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 b04 plr-103084-10 date date distributing distributing controlled controlled fsub fsub fsub fsub sub -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------- 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-------------------------------------------------------------------------------------- ------------------------------------------------ -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- dre dre dre dre plr-103084-10 ----------------------- dre dre dre dre dre fdre llc llc llc llc llc -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- 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-------------------------------------------------------------------------------------- ----------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------- plr-103084-10 llc llc newco -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------- business a business b ------------------------------------- ----------------------------------------- business c --------------------------- business d ------------------------------------- business e business f division a division b ------------------ -------------------------------------- --------------------------------------- ------------------------------ property a --------------------- date date date date date date date --------------------------- ------------------ -------------------- ----------------------- -------------------------- ----------------------- ----------------------- plr-103084-10 a b c d e f g h i j k l m n o p q r s t u v -------- ---- ------ ---- ------ -------- -------- ---- ------ ------ ---- ---- ------------- ------------- ----------- ------------- ---- -------------- -------------- ------------- ------------- -------------- plr-103084-10 w x y z aa bb cc dd -------------- ------------- ------------- -------------- --------------- ---- ------ ---- individual a ------------------------------ individual b ----------------------------- individual c ----------------------------- investor a investor b investor c investor d ---------------------------------------------- -------------------- ---------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- corporation a ------------------------------------------------ country a exchange state a state b state c ------ ------------------------------------ ------------- ------------- ------------- plr-103084-10 dear -------------- this letter responds to your date request for rulings as to the federal_income_tax consequences of a proposed transaction described below the proposed transaction the information received in that request and in subsequent correspondence is summarized below the rulings contained in this letter are based 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 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 controlled distribution and the controlled distribution 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 controlled_corporation or both see sec_355 of the internal_revenue_code the code and sec_1_355-2 or 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 50-percent_or_greater_interest in any distributing_corporation or controlled_corporation or both see sec_355 and sec_1 summary of facts distributing is a publicly traded corporation and the common parent of an affiliated_group that files a consolidated federal_income_tax return with its eligible members on a calendar_year basis the distributing group at the time of the proposed transaction it is expected that distributing will have only common_stock outstanding and that only four shareholders will own more than five percent of this stock the four shareholders are investor a and certain of its affiliates investor b investor c and investor d distributing directly and through its affiliated entities conducts business a business b business c business d business e and business f distributing wholly owns controlled distributing dre dre sub and each of the other business a entities us distributing also owns a percent of fsub g percent of llc and h percent of sub the remaining interest in llc is owned by sub and the remaining stock in sub is owned i percent by llc and j percent by sub sub also owns k-percent membership interests in llc and llc and b percent of fsub stock the remaining l-percent interests in llc and llc are owned by corporation a a corporation unrelated to the distributing group plr-103084-10 before date llc wholly owned dre and dre dre wholly owned dre and dre owned greater than f percent of fsub the remaining interest in which is owned by distributing dre wholly owns sub and dre llc wholly owns dre and dre wholly owns sub distributing owns all the stock of dre the remaining b percent of the stock of fsub and the following membership interests c percent of llc c percent of llc and d percent of llc sub owns the remaining dd percent interest in llc dre owns all the interests in fdre all the stock of fsub and less than e percent of fsub fsub owns the remaining more than f percent of fsub controlled distributing sub sub sub sub fsub fsub fsub and fsub and fsub are all corporations dre dre dre dre dre dre dre dre and fdre are disregarded as separate from their owners under sec_301_7701-3 each a disregarded_entity llc llc llc llc llc and llc are all limited_liability companies classified as partnerships for federal_income_tax purposes the financial information submitted by distributing indicates that business d conducted by distributing business c conducted by llc business e conducted by llc and business f conducted by dre have each had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years the proposed transaction will separate business a from business b the separation and as a result eliminate the holding_company discount currently burdening the stock of distributing this will allow distributing with its business b and controlled with its business a to trade more in line with their industry peers and is expected to increase the aggregate value of the two enterprises over the value the distributing stock would have without the separation as a result of this increased value each company will be able to issue equity in connection with acquisitions and employee compensation on more favorable terms with less dilution to existing shareholders in addition separating business b from the credit constraints of business a will permit the entities operating business b to optimize its capital structure by increasing debt to a level more in line with its competitors proposed transaction to separate business a from business b and thus achieve the business purposes described above distributing has proposed and partially completed the following series of transactions i before the controlled distribution as defined below any excess_loss_account in the stock of an entity that will leave the distributing group will be eliminated plr-103084-10 ii iii iv v to justify moving on date after distributing decided that economic circumstances were favorable enough long-planned separation of business a from business b distributing made an dollar_figurem cash distribution to distributing the date cash distribution the purpose of the distribution was to provide distributing with cash to meet its expected liquidity needs after the separation the distribution was made at this time to avoid regulatory limitations that could apply to a distribution made at a later date forward with its on date i sub distributed its b-percent stock interest in fsub to distributing the fsub distribution and ii distributing contributed the fsub stock to distributing the fsub contribution the fsub distribution and fsub contribution originally were to occur at the same time as the distributing taxable purchase see step xviii below but were accelerated to bolster the regulatory capital of distributing in preparation for the separation on date distributing made an dollar_figurem cash distribution to distributing the date cash distribution as with the date cash distribution step ii above the purpose of this distribution was to provide distributing with cash to meet expected liquidity needs after the separation the distribution was made at this time to avoid regulatory limitations that could apply to a distribution made at a later date with the exception of a loan made to controlled on date step ix below this cash and the cash distributed in the date cash distribution are being held in a segregated account the segregated account on date dre contributed substantially_all of its u s business a assets including business f to newly formed dre a domestic disregarded_entity in exchange for all of the membership interests in dre and the assumption by dre of related liabilities if any the dre contribution vi on date dre distributed the membership interests in dre to llc vii on date llc distributed the membership interests in dre dre and dre to its two members sub and corporation a pro_rata the llc partnership_distributions viii on date distributing purchased corporation a’s l-percent interests in dre dre and llc for an aggregate dollar_figuren in cash and sub purchased corporation a’s l-percent interest in dre for dollar_figureo in cash plr-103084-10 ix x xi xii on date controlled borrowed dollar_figurep from distributing to pay certain administrative overhead and other expenses of the entities operating business a that will be incurred in advance of the separation the intercompany loan controlled will repay the intercompany loan before the controlled distribution with funds from a new third party borrowing step xxi below on date in a demerger transaction under country a law fsub transferred its business a assets to fsub a pre-existing foreign_corporation capitalized with nominal assets in the demerger shares representing approximately q-percent of the fsub stock were issued pro_rata to the existing shareholders of fsub sub will contribute its cc-percent membership interest in llc to newly formed sub a domestic_corporation in exchange for all of the sub stock sub will convert under state a law to a single-member limited_liability_company treated as a disregarded_entity the sub llc conversion xiii dre will distribute its q-percent interest in fsub to sub xiv sub will distribute its k-percent membership interests in dre dre and llc and its stock in fsub to distributing xv dre will distribute its membership interest in fdre to distributing xvi distributing will contribute its fsub stock to dre xvii dre will contribute its fsub stock to fsub in constructive exchange for additional shares of fsub stock xviii distributing will purchase the following assets from distributing the distributing taxable purchase d-percent membership interests in dre dre and llc all of the membership interests in dre and dre b percent of the fsub stock see step iii above and dollar_figurer of newly issued distributing common shares the distributing equity retention for consideration consisting of the dollar_figurem date cash distribution see step ii above the dollar_figurem date cash distribution see step iv above dollar_figures in cash a dollar_figuret reduction of an unsecured intercompany receivable from distributing a dollar_figureu reduction of a secured intercompany receivable from distributing a c-percent interest in llc and a d- percent membership interest in llc plr-103084-10 the aggregate fair_market_value of the consideration paid_by distributing to distributing in the distributing taxable purchase net of liabilities assumed within the meaning of sec_357 will exceed the aggregate fair_market_value of the assets received by distributing net of liabilities assumed within the meaning of sec_357 in the exchange the excess is referred to as the taxable purchase excess xix distributing will contribute division a and division b property a and its c-percent membership interest in llc to newly formed controlled in exchange for all of the controlled stock and the assumption by controlled of related liabilities if any the controlled contribution xx distributing will distribute the controlled stock to distributing the controlled distribution xxi at or around the time of the controlled contribution step xxii but in any event before the controlled distribution step xxiv controlled will borrow dollar_figurev from a third party use dollar_figurep of the proceeds to repay the intercompany loan from distributing step ix and distribute the remaining dollar_figurew to distributing in the controlled contribution the controlled borrowing xxii distributing will contribute the following assets to controlled the controlled contribution all of its business a assets including the stock of distributing and fsub b-percent membership interests in dre dre and llc and the stock or membership interests in and all the properties of the other business a entities us a state a office building and b-percent interest in a state b corporate condominium dollar_figures of newly issued distributing common shares the controlled equity retention and together with the distributing equity retention the retained stock and an dollar_figurex pension note the pension note in exchange for dollar_figurew of cash proceeds from the controlled borrowing the distributed cash proceeds which distributing will use to pay down its third-party debt the assumption by controlled of a dollar_figurey secured intercompany payable owing from distributing to distributing the distributing secured payable the assumption by controlled of a dollar_figurez pension liability the assumption by controlled of liabilities if any associated with the contributed assets and the issuance of additional shares of controlled stock the group of corporations operating business a will be referred to as the controlled group xxiii distributing and controlled each will contribute its b-percent interests in dre llc and dre to llc a newly formed limited_liability plr-103084-10 company in exchange for a b-percent membership interest in llc the llc contribution xxiv the controlled stock will be subdivided and converted into that number of shares of controlled stock necessary to effect the controlled distribution distributing then will i distribute the controlled stock to its shareholders pro_rata the controlled distribution and ii apply the distributed cash proceeds to the payment of third-party indebtedness the debt payment the controlled shares issued to controlled and distributing in the controlled distribution will cancel immediately upon receipt the controlled stock cancellation the number of distributing shares issued to controlled and distributing in the controlled contribution step xxii and the distributing taxable purchase step xviii will be designed to give controlled and distributing as close to dollar_figures and dollar_figurer respectively in distributing common shares as possible immediately after the controlled distribution and the controlled stock cancellation however since the number of shares issued in the controlled contribution and the distributing taxable purchase will be determined on the record_date for the controlled distribution rather than immediately after the controlled distribution any market_value volatility between the record_date and the distribution date will result in greater or less than dollar_figures and dollar_figurer in distributing shares actually being held on the distribution date by controlled and distributing as a true-up mechanism to correct for market volatility either distributing or controlled as the case may be will pay to the other party as soon as practicable after the controlled distribution i an amount in cash up to dollar_figureaa and ii to the extent the value discrepancy exceeds such cash payment a promissory note with a principal_amount equal to this discrepancy i and ii together the true-up payment the promissory note will bear an interest rate of bb percent for a term of three years with payments due quarterly no fractional shares of controlled stock will be issued in the controlled distribution instead all fractional shares of controlled stock that distributing shareholders otherwise would be entitled to receive will be aggregated by a transfer agent and as soon as practicable following the effective time of the controlled distribution will be sold at the prevailing price on the exchange any distributing shareholder entitled to receive a fractional share of controlled stock will be entitled to receive a cash payment in an amount equal to the shareholder’s proportionate interest in the net_proceeds from the open market sale plr-103084-10 once the controlled distribution occurs the separation of business a from business b will be complete except for the retained stock and the continuing relationships described below xxv following the controlled distribution distributing will merge with and into newco a newly formed state c_corporation with newco as the surviving corporation the merger distributing will change its name to newco following the proposed transaction the distributing group and the controlled group will have certain continuing relationships following the proposed transaction the continuing relationships the continuing relationships generally fall into three categories i those involving obligations that arose or will arise for a taxable_period ending on or before the controlled distribution or for a taxable_period beginning before and ending after the controlled distribution where the obligations do not become fixed and ascertainable until after the controlled distribution the separation agreements ii those involving obligations that will arise after the controlled distribution and relate to transitional and administrative support services that the controlled group will provide to the distributing group or vice versa for an interim period while each group completes the establishment of its own administrative support and corporate service arrangements the transitional agreements and iii agreements involving obligations that will arise after the controlled distribution and relate to the on-going operational and business services that the controlled group has chosen to obtain from the distributing group or that the distributing group has chosen to obtain from the controlled group in each case as its third party vendor for the period of time and on the terms and conditions the parties will have specifically negotiated for those services apart from payments made under the transitional agreements the transitional costs payments made in connection with all continuing relationships between the distributing group and the controlled group will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length or terms and conditions comparable to those that would be arrived at by parties bargaining at arm’s length representations controlled contribution and controlled distribution distributing makes the following representations for the controlled contribution and controlled distribution a any indebtedness owed by controlled or any entity controlled directly or indirectly by controlled to distributing or any entity controlled directly or indirectly by distributing after the controlled distribution will not constitute stock_or_securities plr-103084-10 b no part of the consideration distributed by distributing will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of distributing c the five years of financial information submitted for business d conducted by distributing and for business c conducted by llc is representative of the present operations of each business and there have been no substantial operational changes in either business since the date of the last financial statements submitted d neither business d conducted by distributing nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the controlled distribution in a transaction in which gain_or_loss was recognized or treated as recognized under prop_reg sec_1_355-3 in whole or in part throughout the five-year period ending on the date of the controlled distribution distributing will have been the principal_owner of the goodwill and significant assets of business d and will continue to be the principal_owner following the controlled distribution e neither business c conducted by llc nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the controlled distribution in a transaction in which gain_or_loss was recognized or treated as recognized under prop_reg sec_1_355-3 in whole or in part throughout the five-year period ending on the date of the controlled distribution llc will have been the principal_owner of the goodwill and significant assets of business c and will continue to be the principal_owner following the controlled distribution f apart from the continuing relationships distributing will continue the active_conduct of business d independently and with its separate employees following the controlled distribution g apart from the continuing relationships llc the partnership through which controlled will be treated as conducting business c will continue the active_conduct of business c independently and with its separate employees following the controlled distribution h the controlled distribution will be carried out the controlled distribution which will be carried out i to increase the aggregate value of the separately traded distributing stock and controlled stock over the value the distributing stock would have absent the proposed transaction and consequently a enhance the distributing equity-based compensation programs for employees of business b and b make the distributing stock more attractive as acquisition currency ii to create a separate publicly traded stock for business a and consequently a permit the creation of equity-based compensation programs for employees of business a apart from business b and b permit stock representing only business a to be used as acquisition currency and iii to permit distributing to facilitate to plr-103084-10 optimize the capital structure of business b the controlled distribution is motivated in whole or substantial part by these corporate business purposes i the controlled distribution will not be used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both j the total adjusted_basis and the fair_market_value of the assets transferred to controlled in the controlled contribution will equal or exceed the sum of i the total amount of any liabilities assumed as determined under sec_357 by controlled and ii the total amount of any money and the fair_market_value of any other_property within the meaning of sec_361 received by distributing and transferred to its creditors in connection with the reorganization k any liabilities assumed as determined under sec_357 by controlled in the controlled contribution will have been incurred in the ordinary course of business and will be associated with the assets transferred l the total fair_market_value of the assets transferred to controlled in the controlled contribution will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by controlled in connection with the controlled contribution ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the controlled contribution and iii the amount of any cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing in the controlled contribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the controlled contribution m no intercorporate debt will exist between distributing or any entity controlled directly or indirectly by distributing and controlled or any entity controlled directly or indirectly by controlled at the time of or after the controlled distribution other than intercompany loans or other obligations that have arisen or will arise in the ordinary course of business or as a result of the continuing relationships n apart from the transitional costs payments made in connection with all continuing relationships between distributing or any entity controlled directly or indirectly by distributing and controlled or any entity controlled directly or indirectly by controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length or terms and conditions comparable to those that would be arrived at by parties bargaining at arm’s length o immediately before the controlled 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 -14 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as plr-103084-10 published in t d further any excess_loss_account that distributing has in the controlled stock or the stock of any direct or indirect subsidiary of controlled will be included in income immediately before the controlled distribution to the extent required by regulations see sec_1_1502-19 at the time of the controlled distribution distributing will not have an excess_loss_account in the stock of controlled or the stock of any direct or indirect subsidiary of controlled p no two parties to the controlled distribution are investment companies as defined in sec_368 and iv q for purposes of sec_355 immediately after the controlled distribution no person determined after applying 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 controlled distribution r for purposes of sec_355 immediately after the controlled distribution no person determined after applying 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 controlled distribution or ii attributable to distributions on distributing stock_or_securities that were 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 controlled distribution s the controlled distribution 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 controlled including any predecessor or successor of any such corporation t immediately after the transaction as defined in sec_355 either no person will hold a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled if any person holds a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 such person will have held such interest in such corporation immediately before the transaction or neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 u there is no regulatory legal contractual or economic compulsion or requirement that asset contributions be made as a condition of the controlled plr-103084-10 distribution the fact that the value of distributing will decrease as a result of the controlled distribution was not a consideration in the decision to contribute property to distributing the controlled distribution is not contingent on there being contributed to distributing assets having a specified or roughly specified value v the value given by distributing to distributing for distributing stock in the distributing taxable purchase taking into account the true-up payment and the controlled stock cancellation will equal the price a third party would pay to distributing for the same number of shares of distributing stock controlled contribution and controlled distribution distributing makes the following representations for the controlled contribution and controlled distribution w any indebtedness owed by controlled or any entity controlled directly or indirectly by controlled to distributing or any entity controlled directly or indirectly by distributing after the controlled distribution will not constitute stock_or_securities x no part of the consideration distributed by distributing will be received by a distributing shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing y the five years of financial information submitted on behalf of business e conducted by llc and business f conducted by dre is representative of the present operations of each business and there have been no substantial operational changes in either business since the date of the last financial statements submitted z neither business e conducted by llc nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the controlled distribution in a transaction in which gain_or_loss was recognized or treated as recognized under prop_reg sec_1_355-3 in whole or in part throughout the five-year period ending on the date of the controlled distribution llc will have been the principal_owner of the goodwill and significant assets of business e and will continue to be the principal_owner following the controlled distribution aa neither business f conducted by dre nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the controlled distribution in a transaction in which gain_or_loss was recognized or treated as recognized under prop_reg sec_1_355-3 in whole or in part throughout the five-year period ending on the date of the dre contribution dre will have been the principal_owner of the goodwill and significant assets of business f immediately after the dre contribution and at the time of the controlled distribution dre will be the principal_owner of the goodwill and significant assets of plr-103084-10 business f and will continue to be the principal_owner following the controlled distribution bb apart from the continuing relationships llc the partnership through which distributing will be treated as conducting business e will continue the active_conduct of business e independently and with its separate employees following the controlled distribution cc apart from the continuing relationships dre the partnership through which controlled will be treated as conducting business f will continue the active_conduct of business f independently and with its separate employees following the controlled distribution dd the controlled distribution will be carried out i to increase the aggregate value of the separately traded distributing stock and controlled stock over the value the distributing stock would have absent the proposed transaction and consequently a enhance the distributing equity-based compensation programs for employees of business b and b make the distributing stock more attractive as acquisition currency ii to create a separate publicly traded stock for business a and consequently a permit the creation of equity-based compensation programs for employees of business a apart from business b and b permit stock representing only business a to be used as acquisition currency and iii to permit distributing to optimize the capital structure of business b the controlled distribution is motivated in whole or substantial part by these corporate business purposes ee the controlled distribution will not be used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both ff the total adjusted_basis and the fair_market_value of the assets transferred to controlled in the controlled contribution will equal or exceed the sum of i the total liabilities assumed as determined under sec_357 by controlled and ii the total amount of any money and the fair_market_value of any other_property within the meaning of sec_361 received by distributing and transferred to its creditors in connection with the reorganization gg any liabilities assumed as determined under sec_357 by controlled in the controlled contribution will have been incurred in the ordinary course of business and will be associated with the assets transferred hh the total fair_market_value of the assets transferred to controlled in the controlled contribution will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by controlled in connection with the controlled contribution ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the controlled contribution and iii the amount of any cash and the fair_market_value of any other plr-103084-10 property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing in the controlled contribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the controlled contribution ii no intercorporate debt will exist between distributing or any entity controlled directly or indirectly by distributing and controlled or any entity controlled directly or indirectly by controlled at the time of or after the controlled distribution other than the pension note the promissory note for the true-up payment if necessary and other than intercompany loans or other obligations that have arisen or will arise in the ordinary course of business or as a result of the continuing relationships jj apart from the transitional costs payments made in connection with all continuing relationships between distributing or any entity controlled directly or indirectly by distributing and controlled or any entity controlled directly or indirectly by controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length or terms and conditions comparable to those that would be arrived at by parties bargaining at arm’s length kk immediately before the controlled 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 -14 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published in t d further any excess_loss_account that distributing has in the controlled stock or the stock of any direct or indirect subsidiary of controlled will be included in income immediately before the controlled distribution to the extent required by regulations see sec_1_1502-19 at the time of the controlled distribution distributing will not have an excess_loss_account in the stock of controlled or the stock of any direct or indirect subsidiary of controlled and no member of the distributing group will have an excess_loss_account in any member of the controlled group ll no two parties to the controlled distribution are investment companies as defined in sec_368 and iv mm for purposes of sec_355 immediately after the controlled distribution no person determined after applying 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 controlled distribution plr-103084-10 nn for purposes of sec_355 immediately after the controlled distribution no person determined after applying 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 controlled distribution or ii attributable to distributions on distributing stock_or_securities that were 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 controlled distribution oo the controlled distribution 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 controlled including any predecessor or successor of any such corporation pp immediately after the transaction as defined in sec_355 either no person will hold a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled if any person holds a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 such person will have held such interest in such corporation immediately before the transaction or neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 qq the receipt by distributing shareholders of cash in lieu of fractional shares of controlled stock resulting from the open market sale of the fractional shares has been arranged solely for the purpose of avoiding the expense and inconvenience to distributing of issuing fractional shares and does not represent separately bargained- for consideration it is intended that the total cash consideration received by the shareholders of distributing from the open market sale of their fractional shares will not exceed one percent of the total consideration that will be distributed in the controlled distribution it is also intended that no distributing shareholder will receive cash in an amount equal to or greater than the value of one full share of controlled common_stock controlled is not aware of any overall plan within the meaning of sec_355 to acquire an ownership_interest in controlled through the purchase of the bundled controlled shares sold in connection with the issuance of cash in lieu of fractional shares rr the distributed cash proceeds paid_by distributing to creditors in the debt payment will not exceed the weighted quarterly average of the distributing debt owed to third parties for the 12-month_period ending on the close of business on or about date the last full business_day before the date on which the distributing board_of directors initially discussed the potential separation of business a from plr-103084-10 business b the term distributing debt refers only to debt of distributing owed to unrelated parties ss the value given by controlled to distributing for distributing stock in the controlled contribution taking into account the true-up payment and the controlled stock cancellation will equal the price a third party would pay to distributing for the same number of shares of distributing stock tt the merger will qualify as a reorganization under sec_368 additional representations distributing makes the following additional representations uu the distributing equity retention will provide distributing with additional regulatory capital and improve the credit rating of business a vv the controlled equity retention will help business a fund various corporate purposes and improve the credit rating of business a ww with the exception of individual a who will serve as executive chairman and chairman of the board_of both distributing and controlled following the controlled distribution individual b who will serve as chief_executive_officer of controlled and may serve as a director of distributing and individual c who will serve as chief financial officer of distributing and may serve as a director of controlled none of the controlled directors or officers will serve as directors or officers of distributing as long as controlled holds the retained stock individual a will serve both corporations because of his deep knowledge of and experience with both business b and business a individual b may serve as a director on the distributing board to give it the benefit of expertise he gained by having a key role in the startup and growth of business b the business that distributing will conduct following the separation individual c may serve as a director on the controlled board because he has served as chief financial officer of controlled and this experience would help with the transition of controlled to separate company status xx with the exception of individual a who will serve as an officer and director of both distributing and distributing following the controlled distribution none of the distributing directors or officers will serve as directors or officers of distributing as long as distributing holds the retained stock individual a will serve both corporations because of his deep knowledge of and experience with both business b and business a yy distributing and controlled each will dispose_of its shares of retained stock as soon as a disposition is warranted consistent with the business purposes for plr-103084-10 the retained stock but in no event later than five years after the controlled distribution zz the aggregate fair_market_value of the consideration to be paid_by distributing to distributing in the distributing taxable purchase net of liabilities assumed within the meaning of sec_357 will exceed the aggregate fair_market_value of the assets to be received by distributing net of liabilities assumed within the meaning of sec_357 in the exchange aaa under sec_731 and b no gain_or_loss will be recognized by llc or its members sub and corporation a on the llc partnership_distributions bbb the sub llc conversion will qualify as a complete_liquidation of sub under sec_332 and no gain_or_loss will be recognized by sub or distributing on the sub llc conversion under sec_332 and sec_337 rulings controlled contribution and controlled distribution based solely on the information submitted and the representations made we rule as follows on the controlled contribution and controlled distribution the controlled contribution followed by the controlled distribution will be a reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on the controlled contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the controlled contribution sec_1032 the basis of each asset received by controlled in the controlled contribution will equal the basis of that asset in the hands of distributing immediately before the controlled contribution sec_362 the holding_period of each asset received by controlled in the controlled contribution will include the period during which distributing held that asset sec_1223 no gain_or_loss will be recognized by distributing on the controlled distribution sec_361 plr-103084-10 the taxable purchase excess will be a distribution to which sec_301 applies and will reduce the basis distributing has in the distributing stock sec_356 sec_1_1502-13 and sec_1_1502-32 no gain_or_loss will be recognized by and no amount will be included in the income of distributing on the controlled distribution sec_355 the aggregate basis of the distributing stock and the controlled stock in the hands of distributing immediately after the controlled distribution will equal the aggregate basis of the distributing stock held by distributing immediately before the controlled distribution allocated between the stock of distributing and controlled in proportion to the fair_market_value of each immediately following the controlled distribution in accordance with sec_1_358-2 sec_358 and c the holding_period of the controlled stock received by distributing in the controlled distribution will include the holding_period of the distributing stock on which the controlled distribution is made provided the distributing stock is held as a capital_asset on the date of the controlled 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 controlled contribution and controlled distribution based solely on the information submitted and the representations made we rule as follows on the controlled contribution and controlled distribution the controlled contribution followed by the controlled distribution will be a reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on the controlled contribution sec_361 sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the controlled contribution sec_1032 the basis of each asset including each stock and membership interest received by controlled in the controlled contribution will equal the basis of that asset in the hands of distributing immediately before the controlled contribution sec_362 the holding_period of each asset including each stock and membership interest received by controlled in the controlled contribution will include the period during which distributing held that asset sec_1223 plr-103084-10 no gain_or_loss will be recognized by distributing on the controlled distribution sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of any shareholder of distributing on the controlled distribution sec_355 the aggregate basis of the distributing stock and the controlled stock in the hands of each shareholder of distributing including any fractional share interest in controlled to which the shareholder may be entitled immediately after the controlled distribution will equal the aggregate basis of the distributing stock held by the shareholder immediately before the controlled distribution allocated between the stock of distributing and controlled in proportion to the fair_market_value of each immediately following the controlled distribution in accordance with sec_1_358-2 sec_358 and c the holding_period of the controlled stock received by each shareholder of distributing in the controlled distribution including any fractional share interest in controlled to which the shareholder may be entitled will include the holding_period of the distributing stock on which the controlled distribution is made provided the distributing stock is held by the shareholder as a capital_asset on the date of the controlled 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 the receipt by distributing shareholders of cash in lieu of fractional shares of controlled common_stock will be treated for federal_income_tax purposes as if the fractional shares had been distributed to the distributing shareholders as part of the controlled distribution and then had been disposed of by such shareholders for the amount of such cash in a sale_or_exchange the gain_or_loss if any determined using the basis allocated to the fractional shares in ruling and the holding_period attributed to the fractional shares in ruling will be treated as a capital_gain or loss provided the stock was held as a capital_asset by the selling shareholder sec_1001 following the controlled distribution controlled will not be a successor of distributing for purposes of sec_1504 therefore controlled and its direct and indirect subsidiaries that are includible corporations under sec_1504 and satisfy the ownership requirements of sec_1504 will be members of an affiliated_group_of_corporations entitled to file a consolidated federal_income_tax return with controlled as the common parent except for purposes of sec_355 payments made between any of distributing and controlled and their respective affiliates under the separation agreements regarding liabilities indemnities the true-up payment or other obligations plr-103084-10 that i have arisen or will arise for a taxable_period ending on or before the controlled distribution or for a taxable_period beginning before and ending after the controlled distribution and ii will not become fixed and ascertainable until after the controlled distribution will be treated as occurring before the controlled distribution cf 344_us_6 73_sct_71 97_led_6 1952_2_cb_136 tax character of later transaction will derive from earlier related transaction revrul_83_73 c b the retained stock will not adversely affect qualification of the controlled distribution under sec_355 and will not be in pursuance of a plan having as one of its principal purposes the avoidance of federal_income_tax the controlled stock issued by controlled to distributing in the controlled contribution that will be i distributed by distributing to controlled and distributing in the controlled distribution and then ii returned to controlled in the controlled stock cancellation will be disregarded for federal_income_tax purposes distributing taxable purchase based solely on the information submitted and the representations made we rule as follows on the distributing taxable purchase the distributing taxable purchase will result in gain_or_loss recognition to distributing and distributing under sec_1001 each asset received by distributing in the distributing taxable purchase will receive a cost_basis under sec_1012 each asset received by distributing in the distributing taxable purchase will receive a cost_basis under sec_1012 the holding_period for each asset received by distributing in the distributing taxable purchase will start on the date of the distributing taxable purchase the holding_period for each asset received by distributing in the distributing taxable purchase will start on the date of the distributing taxable purchase no gain_or_loss will be recognized by distributing on the issuance of its shares to distributing in the distributing taxable purchase sec_1032 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or caveats plr-103084-10 referenced in this letter in particular no opinion is expressed regarding i whether the controlled distribution and the controlled distribution each satisfies the business_purpose requirement of sec_1_355-2 ii whether the controlled distribution and the controlled distribution are being used principally as a device for the distribution of the earnings_and_profits of distributing controlled distributing controlled or any combination thereof see sec_355 and sec_1_355-2 iii whether the controlled distribution and the controlled distribution 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 distributing distributing controlled or controlled see sec_355 and sec_1_355-7 and iv the federal_income_tax treatment of the transitional costs the merger steps v through xvii and the llc contribution procedural matters this ruling letter is directed only to the taxpayers who requested it see sec_6110 which 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 power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely _____________________________ richard k passales senior counsel branch associate chief_counsel corporate cc


internal_revenue_service number release date index number ------------------------------- --------------------- ---------------------------- department of the treasury washington dc person to contact ------------------------ id no ------------ telephone number --------------------- refer reply to cc fip b02 plr-105294-10 date date legend taxpayer ------------------------------------------------------------------------------ --------------------------------- employer -------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- parent company a company b company c law firm state year year year year year ------------------------------------------------- ------------------------------- ----------------------------- ---------------------------------- --------------------------- ----------- ------- ------- ------- ------- ------- plr-105294-10 year year year dear ------------ ------- ------- ------- this is in reply to a letter dated date and supplemental correspondence dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations for taxpayer to file a written representation under sec_1_7872-15 of the income_tax regulations if this written representation under sec_1_7872-15 is considered timely filed and the other requirements under sec_1_7872-15 are satisfied then an otherwise noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under sec_1_7872-15 facts employer and parent employer’s parent_corporation are state non-profit corporations exempt from taxation under sec_501 of the internal_revenue_code as organizations described in sec_501 and are classified as public_charities under sec_509 since year parent has had a split-dollar_life_insurance program for certain of its executive level employees and employees of its subsidiary corporations including employer in year parent hired company a to consult on matters relating to the split- dollar program and to administer the program company a recommended revising the split-dollar plan and in year parent implemented a new split-dollar_life_insurance program company b subsequently acquired company a and became parent’s consultant and administrator of the split-dollar program in year parent implemented a new split-dollar_life_insurance program current sdp upon the recommendation of company b the current sdp was entered into after the treasury department’s issuance of final regulations under sec_1_61-22 and sec_1_7872-15 pertaining to split-dollar_life_insurance arrangements the split-dollar regulations under the current sdp employer pays the premiums on a life_insurance_policy owned by taxpayer the premium payments made by employer are treated as loans pursuant to the split-dollar regulations whereby employer is the lender and the taxpayer is the borrower the parties to the loan taxpayer represents that the loans were to each have a stated_interest rate equal to the applicable_federal_rate so as not to be below-market split-dollar loans under the split-dollar regulations employer made the first loan under the current sdp to taxpayer in year taxpayer represents that a plr-105294-10 reasonable person would expect that all payments under the loans will be made as described in sec_1_7872-15 company b was instrumental in implementing the current sdp for parent employer and employee participants including taxpayer collectively plan participants company b was responsible for advising plan participants regarding the set-up of the current sdp determining the type of life_insurance policies associated with the current sdp and administering the current sdp taxpayer represents that taxpayer lacked knowledge and experience with regards to split-dollar_life_insurance arrangements and the split-dollar regulations and therefore relied on employer’s guidance representations conclusions and information regarding the current sdp employer in turn relied on company b’s guidance in developing implementing and administering the current sdp company b provided employer’s tax_return_preparer with a governing document pertaining to the current sdp but did not provide the preparer with a copy of the plan’s participation_agreement due to some confusing language in the governing document the tax_return_preparer erroneously concluded that the loans involved in the current sdp were recourse loans the tax_return_preparer has provided an affidavit stating that discussions with company b representatives regarding the current sdp confirmed his conclusion that the loans were recourse in nature therefore employer did not execute or file the written representations for nonrecourse split-dollar loans pursuant to sec_1_7872-15 and neither did taxpayer in year company b ceased administering the current sdp and employer hired company c to administer the current sdp due to the decline in the value of common stocks and many bonds from year to early year the cash surrender values of the life_insurance policies under the current sdp declined employer employed counsel from law firm to review the current sdp and advise employer on options to revise or terminate the plan counsel from law firm determined that under applicable state law the loans under the current sdp were not recourse loans but rather nonrecourse loans secured_by the life_insurance policies subsequently employer informed taxpayer that the loans were nonrecourse loans and that a written representation should have been filed by both taxpayer and employer to ensure that payments on the loans were not treated as contingent payments employer further explained that the written representation should have been made in year when the first loan was made to taxpayer under the plan and asked that taxpayer file a request for an extension of time to make the written representations under sec_1 d i and ii taxpayer makes the following representations the granting of relief under sec_301_9100-3 would not result in taxpayer having a lower tax_liability in the aggregate for all years to which the election applies than it would have had if the election had been plr-105294-10 timely made taking into account the time_value_of_money taxpayer did not knowingly choose not to file the election taxpayer did not use hindsight in requesting relief finally taxpayer represents that it is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 in support of its ruling_request taxpayer has submitted the affidavits of taxpayer employer’s chief_executive_officer employer’s tax_return_preparer and employer’s counsel from law firm regarding the events that led to taxpayer’s failure to make the regulatory election pursuant to sec_1_7872-15 and ii law and analysis sec_1_7872-15 of the regulations provides that except as provided in sec_1_7872-15 if a payment on a split-dollar loan is nonrecourse to the borrower the payment is a contingent payment for purposes of sec_1_7872-15 sec_1_7872-15 provides that an otherwise noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under sec_1_7872-15 if the parties to the split-dollar_life_insurance arrangement represent in writing that a reasonable person would expect that all payments under the loan will be made sec_1_7872-15 describes the time and manner requirements for providing the written representation required by sec_1_7872-15 sec_1 d ii provides in part that the written representation be signed by both the borrower and lender not later than the last day including extensions for filing the federal_income_tax return of the borrower or lender whichever is earlier for the taxable_year in which the lender makes the first split-dollar loan under the split-dollar_life_insurance arrangement sec_301_9100-1 defines election to include an application_for relief in respect of tax a request to adopt change or retain an accounting_method or accounting_period the term does not include an application_for an extension of time for filing a return under sec_6081 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulation or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 sets forth parameters for determining whether under particular facts and circumstances the commissioner will grant an extension of time for regulatory elections that do not meet the requirements for an automatic_extension under sec_301_9100-2 sec_301_9100-3 provides that when a taxpayer does not meet the plr-105294-10 requirements for an automatic_extension under sec_301_9100-2 the taxpayer must provide evidence satisfactorily establishing that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the government sec_301_9100-3 provides that subject_to sec_301_9100-3 a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer satisfies at least one of the following five criteria i the request for relief was made before the service discovered the failure to make the regulatory election ii the failure to make the election was due to intervening events beyond the taxpayer’s control iii after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied on the written advice of the service or v the taxpayer reasonably relied upon a qualified_tax professional including a tax professional employed by the taxpayer and that tax professional failed to make or failed to advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer has not reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was either i not competent to render advice on the regulatory election or ii not aware of all relevant facts sec_301_9100-3 provides that a taxpayer will not be deemed to have acted reasonably and in good_faith if taxpayer does one of the following i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and the subsequent tax consequences but chose not to make the election or iii uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and taxpayer’s representations we conclude that taxpayer has satisfied the requirements for granting a reasonable extension of time to file the written representation as required under sec_1 d i and ii taxpayer is therefore granted a period of time not to exceed days from the date of this letter to prepare and have both parties to the loan sign the written representation provided that the written representation is timely signed by both parties to the loan as required by this letter and filed with the taxpayer’s tax_return for year plr-105294-10 the written representation will be deemed effective for all years in which the arrangement has been in effect in accordance with sec_1_7872-15 a copy of the written representation should be attached to taxpayer’s tax_return for any subsequent taxable_year in which employer makes a split-dollar loan to taxpayer to which the representation applies except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code this ruling is limited to the timeliness of the filing requirement of the written representation under sec_1_7872-15 and ii no opinion is expressed with regard to whether taxpayer satisfied the other requirements under sec_1_7872-15 and ii the loan treatment requirements under sec_1_7872-15 or whether payments under the loan are otherwise noncontingent payments for purposes of sec_1_7872-15 no opinion is expressed with regard to whether the tax_liability of taxpayer is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that 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 representatives sincerely david b silber david b silber chief branch office of associate chief_counsel financial institutions and products


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-127463-02 date date x lp date date date date year state dear this responds to your representative’s letter dated date together with subsequent correspondence requesting a ruling that lp be given an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes for its taxable_year beginning year and be granted relief under sec_1362 of the internal_revenue_code plr-127463-02 facts x was incorporated under state law on date and elected to be treated as an s_corporation effective on date on date x converted to a limited_partnership lp under state law lp intended to be classified as an association_taxable_as_a_corporation however due to inadvertence no form_8832 entity classification election was filed for lp x represents that if lp is classified as an association_taxable_as_a_corporation then this conversion would qualify as a reorganization under sec_368 on date lp converted back to a state corporation x represents that if lp is treated as an association_taxable_as_a_corporation then this conversion would qualify as a reorganization under sec_368 x represents that it did not intend to terminate its s_corporation_election x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is an entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the code sec_301_7701-2 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership sec_301_7701-3 provides that unless a domestic eligible_entity elects otherwise the entity is a partnership if it has two or more members to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 an election can be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed sec_301_7701-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or in a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin plr-127463-02 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect sec_1361 defines small_business_corporation as a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate other than a_trust described in sec_1361 and other than an organization described in c who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation the termination is effective on and after the day of the cessation sec_1362 sec_1362 in relevant part provides that if an election under sec_1362 by any corporation was terminated under sec_1362 the secretary determines that the termination was inadvertent no later than a reasonable period of time after discovery of the event resulting in the termination steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make any 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 terminating event the corporation shall be treated as continuing to be an s_corporation during the period specified by the secretary based on revproc_99_51 1999_52_irb_760 section dollar_figure of revproc_2002_3 2002_1_irb_125 provides that the service will not rule on the following issue because it is being studied whether a state law limited_partnership electing under sec_301_7701-3 to be classified as an association_taxable_as_a_corporation has more than one class of stock for purposes of b d revproc_2002_3 also provides that plr-127463-02 the service will treat any request for a ruling whether a state law limited_partnership is eligible to elect s_corporation status as a request for a ruling on whether the partnership complies with sec_1361 conclusions based solely on the facts and the representations submitted we conclude that the requirements of sec_301_9100-3 have been satisfied as a result lp is granted an extension of time to elect to be treated as an association as of date lp has days from the date of this letter to file form_8832 with the applicable service_center to elect to be treated as an association for federal tax purposes as of date further we conclude that if x’s conversion from a state corporation to a state limited_partnership created a second class of stock and thereby terminated x’s s_corporation_election then the termination was inadvertent within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided that x’s subchapter_s_election is not otherwise terminated under sec_1362 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether the original election made by x to be treated as an s_corporation was a valid election under sec_1362 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that 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 first and second authorized representatives sincerely william p o’shea acting associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


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-101576-06 date december ---------------- legend x --------------------------------------------------- d1 d2 dear ----------------- ---------------------- ------------------------- this responds to a letter dated date submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code x represents that x was incorporated on d1 and intended to be an s_corporation effective d2 however no form_2553 election by a small_business_corporation was timely filed for x sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s-corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a plr-101576-06 corporation's taxable_year then that corporation will not be treated as an s_corporation until the next taxable_year after the year in which the s election is filed sec_1362 of the code provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply based solely on the facts and representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d2 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 effective d2 along with a copy of this letter with the appropriate service_center within days from the date of this letter then such election will be treated as timely made for d2 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to x's authorized representative sincerely beverly katz senior technician reviewer branch associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court jaco l c jay a odom tax_matters_partner petitioner v commissioner of internal revenue respondent docket no filed date david d aughtry for petitioner david r mackusick and francis c mucciolo for respondent memorandum opinion pajak special_trial_judge this matter is before the court on respondent’s motion to dismiss for lack of jurisdiction and to strike with respect to refunds of overpayments to shareholders of jaco l c on date respondent issued a notice of final_partnership_administrative_adjustment fpaa to the tax_matters_partner for jaco l c the partnership pertaining to the taxable_year jaco l c is a limited_liability corporation under _2- florida law which is treated as a partnership for federal tax purposes jay a odom the partnership’s tax_matters_partner filed a timely petition_for_readjustment with the court the petition inter alia contests the disallowance of a casualty_loss deduction in the amount of dollar_figure claims a greater casualty_loss with a resulting overpayment and prays that the court redetermine that the shareholders of the partnership are entitled to refunds of the overpayment respondent filed a motion to dismiss for lack of jurisdiction and to strike respondent contends that the court lacks jurisdiction to determine that refunds of any overpayments are due to shareholders of the partnership respondent agrees that the court may determine the casualty_loss is greater than deducted on the partnership return and has jurisdiction over all partnership items respondent further states that a tax_matters_partner may bring a refund action with respect to partnership items only after an administrative adjustment is filed under sec_6227 and not allowed by the secretary sec a unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue respondent’s position is that actions by partners for refunds attributable to partnership items are barred except as provided in sections b or c sec_7422 respondent asks _3- that all references to claims for refund of overpayments to shareholders of the partnership be stricken petitioner filed an objection to respondent’s motion arguing that the motion should be denied on the grounds that respondent’s motion was not timely filed and that the tax_court has jurisdiction to determine the amount of any deficiency and to determine the amount of any overpayment in a tefra partnership proceeding under sec_6512 and f this matter was called for hearing in atlanta georgia counsel for both parties appeared at the hearing and presented oral argument with respect to the pending motion the tax_court is a court of limited jurisdiction and we may exercise our jurisdiction only to the extent authorized by congress 85_tc_527 the court’s jurisdiction may be challenged by either party or by the court sua sponte at any stage of the proceedings 96_tc_10 and cases cited therein consistent with this principle we reject petitioner’s assertion that respondent’s motion to dismiss and to strike should be denied on the ground that it was not timely filed the court’s jurisdiction to review adjustments to a partnership return is governed by the unified partnership audit and litigation procedures set forth in sec_6221 through tax equity and fiscal responsibility act of tefra _4- publaw_97_248 96_stat_648 pursuant to the tehfra provisions which apply with respect to all taxable years of a partnership beginning after date the tax treatment of any partnership_item generally is determined in a single proceeding at the partnership level sec_6226 87_tc_1279 87_tc_783 partnership items include each partner’s proportionate share of the partnership’s aggregate items of income gain loss deduction or credit sec_6231 sec_301 a -1 a proced admin regs we must stress that our role ina tehfra proceeding is limited by sec_6226 to the determination and allocation of partnership items sec_6226 provides a court with which a petition is filed in accordance with this section shall have jurisdiction to determine all partnership items of the partnership for the partnership taxable_year to which the notice of final_partnership_administrative_adjustment relates and the proper allocation of such items among the partners we have no authority under sec_6226 to determine any affected_item or the tax_liability of any partner 113_tc_198 crop associates--1986 v commissioner tcmemo_2000_216 an affected_item means any item to the extent that such item is affected by a partnership_item sec_6231 95_tc_209 section a _5- describes situations in which the deficiency procedures provided for in subchapter_b chapter subtitle f of the code will apply to deficiencies attributable to affected items this court has held that in a partnership level proceeding we lack jurisdiction over issues relating to affected items we further held that those issues are to be resolved in separate proceedings involving the partners after the partnership level proceeding has been completed either as a matter of computational adjustment or as the subject of subsequent notices of deficiencies to the partners pursuant to section a n c f energy partners v commissio89_tc_741 petitioner in its notice of objection has conceded that correction of partnership items generates overpayments that are affected items within the meaning of sec_6231 we agree for the foregoing reasons we conclude that this court does not have jurisdiction in this partnership level proceeding over affected items such as the alleged overpayments in question and the refund of such alleged overpayments we note that after the tax_court enters its decision in this case and if it decides there is a casualty_loss greater than that claimed on the partnership return and the allocation thereof the statute contemplates that the individual partners should not have to file claims for refund that is in the case of any overpayments by a partner attributable to a partnership_item or an affected_item to the extent practicable credit or refund of such overpayment shall be allowed without any requirement that the partner file a claim therefor sec d an individual partner may file a claim_for_refund under section c if the secretary fails to make a credit or refund in the amount of any overpayment attributable to the application to the partner of the decision of the court accordingly we shall grant respondent’s motion to dismiss for lack of jurisdiction and to strike with respect to refunds of overpayments to shareholders on the court’s own motion we find that there are other portions of petitioner’s petition which must be stricken because of a lack of jurisdiction the fpaa was accompanied by an explanation of examination changes which includes a statement that penalties or additions to tax under sec_6662 which may be applicable at the investor level are being recommended in the examination of the flow-through_entity and by an explanation of affected items which states that an addition to the tax is charged as provided by sec_6662 the petition includes allegations contesting the imposition of the accuracy-related_penalty this court previously has ruled that for and this court lacks jurisdiction over the accuracy-related_penalty in a partnership-level proceeding and that the penalty may be _7- contested at the individual partner level following the completion of partnership-level proceedings crystal beach dev of destin ltd v commissioner tcmemo_2000_170 we there explained that the part of the taxpayer_relief_act_of_1997 publaw_105_34 111_stat_1026 which provides that penalties for negligence will be determined in partnership--level proceedings applies only prospectively for taxable years ending after date because of our lack of jurisdiction we shall strike from the petition all references to penalties additions to tax to the extent that we have not addressed any of petitioner’s arguments we have considered them and find them to be without merit an order will be issued granting respondent’s motion and dismissing those parts of the case pertaining to claims for refund of overpayments to shareholders of the partnership and pertaining to the accuracy-related_penalty under sec_6662