Natalia Caruso


Corporate taxpayers, when weighing leveraged spin-off transactions, have long relied on the comfort of Internal Revenue Service rulings to “bless” the deals. These transactions, when structured properly, are not subject to tax under section 355 of the Internal Revenue Code (“I.R.C.”) and can potentially provide great monetizing opportunities to public companies. Recent developments in the Internal Revenue Service’s ruling policy, however, removed the safety blanket companies had relied upon, as the Internal Revenue Service announced its decision to cease the issuance of the rulings addressing the deals’ qualification for tax-free treatment.

This Note will examine the history and the complex anatomy of leveraged spin-offs and provide an analysis of conflicting views on nonrecognition treatment afforded to the transactions. It will seek to shed light on the complexities involved in the structuring of the transaction and I.R.C.’s current inability to effectively eliminate them.