Bloomberg Tax
March 16, 2021, 8:16 PM

IRS Mulling Tax-Free Treatment of SPAC Target Transactions

Siri Bulusu
Siri Bulusu

The IRS is considering whether an M&A transaction where a special purpose acquisition company is the target can be treated as tax-free, an official said.

Among the issues under consideration is COBE—continuity of business enterprise in the SPAC context. COBE is a requirement for a corporate reorganization to be deemed tax-free under Section 368 of the tax code.

The IRS is looking at whether the requirement can be satisfied through the use of historic business assets in a continuing business, as well as considering the SPAC’s historic business and if it continues, Kelly Madigan, assistant branch chief at the Office of the Associate Chief Counsel (Corporate), said Tuesday.

  • “And while we haven’t seen one yet, we’re also open to considering” a request for a private letter ruling on the matter, although there is “obviously no assurance as to the outcome or how long it may take,” Madigan said at a virtual Practising Law Institute event.
  • “Well, I’ll just put in kind of a last plug and say we’re actively thinking about these issues, and so we continue to welcome comments both on substance and on the urgency for guidance, particularly in relation to our other priorities,” she said.
  • A private letter ruling is a written statement from the IRS that interprets tax law to a taxpayer’s specific situation.

To contact the reporter on this story: Siri Bulusu in Washington at

To contact the editor responsible for this story: Meg Shreve at