SERVICE WILL REFUSE TO RULE ON SECTION 355 BUSINESS PURPOSE IN SPECIFIED CIRCUMSTANCES.

Rev. Proc. 89-39

SECTION 1. BACKGROUND

Rev. Proc. 89-3, 1989-1 I.R.B. 29, sets forth areas in which advance rulings will not be issued by the Internal Revenue Service. Section 3 of Rev. Proc. 89-3 is entitled, AREAS IN WHICH RULINGS OR DETERMINATION LETTERS WILL NOT BE ISSUED.

SEC. 2. PROCEDURE

Rev. Proc. 89-3 is amplified by adding to section 3.01 the following new subsection.

Section 355. -- Distribution of Stock and Securities of a Controlled Corporation. -- The determination of whether the corporate business requirement of section 1.355-2(b) of the Income Tax Regulations is satisfied in the following situations:

1. Whether the reduction of non Federal taxes is substantially coextensive with the reduction of Federal taxes.

2. If a transaction has the potential of avoiding Federal taxes but has another corporate business purpose, whether the non-avoidance purpose is the "substantial" motivation for the transaction.

3. If a transaction has the potential of avoiding Federal taxes but the stated purpose is to reduce foreign taxes.

SEC. 3. EFFECTIVE DATE

This revenue procedure will apply to all ruling requests received in the National Office after June 19, 1989, the date of publication of this revenue procedure.

SEC. 4. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 89-3 is amplified.

DRAFTING INFORMATION

The principal author of this revenue procedure is Peter G. Lynard of the Corporate Division. For further information regarding this revenue procedure, contact Richard McManus on (202) 566-6212 (not a toll free call).