New Revenue Procedure for Debt Exchanges in Spins

On October 3, 2018, the IRS issued Revenue Procedure 2018-53, which establishes revised standards for taxpayers seeking private letter rulings on debt exchanges in connection with tax-free spin-offs. Debt exchanges are a popular way to monetize the value of appreciated spinco stock, but in 2013 the IRS began a restrictive policy of issuing rulings only for “old and cold” parent debt. The IRS began a thaw in this policy in 2017, and the revenue procedure formalizes the new thinking. In general, the new revenue procedure relaxes what qualifies as “old and cold” debt in a move that is generally taxpayer-favorable. The revenue procedure, however, also signals new limits on “slow motion” spins and generally requires debt exchanges to be completed within 180 days of the associated spin-off.