The Internal Revenue Service is considering relaxing the rules for companies to qualify for tax-free spinoffs—a shift that could benefit drugmakers and tech firms with promising early-stage products.
The agency said Tuesday it's looking into whether units should continue to be required to generate revenue before a spinoff from a larger company can be deemed tax-free. Current rules generally require units to have been engaged in a trade or business involving income collection and payment of expenses for at least five years. The change could be a way for the U.S. government to promote research and development (R&D) within the country by giving companies a tax break on the spinoff transaction.
The IRS “has observed a significant rise in entrepreneurial ventures” where the development can be subject to regulatory review “that can span multiple years and cost millions of dollars,” the agency said in a statement announcing it would be studying the issue.
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