department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc corp br1 plr-125118-06 date september internal_revenue_service number release date index number --------------------- ---------------------------------------- ----------------------------- ------------------------------------ ------------- ------------------------------- in re ------------------------------ legend ------------------------------------------------------------------ distributing ------------------------------------------------------------- shareholder a holdco ------------------------------------------------------------- internal newco ------------------------------------------------- sub ------------------------------------------------------------- sub -------------------------------------------------------------- sub ------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------------------------------------- -------------------------------------------------------------------------------- ------------------- -------------------------------------------------------------------------------- ------------------- ----------------------------------------------------------- -------------------------------------------------------------------------------- - plr-125118-06 sub ------------------------------------------------------------- sub ------------------------------------------------------------- sub ------------------------------------------------------------- sub llc ------------------------------------------------------------- sub ------------------------------------------------------------- sub ------------------------------------------------------------- sub ------------------------------------------------------------- sub ------------------------------------------------------------- sub ------------------------------------------------------ -------------------------------------------------------------------------------- ----------------------------------- ----------------------------------------------------------------- ------------------------------------------------------------------ --------------------------------------------------------------- -------------------------------------------------------------------------------- ------------------- ------------------------------------------------------------------------ -------------------------------------------------------------------------------- ------------------- --------------------------------------------------------------------------------- -------------------------- ------------------------------------------------------- -------------------------------------------------------------- ------------------------ -------------------------------------------------------------------- ------------------------------------------------------- ------------------------------- ---------------------- -------------------------------------------------------------------------- merger sub various services segment a business a1 business a2 business a3 business a4 business a5 plr-125118-06 business a6 segment b business b1 business b2 segment c business c1 business c2 business c3 segment d business d1 business d2 business d3 bank date date date date year dollar_figurea dollar_figureb dollar_figurec dollar_figured ------------------------------------------------------ ------------------------- ----------------------------------------------------------- ------------------------------------------------------------ ----------------------------- --------------------------------------------------------------------------- --------------------- -------------------------------------- ------------------------------------------------------ ---------------------- ------------------------------------- -------------------------------------------------- ----------------------------------------------- ---------------------- ----------------------- ---------------------- --------------- ------- ----------------- ----------------- --------------- ------------- plr-125118-06 dollar_figuree ------ g dear --------------- ---- this letter responds to your date letter requesting rulings as to the federal_income_tax consequences of a series of proposed transactions the information submitted in that request and in later correspondence dated date date date date date date and date is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in the support of the request for rulings verification of the information representations and other data may be required as part of the audit process moreover no information provided by the taxpayer has been reviewed and no determination has been made regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 ii is used principally as a device for the distribution of earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 and iii is 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 the distributing_corporation or the controlled_corporation facts distributing is a publicly traded domestic_corporation with a single class of common_stock outstanding distributing is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return shareholder a owns more than five percent of distributing common_stock but does not have a representative on distributing’s board_of directors or participate actively in the management of distributing holdco and internal newco are domestic corporations that have been newly formed in connection with the proposed transactions and each has a single class of voting common_stock outstanding distributing announced its plan to effect the transactions described herein on date as of date in addition to other third party indebtedness distributing had approximately i dollar_figurea in commercial paper outstanding historic cp and ii dollar_figureb face_amount of specified longer-term notes with maturity dates ranging from date to date historic distributing long-term debt plr-125118-06 prior to the consummation of the transactions described herein distributing may issue in addition to other indebtedness commercial paper the proceeds of which will be used to pay principal or interest on historic distributing long-term debt refinancing cp between date and the date of the transactions described herein the amount of distributing’s outstanding commercial paper has and will fluctuate distributing directly owns all of the outstanding_stock of sub sub sub sub sub and sub sub directly owns all of the outstanding_stock of sub sub and sub sub directly owns all of the outstanding_stock of sub all of the foregoing are domestic corporations distributing through its foreign and domestic subsidiaries currently provides various services throughout the world it generally conducts these services in four segments segment a segment b segment c and segment d distributing generally intends to separate the retail portion of segment a from its other services the retail portion of segment a includes business a1 business a2 business a3 and business a4 with businesses a1 a2 a3 and a4 collectively the retail service businesses sub indirectly engages in business a1 through its subsidiaries while each of sub and sub directly engages in business a2 the stock of each of sub sub and sub was acquired by distributing in taxable transactions during the five-year period prior to the distribution sub licenses certain sub trademarks and trade names from the owner of the trademarks and trade names sub and sub-licenses these trademarks and trade names to sub affiliates that intend to use these trademarks and trade names in their businesses the portion of segment a consisting of business a5 and business a6 are not part of the retail service businesses and therefore will remain with distributing likewise the businesses comprising segment b business b1 and business b2 segment c business c1 business c2 and business c3 and segment d business d1 business d2 and business d3 will remain with distributing sub conducts the retail service businesses through sub which directly engages in each of the retail service businesses sub has directly engaged in business a1 for more than five years sub also indirectly conducts business b1 through its wholly-owned subsidiary sub which itself indirectly conducts business b1 through its wholly-owned subsidiary sub which directly engages in business b1 sub has directly engaged in business b1 for more than five years distributing acquired 100-percent of the outstanding publicly-traded stock of sub in year through the merger of merger sub a newly-formed wholly-owned subsidiary of distributing with and into sub with sub surviving and the sub shareholders plr-125118-06 receiving distributing voting_stock and cash in lieu of fractional shares valued at approximately dollar_figured the sub merger at the time of the sub merger it was distributing’s common practice to acquire a nominal number of shares of its competitors by doing so distributing was placed on each competitor’s shareholder mailing list and thereby became entitled to receive information provided to shareholders as part of this practice shortly before the agreement effecting the sub merger was signed distributing acquired shares of sub stock in the open market for approximately dollar_figuree in cash the nominal share purchase the nominal share purchase occurred prior to the time distributing was first contacted by an investment bank acting on behalf of sub concerning a possible combination of distributing and sub the shares of sub stock acquired by distributing in the nominal share purchase were cancelled in the sub merger sub directly engages in businesses c1 and c2 sub will convert under applicable state law into a single-member liability company wholly owned by distributing as described in step ii below sub has directly engaged in businesses c1 and c2 for more than five years the taxpayer has submitted financial information indicating that each of business a1 business b1 business c1 and business c2 as conducted by distributing through its relevant subsidiaries has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years distributing’s management has determined that the separation of the retail service businesses from distributing’s other businesses will serve a number of corporate business purposes including allowing the managements of distributing and holdco to focus their attention and financial resources on their own distinct businesses and business challenges and providing holdco’s management with the flexibility to invest excess cash_flow generated by the retail service businesses in various initiatives that would otherwise be constrained if the retail service businesses remained a part of distributing allowing the managements of distributing and holdco to pursue desired acquisitions without creating conflicts with the businesses of the other entity allowing each of distributing and holdco to develop employee incentive programs more directly linked to the performance of the businesses conducted by each and improving the likelihood that each of distributing and holdco will receive appropriate market recognition of its performance and potential transaction steps distributing intends to consummate the separation of the retail service businesses from its other businesses following this separation holdco and its subsidiaries will conduct the retail service businesses while distributing and its subsidiaries will continue to conduct distributing’s other businesses in order to plr-125118-06 optimize the credit ratings for each of distributing and holdco it is important that in connection with the transactions described herein the holdco group effectively assume a specified level of distributing debt the foregoing will be accomplished through a series of transactions described more fully below pursuant to which in general i sub will distribute to distributing its short term note the sub note and distributing will contribute concurrently to sub the shares of sub the sub note will bear interest and will have a face_amount approximately equal to the sub note’s fair_market_value at the time issued the sub note’s fair_market_value will exceed that of sub sub will be treated as having been purchased for the portion of the sub note equal to sub 2’s fair_market_value with the remaining portion of the sub note treated as a dividend distribution from sub to distributing the sub dividend the amount of the dividend will not exceed distributing’s basis in the stock of sub determined prior to the effects of the internal spin-off described below sub1 is planning to distribute the sub note rather than cash to avoid certain potential indenture restrictions ii sub will be converted into sub llc a ------------- limited_liability_company through the filing of a certificate of conversion the conversion as a result of the conversion distributing will become the owner of 100-percent of the outstanding membership interests of sub llc iii the stock of certain sub subsidiaries most notably sub and sub not engaged in the retail service businesses will be contributed by sub to internal newco a newly-formed wholly-owned subsidiary of sub the internal newco contribution and the stock of internal newco internal newco common_stock will be distributed by sub to distributing the internal spin-off prior to the internal newco contribution i certain promissory notes receivable held by sub having sub as obligor will be contributed by sub to sub and ii certain promissory notes receivable held by sub having sub as obligor will be contributed by sub to sub iv pursuant to a separation and distribution agreement to be entered into by holdco and distributing the separation agreement distributing will contribute a the stock of sub sub sub and sub and b real_estate intellectual_property and other assets specified in the separation agreement such real_estate intellectual_property and other assets collectively the other assets to holdco and holdco will deliver in exchange therefor the consideration defined below the contribution v as part of the contribution and also pursuant to the separation agreement holdco will deliver to distributing consideration the consideration for the contribution the consideration delivered by holdco will consist of holdco common_stock holdco common_stock holdco debt instruments the holdco securities and cash plr-125118-06 the cash portion of the consideration i will be funded out of the proceeds of certain holdco borrowings the holdco borrowings and ii will not exceed the sum of distributing’s tax basis in- a the stock of sub and the other distributing subsidiaries contributed to holdco in the contribution taking into account the adjustments to the basis of the sub stock resulting from the sub dividend and the internal spin-off and b the other assets the holdco securities portion of the consideration will bear stated_interest unconditionally payable at least annually and will have a maturity of at least years it is expected that at the time of issuance the holdco securities will have a fair_market_value approximately equal to their stated principal_amount the debt represented by the holdco borrowings and the holdco securities might be guaranteed by certain subsidiaries of holdco including sub possibly in connection with a cross-guarantee by holdco of sub debt vi distributing will distribute holdco’s outstanding common_stock on a pro_rata basis to record holders of distributing common_stock on the record_date for the holdco spin-off or their designated transferees distributing stockholders the holdco spin-off and with the internal spin-off the spin- offs vii following the holdco spin-off pursuant to an exchange_agreement as described more fully below the exchange_agreement between distributing and one or more investment banks collectively investment bank distributing will transfer the holdco securities delivered as part of the consideration to investment bank in exchange for certain eligible_debt as described below previously acquired by investment bank the debt retirement absent an unexpected delay the debt retirement will occur on the same day as the holdco spin-off at some time during the seven-day period prior to the date of the holdco spin-off investment bank distributing and possibly holdco will enter into the exchange_agreement pursuant to which distributing will agree to deliver to investment bank holdco securities in exchange for the delivery by investment bank to distributing of eligible_debt previously acquired by investment bank for purposes of the debt retirement the aggregate value of the eligible_debt given up by investment bank on the one hand and of the holdco securities on the other hand will be determined on a date specified in the exchange_agreement the valuation_date under the terms of the exchange_agreement investment bank will make representations to the effect that i any debt delivered to distributing in the debt retirement was acquired by investment bank for its own account ii no such debt was acquired by investment bank within days of the valuation_date iii to the knowledge of investment bank without independent inquiry all such debt was acquired by investment bank from plr-125118-06 third parties sellers and other than as a dealer prior to sales to third parties not from distributing or any affiliate of distributing and iv at or prior to the time of the original issuance of such debt there was no arrangement or understanding between investment bank and any seller that acquired such debt in connection with its original issuance from investment bank as dealer or otherwise that the seller would sell the debt to investment bank also under the terms of the exchange_agreement distributing will represent that neither it nor any of its affiliates sold any debt delivered to distributing in the debt retirement to investment bank other than as dealer investment bank will sell to third parties pursuant to a public or private offering any holdco securities received from distributing viii pursuant to the separation agreement the cash portion of the consideration received by distributing from holdco pursuant to step v above will be maintained in a separate_account and for federal_income_tax purposes distributing will take into account all items of income gain deduction or loss associated with the funds maintained in the separate_account the earnings on the funds held in the separate_account together with the cash portion of the consideration will be used to pay principal and interest on eligible_debt as described below not later than the first anniversary of the holdco spin-off transfers by distributing of i the cash portion of the consideration and ii holdco securities pursuant to the exchange_agreement or otherwise will be made to pay principal or interest on a all or a portion of the historic distributing long-term debt as reduced by the amount of refinancing cp and or b commercial paper outstanding on the date of the holdco spin-off having a stated principal_amount not in excess of the sum of the amount of historic cp ie dollar_figurea plus the amount of refinancing cp the debt described in a and b above collectively eligible_debt ix sub will pay the sub note previously delivered to distributing plus accrued interest repayment by sub of the sub note will be funded out of third-party sub borrowings that sub intends to arrange prior to the holdco spin-off the sub borrowings absent any delay in effecting the sub borrowings the sub note will be paid no later than days following the date of the holdco spin-off the sub borrowings are currently expected to initially consist of a bridge facility with a third-party bank or banks but it is possible that the sub borrowings may be refinanced through a public or private debt offering to the extent public or private debt is issued by sub such debt might be guaranteed by holdco to facilitate public or private marketing to minimize or eliminate certain non-tax inefficiencies that would result if there were debt outstanding in both sub and holdco following the holdco spin-off sub and holdco are considering a consolidation at holdco of any sub and holdco debt following the holdco spin-off in this regard taxpayer has provided a letter from bank plr-125118-06 to the effect that bank could arrange for the borrowing by sub of dollar_figurec from unrelated parties based solely on its own creditworthiness after taking into account credit support received from direct or indirect subsidiaries of sub any sub borrowings in the aggregate will not exceed dollar_figurec at the time of the holdco spin-off there will be no pre- existing agreements or arrangements with third parties to provide holdco or any of its affiliates any funds necessary to consolidate sub debt in holdco in conjunction with the proposed transactions distributing and holdco will enter into several agreements the transaction agreements relating to i the separation of the retail service businesses from distributing’s other businesses and ii certain continuing transactions between the companies including among others such agreements as an employee matters agreement a transition services agreement and a tax_allocation_agreement representations the internal spin-off distributing makes the following representations with respect to the internal spin- off a no part of the internal newco common_stock to be distributed by sub in the internal spin-off is intended to be received by distributing as a creditor employee or in any capacity other than that of a shareholder of sub b if sub and internal newco elect not to apply the transitional rule_of sec_355 with respect to the internal spin-off sub and internal newco will treat all members of their respective separate affiliated groups as defined in sec_355 hereinafter sags as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business c immediately following the internal spin-off at least 90-percent of the fair_market_value of the gross assets of sub will consist of the stock and securities of sub which is a controlled subsidiary engaged in the active_conduct_of_a_trade_or_business that will be relied upon to meet the requirements of sec_355 of the code with any trade_or_business relied upon by any person to meet the requirements of sec_355 referred to herein as an active business d immediately following the internal spin-off at least 90-percent of the fair_market_value of the gross assets of internal newco will consist of the stock and securities of sub which is a controlled subsidiary indirectly engaged in an active business plr-125118-06 e immediately following the internal spin-off at least 90-percent of the fair_market_value of the gross assets of sub will consist of the stock and securities of sub which is a controlled subsidiary engaged in an active business f sub will be a member of sub 1’s sag sub will be a member of internal newco’s sag g the years of financial information submitted on behalf of sub and business a1 is representative of the corporation’s and business a1’s present operation and with regard to such corporation and business a1 there have been no substantial operational changes since the date of the last financial statements submitted h the years of financial information submitted on behalf of sub and business b1 is representative of the corporation’s and business b1’s present operation and with regard to such corporation and business b1 there have been no substantial operational changes since the date of the last financial statements submitted i following the internal spin-off each of sub through sub and internal newco through sub and sub 7’s controlled subsidiary sub will continue the active_conduct of its active business independently and with its separate employees j sub 1’s distribution of internal newco common_stock pursuant to the internal spin-off will be carried out for the following corporate business_purpose to facilitate the holdco spin-off by separating from sub certain assets and subsidiaries not used in the retail service businesses sub 1’s distribution of internal newco stock pursuant to the internal spin-off will be motivated in whole or substantial part by this corporate business_purpose k the internal spin-off will not be used principally as a device for the distribution of the earnings_and_profits of sub or internal newco or both l the total adjusted bases and the fair_market_value of the assets to be transferred to internal newco by sub will equal or exceed the sum of the liabilities assumed by internal newco plus any liabilities to which the transferred assets are subject and any liabilities assumed in the transaction 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 m sub neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction plr-125118-06 n no intercorporate debt will exist between sub and internal newco at the time of or subsequent to the internal spin-off o payments made in connection with all continuing transactions between sub and its subsidiaries on the one hand and internal newco and its subsidiaries on the other will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length p no two parties to the transaction are investment companies as defined in sec_368 and iv q the internal spin-off is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in sub or internal newco including any predecessor or successor of any such corporation the holdco spin-off a no part of the consideration to be distributed by distributing to a distributing stockholder in the holdco spin-off will be received by the distributing stockholder as a creditor employee or in any capacity other than that of a distributing stockholder b no part of the holdco securities to be delivered by distributing pursuant to the exchange_agreement will be received by investment bank as an employee or in any capacity other than that of a creditor of distributing c if distributing and holdco elect not to apply the transitional rule_of sec_355 with respect to the holdco spin-off distributing and holdco will treat all members of their respective sags as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business d immediately following the holdco spin-off at least 90-percent of the fair_market_value of the gross assets of holdco will consist of the stock and securities of sub which is a controlled subsidiary indirectly engaged in an active business e immediately following the holdco spin-off at least 90-percent of the fair_market_value of the gross assets of sub will consist of the stock and securities of sub which is a controlled subsidiary directly engaged in an active business f sub will be a member of holdco’s sag plr-125118-06 g the years of financial information submitted on behalf of sub and businesses c1 and c2 is representative of sub 6’s and business c1’s and business c2’s present operation and with regard to such corporation and business c1 and business c2 there have been no substantial operational changes since the date of the last financial statements submitted h the years of financial information submitted on behalf of sub and business a1 is representative of the corporation’s and business a1’s present operation and with regard to such corporation and business a1 there have been no substantial operational changes since the date of the last financial statements submitted i following the holdco spin-off each of distributing through sub llc and holdco through sub and sub 1’s controlled subsidiary sub will continue the active_conduct of its active business independently and with its separate employees j the distribution of holdco common_stock in connection with the holdco spin-off will be carried out for the following corporate business purposes i to allow the managements of distributing and holdco to focus their attention and financial resources on their own distinct businesses and business challenges and provide holdco’s management with the flexibility to invest excess cash_flow generated by the retail service businesses in various initiatives that would otherwise be constrained if the retail service businesses remained a part of distributing ii to allow the managements of distributing and holdco to pursue desired acquisitions without creating conflicts with the businesses of the other entity iii to develop employee incentive programs at distributing and holdco more directly linked to the performance of the businesses conducted by each and iv to improve the likelihood that each of distributing and holdco will receive appropriate market recognition of its performance and potential the holdco spin-off is motivated in whole or substantial part by one or more of these corporate business purposes k the holdco spin-off will not be used principally as a device for the distribution of the earnings_and_profits of distributing or holdco or both l the total adjusted bases and the fair_market_value of the assets to be transferred to holdco by distributing will equal or exceed the sum of the liabilities assumed by holdco plus any liabilities to which the transferred assets are subject and any liabilities assumed in the transaction 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 plr-125118-06 m except as otherwise described herein distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction n no intercorporate debt will exist between distributing and holdco at the time of or subsequent to the distribution of the holdco common_stock except for the holdco securities and any indebtedness arising under the transaction agreements o immediately prior to the holdco spin-off but taking into account ruling items of income gain deduction loss 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 prior to the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account of distributing with respect to holdco common_stock or the stock of any direct or indirect subsidiaries of holdco will be included in income immediately prior to the distribution see sec_1_1502-19 p payments made in connection with all continuing transactions between distributing and its subsidiaries on the one hand and holdco and its subsidiaries on the other will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length q no two parties to the transaction are investment companies as defined in sec_368 and iv r the holdco spin-off is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or holdco including any predecessor or successor of any such corporation the sub merger a the fair_market_value of the distributing stock received by each sub shareholder in the sub merger was approximately equal to the fair_market_value of the sub stock surrendered by that shareholder in the sub merger b at the time of the sub merger sub did not have outstanding any warrants options convertible securities or any other type of right pursuant to which any person could acquire stock in sub that if exercised or converted would affect distributing's acquisition or retention of control within the meaning of sec_368 of sub plr-125118-06 c at the time of the sub merger distributing had no plan or intention to reacquire any of its stock issued in the sub merger other than stock acquired pursuant to a pre-existing open market repurchase program that was not expanded in connection with the sub merger d at the time of the sub merger distributing did not own directly or indirectly nor did it own during the five years preceding the sub merger directly or indirectly any stock of sub other than the stock of sub acquired in the nominal share purchase e at the time of the sub merger distributing had no plan or intention to liquidate sub to merge sub into another corporation to cause sub to sell or otherwise dispose_of any of its assets except for dispositions made in the ordinary course of business and except as described in the following sentence or to sell or otherwise dispose_of the stock of sub except for transfers described in sec_368 in connection with the opinion rendered by tax counsel at the time of the sub merger distributing was given the leeway potentially to transfer certain contracts held by subsidiaries of sub having an aggregate value as of the effective time of the sub merger not in excess of g- percent of the equity value of sub at that time to certain partnerships f at the time of the sub merger sub had no plan or intention to issue additional shares of stock that would result in distributing losing control within the meaning of sec_368 of sub g in connection with the sub merger distributing paid or assumed only those expenses of sub that were solely and directly related to the sub merger in accordance with the guidelines established in revrul_73_54 1973_1_cb_187 otherwise distributing sub and the shareholders of sub paid their respective expenses if any incurred in connection with the sub merger h in the sub merger except for the payment of cash in lieu of fractional shares distributing acquired sub stock solely in exchange for distributing voting_stock for purposes of this representation sub stock redeemed for cash or other_property furnished by distributing or an affiliate of distributing is considered acquired by distributing furthermore no liabilities of sub or its shareholders were assumed by distributing nor was any of the sub stock acquired by distributing subject_to any liabilities except that distributing became jointly and severally liable on outstanding debentures of sub and sub affiliates that were convertible into sub stock and which became convertible into the stock of distributing upon consummation of the sub merger for purposes of this representation the acquisition of sub shares in the nominal share purchase is not taken into account plr-125118-06 i following the sub merger sub continued its historic_business or used a significant portion of its historic_business_assets in a business j at the time of the sub merger no two parties to the sub merger were investment companies as defined in sec_368 and iv k on the date of the sub merger the fair_market_value of the assets of sub exceeded the sum of its liabilities plus the liabilities if any to which those assets were subject l no sub shareholders dissented from the sub merger m the payment of cash in lieu of fractional shares of distributing stock to the holders of sub stock was solely for the purpose of avoiding the expense and inconvenience to distributing of issuing fractional shares and did not represent separately bargained-for consideration n the total cash consideration that was paid in the sub merger to the holders of sub stock instead of using fractional shares of distributing stock did not exceed one percent of the total consideration that was issued in the sub merger to holders of sub stock in exchange for their sub stock o none of the compensation received by any shareholder-employees of sub was separate consideration for or allocable to any of their shares of sub stock none of the shares of distributing stock received by any shareholder- employees in the sub merger was separate consideration for or allocable to any employment agreement and the compensation paid to any shareholder- employees was for services actually rendered and was commensurate with amounts paid to third parties bargaining at arm’s-length for similar services p all federal_income_tax consequences reported on any previously filed tax_return of distributing are consistent with the characterization of the sub merger as a reorganization under sec_368 no determination by distributing of the basis in its sub stock has been taken into account in preparing or has been reflected on any previously filed federal_income_tax return of distributing q the sub merger did not result in a group structure change as defined for purposes of sec_1_1502-31 as in effect at the time of the sub merger based on the information submitted and representations made we rule as follows on the proposed transactions rulings the sub dividend plr-125118-06 no income gain_or_loss will be recognized by distributing upon receipt of the sub dividend sec_1_1502-13 distributing will recognize gain equal to any excess of the fair_market_value of the stock sub at the time the stock of sub is transferred to sub over the basis of such stock in the hands of distributing immediately prior to such transfer any such gain will be deferred pursuant to sec_1_1502-13 and will be taken into account by distributing at the time of the holdco spin-off sec_1_1502-13 distributing’s basis in the stock of sub immediately following the sub dividend and the transfer to sub of the stock of sub will be determined before taking into account the adjustment to the basis of sub stock described in ruling and will equal distributing’s basis in the stock of sub immediately before the sub dividend and such transfer decreased by the sub dividend sec_1_1502-32 sub 1’s basis in the stock of sub immediately_after_the_transfer of such stock to sub will equal the fair_market_value of such stock at that time sec_1012 the internal newco contribution and the internal spin-off the internal newco contribution and the internal spin-off taken together will qualify as a reorganization described in sec_368 each of sub and internal newco will be a party to the reorganization within the meaning of sec_368 no income gain_or_loss will be recognized by sub in connection with the internal newco contribution sec_361 no income gain_or_loss will be recognized by internal newco in connection with the internal newco contribution sec_1032 immediately following the internal newco contribution internal newco’s basis in the stock of sub and sub and other assets received in the internal newco contribution will equal the basis of that stock and other assets in the hands of sub immediately prior to the internal newco contribution sec_362 internal newco’s holding_period for the stock of sub and sub and any other assets received in the internal newco contribution will include the period that sub held that stock and those other assets prior to the internal newco contribution sec_1223 no income gain_or_loss will be recognized by sub in connection with the internal spin-off sec_361 plr-125118-06 no income gain_or_loss will be recognized by distributing in connection with the internal spin-off sec_355 the aggregate basis of the sub common_stock and internal newco common_stock in the hands of distributing immediately following the internal spin-off will equal the basis of the sub common_stock held by distributing immediately prior to the internal spin-off determined after taking into account any adjustments to the basis of the sub stock described in ruling and will be allocated between the sub common_stock and internal newco common_stock in proportion to the fair_market_value of each sec_358 assuming that the sub common_stock held by distributing is a capital_asset in the hands of distributing the holding_period for the internal newco common_stock received by distributing in connection with the internal spin-off will be the same as distributing’s holding_period for the sub common_stock sec_1223 the contribution and the holdco spin-off the contribution and the holdco spin-off taken together will qualify as a reorganization described in sec_368 each of distributing and holdco will be a party to the reorganization within the meaning of sec_368 to the extent the cash portion of the consideration does not exceed the aggregate adjusted_basis of the contribution reduced by any liabilities assumed by holdco no income gain_or_loss will be recognized by distributing in connection with the contribution sec_361 b c and sec_357 no income gain_or_loss will be recognized by holdco in connection with the contribution sec_1032 immediately following the contribution holdco’s basis in the stock of sub sub sub and sub received in the contribution and in the other assets received in the contribution will equal the basis thereof in the hands of distributing immediately prior to the contribution after taking into account the adjustments to the basis of the sub stock described in rulings and sec_362 holdco’s holding_period for the stock of sub sub sub and sub received in the contribution and for the other assets received in the contribution will include the period that distributing held that stock or the other assets as the case may be prior to the contribution sec_1223 no income gain_or_loss will be recognized by distributing in connection with the holdco spin-off sec_361 plr-125118-06 no income gain_or_loss will be recognized by the distributing stockholders in connection with the holdco spin-off sec_355 sec_355 will not treat as other_property any part of the holdco common_stock constructively issued by holdco to distributing in exchange for any intellectual_property rights transferred to holdco in the contribution the aggregate basis of the distributing common_stock and holdco common_stock in the hands of the distributing stockholders following the holdco spin-off will equal the basis of the distributing common_stock held by the distributing stockholders immediately prior to the holdco spin-off and will be allocated between the distributing common_stock and holdco common_stock in proportion to the fair_market_value of each sec_358 assuming that the distributing common_stock held by the distributing stockholders is a capital_asset in the hands of such stockholders the holding_period for holdco common_stock received by the distributing stockholders in connection with the holdco spin-off will be the same as their holding periods for the related distributing common_stock sec_1223 the holdco securities and the debt retirement provided that the holdco securities included in the consideration are transferred by distributing on the date of the holdco spin-off or shortly thereafter in connection with the debt retirement i any income gain deduction or loss recognized by distributing on the deemed satisfaction of the holdco securities described in sec_1_1502-13 immediately prior to the holdco spin-off the deemed satisfaction will be redetermined to be excluded from distributing's gross_income sec_1_1502-13 and c except to the extent of any such income gain_or_loss equal to an offsetting amount of income gain deduction or loss taken into account by holdco from the deemed satisfaction attributable to any difference between the adjusted_issue_price and fair_market_value of the holdco securities at the time of the deemed satisfaction and ii distributing’s basis in its holdco common_stock will not be reduced as a result of the deemed satisfaction except to the extent holdco takes into account any deduction from the deemed satisfaction eg repurchase premium attributable to any difference between the adjusted_issue_price and fair_market_value of the holdco securities at the time of the deemed satisfaction no opinion is expressed as to the tax treatment of any gain_or_loss realized by distributing upon the transfer of the holdco securities in the debt retirement that may arise from changes in the basis of the holdco securities from their basis immediately after the holdco spin-off ie their value at such time or changes in the value of the holdco securities from their value immediately after the holdco spin-off the sub merger plr-125118-06 for the current_year distributing is entitled to determine the basis in its sub stock in accordance with the method described in sec_1 c ii b applicable to reorganizations under sec_368 the rulings in this letter will apply whether or not an election is made with respect to the internal spin-off or the holdco spin-off not to apply the transitional rule_of sec_355 caveats we express no opinion about the tax treatment of the proposed transactions under other provisions of the code and regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular no opinion is given regarding- a whether either spin-off i satisfies the business_purpose requirement of sec_1_355-2 ii is used principally as a device for the distribution of earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation and b whether the transfer of any intellectual_property rights in the contribution constitutes a transfer of property see revrul_69_156 c b procedural statements this ruling letter is directed only to the taxpayers who requested 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 any taxpayer filing its return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of this letter_ruling in accordance with the power_of_attorney on file in this office a copy of this ruling letter will be sent to your authorized representative sincerely _________________________ michael j wilder senior technician reviewer branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c date number release date cc intl br scano-110818-02 uil memorandum for shirley a bogan quality staff philadelphia from phyllis e marcus branch chief cc intl br subject late filed sec_911 exclusions this memorandum responds to your e-mail to jerry traficanti dated date requesting clarification about when a taxpayer may claim the sec_911 exclusion on a form_2555 that is filed late specifically your guidelines under sec_1_911-7 instruct tax examiners to look at the total_tax line before payments to determine whether taxpayers have satisfied the owes no federal_income_tax requirement under that regulation if a taxpayer owes tax before payments such as withholding whether or not there is a tax_liability remaining after payment the tax examiner will disallow the claim for the sec_911 exclusion and refer the taxpayer to the office of associate chief_counsel international for a private_letter_ruling addressing retroactive relief thus the issue is whether the phrase owes no federal_income_tax under sec_1_911-7 means a taxpayer’s tax_liability before or after any payments such as withholding_tax estimated_tax tax_credit and etc sec_1_911-7 sets forth the procedural rules for making a valid sec_911 election the election must be made on form_2555 or on a comparable form and must be filed with an income_tax return or with an amended_return with respect to the timing of the election sec_1_911-7 provides that a valid sec_911 election must be made a with an income_tax return that is timely filed including any extensions of time to file scsno-110818-02 b with a later return filed within the period prescribed in sec_6511 amending a timely filed return c with an original return filed within one year after the due_date of the return determined without regard to any extension of time to file or d with an income_tax return filed after the period described in paragraphs a i a b or c of this section provided - the taxpayer owes no federal_income_tax after taking into account the exclusion and files form_1040 with form_2555 or a comparable form attached either before or after the internal_revenue_service discovers that the taxpayer failed to elect the exclusion or the taxpayer owes federal_income_tax after taking into account the exclusion and files form_1040 with form_2555 or a comparable form attached before the internal_revenue_service discovers that the taxpayer failed to elect the exclusion under sec_1_911-7 and the validity of a taxpayer’s sec_911 election on a form_2555 with respect to a late filed income_tax return depends in part on whether the taxpayer owes federal_income_tax after taking into account the exclusion it is our position that the phrase owes no federal_income_tax under sec_1_911-7 means that tax examiners should apply any payments such as withholding_tax estimated_tax tax_credit and etc to offset any federal_income_tax liability to determine whether the taxpayer owes no federal_income_tax the intent of this regulation section is to allow a taxpayer whose only income at issue is excluded foreign_earned_income to file a late sec_911 election thus the tax examiners should examine whether a taxpayer has a refund or a balance due if the taxpayer has a refund or no balance due the taxpayer owes no federal_income_tax under sec_1 a i d and and does not need to request a private_letter_ruling from us if you have any questions please call kate y hwa at phyllis e marcus chief branch office of associate chief_counsel international


internal_revenue_service number release date index number -------------------------------------- ------------------------------------------- ------------------------------------- ------------------------------- ---------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc intl plr-160415-03 date date taxpayer legend ---------------------------------------------------------------------------------------------- ------------------------ -------------------------- -------------------------- ---------------------------------------- ------------------------ entity individual a cpa firm date one dear ---------------------- this replies to a letter dated date in which taxpayer requests an extension of time under sec_301_9100-3 to file the election and agreement described in sec_1_1503-2 with respect to the dual_consolidated_loss incurred by entity in the tax_year ended on date one the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process plr-160415-03 individual a is a partner with cpa firm during the tax_year ended on date one individual a was the tax services coordinator for taxpayer which involved coordinating federal international state and local_tax services that cpa firm provided to taxpayer during the preparation of taxpayer’s consolidated u s federal_income_tax return for the subsequent tax_year individual a discovered that the elective relief agreement required by sec_1_1503-2 with respect to the dual_consolidated_loss incurred by entity in the tax_year ended on date one was inadvertently not filed with the taxpayer’s consolidated u s federal_income_tax return for the tax_year ended on date one sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith within the meaning of sec_301_9100-3 subject_to the conditions set forth in sec_301_9100-3 and the grant of relief will not prejudice the interests of the government within the meaning of sec_301_9100-3 in the present situation the election and agreement described in sec_1_1503-2 is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards for relief as set forth in sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file the election and agreement described in sec_1 g i with respect to the dual_consolidated_loss incurred by entity in the tax_year ended on date one plr-160415-03 the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the election and agreement sec_301_9100-1 a copy of this ruling letter should be associated with the election and agreement this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representatives sincerely associate chief_counsel international by s allen goldstein allen goldstein reviewer enclosure copy for purposes


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 psi b02 plr-150965-11 date date legend x -------------- ---------------------- a ----------------------- --------------------------------------------------- b --------------------------------------------------- -------------------- c --------------------------------------------------- ----------------- d state date date date --------------------------------- ----------------------- ------------- ----------------- ------------------ -------------------------- dear ----------------- this responds to a letter dated date and additional correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code plr-150965-11 the information submitted states that x was incorporated in state on date x made an election to be treated as an s_corporation effective date a b and c are eligible shareholders x’s election was inadvertently terminated effective date when d an ineligible shareholder acquired x stock on date x redeemed all of the stock held by d x represents that the termination was not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that the termination of x’s s_corporation_election on date was inadvertent within the meaning of sec_1362 we further hold that pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided x’s s_corporation_election was valid and provided that the election was not otherwise terminated under sec_1361 this ruling is conditioned upon the shareholders of x including in income their pro_rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 making any adjustments to basis as provided in sec_1367 and taking into account any distributions made by x as provided in sec_1368 in addition a b and c must take into account their pro_rata share of the separately_stated and nonseparately computed items of x between date and date as if d was never a shareholder any necessary amended returns of a b or c consistent with this ruling must be filed within days of the date of this letter a copy of this letter should be attached to any such returns if x or its shareholders fail to treat themselves as described above this letter plr-150965-11 ruling shall be null and void except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------------------- ----------------------------------------- --------------------------------------------- -------------------------------- --------------------------- department of the treasury washington dc person to contact ------------------------------- --------- ------------ ------------------------------------------------------ telephone number --------------------- refer reply to cc psi - plr-125160-07 date march --------------------------- ---------------------------------------------- legend lp ------------------------------------------------- club llc np --------------------------------------------------- state dear ------------------- requesting rulings on a proposed reorganization of lp and related entities ----------------------------------- --------------------- -------------------- this letter responds to a letter dated date submitted on behalf of lp lp is a state limited_partnership that owns a golf club the club consisting of a golf course a clubhouse a restaurant rooms available to members for overnight stay and the underlying land the club has several classes of membership a membership conveys the right to use the golf course clubhouse and other amenities of the club any person using club facilities must be a member or sponsored by a member membership is transferable upon written consent of lp lp also owns all of the membership interests in llc which owns land adjacent to the club this land is available for purchase by members of the club and others for building homes plr-125160-07 some members of the club became members by purchasing a limited_partnership_interest in lp partners a member’s limited_partnership_interest reflects that partner’s type of membership in the club however a majority of the members of the club directly purchased a membership from the club and therefore are not partners of the lp nonpartner members lp also has a general_partner a corporation that does not have a membership in the club and only a nominal interest in lp lp proposes the following series of transactions lp will distribute all of its membership interests in llc to its partners in proportion to their respective limited_partnership interests in lp the nonpartner members will contribute their memberships in the club to lp in exchange for limited_partnership interests in lp equivalent in number and classes to the memberships in the club as in existence prior to this step and the club will cancel all of these membership contracts lp will transfer all of the club property to np a non-profit corporation intended to qualify as tax-exempt under sec_501 in exchange for membership interests in np equivalent in number and classes to the memberships in the club as in existence prior to step ii lp will liquidate and will distribute to its limited partners which consists of both the original partners and the former nonpartner members membership interests in np corresponding to the types of limited_partnership interests in lp that each such partner had the general_partner would also liquidate and not receive anything from lp ie it would be treated as if it had received a nominal amount of consideration from lp in exchange for its nominal general_partnership interest and then contributed such amount to np lp has requested the following rulings the distribution of membership interests in llc will be taxed under the principles set forth in revrul_99_5 1999_1_cb_434 for federal_income_tax purposes the distribution of the membership interests in llc will be treated as a distribution to the partners of llc’s assets and liabilities immediately followed by a deemed contribution of those assets to a new llc pursuant to sec_731 gain shall not be recognized by the partners on the distribution of the llc assets except to the extent any money distributed exceeds a partner’s basis in the partner’s partnership_interest pursuant to sec_731 no gain_or_loss is recognized to lp i ii iii iv a plr-125160-07 b pursuant to sec_721 no gain_or_loss is recognized to lp or any of the contributing partners ie the nonpartner members as a result of the contribution of the memberships in exchange for limited_partnership interests in lp c d e pursuant to sec_351 no gain_or_loss is recognized as a result of the contribution by lp of the club property to np in exchange for membership interests in np no gain_or_loss will be recognized by the partners except to the extent provided under sec_731 as a result of the distribution of the np memberships by the lp to the partners in liquidation of lp the contribution of memberships by the nonpartner members in exchange for limited_partner interests in lp followed by the receipt by nonpartner members of np membership interests in connection with the distribution of np membership interest to all partners in liquidation of lp do not constitute a sale_or_exchange for purposes of sec_707 lp makes the following representations no stock_or_securities will be issued for services rendered to or for the benefit of np in connection with the exchange and no stock_or_securities will be issued for indebtedness of lp that is not evidenced by a security or for interest on indebtedness of np which accrued on or after the beginning of the holding_period of lp for the debt lp will not retain any significant_power_right_or_continuing_interest within the meaning of sec_1253 in the franchises trademarks or trade names being transferred the exchange is not the result of the solicitation by a promoter broker or investment house lp will not retain any rights in the club property transferred to np the value of the membership interests in np received in exchange for accounts_receivable will be equal to the net value of the accounts transferred ie the face_amount of the accounts_receivable previously included in income less the amount of the reserve for bad_debts the adjusted_basis and the fair_market_value of the assets to be transferred by lp to np will in each instance be equal to or exceed the sum of the liabilities assumed within the meaning of sec_357 by np plr-125160-07 the liabilities of lp to be assumed within the meaning of sec_357 by np were incurred in the ordinary course of business and are associated with the assets to be transferred there is no indebtedness between lp and np and there will be no indebtedness created in favor of lp as a result of the exchange the transfers and exchanges will occur under a plan agreed upon before the consummation of the transaction in which the rights of the parties are defined all exchanges will occur on approximately the same date there is no plan or intention on the part of np to redeem or otherwise reacquire any stock or indebtedness to be issued in the transaction taking into account any issuance of additional membership interests in np any issuance of membership interests for services the exercise of any membership rights warrants or subscriptions a public offering of membership interests and the sale exchange transfer by gift or other_disposition of any of the membership interests in np to be received in the exchange lp will be in control of np within the meaning of sec_368 lp will receive membership interests in np approximately equal to the fair_market_value of the club property transferred to np np will remain in existence and retain and use the club property in its exempt_function activity there is no plan or intention by np to dispose_of the transferred property other than in the normal course of its exempt_function activity each of the parties to the exchange will pay its own expenses if any incurred in connection with the exchange np will not be an investment_company within the meaning of sec_351 and sec_1_351-1 lp is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the membership interests received in the exchange will not be used to satisfy the indebtedness of lp np will not be a personal_service_corporation within the meaning of sec_269a plr-125160-07 sec_351 provides that no gain_or_loss will be recognized if one or more persons transfer property to a corporation solely in exchange for stock in the corporation and immediately_after_the_exchange the transferors are in control as defined in sec_368 of the corporation sec_707 provides that if i there is a direct or indirect transfer of money or other_property by a partner to a partnership ii there is a related direct or indirect transfer of money or other_property by the partnership to such partner or another partner and iii the transfers described in clauses i and ii when viewed together are properly characterized as a sale_or_exchange of property such transfers shall be treated either as occurring between the partnership and one who is not a partner or as a transaction between two or more partners acting other than in their capacity as members of the partnership sec_721 provides that no gain_or_loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership sec_731 provides that in the case of a distribution by a partnership to a partner gain shall not be recognized to such partner except to the extent that any money distributed exceeds the adjusted_basis of such partner's_interest_in_the_partnership immediately before the distribution sec_731 provides that no gain_or_loss shall be recognized to a partnership on a distribution to a partner of property including money sec_1_707-3 of the income_tax regulations provides that if within a two- year period a partner transfers property to a partnership and the partnership transfers money or other consideration to the partner without regard to the order of the transfers the transfers are presumed to be a sale of the property to the partnership unless the facts and circumstances clearly establish that the transfers do not constitute a sale revrul_99_5 1999_1_cb_434 explains the federal_income_tax consequences when a single member domestic limited_liability_company that is disregarded for federal tax purposes as an entity separate from its owner under sec_301_7701-3 becomes an entity with more than one owner that is classified as a partnership for federal tax purposes revrul_99_5 addresses two situations in which the disregarded_entity becomes an entity classified as a partnership for federal tax purposes in situation an unrelated_person purchases an interest in the disregarded_entity from its owner for cash in situation an unrelated_person contributes cash to the disregarded_entity in exchange for an interest in the entity plr-125160-07 in situation revrul_99_5 concludes that the purchase of an interest in a disregarded_entity will be treated as the purchase of a share of the assets of the entity the assets being treated as owned directly by the owner of the disregarded_entity followed immediately by the contribution of the assets by the purchaser and the original owner to a newly formed partnership in exchange for ownership interests in situation revrul_99_5 concludes that the unrelated third party and the owner of the disregarded_entity are treated as contributing cash and the entity's assets respectively to a newly formed partnership in exchange for partnership interests upon lp’s distribution of interests in llc to the partners llc will be converted from a disregarded_entity to a partnership similar to situation in revrul_99_5 the distribution of the llc interests by lp shall be treated as a non-taxable pro_rata distribution of lp’s assets subject_to any related liabilities to the partners as if such assets had been distributed outright from lp to the partners the partners will be treated as contributing their respective interests in those assets to a new partnership in exchange for ownership interests in the partnership under sec_721 no gain_or_loss will be recognized by the partners as a result of the conversion of the disregarded_entity to a partnership revrul_99_5 accordingly based solely on the information and representations submitted we rule as follows for federal_income_tax purposes lp’s distribution of the membership interests in llc will be treated as a distribution of llc’s assets and liabilities to the partners immediately followed by a deemed contribution of those assets and liabilities to llc that is now treated as a partnership pursuant to sec_731 the partners shall not recognize gain on the distribution of the llc assets except to the extent any money distributed exceeds a partner’s basis in the partner’s partnership_interest no gain_or_loss will be recognized by the partners except to the extent provided under sec_731 as a result of the distribution of the np memberships by the lp to the partners in liquidation of lp pursuant to sec_731 no gain_or_loss is recognized to lp partners ie the nonpartner members as a result of the contribution of the memberships in exchange for limited_partnership interests in lp furthermore the contribution of memberships by the nonpartner members in exchange for limited_partner interests in lp followed by the receipt by nonpartner members of np membership interests in connection with the distribution of np membership interests to all partners in liquidation of lp do not constitute a sale_or_exchange for purposes of sec_707 because the related transfers are not properly characterized as a sale_or_exchange pursuant to sec_721 no gain_or_loss is recognized to lp or any of the contributing plr-125160-07 we further rule as follows on the exchange described in step iii no gain_or_loss will be recognized by lp upon the transfer of all of the club property to np in exchange for membership interests in np equivalent in number and classes to the memberships in the club as in existence prior to step ii above followed by the distribution by lp of those membership interests in np to its limited partners in complete_liquidation sec_351 revrul_84_111 1984_2_cb_88 and revrul_58_501 c b the basis of the membership interests in np received by lp will be the same as the basis of the club property exchanged therefor sec_358 the holding_period of the membership interests in np received by lp will include the period during which lp held the club property provided that such property was held as a capital_asset at the time of the exchange sec_1223 no gain_or_loss will be recognized by np on the receipt of the club property from lp in exchange for membership interests in np sec_1032 the basis of each club asset received by np in the exchange will equal the basis of that asset in the hands of lp immediately before the exchange sec_362 the holding_period of each club asset received by np in the exchange will include the period during which lp held that asset sec_1223 for these rulings to be effective np must have qualified as a sec_501 organization by the time the transaction described in step iii is undertaken no opinion is expressed as to the federal_income_tax consequences of step iii if np fails to so qualify at the time step iii is undertaken this ruling is directed only to the taxpayer who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is plr-125160-07 being sent to x’s authorized representatives sincerely j thomas hines chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc ita plr-139125-01 date date company foundation date a date b date c dear this is in response to your letter dated date submitted on your behalf by your authorized representatives requesting certain rulings we are responding to requested ruling number concerning whether company is entitled to a charitable_contribution_deduction under sec_170 of the internal_revenue_code upon the exercise by an unrelated charity of an option to purchase company common_stock the option that the charity acquired from foundation the other requested rulings were issued by the exempt_organizations division facts company is a for-profit organization under state law company’s common_stock is publicly held and listed on an established_securities_market foundation is a non- profit corporation incorporated under state law foundation is exempt from federal_income_tax under sec_501 of the code as an organization described under sec_501 foundation has been recognized by the internal_revenue_service the service as a private_foundation as defined in sec_509 of the code company pledged the option to foundation which when exercised gives foundation an option to purchase a specified number of shares of company’s common_stock the company stock at the closing price of the stock on date a which is the date of the pledge agreement the pledge under the terms of the pledge the option becomes exercisable only if on or before date b company receives certain rulings from the service including the ruling that is the subject of this request if company receives the rulings by date b the option will be exercisable in whole or in part at any time during the period plr-139125-01 commencing on the date company receives this ruling and ending on date c foundation may transfer or assign the option or any portion thereof but only to one or more unrelated charitable organizations described in sec_170 and sec_501 of the code collectively the charitable_organization it is expected that the charitable_organization will purchase the option from foundation for a price equal to the difference between the fair_market_value of company stock subject_to the option as of the date of the purchase and the exercise price of the option less an agreed upon discount analysis sec_170 of the code provides subject_to certain limitations a deduction for contributions and gifts to or for_the_use_of organizations described in sec_170 payment of which is made within the taxable_year sec_170 of the code provides that the total deduction allowed a corporation under sec_170 is limited to percent of the corporation’s taxable_income computed without regard to certain deductions under sec_1_170a-1 of the income_tax regulations a deduction is allowed to a corporation with one exception not applicable here for any charitable_contribution actually paid during the taxable_year irrespective of the date on which the contribution is pledged revrul_75_348 1975_2_cb_75 holds that a corporation that pledges to sell shares of its common_stock at a specified price to an educational_organization is entitled to a charitable_contribution_deduction in the taxable_year the pledge is exercised for the excess of the fair_market_value of the shares on the date the pledge is exercised over the exercise price see also revrul_82_197 1982_2_cb_72 which holds that an individual who grants an option to purchase real_property to a charitable_organization described in sec_501 of the code is allowed a charitable deduction for the year in which the organization exercises the option in the manner and to the extent provided by sec_170 for the excess of the property’s fair_market_value on the date of exercise over the option’s exercise price where a charitable_contribution is made in property other than money sec_1 170a- c of the regulations provides in part that the amount of the deduction is the fair_market_value of the contributed_property at the time of the contribution a property’s fair_market_value is the price at which it would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or sell and both having a reasonable knowledge of the relevant facts where a property is sold to a charity for less than its fair_market_value sec_1011 of the code provides for the adjustment of the donor’s basis for purposes of computing its gain from the portion of the property sold in the bargain sale see also sec_1_170a-4 and sec_1_1011-2 of the regulations in addition sec_170 of the code provides in certain circumstances for a reduction in the amount of the charitable_contribution if at the time of the contribution a sale of the plr-139125-01 property at its fair_market_value would have resulted in gain sec_1032 of the code provides that no gain_or_loss shall be recognized to a corporation on the receipt of money or other_property in exchange for stock including treasury_stock of such corporation in this case the bargain sale provisions of sec_1011 of the code and sec_1 170a- c and of the regulations and the contribution reduction provisions of sec_170 do not apply this is because under sec_1032 of the code no gain is recognized by company on the bargain sale of its stock to the unrelated charity and no gain would be recognized by company even if it sold its stock to the unrelated charity for its full fair_market_value conclusion under the reasoning set forth in revrul_75_348 and revrul_82_197 we conclude that company is treated as making a charitable_contribution described in sec_170 of the code in the year the option is exercised by charitable_organization and the amount of company’s charitable_contribution equals the excess of the fair_market_value of the shares on the date of exercise over the exercise price in addition under the reasoning set forth in revrul_75_348 and revrul_82_197 we conclude that company will be entitled to a charitable_contribution_deduction under sec_170 with respect to the charitable_contribution in the manner and to the extent provided by sec_170 this ruling is based upon information and representations submitted by company and accompanied by a penalty of perjury statement while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter under any provision of the code other than sec_170 under the powers of attorney on file in this office a copy of this letter is being sent to your authorized representatives this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours douglas fahey assistant to the branch chief branch office of the associate chief_counsel income_tax and accounting


t c summary opinion united_states tax_court michael raymond glatfelter sr petitioner v commissioner of internal revenue respondent docket no 29405-08s filed date michael raymond glatfelter sr pro_se jon d feldhammer for respondent laro judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case 1subsequent section references are to the applicable versions of the internal_revenue_code rule references are to the tax_court rules_of_practice and procedure petitioner petitioned the court to redetermine respondent’s determination of a dollar_figure deficiency in petitioner’s federal_income_tax the issue for decision is whether petitioner may deduct as alimony a court-ordered dollar_figure payment for his former spouse’s legal fees attributable to their divorce of which he claimed a deduction of dollar_figure we hold he may not background some facts were stipulated the parties’ stipulation of facts and the exhibits submitted therewith are incorporated herein by this reference petitioner resided in california when his petition was filed the marriage of petitioner and his former wife was nullified in date since that time petitioner has paid dollar_figure per month to his former spouse as spousal support on date after a property settlement hearing on may of that same year the superior court of california entered a findings and orders after hearing in relevant part the court ordered the following petitioner michael r glatfelter shall pay four thousand dollars dollar_figure forthwith towards his former spouse’s attorney fees and costs the former spouse’s request for modification of spousal support is denied pending trial petitioner timely filed a form_1040 u s individual_income_tax_return for on that return petitioner claimed an adjustment_to_gross_income for alimony payments totaling dollar_figure on date respondent issued petitioner a notice_of_deficiency disallowing the adjustment respondent concedes that petitioner may deduct dollar_figure of the dollar_figure as alimony the dollar_figure that remains at issue is attributable to the court-ordered payment of dollar_figure for petitioner’s payment of his former spouse’s attorney’s fees petitioner claimed a deduction of dollar_figure because he paid only that much of the dollar_figure during i burden_of_proof discussion generally the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer has the burden of proving that the determinations are erroneous see rule a 290_us_111 in certain circumstances however sec_7491 places the burden_of_proof on the commissioner because the facts are not in dispute we decide this case without regard to the burden_of_proof ii deduction of attorney’s fees as alimony expense an individual may deduct the amount of alimony or separate_maintenance payments paid during the taxable_year sec_215 whether payments constitute alimony or separate_maintenance payments for purpose of sec_215 is determined by reference to sec_71 which provides sec_71 alimony or separate_maintenance payments defined --for purposes of this section-- in general --the term alimony_or_separate_maintenance_payment means any payment in cash if-- a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any such payment in cash or property as a substitute for such payments after the death of the payee spouse emphasis added respondent concedes that petitioner’s payment of his former spouse’s attorney’s fees and costs satisfies the first three subparagraphs of sec_71 the parties lock horns on whether the payment at issue satisfies subparagraph d that is 2the term divorce_or_separation_instrument means a a decree of divorce or separate_maintenance or a written instrument incident to such decree b a written_separation_agreement or c a decree not described in a requiring a spouse to make payments for the support or maintenance of the other spouse sec_71 whether the obligation to pay the court-ordered attorney’s fees and costs would have terminated in the event of the death of petitioner’s former spouse under sec_71 a payor must have no liability to continue payments after the recipient’s death in order for those payments to constitute alimony see 541_f3d_973 9th cir affg tcmemo_2006_105 in deciding whether payments are alimony under sec_71 the court must first examine the divorce_or_separation_instrument to determine whether it contains a provision that terminates the payor spouse’s liability for a payment upon the death of the recipient spouse if the instrument is silent as to the existence of a postdeath obligation the court will then look to see whether the payment terminates upon the recipient spouse’s death by operation of state law see sperling v commissioner tcmemo_2009_141 california law provides that except as otherwise agreed by the parties in writing the obligation of a party under an order for the support of the other party terminates upon the death of either party or the remarriage of the other party cal fam code sec west california law also provides that a court in a marriage dissolution proceeding may order one party to pay the other party’s attorney’s fees and costs cal fam code sec west supp cal fam code sec provides that such fees and costs may be awarded for legal services rendered or costs incurred before or after the commencement of the proceeding that section does not provide that the payor’s obligation to pay these fees and costs terminates upon the death or remarriage of the other spouse id california courts have differentiated attorney’s fees from spousal support for example in newport v newport cal rptr ct app the court held that under the statutory predecessor to cal fam code sec the remarriage of a former spouse did not preclude her right to attorney’s fees in a postdissolution proceeding moreover california caselaw holds that the death and remarriage provisions of cal fam code sec should be interpreted in a similar fashion see johanson v commissioner supra pincite n see also cesnalis v cesnalis cal rptr 2d ct app petitioner claimed as an alimony deduction a dollar_figure expense payable to his former spouse for attorney’s fees and costs pursuant to sec_71 petitioner may deduct as alimony only those expenses his liability for which does not survive his former spouse’s death in the findings and orders after hearing filed as a property settlement on date the superior court of california ordered that petitioner michael r glatfelter shall pay four thousand dollars dollar_figure forthwith towards his former spouse’s attorney fees and costs the court order also stated that his former spouse’s request for modification of spousal support is denied pending trial the order is silent as to whether petitioner’s liability for the attorney’s fees and costs would extend beyond the death of his former spouse accordingly this court must determine whether petitioner’s dollar_figure liability would have terminated upon his former spouse’s death by operation of california law it is clear that the superior court of california in its order sought to distinguish between attorney’s fees subject_to cal fam code sec and spousal support payments subject_to cal fam code sec the court order contained two separate provisions--the first mandating petitioner’s payment of his former spouse’s attorney’s fees and the second denying his former spouse modification of petitioner’s spousal support payments pending trial in addition california caselaw provides that attorney’s fees derived from a postdissolution proceeding do survive a remarriage of the payee spouse see newport v newport supra the court_of_appeals for the ninth circuit has decided that the remarriage and death provisions of cal fam code sec should be interpreted in a similar fashion johanson v commissioner supra pincite n applying this reasoning we conclude that petitioner’s liability to pay his former spouse’s attorney’s fees of dollar_figure would survive her death accordingly petitioner’s payment of attorney’s fees to his former spouse was not a payment of alimony within the meaning of sec_71 see stedman v commissioner tcmemo_2008_ ribera v commissioner tcmemo_1997_38 affd without published opinion 139_f3d_907 9th cir as a result petitioner’s deduction of the disputed dollar_figure is denied to reflect the foregoing decision will be entered under rule