IRS Raises Red Flag on Real-Estate Spinoffs

Activist investors have been clamoring for companies to spin off real estate and unlock the value hidden in their headquarters, stores and land. This week, U.S. tax authorities weighed in with a message of their own: Not so fast.

In new guidance, the Internal Revenue Service signaled its discomfort with a range of corporate spinoffs, specifically calling out deals in which companies split their real estate and other physical assets from their mainstream operations. The agency said it was concerned that some of these transactions may violate rules meant to ensure that companies don’t disguise dividends and other taxable transactions as spinoffs to avoid paying taxes.

These spinoffs “involve significant concerns,” the IRS said, adding it will largely stop giving preapproval for such deals while it examines the issue more closely.

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