SERVICE EXPANDS RULING AREA RELATING TO 'E' RECAPITALIZATIONS.

Rev. Proc. 88-25

SECTION 1. PURPOSE

Rev. Proc. 88-3, 1988-1 I.R.B. 29, contains in section 3 a list of those areas of the Internal Revenue Code under the jurisdiction of the Associate Chief Counsel (Technical and International) in which advance rulings or determination letters will not be issued. The present revenue procedure modifies Rev. Proc. 88-3 by amending section 3.01(24), relating to corporate recapitalizations, and makes a conforming modification to Rev. Proc. 88-1, 1988-1 I.R.B. 7.

SEC. 2. BACKGROUND

Section 3.01(24) of Rev. Proc. 88-3 states that the Internal Revenue Service will not issue a ruling or determination letter as to whether a transaction constitutes a corporate recapitalization within the meaning of section 368(a)(1)(E) of the Code (or a transaction that also qualifies under section 1036) except when the recapitalization is an integral part of a larger transaction and it is impossible to determine the tax consequences of the larger transaction without making a determination with regard to the recapitalization.

In addition, Rev. Proc. 88-1, in section 8 (Instruction to Taxpayers), reflects the provision in Rev. Proc. 88-3 regarding this corporate recapitalization no-ruling area.

The Service is now aware that certain transactions not involving a closely-held corporation covered, or thought to be covered, by this no-ruling area are of sufficient significance or complexity to warrant issuance of a ruling letter. Accordingly, the Service will expand the scope of its ruling program with regard to these transactions.

SEC. 3. PROCEDURE

01 Rev. Proc. 88-3 is modified by amending section 3.01(24) to read as follows:

Section 368(a)(1)(E). -- Definitions Relating to Corporate Reorganizations. -- Whether a transaction constitutes a corporate recapitalization within the meaning of section 368(a)(1)(E) of the Code (or a transaction that also qualifies under section 1036) when either (i) the transaction involves a closely-held corporation or (ii) the issues involved are substantially similar to those described in the following revenue rulings:

Rev. Rul. 82-34, 1982-1 C.B. 59 (continuity of business enterprise);

Rev. Rul. 77-479, 1977-2 C.B. 119 (continuity of shareholder interest);

Rev. Rul. 77-238, 1977-2 C.B. 115 (conversion of shares of one class of stock into shares of another class, as permitted by certificate of incorporation);

Rev. Rul. 74-269, 1974-1 C.B. 87 (major shareholder's exchange of common stock for preferred stock);

Rev. Rul. 56-654, 1956-2 C.B. 216 (corporate charter amended to provide preferred stock with increased redemption and liquidation value, where common and preferred stock held pro rata);

Rev. Rul. 55-112, 1955-1 C.B. 344 (common stock exchanged for preferred stock); and

Rev. Rul. 54-482, 1954-2 C.B. 148 (old common stock exchanged for new common stock). The above no-ruling area does not apply, however, to any corporate recapitalization that is an integral part of a larger transaction if it is impossible to determine the tax consequences of the larger transaction without making a determination with regard to the recapitalization.

02 Rev. Proc. 88-1 is modified by deleting from the third paragraph of section 8.05 (dealing with specific guidelines for requested rulings) the second sentence, which begins: "See, however, Rev. Proc. 88-3. . . ." In place of this deleted sentence, the following sentence is substituted:

See, however, Rev. Proc. 88-25, 1988-21 I.R.B., which describes circumstances under which the Service will not issue advance rulings or determination letters as to whether a transaction constitutes a corporate recapitalization within the meaning of section 368(a)(1)(E) (or a transaction that also qualifies under section 1036).

SEC. 4. COMMENTS OR INQUIRIES

Comments or inquiries regarding this revenue procedure should be addressed to the Associate Chief Counsel (Technical and International), Attention: CC:C:3, Internal Revenue Service, 1111 Constitution Ave., N.W., Washington, D.C. 20224.

SEC. 5. EFFECT ON OTHER DOCUMENTS

Rev. Procs. 88-3 and 88-1 are modified.

SEC. 6. EFFECTIVE DATE

This revenue procedure is effective May 23, 1988, the date of its publication in the Internal Revenue Bullentin.

DRAFTING INFORMATION

The principal author of this revenue procedure is Michael Danbury of the Corporation Tax Division. For further information regarding this revenue procedure, contact Barry Isaacs on (202) 566- 6407 (not a toll-free call).