July 30, 2024

Mr. Grid Glyer
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Re: Comments on Certain Issues Relating to Debt Reallocations in Connection with Divisive Reorganizations Reflected in Rev. Proc. 2024-24 and Notice 2024-38

Dear Mr. Glyer:

The Securities Industry and Financial Markets Association (“SIFMA”)¹ welcomes the opportunity to submit comments on certain aspects of the recently issued Rev. Proc. 2024-24 (the “Rev. Proc.”) and the associated Notice 2024-38 (the “Notice”), relating to IRS standards for issuing private letter rulings under Section 361² in connection with so-called debt-for-debt and debt-for equity exchanges, as well as leveraged distributions, in each case in connection with divisive reorganizations under Sections 368(a)(1)(D) and 355.

SIFMA’s interest in these issues arises not from the prospect of any of our members engaging in a divisive reorganization, but rather because our members regularly provide financing and other assistance to our clients in executing divisive reorganizations, particularly in connection with transactions intended to allocate debt and other liabilities of Distributing³ between Distributing and Controlled. We particularly appreciate the invitation for “Intermediaries” like our members to provide feedback to “help ensure that future [IRS] guidance is responsive to the business and market-risk considerations that inform the mechanics of intermediated exchanges and direct issuance transactions.”⁴

I. Executive Summary

Tax-free reallocation of liabilities has long been a central component of divisive reorganizations. As the IRS’s views of such transactions – and concerns about potential abuses of such transactions – have evolved, guidance, both formal and informal, as to the basis on which the IRS will issue private letter rulings in this area has changed over time. The Rev. Proc. and Notice represent the IRS’s latest attempt to provide such guidance, including provisions that represent a departure from prior practice. SIFMA members are significant participants in these transactions, as lenders, underwriters and intermediaries, and it is from this perspective that we offer some comments on this guidance. Specifically, the IRS must:

• Reconsider its rejection of the so-called “direct issuance” transaction.
• Offer more specific guidance on so-called Intermediated Transactions, taking into account the incremental difficulty and costs of such transactions, as compared to Direct Issuance transactions.
• Make clear that debt issued by Distributing to refinance pre-existing debt should be treated as a continuation of that debt.
• Adopt less restrictive rules than those proposed in the Rev. Proc. regarding the incurrence of new debt by Distributing.
• Establish more realistic guidelines for information and documentation to be provided in connection with ruling requests for Intermediated transactions, recognizing that much of that information and documentation will not be available until such transactions are actually entered into.

1. SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). [↩]
2. All Section references are to the Internal Revenue Code of 1986, as amended (the “Code”), except as otherwise indicated. [↩]
3. We use the defined terms set forth in the Rev. Proc., unless otherwise indicated. [↩]
4. The Notice Section 2.02(5). [↩]