 357, 361, and 368 to address certain matters involving corporate separations, incorporations, and reorganizations intended to qualify, in whole or in part, for nonrecognition of gain or loss. On the same day, they proposed reporting regulations that would have required multiyear tax reporting for corporate separations and related transactions. The proposed reporting regulations reflected recommendations in a 2019 report from the Treasury inspector general for tax administration calling for a strategy to assess compliance in corporate mergers and acquisitions.

The proposed multiyear reporting regime sought to enhance visibility into post-transaction compliance across several tax years, reflecting concerns that one-year reporting snapshots do not fully capture longer-term effects on basis, earnings and profits, and distributions.

Withdrawal of the proposed regulations

Commenters raised significant concerns with the proposed regulations. Critiques generally focused on the breadth and complexity of the technical rules, the potentially chilling effects on ordinary-course restructurings, and the added administrative burden posed by multiyear reporting. In response, Treasury and the IRS withdrew both sets of proposed regulations rather than finalize or re-propose them in revised form.

Crowe observation

The withdrawal of the proposed regulations eliminates near-term uncertainty and the potential administrative burden associated with the multiyear reporting proposed and substantive new rules, while preserving familiar frameworks for Section 355 and related reorganizations. Companies can continue to structure separations and reorganizations under existing rules and administrative guidance, without a new reporting overlay.

Changes to the procedure for private letter ruling requests for Section 355 transactions

On Sept. 29, the same day the withdrawal notice was filed with the Federal Register, the IRS issued Revenue Procedure 2025-30, which revised procedures for taxpayers requesting private letter rulings after Sept. 29, 2025, regarding Section 355 transactions, superseding Revenue Procedure 2024-24 and making the following key changes:

• Reinstates the rules under Revenue Procedure 2018-53 regarding assumption or satisfaction of certain distributing debt in divisive reorganizations
• Reinstates the requirement to provide representations 2, 4, and 17 through 21 in the appendix to Revenue Procedure 2017-52, which Revenue Procedure 2024-24 had deleted
• Revokes Notice 2024-38, which accompanied Revenue Procedure 2024-24 and requested feedback on the procedures set forth in Revenue Procedure 2024-24

Crowe observation

Revenue Procedure 2025-30 reinstates the prior, more established and more flexible ruling procedures for taxpayers requesting private letter rulings on Section 355 transactions.

Looking ahead

Withdrawal of the proposed regulations means that corporations contemplating or executing divisive reorganizations or other restructurings intended to qualify for nonrecognition treatment can engage in planning without considering the potential for new regulations or reporting in the near future. Furthermore, transactions in process do not need to account for the now-abandoned multiyear reporting regime. Instead, documentation and modeling should reflect current rules for the various Section 355 and Section 368 requirements, without layering on the additional reporting contemplated by the now-withdrawn proposed regulations. Corporations should consult their tax advisers to assess the impact of the withdrawn guidance on ongoing or contemplated transactions.