Tax-free spin-off transactions under Section 355 of the tax code historically have proven difficult for the IRS to regulate, as evidenced by often-shifting guidance and a cycle of proposed and reproposed regulations.
The Office of Management and Budget’s spring 2024 regulatory agenda, released earlier this month, includes four proposals for Treasury Department guidance in this area. But after the June US Supreme Court decision overturning Chevron deference to agencies where laws were ambiguous, more stringent or aggressive interpretations of statutory law by the IRS could increase that lack of clarity, rather than alleviate it, by making new Treasury regulations a target for litigation.
Broadly speaking, Chevron deference permitted Congress to delegate some if its rulemaking function to executive branch agencies without constant judicial challenges to the agencies’ interpretations of statutory law.
Tax laws frequently provide express authority to the Treasury and IRS to publish regulations implementing such legislation, lessening the need for these agencies to rely on Chevron deference. Without it, the Treasury and IRS will likely have less flexibility to address changing circumstances and developing transactional markets absent further grants of congressional authority.