The IRS has issued Rev. Proc. 2026-21 to revive a significant issue ruling program for some corporate transactions, allowing taxpayers to request letter rulings on discrete issues in otherwise integrated transactions under Sections 332, 351, 355, 368, and 1036 of the Internal Revenue Code. The revived program applies to all eligible letter ruling requests postmarked or otherwise received by the IRS after May 5, 2026.
Background and Prior Ruling Policy
Over the past two decades, the IRS has taken varying positions on whether and to what extent it will issue letter rulings addressing corporate transactions. Prior programs alternated between significant issue rulings and rulings addressing entire transactions. In recent years, the IRS moved away from issuing significant issue rulings and instead allowed comfort rulings and broader transactional rulings in some corporate contexts — namely, those involving Section 355.
Significant Issue Ruling Program
In response to practitioner concerns regarding processing times and the scope of ruling submissions, Rev. Proc. 2026-21 establishes a new significant issue ruling program under the jurisdiction of the Associate Chief Counsel (Corporate). The program allows taxpayers to request, and the IRS to issue, letter rulings (1) on part of an integrated transaction described in Section 332, 351, 355, 368, or 1036; (2) addressing at least one significant issue arising in an integrated transaction without ruling on overall qualification of the transaction; and/or (3) on the tax consequences resulting from integrated transactions described in Section 332, 351, 355, 368, or 1036 if a significant issue is presented under related Code sections that address such tax consequences (e.g., Section 358).
A ruling can be issued when the requested issue (1) is solely under the jurisdiction of the Associate Chief Counsel (Corporate); (2) is significant (i.e., germane, specific, and not essentially free from doubt); and (3) involves the tax consequences or characterization of a transaction (or part thereof) described in Section 332, 351, 355, 368, or 1036. Letter ruling requests submitted under the significant issue ruling program must comply with Rev. Proc. 2026-1 and Rev. Proc. 2026-3 as modified and amplified.
Before submitting a ruling request, taxpayers are encouraged to seek a pre-submission conference with the Office of Associate Chief Counsel (Corporate) to confirm that the issue qualifies for treatment under the program.
BDO Insight
The guidance offers taxpayers more flexibility to seek certainty on specific complex or unresolved issues without requiring full transactional rulings. Rulings under the program could prove helpful across a broad range of M&A issues and transactions, including significant issues related to:
- Whether a transaction qualifies for nonrecognition (e.g., under Section 351);
- Whether a transaction meets a particular definitional requirement (e.g., under Section 368);
- A particular consequence associated with a transaction qualifying under Section 332, 351, 355, 368, or 1036 (e.g., the application of Section 358 for the determination of basis); and
- How other related transactions or business decisions might affect the transaction in question (e.g., under Section 355(e), Treas. Reg. §1.368-1(d), or Treas. Reg. §1.368-2(k)).
Please visit BDO’s Corporate Tax Services page for more information on how BDO can help.