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IRS Issues Proposed Regulations on “Device” and “Active Trade or Business” Rules Under Section 355

On July 14, 2016, the Internal Revenue Service (the “IRS”) and the U.S. Treasury Department (“Treasury”) issued proposed regulations that are designed to limit taxpayers’ ability to engage in tax-free distributions under Section 355 (a “Section 355 Distribution”) in situations where either the distributing corporation (“Distributing”) or the controlled corporation (“Controlled”), or both, holds a disproportionally large amount of non-business assets (such as cash or a minority position in another corporation) in comparison to its business assets.