IRS partially withdraws 2016 Section 355 proposed rules
The withdrawal, effective Oct. 21, 2026, removes proposed anti-abuse rules for corporate stock distributions, impacting corporations and their shareholders.
The Internal Revenue Service announced a partial withdrawal of the notice of proposed rulemaking published on July 15, 2016 (81 FR 46004). Effective Oct. 21, 2026, the proposed provisions in Sec. 1.355-2(d)(2)(iv)(E) and (d)(5) and Sec. 1.355-9(d) are withdrawn under docket ID IRS-2016-0030.
The withdrawn rules would have introduced a "per se" device test based on a corporation's Nonbusiness Asset Percentage and two anti-abuse provisions - one targeting transactions that manipulate that percentage and another requiring a minimum Five-Year-Active-Business Asset Percentage of five percent for each corporation.
The IRS clarified that the withdrawal does not affect the potential application of other rules or judicial doctrines, such as the substance-over-form or step-transaction doctrines, and that the agency continues to study the issues addressed in the 2016 proposal.
Comments may be submitted electronically through the Federal eRulemaking Portal or by paper to the address listed in the notice. For further information, contact Aglaia Ovtchinnikova at (202) 317-6847 or Justin Du Mouchel at (202) 317-6975.
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