IRS Withdraws Proposed Tax Regulations Under Section 355
The agency rescinded specific proposed rules concerning per se device tests and related anti-abuse measures for tax-free distributions.
Updated on Oct. 26, 2026 in Taxes
The IRS has partially withdrawn proposed regulations under I.R.C. §355 that previously sought to implement new per se device tests and anti-abuse provisions. These measures were originally intended to curb transactions designed to alter nonbusiness asset percentages.
Why it matters
The withdrawal eliminates proposed requirements that would have significantly changed how certain corporate distributions are evaluated for tax purposes. By removing these rules, the agency reduces the regulatory burden for businesses navigating complex tax-free distribution frameworks.
The withdrawal specifically targets proposed regulations under I.R.C. §355. This action removes the per se device test and anti-abuse rules that previously linked distribution device status to nonbusiness asset percentages.
The players
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government responsible for collecting taxes and administering the Internal Revenue Code.
The details
The withdrawn provisions included a per se device test intended to classify distributions based on specific nonbusiness asset thresholds. Additionally, the IRS removed a proposed rule that would have disregarded transactions undertaken specifically to influence minimum active trade or business requirements.
Timeline
The IRS officially withdrew the proposed regulations on October 26, 2026.
Market Dynamics
This move represents a departure from the IRS's prior efforts to impose stricter administrative tests on corporate distributions governed by I.R.C. §355. It reflects a shift in the regulatory environment as the agency reevaluates its oversight of tax-free spin-offs and similar transactions.
Corporate entities and their tax advisors can now proceed without the threat of the proposed per se device test impacting future restructuring plans. This change provides greater certainty for investors evaluating potential spin-offs or tax-advantaged corporate distributions.
The takeaway
The withdrawal of these proposals simplifies the regulatory landscape for companies planning corporate distributions under current tax law. Stakeholders should review their internal tax-free distribution strategies now that the proposed per se device test and associated anti-abuse rules have been rescinded.
Further reading
For more information on current tax policies and agency updates, visit the Taxes section.
