Tax-free split-off letting one family branch take its own corporation

Plain-English summary

A publicly traded corporation, owned mostly by three related families plus other shareholders, wants to divide up its main business. It will form a new subsidiary, drop part of the business into it, and then hand all of the subsidiary's stock to one family branch in exchange for that branch giving up all its stock in the parent. That kind of deal, where a corporate group splits and some shareholders exit into a spun-off company, is a "split-off" under § 355. The taxpayer asked the IRS to confirm the tax consequences. The IRS ruled that the contribution plus distribution qualifies as a tax-free reorganization under §§ 368(a)(1)(D) and 355: neither corporation recognizes gain on the contribution or distribution, the departing family branch recognizes no gain or loss when it receives the new stock, and basis and holding periods carry over, with earnings and profits split between the two companies. The IRS expressly did not decide whether the deal meets the separate "business purpose" requirement, and its rulings rest entirely on the taxpayer's representations.

Ruling snapshot

• Question: Does the proposed contribution-and-split-off qualify as a tax-free § 355 / § 368(a)(1)(D) reorganization?
• Outcome: approved (favorable rulings granted; no ruling on business purpose)
• Key authorities: IRC §§ 355, 368(a)(1)(D); IRC §§ 361, 357, 1032, 362, 358, 1223, 312(h); Treas. Reg. § 1.312-10(a)

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202610002                                             Third Party Communication: None
 Release Date: 3/6/2026                                        Date of Communication: Not Applicable
 Index Number: 355.01-01
                                                               Person To Contact:
 --------------------                                          --------------------, ID No. -----------------
 ------------------------                                      Telephone Number:
 ---------------------------------                             --------------------
 ----------                                                    Refer Reply To:
 ----------------------------                                  CC:CORP:BO2
                                                               PLR-109612-25
                                                               Date:
                                                               December 09, 2025




Legend

Distributing                         =   ------------------------
                                         ------------------------


Controlled                           =   --------------------
                                         -------------------------------

State A                              =   -------------

Business A                           =   ----------------------------------------------------------

Business B                           =   ------------------

Family 1                             =   ----------------------

Family 2                             =   ----------------------

Family 3                             =   ----------------------------

Shareholder A                        =   ------------------

Shareholder B                        =   -------------------

Shareholder C                        =   ----------------------------------
                                         -------------------------------------------------------

Shareholder D                        =   --------------------
PLR-109612-25                                  2

Shareholder E              =      --------------------

Shareholder F              =      ---------------

Shareholder G              =      ---------------

Shareholder H              =      ---------------

a                          =      ---

b                          =      ---

c                          =      ---

d                          =      ---

e                          =      ------

f                          =      --------

g                          =      ---

h                          =      ------



Dear ---------:

This letter responds to your letter dated April 29, 2025, as supplemented by subsequent
information and documentation (the “Ruling Request”), requesting rulings on certain
federal income tax consequences of a series of transactions (the “Proposed
Transaction,” as described below). The material information submitted in the Ruling
Request is summarized below.

This letter is issued pursuant to Rev. Proc. 2025-1, 2025-1 I.R.B. 1 and Rev. Proc.
2017-52, 2017-41 I.R.B. 283, as amplified and modified by Rev. Proc. 2024-24, 2024-21
I.R.B. 1214, regarding one or more “Covered Transactions” under section 355 and/or
section 368 of the Internal Revenue Code (the “Code”). This office expresses no opinion
as to any issue not specifically addressed by the rulings below.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalties of perjury statement
executed by an appropriate party. While this office has not verified any of the material
submitted in support of the request for rulings, it is subject to verification on
examination.
PLR-109612-25                                 3

This office has made no determination regarding whether the Distribution (as defined
below) satisfies the business purpose requirement of Treas. Reg. § 1.355-2(b).

                                    Summary of Facts
Distributing is a publicly traded State A corporation that primarily operates Business A,
but also operates Business B. Distributing has a single class of voting common stock
outstanding, which is owned by three related families, Family 1 (a%), Family 2 (b%),
and Family 3 (c%), as well as other unrelated shareholders (d%). Family 3 consists of
Shareholder A (e%), Shareholder B (f%), Shareholder C (g%), Shareholder D (h%),
Shareholder E (h%), Shareholder F (e%), Shareholder G (e%), and Shareholder H (e%)
(each a “Family 3 Shareholder”, and collectively, the “Family 3 Shareholders”).

Distributing has submitted financial information in accordance with Rev. Proc. 2017-52
indicating that Business A has had gross receipts and operating expenses representing
the active conduct of a trade or business for each of the past five years.

                                  Proposed Transaction
For what has been represented to be a valid business purpose, Distributing proposes to
divide Business A operations in the following Proposed Transaction:
   1) Distributing will form Controlled as a State A limited liability company that will
      elect to be treated as a corporation for federal tax purposes.
   2) Distributing will contribute a portion of the assets of Business A to Controlled in
      exchange for all of the stock of Controlled and the assumption by Controlled of
      Distributing’s liabilities associated with the assets contributed (the “Contribution”).
   3) Distributing will distribute all of the Controlled stock to the Family 3 Shareholders
      in exchange for all of their Distributing stock (the “Distribution”).
After the Distribution, all of the stock of Controlled will be owned by Family 3, and all of
the stock of Distributing will be owned by Family 1, Family 2, and the other unrelated
shareholders.
                          Rev. Proc. 2017-52 Representations
Except as set forth below and except for the representations superseded by
Rev. Proc. 2024-24, Distributing made all of the representations in Section 3 of the
Appendix to Rev. Proc. 2017-52 with respect to the Proposed Transaction.
Distributing has made the following alternative representations:
Representations: 3(a), 8(a), 11(b), 15(a), 22(a), 31(a), and 41(a).
The following representations do not apply to the Proposed Transaction:
Representations: 6, 24, 25, 36, 37, 38, 39, and 40.
In lieu of Representation 14 in Section 3 of the Appendix to Rev. Proc. 2017-52,
Distributing made the following representations:
PLR-109612-25                                 4

There is no plan or intention by any shareholder who owns 5 percent or more of the
stock of Distributing, and the management of Distributing, to its best knowledge and
except as described in the Ruling Request, is not aware of any plan or intention on the
part of any particular remaining shareholder or security holder of Distributing to sell,
exchange, transfer by gift, or otherwise dispose of any stock in, or securities of, either
Distributing or Controlled after the transaction.
Except as described in the Ruling Request, there is no plan or intention by Distributing
or Controlled, directly or through any related person (within the meaning of section
267(b) or section 707(b)(1)), to purchase any of its outstanding stock after the
transaction.
There is no plan or intention to liquidate either Distributing or Controlled, to merge either
corporation with any other corporation, or to sell or otherwise dispose of the assets of
either corporation after the transaction, except in the ordinary course of business.
In lieu of the alternative Representations 15 in Section 3 of the Appendix to Rev. Proc.
2017-52, Distributing made the following representation:
Immediately after the Distribution, the fair market value of the business assets of each
of Distributing and Controlled will be greater than 80 percent of the fair market value of
its total assets. For this purpose, the term “business assets” of a corporation means its
gross assets used in one or more businesses and all members of such corporation’s
separate affiliated group (within the meaning of section 355(b)(3)(B)) are treated as one
corporation. Such assets include cash and cash equivalents held as a reasonable
amount of working capital for one or more businesses. Such assets also include assets
required (by binding commitment or legal requirement) to be held to provide for
exigencies related to a business or for regulatory purposes with respect to a business.
In lieu of Representation 29 in Section 3 of the Appendix to Rev. Proc. 2017-52,
Distributing made the following representation:
There was no agreement, understanding, arrangement, or substantial negotiations at
any point during the two-year period ending on the date of the distribution regarding an
acquisition of either Distributing or Controlled (including a predecessor or successor
within the meaning of § 1.355-8) or a similar acquisition.
                          Rev. Proc. 2024-24 Representations
Except as set forth below, Distributing has made all of the representations in section
3.03 and 3.05 of Rev. Proc. 2024-24 with respect to the Proposed Transaction.
Distributing has made the following alternative representations:
Representation: 1A, 15A, 17A.
Distributing has not made the following representations, but provided the required
explanations:
Representations: 2, 3, 4, 5, 6, 7, 26, 27, 28, and 29.
The following representations do not apply to the Proposed Transaction:
PLR-109612-25                                5

Representations: 18, 19, 20, and 30.
                                         Rulings
Based solely on the information submitted and the representations set forth above, we
rule as follows regarding the Proposed Transaction:
   1) The Contribution followed by the Distribution will qualify as a reorganization
      within the meaning of sections 368(a)(1)(D) and 355 of the Code. Distributing
      and Controlled will each be a “party to a reorganization” within the meaning of
      section 368(b).
   2) Distributing will not recognize gain or loss on the Contribution. Sections 361(a)
      and 357(a).
   3) Controlled will not recognize gain or loss on the Contribution. Section 1032(a).
   4) Controlled’s basis in each asset received in the Contribution will be the same as
      the basis of that asset in the hands of Distributing immediately before the
      Contribution. Section 362(b).
   5) Controlled’s holding period in each asset received in the Contribution will include
      the period during which Distributing held that asset. Section 1223(2).
   6) Distributing will not recognize gain or loss on the Distribution. Section 361(c)(1).
   7) The Family 3 Shareholders will not recognize gain or loss on the receipt of
      Controlled stock in the Distribution. Section 355(a).
   8) The basis of the Controlled stock in the hands of each Family 3 Shareholder
      immediately after the Distribution will be the same as the basis of the Distributing
      stock held by that Family 3 Shareholder exchanged therefor. Section 358(a)(1).
   9) Each Family 3 Shareholder’s holding period in the Controlled stock received in
      the Distribution will include the period during which that Family 3 Shareholder
      held the Distributing Stock exchanged therefor, provided that such stock is held
      as a capital asset on the date of the Distribution. Section 1223(1).
   10) Earnings and profits will be allocated between Distributing and Controlled in
      accordance with section 312(h) and Treas. Reg. § 1.312-10(a).
                                         Caveats
Except as expressly provided herein, no opinion is expressed or implied concerning the
tax treatment of the Proposed Transaction under any provision of the Code and
regulations or the tax treatment of any condition existing at the time of, or effects
resulting from, the Proposed Transaction that are not specifically covered by the above
rulings.
                                Procedural Statements
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.
PLR-109612-25                                           6

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of this
letter ruling.
Pursuant to the Power of Attorney on file with this office, copies of this letter are being
sent to your authorized representatives.




                                                  Sincerely,



                                                  _________________________
                                                  Jonathan M. Kushner
                                                  Senior Technician Reviewer, Branch 5
                                                  Office of Associate Chief Counsel (Corporate)



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