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August 26, 2024
Cadwalader Tax Group chair Linda Swartz spoke with Law360’s Tax Authority about the legal community’s urging the IRS to rethink its recent guidance narrowing the range of spinoffs that would be approved as tax-free ahead of time under statutory requirements.
The article, “IRS Spinoff Guidance Sparks Worries About Short-Term Debt,” includes responses from leading tax practitioners on Revenue Procedure 2024-24, with many noting that the IRS made the decision to deny early approval for certain spinoffs without considering current market practices, including how large corporations take on debt.
According to the views shared, the IRS is overcorrecting in its efforts to target what the agency sees as flimsy debt created just days before an exchange takes place. As Linda commented, the government sometimes has a strong reaction to taxpayers engaging in transactions that it views as lacking economic substance.
"The notice seems to view all recently issued debt as lacking sufficient substance to be eligible to be exchanged," Linda said. "To which I would say, we're not talking about debt created the day before a sale" but rather "debt issued to fund normal operations, and in some cases debt that they have blessed the use of in private rulings."
Read it here. (subscription required)
