Significant Revenue Procedure offers flexibility in corporate letter rulings

Background: Shifting IRS Policy on Letter Rulings

Generally, the IRS offers taxpayers the opportunity to obtain a letter ruling clarifying the application of the Code¹ to a given set of facts applicable to the taxpayer. These rulings are generally binding on the requester and the IRS (as to the requester) and provide clarity as to the US federal income tax consequences of a transaction. While these rulings cannot be relied upon by other taxpayers, they serve as helpful guideposts for taxpayers engaged in similar transactions.

Each year, the IRS issues a Revenue Procedure that sets out the foundational procedures for obtaining letter rulings² as well as a Revenue Procedure listing the issues on which it will not issue letter rulings, referred to as the “no-rule” list.³

In 2001, the IRS announced that it would not rule on whether a transaction qualified under sections 332, 351, 368 or 1036, unless it determined that the request presented a “significant issue,” in which case it would rule on the entire transaction and not just on the significant issue.⁴ In 2009, the IRS announced, in the context of section 355, that it would rule on a particular issue within a larger transaction without ruling on other aspects of the larger transaction.⁵ In 2013, the IRS announced it would only rule on “significant issues” under sections 332, 351, 368, and 1036, and would not rule on such transactions in their entirety, though it could rule on other issues in the same transaction.⁶ In 2017, the IRS announced, in the context of section 355, that in addition to ruling on “significant issues,” it would again rule on the general federal income tax consequences of a transaction subject to section 355.⁷

In 2024, the IRS removed issues under section 332, 351, 368, and 1036 from the “no-rule” list and ended the practice of issuing letter rulings restricted to “significant issues,” requiring that taxpayers seek letter rulings with respect to an entire transaction, and not on targeted issues.⁸ The IRS’s requirement to request comprehensive letter rulings increased the cost, complexity, and length of time to obtain letter rulings.

Significant New Policy

Rev. Proc. 2026-21, reflects yet another shift in IRS policy, implementing a significant issue ruling program permitting taxpayers to once again obtain a letter ruling regarding a single, targeted issue that is part of a larger, integrated transaction.

In order to qualify for the significant issue ruling program, the ruling requested must be with respect to one or more issues that (1) are solely under the jurisdiction of the Associate Chief Counsel (Corporate),⁹ (2) are “significant,” and (3) involve the tax consequences or characterization of a transaction (or part of a transaction) that is described in section 332, 351, 355, 368, or 1036.¹⁰

The significant issue ruling program does not limit the number of significant issues that can be the subject of a ruling request. Taxpayers are permitted to request rulings that present significant issues tangential to those directly under one of sections 332, 351, 355, 368, or 1036—for example, a significant issue regarding the application of section 358 (regarding the basis of property received in certain nonrecognition transactions) to the transferor in a section 351 exchange.

Open Questions

While the IRS’s latest policy shift is a welcome one for taxpayers seeking certainty on important issues in larger transactions, some open questions remain. For example, it is not entirely clear when an issue presented by a transaction will be considered “significant” by the IRS. Rev. Proc. 2026-21 provides that “[a] significant issue is a germane and specific issue of law, providing that a ruling on the issue would not be a comfort ruling or the conclusion in such a ruling otherwise would not be essentially free from doubt.”¹¹

The IRS’s interpretation of whether an issue is significant may be the subject of negotiation between the taxpayer and the IRS. Rev. Proc. 2026-21 provides that taxpayers should seek a pre-submission conference to discuss whether the IRS will issue a letter ruling under the significant issue program.

Key Takeaways

The significant issue ruling program should provide greater certainty to taxpayers while increasing the ability of the IRS to provide that certainty in an efficient and expeditious manner. The new program generally should be seen as a welcome departure from the previous policy requiring letter rulings with respect to an entire transaction in order to obtain guidance on an issue within that transaction. If made permanent, the latest policy would provide greater stability and predictability for taxpayers that may seek letter rulings regarding large transactions.

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If you have any questions about this Legal Briefing, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work.

_{1 Unless otherwise provided, all “section” references are to the Internal Revenue Code of 1986, as amended (Code).}

_{2 See e.g., Rev. Proc. 2026-1, 2026-1 I.R.B. 1.}

_{3 See e.g., Rev. Proc. 2026-3, 2026-3 I.R.B. 143.}

_{4 Rev. Proc. 2001-3, 2001-1 I.R.B. 111.} 

_{5 Rev. Proc. 2009-25, 2009-24 I.R.B. 1088.}

_{6 Rev. Proc. 2013-32, 2013-28 I.R.B. 55.}

_{7 Rev. Proc. 2017-52, 2017-41 I.R.B. 283.}

_{8 Rev. Proc. 2024-1, 2024-1 I.R.B. 1; Rev. Proc. 2024-3, 2024-1 I.R.B. 143.}

_{9 See section 3.01 of Rev. Proc. 2026-1 (describing issues under the jurisdiction of Corporate).}

_{10 Rev. Proc. 2026-21 modifies Rev. Proc. 2026-1 to include the specific information taxpayers must include in their request for a letter ruling under the significant issue ruling program and process for obtaining a letter ruling under the program.} 

_{11 See section 4.02 of Rev. Proc. 2026-21 (defining “significant issue”).}