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New Fast-Track Request Processing for Letter Rulings regarding Corporate Reorganizations and Tax-Free Spin-Offs

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The new Revenue Procedure 2022-10, released by the IRS on January 14, 2022, has established an 18-month pilot program that allows for fast-track processing of certain requests for private letter rulings. The program is expected to expire on July 14, 2023, or on any earlier date on which a superseding revenue procedure is released. 

The pilot program allows taxpayers to obtain a ruling from the IRS within 12 weeks, i.e. roughly 4 months, decreasing the current awaiting time of at least 6 months. More specifically, taxpayers are allowed to request the fast-track processing to conclude before 12 weeks if they set forth the actual business need for such request within that specified period and address any matters that could impact the feasibility of fast-track processing. However, additional scrutiny should be expected if a shorter time is requested.  

Revenue Procedure 2022-10 sets out that taxpayers should address their business needs by demonstrating that (1) there is a business exigency outside the taxpayer’s control, (2) there will be adverse consequences to the taxpayer or other persons if the IRS does not issue the requested letter ruling by the specified period and (iii) that the request was submitted as promptly as possible after becoming aware of the circumstances.

The revenue procedure limits the pilot program to letter rulings solely or primarily under the jurisdiction of the Associate Chief Counsel (Corporate). Therefore, ideally, the tax issues to be addressed should be limited to corporations. However, if there are issues involving non-corporate entities, additional requirements will be needed to qualify. Thus, taxpayers engaging in corporate reorganizations and tax-free spin-offs are most likely to benefit from the fast-track processing brought by Revenue Procedure 2022-10. 

Some of the requirements taxpayers will have to comply with includes providing a draft ruling and sending additional information requested by the IRS within 7 days. The 7-day deadline begins on the next business day after the day the request for information is made. In any case, the business needs for the fast-track processing request must be sufficiently demonstrated. 

It should be noted that the IRS has the discretion to decline and delay taxpayer requests. It can also approve a lengthier processing time than originally requested. In case of denial by the IRS, the ruling will still be assessed but the 12-week time frame will be disregarded. 

If the request for fast-track processing is denied, the taxpayer is allowed to address that determination in writing, discuss that determination with the IRS branch reviewer, or both. In case the IRS branch reviewer continues to determine that the request for fast-track processing should be denied, taxpayer has no right of appeal. 

Written by Roberto P. Vasconcellos, Senior Tax Consultant at Drummond Advisors. 

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