Revenue Procedure 96-30: Requesting a Private Letter Ruling

Requesting a private letter ruling (PLR) from the Internal Revenue Service (IRS) for a corporate transaction is a process governed by annually updated procedures. For corporate separations, requirements have evolved significantly. While Revenue Procedure 96-30 was once the primary guidance, it has been superseded. Current requests are subject to the more stringent standards in Revenue Procedure 2024-24, which requires greater detail from the taxpayer. This process allows a company to gain certainty on how the IRS will treat a transaction before it is executed.

Scope and Purpose of the Procedure

A private letter ruling is a written determination from the IRS that interprets and applies tax laws to a taxpayer’s specific facts. For a corporation, obtaining a PLR is a strategic move to mitigate tax risk before major transactions. The assurance that a planned action will receive a particular tax treatment, such as being tax-free, is valuable for financial planning and securing shareholder approval.

IRS guidance addresses requests for corporate separations and distributions under Internal Revenue Code Section 355. These transactions, known as spin-offs, split-offs, or split-ups, involve a parent corporation distributing a subsidiary’s stock to its shareholders. To qualify for tax-free status, these distributions must meet strict requirements, including a legitimate corporate business purpose.

The guidance details valid business purposes, such as facilitating a merger, enhancing access to capital markets, or achieving significant cost savings. The framework requires a corporation to substantiate these claims to show the transaction is driven by business needs, not tax avoidance.

Required Information for a Ruling Request

Complete Statement of Facts and Relevant Documents

A ruling request requires a complete presentation of all facts. This includes the official names, Employer Identification Numbers (EINs), and incorporation details for all corporate parties. The submission must provide a step-by-step narrative of the proposed transaction and how the subsidiary’s stock will be distributed. Current guidance also demands detailed information on the reorganization plan and corporate solvency.

The request must be accompanied by documentation, such as financial statements for both corporations for the five preceding years. This data helps the IRS verify that both entities satisfy the “active trade or business” requirement, mandating that both companies have been engaged in a qualifying business for that period. Related agreements, like transitional service contracts, must also be disclosed.

Detailed Explanation of the Business Purpose

A primary component of the request is a detailed explanation of the corporate business purpose for the separation. The submission must articulate this purpose, which must be motivated by non-tax business needs like improving borrowing power, preparing for an acquisition, or resolving a shareholder dispute.

To substantiate the purpose, taxpayers often provide supporting documents from third parties. For instance, if the goal is to enhance borrowing capabilities, the request might include a letter from an investment banker explaining why the separation will improve credit terms. If the goal is cost savings, an analysis detailing the savings is necessary.

Specific Rulings and Representations

The taxpayer must explicitly state the specific rulings being requested from the IRS. This is a formal request for determinations on precise tax consequences, asking the IRS to confirm that the transaction will result in the intended tax-neutral outcome.

Furthermore, the submission must include a series of standard representations, which are statements of fact that the taxpayer attests to. Revenue Procedure 2024-24 provides an extensive list of these required representations, covering topics like corporate solvency and details of any stock retained by the parent company. Taxpayers have less flexibility to deviate from these standard representations without providing a thorough explanation.

The Submission Process

The submission process begins with paying the correct user fee. As of early 2025, the standard fee for this ruling is $43,700, though reduced fees may be available.

The completed request and fee must be mailed to the specific IRS address designated for private letter ruling submissions, as provided in annual revenue procedures.

After the IRS receives the package, the taxpayer receives an acknowledgment letter, and the request is assigned to an attorney in the IRS Office of Associate Chief Counsel. This attorney reviews the submission and may contact the taxpayer or their representative for follow-up questions.