IRS, Treasury propose regs for corporate separations, reorganizations

The Internal Revenue Service and the Treasury Department issued proposed regulations for corporate separations and reorganizations, along with reporting requirements for multiyear corporate separations, and a draft form.

In conjunction with the proposed guidance, the IRS posted a draft version of a new Form 7216, Multi-Year Transaction Reporting. The proposed regulations offer authoritative guidance on the provisions of the Internal Revenue Code addressing corporate mergers and acquisitions transactions, and the new form will give the IRS the necessary information with respect to corporate separations.

The Treasury and the IRS said Monday they proposed the guidance to improve the IRS’s ability to administer the rules in the tax law governing the distribution of stock and securities of a controlled corporation, and to ensure that corporate separations satisfy the requirements to qualify for tax-free treatment. The proposed reporting regulations require certain filers to attach the new Form 7216 to their federal income tax return to provide data to the IRS about their multiyear corporation separation. Generally, filers would include the distributing corporation, the controlled corporation and certain significant shareholders or security holders of the distributing corporation.

The increased reporting requirements under the proposed reporting guidance would allow the Treasury and the IRS to provide increased transactional flexibility through the proposed regulations. Some examples of this increased transactional flexibility include addressing retention of controlled corporation stock, monetization transactions, and other significant issues arising from multiyear transactions.

The IRS said it intends to follow these proposed regulations when it issues private letter rulings about certain corporate separations. The IRS plans to issue an update to Rev. Proc. 2024-24 to incorporate these proposed regulations into the procedures for requesting such private letter rulings.

The Treasury and the IRS are asking for comments on both the proposed regulations and the new form. They’re encouraging commenters to use the Federal e-Rulemaking portal to submit comments on both the proposed substantive regulations (indicate “IRS” and “REG-112261-24”) and the proposed reporting regulations and related form (users should indicate “IRS” and “REG-116085-23”). Comments can also be mailed to: CC:PA:01:PR, Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.  Comments are due March 17, 2025. Interested parties can also use the portal and the address above to provide comments on the draft version of Form 7216.