Treasury and IRS Withdraw Proposed Spin-Off Regulations, Revert to Prior Rules

The U.S. Treasury and IRS have officially withdrawn controversial proposed regulations (REG–112261–24 and REG–116085–23) that would have imposed stricter requirements on tax-free spin-offs and restructurings. The decision follows widespread criticism from tax professionals and revokes related guidance (Notice 2024-38).

With the withdrawal, Revenue Procedure 2025-30 reinstates more flexible rules from earlier procedures (2017-52 and 2018-53), easing requirements for private letter rulings. Taxpayers should review their current ruling requests to ensure compliance with the updated framework.

The rollback restores greater flexibility in structuring tax-free separations, especially in areas like deal structure changes, post-separation arrangements, and liability assumptions. However, scrutiny remains on monetization transactions under I.R.C. § 361, including timing, adjustments, and basis limitations. Careful planning is still advised.