Brief commentary on the past week’s cases, rulings, notices, and related federal tax guidance.
IRS Introduces Fast-Track Process for Obtaining Letter Rulings
Corporate reorganizations and spin-off transactions are transactions where there is often a great deal of incentive to qualify for tax-free treatment. In many cases, the amount of tax at issue justifies obtaining a private letter ruling from the IRS that confirms the tax-free nature of the transaction. Given the cost and time requirements to obtain a ruling, many taxpayers choose to forgo such rulings. With the IRS’s latest fast-track ruling program, the resource commitment to obtaining such a ruling is somewhat lessened, thereby creating the opportunity for rulings on transactions where time constraints may have otherwise rendered a ruling inadvisable.
In January 2022, the Internal Revenue Service released Revenue Procedure 2022-10, unveiling an 18-month pilot program to fast-track private letter rulings on selected corporate issues. If the requesting taxpayer complies with the program’s requirements, the program is intended to allow the IRS to issue a ruling within twelve weeks, a significant improvement over the six to nine months many taxpayers can expect for ruling requests under the legacy program.
The streamlined program covers issues under the jurisdiction of IRS Associate Chief Counsel (Corporate), including corporate reorganizations and spin offs, but doesn’t include cross-border or financing issues; those should be addressed to a separate ruling request, even if relating to the same transaction or series of transactions. This program doesn’t modify the existing limitations on which issues may be raised in a letter ruling request (the “no rule areas” outlined in Revenue Procedures 2022-3 and 2022-7), and specifically does not apply to late-filing or late-election relief.
To qualify for the fast track program, the taxpayer must (in addition to satisfying the submission requirements applicable to legal ruling requests) agree to furnish additional information within seven days of an IRS request for such information, specify the reasons for requesting fast-track processing, and provide a draft of the requested letter ruling.
For the best chance of being approved for participation in the program and receiving an expedited ruling, taxpayers should (1) ensure the requested ruling is within scope, (2) avoid adding any out-of-scope issues, (3) comply with the requirements outlined in the Revenue Procedure (including promptly responding to requests for further information), and (4) robustly identify, document, and explain the substantive issues and reasons for applying for fast-track processing in a pre-submission conference.