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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.

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