SECTION 2. BACKGROUND

.01 Current Procedures Section 7 of Rev. Proc. 2005–1 provides general instructions for requesting letter rulings and determination letters. Section 7.02(4) of Rev. Proc. 2005–1 states that the Service ordinarily processes requests for letter rulings in order of the date received, and that expedited handling is granted only in rare and unusual cases.

Section 8.05(1) of Rev. Proc. 2005–1 provides that if a ruling request lacks essential information, the branch representative will tell the taxpayer that the request will be closed if the Associate does not receive the information within 21 calendar days from the date the information is requested, unless an extension of time is granted.

Section 3.01 of Rev. Proc. 2005–3 outlines specific questions and problems on which the Internal Revenue Service will not issue rulings or determination letters. Section 3.01(31) of Rev. Proc. 2005–3 provides that the Service will not rule on whether a transaction qualifies under § 332, § 351 or § 1036 for nonrecognition treatment, or whether it constitutes a corporate reorganization within the meaning of § 368(a)(1)(A) (including a transaction that qualifies under § 368(a)(1)(A) by reason of § 368(a)(2)(D) or § 368(a)(2)(E)), § 368(a)(1)(B), § 368(a)(1)(C), § 368(a)(1)(E), or § 368(a)(1)(F), and whether various consequences (such as nonrecognition and basis) result from the application of that section, unless the Service determines that there is a significant issue that must be resolved to decide those matters. If the Service determines that there is a signif

icant issue, and to the extent the transaction is not described in another no-rule section, the Service will rule on the entire transaction, and not just the significant issue. Requests for rulings on whether a transaction constitutes an acquisitive corporate reorganization within the meaning of § 368(a)(1)(D) or § 368(a)(1)(G) or whether a transaction constitutes a corporate distribution under § 355 are not subject to the significant issue limitation.

Section 3.01(31) of Rev. Proc. 2005–3 further provides that a significant issue is an issue of law that meets the following tests: (1) the issue is not clearly and adequately addressed by a statute, regulation, decision of a court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin; (2) the resolution of the issue is not essentially free from doubt; and (3) the issue is legally significant and germane to determining the major tax consequences of the transaction.

.02 New Procedures The significant issue limitation set forth above is designed to increase the time available to the Service for processing letter rulings on transactions that involve the most difficult issues. Despite this willingness to rule on these transactions, the Service understands that taxpayers often execute transactions intended to qualify as reorganizations under § 368 that involve significant issues and distributions intended to qualify under § 355 without submitting letter ruling requests. Based on numerous comments from taxpayers and their representatives, the Service has concluded that this practice is attributable, in part, to the length of time typically associated with the letter ruling process.

The Service believes that it can better serve taxpayers and more effectively administer the internal revenue laws by resolving these issues through the private letter ruling program. Accordingly, to encourage taxpayer participation in this program, Section 7.02(4) of Rev. Proc. 2005–1 is amplified to provide expedited treatment for letter rulings on transactions intended to meet the requirements of either § 368 or § 355 for which such treatment is requested pursuant to this revenue procedure, subject to the restrictions of Section 3.01(31) of Rev. Proc. 2005–3. Instead of the typical processing period, the Service will endeavor to complete and

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opposed to a factual issue), taxpayer’s counsel is unable to render an unqualified opinion on what the tax consequences of the transaction will be.