internal_revenue_service number release date index number -------------------- ------------------- ----------------------- ------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------ telephone number -------------------- refer reply to cc corp plr-118692-13 date date legend distributing distributing ------------------------------------------------------ ------------------------------- ---------------------- ----------------------- ------------------------------- ---------------------- holdco ------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------- holdco llc ----------------------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------- new holdco ------------------------------------------------------------------- ------------------------------------------------------------- ---------------- controlled sub ---------------------------- ------------------------------- ---------------------- ----------------------------- ------------------------------- ---------------------- plr-118692-13 sub ------------------------------------------------------------------- ---------------------------------------------------------- ------------- sub -------------------------------------------------------------- ---------------------------------------------------------- ------------------------------ sub --------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ----------------- ------------------------------------------------- sub ------------------------------------------------------------------- ------------------------------------------------- ---------------------------------------------------- sub -------------------------------------------------- --------------------------------------------------------------------------------- ----------------- ------------------------------------------------- p1 ---------------------------------------------------------------------------- ---------------------------------------------------------- ------------------------------------------ p2 ---------------------------------------------------------------------------- ---------------------------------------------------------- ------------------------------------------------------------- p3 ----------------------------------------------------------------------------------- ---------------------------------------------------------- ------------------------------- p4 ---------------------------------------------------------------------------- ---------------------------------------------------------- ---------------- p5 ----------------------------------------------------------------------------------- ---------------------------------------------------------- ------------------------------- plr-118692-13 p4 affiliates ---------------------------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------- --------------------------- ---------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------------------------------- llc ----------------------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------------------- de ----------------------------------------------------------------------------------- ---------------------------------------------------------- --------------- business a1 business a2 state x date a b c d e f -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ---------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ----------------------------------------------- ------------ ----------------------- ---- ------- ------- --- ------- ---- plr-118692-13 g h i j k l m n o p ------- --- ------- ------- --- -- ------- --- --- ------ dear -------------- this letter responds to your authorized representative’s letter dated date requesting rulings regarding certain federal_income_tax consequences of a proposed transaction the information submitted in that request and in later correspondence is summarized below collectively the plr submission the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the internal distribution and the external distribution both defined below i satisfy the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii are used principally as a device for the distribution of the earnings_and_profits of any distributing_corporation or any controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 and iii are part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest in any distributing_corporation or any controlled_corporation see sec_355 and sec_1_355-7 plr-118692-13 facts distributing is the common parent of an affiliated_group_of_corporations that files a consolidated u s federal_income_tax return the distributing group distributing owns all of the issued and outstanding_stock of distributing a member of the distributing group and distributing owns all of the issued and outstanding_stock of holdco and sub each a member of the distributing group holdco owns all of the issued and outstanding_stock of controlled sub and sub and all of the outstanding interests in sub holdco acquired controlled on date controlled sub and sub are each members of the distributing group sub and holdco own a and b percent respectively of the issued and outstanding_stock of sub sub and holdco also own a and c respectively of the outstanding interests in sub the remaining d of the outstanding interests in sub is owned by sub distributing has outstanding a single class of common_stock that is owned by private investors specifically p1 and p2 an affiliate of p1 each a partnership for federal_income_tax purposes own e and f respectively of the stock of distributing the remaining g of the stock of distributing is owned by various entities and individuals collectively the distributing minority including key personnel of the distributing group and private investors who also invest indirectly in the distributing group through p1 collectively p1 p2 and the distributing minority are referred to as the distributing shareholders p1 is owned by various partners including p3 a partnership for federal_income_tax purposes p3 controls the management of p1 the rights to manage and make decisions for p3 are vested with its two managing members who have equal voting rights p4 and the p4 affiliates collectively the p4 entities each a partnership for federal_income_tax purposes are owned by various partners including p5 also a partnership for federal_income_tax purposes p5 controls the management of each of the p4 entities the rights to manage and make decisions for p5 except with respect to certain extraordinary matters are vested with its two managing members who have equal voting rights these two members are the same persons who have control of the management of p3 llc a partnership for federal_income_tax purposes has outstanding a single series of membership units and each unit in that series is identical in all respects including voting rights and rights to distributions the p4 entities own approximately h of llc’s outstanding membership units specifically p4 owns approximately i and the p4 affiliates own approximately j the remaining k of llc’s membership units are plr-118692-13 owned by various entities and individuals collectively the llc minority llc owns all of the membership interests in de a disregarded_entity for federal_income_tax purposes the management of llc is controlled by l managers by virtue of the llc operating_agreement p4 has the right to elect at least m of llc’s managers generally p1 and the p4 entities are under common ownership more specifically p3 a partner in p1 and p5 a partner in each of the p4 entities are owned by the same persons with such persons owning substantially_similar respective ownership percentages in each of p3 and p5 collectively these persons also control the management of each of p3 and p5 in addition other partners in p1 and the p4 entities have a high degree of overlapping ownership the distributing group is engaged in business a1 and business a2 specifically distributing is directly engaged in business a1 and each of controlled and sub is directly engaged in business a2 llc through its interest in de is also engaged in business a2 financial information has been received indicating that the distributing group’s business a1 and business a2 each has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years the distributing group has determined that the separation of business a1 from business a2 will serve the following corporate business purposes i to allow management of business a2 to focus solely on the management and operation of the combined business a2 to be conducted by controlled sub and llc ii to allow business a2 to raise capital to facilitate future capital expenditures and acquisitions iii to enhance business a2’s ability to attract and retain key personnel and iv to eliminate competition for resources between business a1 and business a2 proposed transaction for what are represented to be valid business reasons the following transaction has been proposed the proposed transaction i ii holdco will convert under state x law to a single-member limited_liability_company hereinafter holdco llc that will be treated as a disregarded_entity for federal_income_tax purposes the conversion holdco llc will form a new state x corporation new holdco to which it will transfer all of its interests in sub and sub solely in exchange for new holdco voting common_stock the new holdco exchange plr-118692-13 iii iv v vi holdco llc will transfer all of the stock of sub to controlled the contribution holdco llc will distribute all of the stock of controlled to distributing a transaction disregarded for federal_income_tax purposes distributing will distribute all of the stock of controlled to distributing the internal distribution distributing will distribute all of the stock of controlled received in the internal distribution pro_rata to the distributing shareholders the external distribution vii distributing shareholders who choose to participate the participating distributing shareholders will transfer all of their stock of controlled to llc in exchange for llc membership units from the sole series of outstanding llc units the partnership exchange to minimize potential conflicts between p1 the majority shareholder in controlled following the external distribution and minority shareholders in controlled who choose not to participate in the partnership exchange p4 may purchase up to n of the stock of controlled from such nonparticipating shareholders for cash the controlled stock purchase if the controlled stock purchase occurs p4 will transfer such controlled stock to llc in exchange for llc membership units in the partnership exchange and the participating distributing shareholders will have the opportunity to purchase such membership units from p4 on a pro_rata basis after completion of the partnership exchange the llc minority and the p4 entities will own approximately o more than percent of the membership units in llc and the llc minority and the p4 entities will own indirectly more than percent of the stock of controlled however because of the substantial overlap of the individuals partners of partnerships and owners of other entities that historically owned indirectly stock of controlled and the individuals partners of partnerships and owners of other entities that historically owned indirectly interests in llc the distributing group has determined that persons that were direct or indirect owners of stock of controlled prior to the partnership exchange will continue to own directly or indirectly after the partnership exchange more than percent of the stock of controlled for purposes of sec_355 in making this determination the following assumptions collectively the counting assumptions were relied upon i the methodology of the example in the legislative_history to sec_355 the net decrease methodology is applicable for purposes of determining whether there has been an acquisition of stock possessing at least percent of the total combined voting power of all classes of controlled stock entitled to vote or at least percent of the total value of shares of all classes of plr-118692-13 controlled stock under sec_355 ii in applying sec_355 and the net decrease methodology the taxpayer may look through llc partnerships_and_s_corporations within the distributing minority p1 p2 p3 the p4 entities and p5 to the indirect owners of the controlled stock at the level of the partners in the partnerships and the level of the shareholders of the corporations and may take into account the overlap in the indirect ownership of controlled stock at that level based upon their actual knowledge the look through methodology and iii in applying sec_355 and assumptions i and ii an entity within the distributing minority or a partner in llc a partnership within the distributing minority p1 p2 p3 the p4 entities or p5 that is described in any of the following categories will be treated as the ultimate indirect owner without further look-through of its indirect percentage share of the controlled stock - a any united_states pension_trust described in sec_401 which is exempt from tax under sec_501 and b any united_states charitable_organization described in sec_501 including an endowment or private_foundation for the two year period following the proposed transaction it is expected that controlled and sub will purchase products from distributing for fair_market_value based on terms and conditions available to third parties in addition the distributing group will enter into an agreement with controlled and sub for transitional services for example information_technology human resources and payroll processing for a period not expected to exceed two years following the proposed transaction the agreement will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length the holdco conversion representations the following representations are made with respect to the holdco conversion 1a 1b during the five-year period ending on the date of the holdco conversion i no person related as defined in sec_1_368-1 to distributing will have acquired holdco stock with consideration other than distributing stock ii no person related to distributing will have acquired or redeemed holdco stock with consideration other than distributing stock or holdco stock and iii no distribution will have been made with respect to the stock of holdco other than ordinary normal regular dividend distributions made pursuant to the historic dividend paying practice of holdco either directly or through any transaction agreement or arrangement with any other person the fair_market_value of the distributing stock that will be deemed to be received by distributing in the holdco conversion will be approximately equal to the fair_market_value of the holdco stock that will be deemed to be surrendered in the holdco conversion plr-118692-13 1c 1d 1e 1f 1g 1h 1i 1j 1k in the holdco conversion no consideration other than voting_stock of distributing will be deemed to be issued holdco will be deemed to distribute the distributing voting_stock deemed received in the holdco conversion and its other properties in pursuance of the plan_of_reorganization distributing will be deemed to acquire at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets held by holdco immediately prior to the holdco conversion for purposes of this representation i amounts used by holdco to pay its expenses if any in connection with the holdco conversion ii amounts paid_by holdco to shareholders who receive cash or other_property if any in the holdco conversion and iii all redemptions and distributions except for regular normal dividends made by holdco immediately preceding the holdco conversion will be included as assets of holdco held immediately prior to the holdco conversion distributing has no plan or intention to sell or otherwise dispose_of any of the assets of holdco that will be deemed to be acquired in the holdco conversion except for dispositions made in the ordinary course of business or transfers described in sec_368 or sec_1_368-2 the liabilities of holdco if any deemed to be assumed within the meaning of sec_357 by distributing and the liabilities to which the holdco assets deemed to be transferred are subject were incurred by holdco in the ordinary course of its business and are associated with the assets that will be deemed to be transferred to distributing in the holdco conversion following the holdco conversion distributing will continue either directly or through one or more members of distributing 1’s qualified_group as defined in sec_1_368-1 the historic_business of holdco or will use a significant portion of holdco’s historic_business_assets in a business each of distributing and holdco will pay its respective expenses if any incurred in connection with the holdco conversion at the time of the holdco conversion there will be no indebtedness existing between distributing and holdco that was issued or acquired at a discount or that will be settled at a discount neither distributing nor holdco will be an investment_company within the meaning of sec_368 and iv plr-118692-13 1l 1m 1n 1o 1p the total fair_market_value of the assets of holdco that will be deemed to be transferred to distributing in the holdco conversion will exceed the sum of i the amount of any liabilities that will be deemed to be assumed within the meaning of sec_357 by distributing in the holdco conversion ii the amount of any liabilities owed to distributing by holdco that are discharged or extinguished in connection with the holdco conversion and iii the amount of cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without recognition of gain received by holdco in the holdco conversion the fair_market_value of the assets of distributing will exceed the amount of its liabilities immediately after the holdco conversion holdco is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations as a result of the holdco conversion see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d all material steps that comprise the proposed transaction including the holdco conversion i will be undertaken pursuant to a prearranged overall plan_of_reorganization which will be adopted and approved by the board_of directors of distributing and its appropriate affiliates and ii will be reported consistently by the respective parties for federal_income_tax purposes the proposed transaction including the holdco conversion will be carried out for the following corporate business purposes i to allow management of business a2 to focus solely on the management and operation of the combined business a2 to be conducted by controlled sub and llc ii to allow business a2 to raise capital to facilitate future capital expenditures and acquisitions iii to enhance business a2’s ability to attract and retain key personnel and iv to eliminate competition for resources between business a1 and business a2 the new holdco exchange the following representations are made with respect to the new holdco exchange 2a no stock_or_securities will be issued for services rendered to or for the benefit of new holdco in connection with the new holdco exchange and no stock_or_securities will be issued for indebtedness of new holdco that is not evidenced by a security or for interest on indebtedness of new holdco which plr-118692-13 accrued on or after the beginning of the holding_period of distributing for the debt distributing through its interest in holdco llc will not retain any rights in the property transferred to new holdco the new holdco exchange will not be the result of the solicitation by a promoter broker or investment house the total adjusted_basis of the assets to be transferred to new holdco by distributing will equal or exceed the sum of the liabilities if any assumed as determined under sec_357 by new holdco plus any liabilities to which the transferred assets are subject the liabilities if any to be assumed as determined under sec_357 by new holdco and the liabilities to which the transferred assets will be subject will have been incurred in the ordinary course of business and will be associated with the assets transferred there will be no indebtedness between distributing and new holdco or between holdco llc and new holdco at the time of the new holdco exchange and there will be no indebtedness created in favor of distributing or holdco llc as a result of the new holdco exchange the total fair_market_value of the assets transferred to new holdco by distributing in the new holdco exchange will exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by new holdco in connection with the new holdco exchange ii the amount of any liabilities owed to new holdco by distributing or holdco llc that are discharged or extinguished in connection with the new holdco exchange and iii the amount of cash and the fair_market_value of any other_property other than stock of new holdco permitted to be received under sec_351 without the recognition of gain received by distributing or holdco llc in connection with the new holdco exchange the fair_market_value of the assets of new holdco will exceed the amount of its liabilities immediately after the new holdco exchange the new holdco exchange will occur under a plan agreed upon before the transaction in which the rights of the parties are defined all exchanges in connection with the new holdco exchange will occur on approximately the same date 2b 2c 2d 2e 2f 2g 2h 2i plr-118692-13 2j 2k 2l 2m 2n 2o 2p 2q 2r 2s there is no plan or intention on the part of new holdco to redeem or otherwise reacquire any stock to be issued in the new holdco exchange distributing will receive new holdco voting common_stock approximately equal to the fair_market_value of the property transferred to new holdco following the proposed transaction including the new holdco exchange new holdco will remain in existence and retain and use the property transferred to it in connection with the new holdco exchange in a trade_or_business each of distributing and new holdco will pay its respective expenses if any incurred in connection with the new holdco exchange at the time of the new holdco exchange new holdco will not be an investment_company within the meaning of sec_351 and sec_1_351-1 and the stock received in the new holdco exchange will not be used to satisfy the indebtedness of distributing at the time of the new holdco exchange neither distributing nor holdco llc will be under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the new holdco stock received in the new holdco exchange will not be used to satisfy the indebtedness of distributing at the time of the new holdco exchange new holdco will not be a personal_service_corporation within the meaning of sec_269 none of the stock to be transferred by distributing to new holdco in the new holdco exchange is sec_306 stock within the meaning of sec_306 no debt relating to stock to be transferred or to which such stock is subject will be assumed by new holdco in connection with the new holdco exchange taking into account any issuance of additional shares of new holdco stock any issuance of new holdco stock for services the exercise of any new holdco stock_rights warrants or subscriptions a public offering of new holdco stock and the sale exchange transfer by gift or other_disposition of any of the stock of new holdco to be received in the new holdco exchange distributing will be in control of new holdco within the meaning of sec_368 plr-118692-13 2t 2u 2v there is no plan or intention by distributing to sell or otherwise dispose_of the stock of new holdco to be received in the new holdco exchange there is no plan or intention by new holdco to dispose_of the property to be transferred to it in the new holdco exchange other than in the ordinary course of business the new holdco exchange is not being undertaken with a view to prevent the consolidated_return provisions from properly addressing loss duplication within the meaning of sec_1 h the contribution and internal distribution the following representations are made with respect to the contribution and internal distribution 3a 3b 3c 3d 3e 3f the indebtedness if any owed by controlled to distributing after the internal distribution will not constitute stock_or_securities no part of the consideration that will be distributed by distributing in the internal distribution will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of distributing the five years of financial information submitted on behalf of business a1 conducted by distributing is representative of the present operations of business a1 and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of business a2 conducted by controlled is representative of the present operations of business a2 and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted neither business a1 conducted by distributing nor control of an entity conducting that business was acquired during the five year period ending on the date of the internal distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part neither business a2 conducted by controlled nor control of an entity conducting that business was acquired during the five year period ending on the date of the internal distribution in a transaction in which gain_or_loss was plr-118692-13 3g 3h 3i 3j 3k 3l 3m recognized or treated as recognized in whole or in part except in connection with the expansion of business a1 following the internal distribution distributing will continue the active_conduct of business a1 independently and with its separate employees following the internal distribution controlled will continue the active_conduct of business a2 independently and with its separate employees the proposed transaction including the contribution and internal distribution will be carried out for the following corporate business purposes i to allow management of business a2 to focus solely on the management and operation of the combined business a2 to be conducted by controlled sub and llc ii to allow business a2 to raise capital to facilitate future capital expenditures and acquisitions iii to enhance business a2’s ability to attract and retain key personnel and iv to eliminate competition for resources between business a1 and business a2 the internal distribution is not being used principally as a device for the distribution of the earnings_and_profits of distributing or its subsidiaries or controlled or its subsidiaries or both except as otherwise described in the proposed transaction with respect to distributing and controlled neither distributing nor any of its relevant affiliates have any current plan or intention to i make a check-the-box election to change such entity’s classification for federal_income_tax purposes ii cause such entity to liquidate merge or otherwise terminate its corporate existence or iii cause the owner s of such entity to sell transfer convey or otherwise dispose_of the equity_interest in such entity the total adjusted bases of the assets transferred to controlled by distributing will equal or exceed the sum of i the total liabilities assumed within the meaning of sec_357 by controlled and ii the total amount of money and the fair_market_value of any other_property within the meaning of sec_361 received by distributing and transferred by it to its creditors and shareholders in connection with the contribution and internal distribution the total fair_market_value of the assets that distributing will transfer to controlled in the contribution will exceed the sum of a the amount of liabilities if any assumed within the meaning of sec_357 by controlled in connection with the contribution and internal distribution b the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the contribution and internal distribution and c the amount of any cash and the fair_market_value of any other_property plr-118692-13 3n 3o 3p 3q 3r 3s 3t other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing from controlled in connection with the contribution and internal distribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the internal distribution neither distributing nor controlled will be an investment_company within the meaning of sec_368 and iv distributing is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 immediately before the internal distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d at the time of the internal distribution distributing will not have an excess_loss_account ela in the stock of controlled or in the stock of any subsidiary of controlled no indebtedness will exist between distributing and its subsidiaries and controlled and its subsidiaries at the time of or subsequent to the internal distribution except as may arise in the ordinary course of business payments made in connection with all continuing transactions between distributing and its subsidiaries and controlled and its subsidiaries following the internal distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length for purposes of sec_355 immediately after the internal distribution no person determined after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the internal distribution 3u for purposes of sec_355 immediately after the internal distribution no person determined after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power plr-118692-13 3v 3w 3x of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the internal distribution or ii attributable to distributions on distributing 1’s stock_or_securities that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the internal distribution no direct or indirect acquisition of stock of distributing including any predecessor or successor of such corporations has or will occur pursuant to a plan or series of related transactions within the meaning of sec_1_355-7 that includes the internal distribution except as described in representation 3x no direct or indirect acquisition of stock of controlled including any predecessor or successor of such corporation has or will occur pursuant to a plan or series of related transactions within the meaning of sec_1_355-7 that includes the internal distribution in particular no direct or indirect acquisition of any of the following interests is or was part of a plan or series of related transactions within the meaning of sec_1_355-7 that includes the internal distribution i an interest in p1 p2 or p3 by a new or existing partner of such partnership or an interest in any person or persons at any level above these partnerships or ii an interest in a partnership or s_corporation within the distributing minority or an interest in any person or persons at any level above these entities each of the following acquisitions of stock of controlled including any predecessor or successor of such corporation is or may be part of a plan or series of related transactions within the meaning of sec_1_355-7 that includes the internal distribution i the controlled stock purchase and ii the indirect acquisitions of stock of controlled by a the llc minority b p4 and the partners of p4 c the p4 affiliates and the partners of the p4 affiliates and d p5 and the partners of p5 resulting from the partnership exchange based upon use of the counting assumptions and upon the valuation of interests in controlled at fair_market_value taking all of these acquisitions into account stock representing a percent or greater interest within the meaning of sec_355 in controlled including any predecessor or successor of such corporation will not be acquired by any person or persons within the meaning of sec_355 3y the minimum ownership percentage in controlled as computed in accordance with use of the counting assumptions and the valuation of direct and indirect interests in controlled at fair_market_value held indirectly by each plr-118692-13 overlap partner and held directly or indirectly immediately before the partnership exchange by each person in the distributing minority is expected to be at least p on an aggregate basis as a result of the partnership exchange a partner that holds an interest both in p1 p2 and or p3 and in p4 a p4 affiliate and or p5 is referred to as an overlap partner the minimum ownership percentage of any overlap partner or person in the distributing minority is the lesser_of i the percentage of controlled stock owned directly or indirectly by the person immediately before the partnership exchange excluding all interests attributable to controlled stock acquired in the controlled stock purchase or ii the percentage of controlled stock owned directly or indirectly by such person immediately after the partnership exchange excluding all interests attributable to controlled stock acquired in the controlled stock purchase immediately after the internal distribution taking into account sec_355 neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the internal distribution the liabilities if any to be assumed within the meaning of sec_357 by controlled and the liabilities to which the transferred assets will be subject will have been incurred in the ordinary course of business and will be associated with the assets being transferred no property will be transferred between distributing and controlled in the contribution for which an investment_credit under sec_46 has been or will be claimed all material steps that comprise the proposed transaction including the contribution and internal distribution i will be undertaken pursuant to a prearranged overall plan_of_reorganization which will be adopted and approved by the board_of directors of distributing and its appropriate affiliates and ii will be reported consistently by the respective parties for federal_income_tax purposes 3z 3aa 3bb 3cc 3dd 3ee each of distributing and controlled will pay its respective expenses if any incurred in connection with the internal distribution the external distribution the following representations are made with respect to the external distribution plr-118692-13 4a 4b 4c 4d 4e 4f 4g 4h 4i 4j the indebtedness if any owed by controlled to distributing after the external distribution will not constitute stock_or_securities no part of the consideration that will be distributed by distributing in the external distribution will be received by the distributing shareholders as a creditor employee or in any capacity other than that of a shareholder of distributing in applying sec_355 regarding the active_conduct_of_a_trade_or_business distributing will treat all members of its separate_affiliated_group the distributing sag as defined in sec_355 as one corporation the five years of financial information submitted on behalf of business a1 conducted by the distributing sag is representative of the present operations of business a1 and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of business a2 conducted by controlled is representative of the present operations of business a2 and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted neither business a1 conducted by the distributing sag nor control of an entity conducting that business was acquired during the five year period ending on the date of the external distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part neither business a2 conducted by controlled nor control of an entity conducting that business was acquired during the five year period ending on the date of the external distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except in connection with the expansion of business a1 following the external distribution the distributing sag will continue the active_conduct of business a1 independently and with its separate employees following the external distribution controlled will continue the active_conduct of business a2 independently and with its separate employees the proposed transaction including the external distribution will be carried out for the following corporate business purposes i to allow management of plr-118692-13 4k 4l 4m 4n 4o 4p 4q business a2 to focus solely on the management and operation of the combined business a2 to be conducted by controlled sub and llc ii to allow business a2 to raise capital to facilitate future capital expenditures and acquisitions iii to enhance business a2’s ability to attract and retain key personnel and iv to eliminate competition for resources between business a1 and business a2 the external distribution is not being used principally as a device for the distribution of the earnings_and_profits of distributing or its subsidiaries or controlled or its subsidiaries or both except as otherwise described in the proposed transaction neither distributing nor controlled have any current plan or intention to i make a check-the-box election to change such entity’s classification for federal_income_tax purposes ii liquidate merge or otherwise terminate its corporate existence or iii cause its owner s to sell transfer convey or otherwise dispose_of the equity_interest in such entity immediately before the external distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d at the time of the external distribution distributing will not have an excess_loss_account ela in the stock of controlled or in the stock of any subsidiary of controlled no indebtedness will exist between distributing and its subsidiaries and controlled and its subsidiaries at the time of or subsequent to the external distribution except as may arise in the ordinary course of business payments made in connection with all continuing transactions between distributing and its subsidiaries and controlled and its subsidiaries following the external distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length for purposes of sec_355 immediately after the external distribution no person determined after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five year plr-118692-13 4r 4s 4t 4u period determined after applying sec_355 ending on the date of the external distribution for purposes of sec_355 immediately after the external distribution no person determined after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the external distribution or ii attributable to distributions on distributing 2’s stock_or_securities that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the external distribution no direct or indirect acquisition of stock of distributing including any predecessor or successor of such corporations has or will occur pursuant to a plan or series of related transactions within the meaning of sec_1_355-7 that includes the external distribution except as described in representation 4u no direct or indirect acquisition of stock of controlled including any predecessor or successor of such corporation has or will occur pursuant to a plan or series of related transactions within the meaning of sec_1_355-7 that includes the external distribution in particular no direct or indirect acquisition of any of the following interests is or was part of a plan or series of related transactions within the meaning of sec_1_355-7 that includes the external distribution i an interest in p1 p2 or p3 by a new or existing partner of such partnership or an interest in any person or persons at any level above these partnerships or ii an interest in a partnership or s_corporation within the distributing minority or an interest in any person or persons at any level above these entities each of the following acquisitions of stock of controlled including any predecessor or successor of such corporation is or may be part of a plan or series of related transactions within the meaning of sec_1_355-7 that includes the external distribution i the controlled stock purchase and ii the indirect acquisitions of stock of controlled by a the llc minority b p4 and the partners of p4 c the p4 affiliates and the partners of the p4 affiliates and d p5 and the partners of p5 resulting from the partnership exchange based upon use of the counting assumptions and upon the valuation of interests in controlled at fair_market_value taking all of these acquisitions into account stock representing a percent or greater interest within the meaning of sec_355 in controlled including any predecessor plr-118692-13 4v or successor of such corporation will not be acquired by any person or persons within the meaning of sec_355 the minimum ownership percentage in controlled as computed in accordance with use of the counting assumptions and the valuation of direct and indirect interests in controlled at fair_market_value held indirectly by each overlap partner and held directly or indirectly immediately before the partnership exchange by each person in the distributing minority is expected to be at least p on an aggregate basis as a result of the partnership exchange a partner that holds an interest both in p1 p2 and or p3 and in p4 a p4 affiliate and or p5 is referred to as an overlap partner the minimum ownership percentage of any overlap partner or person in the distributing minority is the lesser_of i the percentage of controlled stock owned directly or indirectly by the person immediately before the partnership exchange excluding all interests attributable to controlled stock acquired in the controlled stock purchase or ii the percentage of controlled stock owned directly or indirectly by such person immediately after the partnership exchange excluding all interests attributable to controlled stock acquired in the controlled stock purchase 4w 4x immediately after the external distribution taking into account sec_355 neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 all material steps that comprise the proposed transaction including the external distribution i will be undertaken pursuant to a prearranged overall plan which will be adopted and approved by the board_of directors of distributing and its appropriate affiliates and ii will be reported consistently by the respective parties for federal_income_tax purposes the partnership exchange the following representations are made with respect to the partnership exchange 5a 5b 5c llc is not an investment_company within the meaning of sec_351 neither the participating distributing shareholders nor p4 will receive a distribution_of_property not including money contributed by any other partner of llc within seven years from the date of the partnership exchange llc will not distribute any property not including money contributed by a participating distributing shareholder or p4 in the partnership exchange to any partner other than the partner contributing such property within seven years from the date of the partnership exchange plr-118692-13 5d 5e 5f llc will not assume any liabilities of the participating distributing shareholders or p4 in connection with the partnership exchange and none of the controlled stock transferred to llc in the partnership exchange will be subject_to any liabilities of the participating distributing shareholders or p4 neither the participating distributing shareholders nor p4 will provide services to or for the benefit of llc as consideration for the membership units in llc received in the partnership exchange llc will not make any cash or property distributions to its partners other than operating cash_flow distributions and tax distributions within two years from the date of the partnership exchange the conversion rulings based solely on the information and representations submitted we rule as follows on the conversion for federal_income_tax purposes the conversion will be treated as a transfer by holdco of substantially_all of its assets to distributing solely in exchange for distributing voting_stock and the assumption of the liabilities of holdco followed by the distribution by holdco of the distributing voting_stock to distributing in complete_liquidation of holdco the conversion will qualify as a reorganization under sec_368 holdco and distributing each will be a_party_to_a_reorganization within the meaning of sec_368 holdco will recognize no gain_or_loss on the deemed transfer of its assets to distributing solely in exchange for the deemed issuance of distributing voting_stock and the deemed assumption by distributing of the liabilities of holdco sec_361 and sec_357 distributing will recognize no gain_or_loss on the deemed receipt of the assets of holdco in exchange for the deemed issuance of distributing voting_stock sec_1032 distributing 1’s basis in each asset deemed received from holdco will be the same as the basis of such asset in the hands of holdco immediately before the conversion sec_362 plr-118692-13 distributing 1’s holding_period in each asset deemed received from holdco will include the period during which such asset was held by holdco sec_1223 holdco will recognize no gain_or_loss on the deemed_distribution of distributing voting_stock sec_361 distributing will recognize no gain_or_loss on the deemed receipt of distributing voting_stock in exchange for its holdco stock sec_354 distributing will succeed to and take into account as of the close of the date of the conversion the items of holdco described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 except to the extent distributing 1’s earnings_and_profits already reflect holdco’s earnings_and_profits distributing will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of holdco as of the close of the date of the conversion sec_381 and sec_1_381_c_2_-1 and sec_1_1502-33 any deficit in the earnings_and_profits of distributing and holdco will be used only to offset earnings_and_profits accumulated after the date of the conversion sec_381 the new holdco exchange based solely on the information and representations submitted we rule as follows on the new holdco exchange distributing will recognize no gain_or_loss on the transfer of its assets to new holdco solely in exchange for new holdco stock sec_351 distributing 1’s basis in the new holdco stock received will be the same as the basis of the assets transferred by distributing to new holdco sec_358 distributing 1’s holding_period in the new holdco stock will include the holding_period of the distributing assets transferred in exchange therefor provided that the assets were held as capital assets on the date of the new holdco exchange sec_1223 new holdco will recognize no gain_or_loss on the receipt of assets of distributing in exchange for new holdco stock sec_1032 plr-118692-13 new holdco’s basis in each asset received from distributing will be the same as the basis of such asset in the hands of distributing immediately before the new holdco exchange sec_362 new holdco’s holding_period in each asset received from distributing will include the period during which such asset was held by distributing sec_1223 the contribution and internal distribution based solely on the information and representations submitted we rule as follows on the contribution and internal distribution the contribution together with the internal distribution will qualify as a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss on the transfer of assets to controlled in the contribution sec_361 controlled will recognize no gain_or_loss on the receipt of assets from distributing in the contribution sec_1032 controlled’s basis in each asset received from distributing will be the same as the basis of such asset in the hands of distributing immediately before the contribution sec_362 controlled’s holding_period in each asset received from distributing will include the period during which such asset was held by distributing sec_1223 distributing will recognize no gain_or_loss on the distribution of controlled stock in the internal distribution sec_361 distributing will recognize no gain_or_loss and no amount will be includible in its income on the receipt of controlled stock in the internal distribution sec_355 the basis of the stock of distributing and controlled in the hands of distributing immediately after the internal distribution will be the same as the basis of the distributing stock held by distributing immediately before the internal distribution allocated in proportion to the fair_market_value of plr-118692-13 distributing and controlled in accordance with sec_358 and sec_1_358-2 sec_358 and c distributing 2’s holding_period in the controlled stock received in the internal distribution will include the holding_period of the distributing stock with respect to which the internal distribution is made provided that such distributing stock is held as a capital_asset on the date of the internal distribution sec_1223 earnings_and_profits if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 the external distribution based solely on the information and representations submitted we rule as follows on the external distribution distributing will recognize no gain_or_loss on the distribution of controlled stock in the external distribution sec_355 the distributing shareholders will recognize no gain_or_loss and no amount will be includible in their income on the receipt of controlled stock in the external distribution sec_355 the basis of the stock of distributing and controlled in the hands of the distributing shareholders immediately after the external distribution will be the same as the basis of the distributing stock held by the distributing shareholders immediately before the external distribution allocated in proportion to the fair_market_value of distributing and controlled in accordance with sec_358 and sec_1_358-2 sec_358 and c the distributing shareholder’s holding_period in the controlled stock received in the external distribution will include the holding_period of the distributing stock with respect to which the external distribution is made provided that such distributing stock is held as a capital_asset on the date of the external distribution sec_1223 earnings_and_profits if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 plr-118692-13 the partnership exchange based solely on the information and representations submitted we rule as follows on the partnership exchange the transfer of controlled stock by the participating distributing shareholders and p4 to llc in exchange for interests in llc constitutes a nonrecognition exchange pursuant to sec_721 the basis of the interests in llc received by a participating distributing shareholder and by p4 in exchange for controlled stock will be the same as their basis respectively in the controlled stock at the time of the transfer sec_722 the holding_period of a participating distributing shareholder’s interest in llc or p4’s interest in llc will include the respective period that they held the controlled stock contributed to llc provided that such property was held as a capital_asset within the meaning of sec_1221 sec_1223 llc’s basis in the controlled stock contributed by the participating distributing shareholders and by p4 will be the same as the basis of the controlled stock in the hands of the participating distributing shareholders and p4 at the time of the transfer sec_723 llc’s holding_period in the controlled stock contributed by the participating distributing shareholders and p4 will include the period that the participating distributing shareholders and p4 owned such stock sec_1223 caveats no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular this office has not reviewed any information pertaining to and has made no determination regarding i ii whether the internal distribution and the external distribution satisfy the business_purpose requirement of sec_1_355-2 whether the internal distribution and the external distribution are used principally as a device for the distribution of earnings_and_profits of distributing distributing controlled or any combination thereof see sec_355 and sec_1_355-2 and plr-118692-13 iii whether the internal distribution and external distribution and an acquisition or acquisitions are part of a plan or series of related transactions under sec_355 provided that for purposes of rulings and we have assumed that any direct or indirect acquisitions of controlled stock resulting from a the controlled stock purchase and b the partnership exchange are in each case acquisitions of stock that are part of a plan or series of related transactions within the meaning of sec_1_355-7 that includes the internal distribution and the external distribution in addition no opinion is expressed regarding the value of any partner’s interest for sec_355 purposes and the percentage interest that any partner had or will have directly or indirectly in any of the partnerships or in controlled procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the powers of attorney on file in this office a copy of this ruling letter will be sent to the representative named therein sincerely frances l kelly senior counsel branch office of associate chief_counsel corporate cc


internal_revenue_service number release date index number 468a ------------------------ ------------------------------------------------- ---------------------------------------------- ---------------------------------- ------------- ----------------------- ----------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ----------------------------------------------------- telephone number --------------------- refer reply to cc psi b06 plr-111656-10 date september re schedule of ruling amounts ------------------------------------------------------- legend taxpayer plant date date date date a b c d year year year location industry director method order fund independent study dear ------------ --------------------------------------------------- -------------------------------------------------------- --------------------------- ----------------- ----------------- ----------------- ---- ----------------- ------ ------------------- ------- ------- ------- ------------------------------------------------------------ --------------------------------------------------------------------------------- ---------------------- ----------------------------------------------------------------- --------------------------------------------------------------------------------- --------- ------------------------------------------- --------------------------------------------------------------------------------- this letter responds to your request dated --------------------- for a mandatory review of a revised schedule of ruling amounts pursuant to sec_468a of the internal plr-111656-10 revenue code and sec_1_468a-3t f iv of the temporary income_tax regulations with regard to a qualified nuclear decommissioning reserve fund that taxpayer has established for the plant and associated facilities taxpayer was previously granted schedules of ruling amounts most recently on date this request is prompted by the fact that commission x has issued an extension of the plant’s nuclear operating license taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer is the indirect sole owner of the plant which is situated in location taxpayer files a consolidated federal_income_tax return with its affiliated companies and is under the audit jurisdiction of the industry director the method of decommissioning the plant is method on date commission x issued order in which it extended the operating license of plant from date to date based upon an independent study prepared based on the assumption that the license extension would be granted it is estimated that fund assets will earn an after- tax_rate of return of a percent the total cost of decommissioning the plant is estimated to be dollar_figureb in year dollars this base cost of decommissioning plant is escalated at a c percent yearly rate resulting in a total future cost of decommissioning the plant of dollar_figured in year through year dollars under ratemaking assumptions used during the first proceeding before applicable public_utility commissions the plant would no longer be included in rate base in year as a result of the extension of the plant’s operating license to year the estimated_useful_life of the plant as well as the funding_period for the plant ends in year the estimated taxable_year in which substantial completion of decommissioning the plant will occur is year sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such plr-111656-10 discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1t a provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1t b of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2t b provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1_468a-2t b does not apply to any special transfer permitted under sec_1_468a-8t sec_1_468a-3t a provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3t a provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3t a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3t a provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant plr-111656-10 the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer's proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the ------- are described by the temporary regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3t a further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer's burden_of_proof sec_1_468a-3t b provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3t c the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3t c provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3t c i a if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer's rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3t c i b provides that if the nuclear plant is not described in sec_1_468a-3t c i a the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3t c i c any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3t c i a sec_1_468a-3t d provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3t d provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3t e enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling plr-111656-10 amount for any taxable_year sec_1_468a-3t f requires a taxpayer that has obtained a schedule of ruling amounts pursuant to sec_1_468a-3t e to file a request for a revised schedule of ruling amounts on or before the deemed payment deadline date for the 10th taxable_year that begins after the taxable_year in which the most recent schedule of ruling amounts was received if the taxpayer calculated its most recent schedule of ruling amounts on any basis other than an order issued by a public_utility commission the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline date for the 5th taxable_year that begins after the taxable_year in which the most recent schedule of ruling amounts was received sec_1_468a-3t f provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3t e the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1t b of the regulations taxpayer as sole owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3t d of the regulations the proposed schedule of ruling amounts was derived by following the assumptions contained in the independent commissioning study that taxpayer has represented is a standard type study used in the industry based on that representation taxpayer has demonstrated pursuant to sec_1_468a-3t a that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2t b of the regulations based solely on the determinations above we conclude that taxpayer's proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code plr-111656-10 approved schedule of ruling amounts year ---------------------------------------- ruling_amount ------- approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in sec_1_468a-3t f occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7t a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


t c memo united_states tax_court leodis c matthews apc a california corporation petitioner v commissioner of internal revenue respondent docket no filed date michael m page ellis g wasson and jacqueline l maar for petitioner vanessa m hoppe and katherine holmes ankeny for respondent memorandum opinion dawson judge this case is before us on respondent’s motion to dismiss for lack of jurisdiction on the ground that petitioner’s corporate status was suspended at the time the petition was filed and therefore it did not have the legal capacity to litigate in this court as explained herein we will grant respondent’s motion background petitioner a law firm was incorporated in california on date the california franchise tax board cftb suspended petitioner’s powers rights and privileges on date for failure to pay state taxes see cal rev tax code sec west the suspension remained in effect until date at which time the cftb reinstated petitioner’s corporate capacity on date respondent mailed to petitioner a notice_of_deficiency determining a dollar_figure federal_income_tax deficiency for tax_year ended date and a sec_6662 penalty of dollar_figure on date petitioner filed a petition in this court challenging respondent’s determination on date respondent filed a motion to dismiss for lack of jurisdiction alleging that petitioner lacked the capacity to sue at the time its tax_court petition was filed on date petitioner filed a response objecting to the motion on the ground that the reinstatement of the corporation on unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure date retroactively restored its capacity to the time it filed its petition in this case and therefore conferred jurisdiction on this court discussion the tax_court is a court of limited jurisdiction 85_tc_527 and may exercise jurisdiction only to the extent expressly provided by statute 66_tc_61 this court’s jurisdiction to determine a deficiency in federal_income_tax depends on the issuance of a valid notice_of_deficiency and a timely filed petition rule a c 93_tc_22 91_tc_1019 pursuant to sec_6213 a taxpayer ha sec_90 days after the notice_of_deficiency is mailed to file a petition in this court for redetermination of the deficiency jurisdiction must be shown affirmatively and as the party invoking our jurisdiction petitioner has the burden of proving that we have jurisdiction over its case see eg 140_tc_210 holding that jurisdiction is determined at the time a petition is filed 114_tc_268 aff’d 22_fedappx_837 9th cir petitioner must establish that respondent issued to it a valid notice_of_deficiency and it or someone authorized to act on its behalf filed with the court a timely petition see rule a c 93_tc_22 petitioner’s corporate capacity was suspended at the time the petition was filed on date and was not reinstated until date which was after it filed the petition herein legal capacity is crucial to bringing an action in the tax_court see rule c whether a corporation has the capacity to engage in litigation in this court is determined by applicable state law which in this case is california law see id 71_tc_108 respondent relies on our opinion in david dung le m d inc v commissioner t c pincite arguing that petitioner did not have the legal capacity to prosecute this case when the petition was filed we agree in david dung le m d inc a case involving analogous facts we held that a california corporation lacked the power to file a lawsuit in this court while its corporate powers were suspended by the state of california for failure to pay income_tax in reaching our holding we cited cal rev tax code secs and rule c states in relevant part the capacity of a corporation to engage in such litigation in this court shall be determined by the law under which it was organized west noting that the supreme court of california has construed those sections to mean that a corporation may not prosecute or defend an action during the period in which it is suspended david dung le m d inc t c pincite because the taxpayer’s corporate status was not reinstated at the time the petition was filed or during the 90-day period we held that it was fatal to petitioner in that california law does not operate to toll a filing period from running during a period of suspension id pincite we therefore dismissed the petition in that case for lack of jurisdiction the u s court_of_appeals for the ninth circuit where an appeal in this case would lie affirmed this court in david dung le m d inc v commissioner fed app we will follow our precedent as affirmed by the court_of_appeals for the ninth circuit as we clearly stated in a recent case med weight control specialist v commissioner tcmemo_2015_52 at jursidictional statutes such as sec_6213 are conditions on the waiver of the federal government’s sovereign immunity and must be strictly construed see 476_us_467 sec_6213 provides that a petition may be filed by the taxpayer during the 90-day period the taxpayer’s suspension under cal rev tax code sec deprived it of the capacity to sue under sec_6213 and prevents its corporate revival from prejudicing the commissioner’s defense of lack of subject matter jurisdiction we will continue to follow existing caselaw in holding that a revived california corporation may not retroactively validate the filing of a petition that occurred during the suspension of its corporate powers and where the revival occurred only after the period for timely filing the petition see 523_fedappx_455 9th cir holding that although ama filed a timely petition in this court it did not have the capacity to engage in litigation because its corporate powers rights and privileges were suspended under california law at the time the petition was filed the subsequent revival of ama’s corporate powers after the statutory period did not retroactively satisfy sec_7428 which requires that an organization file a sec_7428 petition within days of the service’s mailing an adverse determination_letter 140_tc_210 holding that tax_court lacked jurisdiction to hear corporate taxpayer’s petition for redetermination of income_tax deficiency because taxpayer’s corporate capacity was suspended by the cftb at the time it filed its petition regardless of the fact that its status was reinstated before the scheduled trial med weight control specialist v commissioner tcmemo_2015_52 holding that taxpayer lacked the capacity to petition the tax_court during the 90-day period of sec_6213 rendering the court without jurisdiction clearly any revival of a corporation’s corporate powers will not restore its capacity to litigate a tax_court case when the date of the revival is beyond the 90-day period in which a petition in this court was required to be filed see david dung le m d inc v commissioner t c pincite nonetheless petitioner relies on bourhis v lord cal rptr 3d to argue that it had the capacity to commence an action in this court by virtue of a retroactive revival and that david dung le m d inc is no longer good law we disagree the bourhis decision does not contradict david dung le m d inc the ultimate question in this case is whether the corporation’s revival retroactively validated the actions taken during the suspension ie the filing of the petition in this case the answer depends upon whether the initial filing is treated as a procedural or substantitive act see bourhis cal rptr 3d procedural acts in the prosecution or defense of a lawsuit are validated retroactively by corporate revival most litigation activity has been characterized as procedural for purposes of corporate revival benton v cnty of napa cal rptr ct app in contrast where the statute_of_limitations for pursuing an action expires while the corporation is suspended subsequent revival of the corporation does not retroactively validate the filing of the lawsuit because statutes of limitations are substantive see eg med weight control specialist v commissioner at sade shoe co v oschin snyder cal rptr n ct app although our court in david dung le m d inc did not specifically use the terms procedural or substantive we effectively treated sec_6213 as a substantive requirement and therefore the petition cannot be retroactively ratified upon corporate revival see eg 523_fedappx_455 petitioner’s revival did not retroactively restore its capacity to file the petition in this case and confer jurisdiction on this court see david dung le m d inc t c pincite petitioner’s corporate status was not reinstated until after the petition was filed and after the expiration of the 90-day period in which the petition was required to be filed see sec_6213 in sum petitioner lacked the capacity to petition this court during the day period provided in sec_6213 and therefore this court lacks jurisdiction in this case accordingly respondent’s motion to dismiss for lack of jurisdiction will be granted to reflect the foregoing an appropriate order of dismissal for lack of jurisdiction will be entered