internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc fip 4-plr-102179-02 date date taxpayer company x account account dear this is in response to your representatives’ letter dated date requesting rulings concerning annuity_contracts issued by taxpayer additional information was submitted in letters dated date and date facts taxpayer is a life_insurance_company within the meaning of sec_816 of the internal_revenue_code and is taxable under sec_801 taxpayer intends to issue annuity_contracts contracts to certain tax-exempt organizations such as universities and private_foundations taxpayer has established pursuant to state law a number of separate_accounts including account sec_1 and the separate_accounts that fund the contracts gains or losses realized or unrealized on assets held by a separate_account will be credited or charged without regard to any other income gains or losses of taxpayer taxpayer is not a trustee as to the amounts included in the separate_accounts under no circumstances will deposits income gains or losses to a separate_account be credited or charged to taxpayer's general account additionally no amounts will be transferred from taxpayer's general account to a separate_account the assets of account are invested solely in real_estate and the assets of account are invested in money market funds investments in the separate_accounts are available only through ownership of an annuity_contract issued by taxpayer the general_public cann0ot invest directly in a separate_account taxpayer represents that the separate_accounts will be adequately diversified within the meaning of sec_817 and the regulations thereunder taxpayer has the right in its sole discretion based on investment advice received from company x to invest and reinvest amounts allocated to the separate_accounts a contract owner cannot select or identify particular investments to be made and a contract owner has no right to have the investment objective of the separate_accounts changed a contract owner has no right or opportunity to influence determine specify or otherwise control the decision to buy sell retain or manage any specific investment group of investments or the account in general there is no prearrangement plan contract or agreement between a contract owner and taxpayer or company x regarding the investments in the separate_accounts at any time prior to the death or change_of the primary_annuitant a contract owner may direct taxpayer to provide a lump-sum payment or payment of annuities with respect to the amounts held under the contract the purchase_price of each annuity will be determined from the annuity purchase rate schedule set forth in the contract for each annuity the total amount payable can be determined when annuity payments begin and amounts are payable in periodic installments at regular intervals over a period of more than one full year from the date that payments begin and the total amount payable is determinable directly or indirectly as of the date the payments begin under the contracts the amounts paid out reflect the investment return and market_value of the segregated accounts thus contract owners participate in the favorable and unfavorable market performance of the segregated accounts taxpayer will separately account for various income exclusion deduction asset reserve and other liability items properly attributable to the contracts the contracts provide for required distributions upon the death of the primary_annuitant in the event the primary_annuitant dies before the date annuity payments are due to begin all amounts will be liquidated and distributed within five years following the primary annuitant's death in the event the primary_annuitant dies on or after the date the payments have begun but have not yet been completed distributions of the remaining amounts payable must be made at least as rapidly as the rate that was being used at the date of death law and analysis sec_817 provides special rules for variable_contracts with reserves based on segregated_asset accounts sec_817 provides that for the purposes of calculating inclusions in and deductions from a life_insurance company's income under sec_807 and b adjustments are made to the sum of the items described in sec_807 taken into account with respect to variable_contracts sec_807 lists the reserves allowed life_insurance_companies the adjustment rules of sec_817 provide that as of the close of the taxable_year the reserves for variable_contracts are adjusted by subtracting therefrom an amount equal to the sum of the amounts added from time to time for the taxable_year to the reserves separately accounted for in accordance with sec_817 by reason of appreciation in value of assets whether or not the assets have been disposed of it further provides that the reserves for variable_contracts shall be adjusted by adding thereto an amount equal to the sum of the amounts subtracted from time to time for the taxable_year from such reserves by reason of depreciation in value of assets whether or not the assets have been disposed of acting concomitantly with the reserve adjustment rules of sec_817 are the basis_adjustment rules of sec_817 they provide that in the case of variable_contracts the basis of each asset in a segregated_asset_account shall in addition to all other adjustments to basis be increased by the amount of any appreciation in value and decreased by the amount of any depreciation in value to the extent such appreciation and depreciation are from time to time reflected in the increases and decreases in reserves or other items referred to in sec_817 with respect to such contracts the effect of these rules is to prevent gains and losses resulting from appreciation or depreciation in the value of a segregated_asset account's assets occurring while the assets were in the account from being recognized on the assets' subsequent sale sec_817 of the code requires life_insurance_companies that issue variable_contracts to separately account for various income exclusion deduction asset reserve and other liability items properly attributable to such variable_contracts sec_817 defines a variable_contract as a contract that provides for the allocation of all or part of the amounts received under the contract to an account that pursuant to state law or regulation is segregated from the general asset accounts of the company and that provides for the payment of annuities or is a life_insurance_contract sec_817 and in the case of an annuity_contract the amounts paid in or the amounts paid out reflect the investment return and market_value of the segregated_asset_account sec_817 if a contract ceases to reflect current investment return and current market_value it will not be considered a variable_contract after such cessation sec_817 amounts received under the contract are allocated to a separate_account which is segregated from the taxpayer's general_asset_account pursuant to state law therefore the contracts meet the requirements set forth in sec_817 because the contracts are not life_insurance contracts they must provide for the payment of annuities see sec_817 as sec_817 does not define the phrase provides for the payment of annuities it is necessary to look to sec_1 b and of the income_tax regulations which relate to the amounts received under an annuity_contract as amounts received as an annuity sec_1_72-2 provides that amounts are considered to be amounts received as an annuity only if they are received on or after the annuity_starting_date as that term is defined in sec_1_72-4 they are payable in periodic installments at regular intervals over a period of more than one full year from the annuity_starting_date and with an exception not here relevant the total amount payable is determinable as of the annuity_starting_date either directly from the terms of the contract or indirectly by the use of either mortality tables or compound interest computations or both see also sec_72 interest payments received under an agreement to pay interest on any amount will be included in gross_income and thus will not be subject_to the exclusion_ratio applicable to amounts received as an annuity the facts as stated above indicate that the amounts under the contracts are not held under an agreement to pay interest thereon and are payable in periodic installments at regular intervals over a period of more than one full year from the date that payments begin and that the total amount payable is determinable directly or indirectly as of the date the payments begin therefore the contracts meet the requirement of sec_817 that it provide for the payment of annuities sec_72 provides that an annuity_contract that is held by a person who is not a natural_person will not be treated as an annuity_contract for purposes of subtitle a of the code other than for purposes of subchapter_l although the contracts are held by persons who are not natural persons the contracts are annuity_contracts for purposes of subchapter_l of the code which includes sec_817 see sec_72 in view of the contracts’ status as annuity_contracts under subchapter_l the tax treatment of a contract-holder under sec_72 does not preclude the contract from satisfying the requirements of sec_817 for purposes of determining taxpayer's income in order to be a variable_contract a contract must also satisfy the requirements of sec_817 in the case of an annuity_contract including a contract described in sec_72 u sec_817 requires that amounts paid in or the amounts paid out reflect the investment return and the market_value of the segregated_asset_account under the contracts the amounts paid out reflect the investment return and market_value of the segregated account accordingly based on the facts and representations set forth above the contracts satisfy the requirements of sec_817 - and are thus variable_contracts as that term is defined in sec_817 sec_817 defines a variable_contract as a contract that provides for the allocation of all or part of the amounts received under the contract to an account that pursuant to state law or regulation is segregated from the general asset accounts of the company and that provides for the payment of annuities or is a life_insurance_contract sec_817 and in the case of an annuity_contract the amounts paid in or the amounts paid out reflect the investment return and market_value of the segregated_asset_account sec_817 if a policy otherwise satisfies the definition of a variable_contract under sec_817 and the regulations thereunder that policy will be a variable_contract under sec_817 irrespective of whether a variable_contract funded by the same separate_accounts is issued to tax exempt_organizations thus we conclude that issuance of the contracts to tax-exempt organizations will not prevent other contracts funded by the separate_accounts from constituting variable_contracts under sec_817 if such other contracts otherwise satisfy the definition of variable_contracts under the internal_revenue_code and income_tax regulations sec_61 provides that the term gross_income means all income from whatever source derived including gains derived from dealings in property interest and dividends revrul_77_85 1977_1_cb_12 concludes that if a purchaser of an investment annuity_contract selects and controls the investment_assets in the separate_account of the life_insurance_company issuing the contract then the purchaser is treated as the owner of those assets for federal_income_tax purposes thus any interest dividends or other income derived from the investment_assets are includible in the gross_income of the purchasers in revrul_80_274 1980_2_cb_27 depositors in certain savings and loan associations could transfer cash existing passbook accounts or certificates of deposit to an insurance_company in exchange for annuity_contracts the insurance_company deducted expenses and premium taxes and then deposited the net amounts received into a separate_account at each contract holder's savings and loan association these amounts were then invested in the association's certificates of deposit for a term designated by the contract holder except for the ability to withdraw the deposit from a failing savings and loan the insurance_company could not dispose_of the deposit or convert the deposit into a different asset in the event of a withdrawal from a failing savings and loan association the insurance_company was required to deposit the withdrawn amounts in another federally insured savings and loan association when the certificate of deposit expired the insurance_company was required to reinvest the proceeds in a certificate of deposit for the same duration if the duration would not extend beyond the annuity_starting_date if reinvestment for the same duration would extend beyond the annuity_starting_date then the insurance_company was required to purchase a certificate of deposit with a duration not extending beyond the annuity_starting_date if no such certificate of deposit was available the insurance_company was required to reinvest the proceeds in a passbook savings account the ruling concludes that if a purchaser of an annuity_contract can select and control the certificates of deposit supporting the contract then the purchaser is considered the owner of the certificate of deposit for federal_income_tax purposes revrul_81_225 1981_2_cb_12 describes four situations in which investments in mutual funds pursuant to annuity_contracts are considered to be owned by the contract holder rather than by the insurance_company issuing the annuity_contracts and one situation in which the insurance_company is considered the owner of the mutual_fund shares in situation the investment_assets in the segregated account underlying the annuity_contracts consist solely of shares in a single publicly available mutual_fund managed by an independent investment_advisor situation is similar to situation except that the mutual_fund is managed by the insurance_company or one of its affiliates situation also is similar to situation except that the segregated_asset_account underlying the annuity_contracts consists of five sub-accounts on which the performance of the annuity_contract would depend the contract holder retains the right to allocate or reallocate funds among the five sub-accounts during the life of the annuity_contract situation is similar to situation except that the shares of the mutual_fund are not sold directly to the public but are available only through the purchase of an annuity_contract or by participation in an investment plan account of the type described in revrul_70_525 1970_2_cb_144 situation also is similar to situation except that the shares in the mutual_fund are available only through the purchase of an annuity_contract the ruling concludes that the contract holders in situations have sufficient control and other incidents_of_ownership to be considered the owners of the mutual_fund shares for federal_income_tax purposes in revrul_82_54 1982_1_cb_11 the purchasers of certain annuity_contracts retained the right to direct the issuing insurance_company to invest in the shares of any or all of three mutual funds that were not available to the public one mutual_fund invests primarily in common stocks another in bonds and a third in money market investments contract holders are free to allocate their premium payments among the three funds and have an unlimited right to reallocate contract values among the funds prior to the maturity_date of the annuity_contract the ruling concludes that the contract holders' ability to choose among general investment strategies for example between stock bonds or money market instruments either at the time of the initial purchase or subsequent thereto does not constitute sufficient control so as to cause the contract holders to be treated as the owners of the mutual_fund shares in 749_f2d_513 8th cir rev'g 578_fsupp_398 n d iowa the united_states court_of_appeals for the eighth circuit considered the issue of who owns the assets underlying a segregated_asset_account the taxpayers in christoffersen purchased a variable_annuity contract that reflected the investment return and market_value of assets held in a separate_account that was segregated from the general_asset_account of the issuing insurance_company the taxpayers had the right to direct that their premium payments be invested in any one or all of six publicly traded mutual funds taxpayers could reallocate their investment among the funds at any time taxpayers also had the right upon seven days notice to make withdrawals or to surrender the contract or to apply the accumulated value under the contract to provide annuity payments the court_of_appeals held that the taxpayer not the insurance_company which issued the annuity_contract owned the mutual_fund shares for federal_income_tax purposes thus the taxpayers were required to include in gross_income any gains dividends or other income derived from the mutual_fund shares approximately two years after the enactment of sec_817 the treasury_department issued proposed and temporary regulations under sec_817 relating to the minimum level of diversification applicable to the investments underlying variable_annuity and life_insurance contracts the preamble to the regulations stated the temporary regulations do not provide guidance concerning the circumstances in which investor_control of the investments of a segregated_asset_account may cause the investor rather than the insurance_company to be treated as the owner of the assets in the account for example the temporary regulations provide that in appropriate cases a segregated_asset_account may include multiple sub- accounts but do not specify the extent to which policyholders may direct their investments to particular sub-accounts without being treated as owners of the underlying assets guidance on this and other issues will be provided in regulations or revenue rulings under sec_817 relating to the definition of variable_contracts fr the text of the temporary regulations served as the text of proposed_regulations in the notice of proposed rulemaking see fr date the final regulations adopted with certain revisions not relevant here the text of the proposed_regulations taxpayer owns the assets held in the separate_accounts because the contract owner does not have control_over the investments that fund the contract and because the investments in the separate_accounts are available only through ownership of an annuity_contract issued by taxpayer taxpayer alone with advice from company x has complete control to acquire and dispose_of a separate account’s investment_assets a contract owner cannot select a separate account’s particular investments and a contract owner has no right to have the investment objective of the separate_accounts changed there is no prearrangement plan contract or agreement between a contract owner and taxpayer or company x regarding the investments in the separate_accounts taxpayer does not act as a mere conduit through which a contract owner makes investments accordingly we conclude that taxpayer rather than the contract owner is the owner of assets held in the separate_accounts and income gain_or_loss with regard to those assets is includible in the computation of taxpayer’s life_insurance_company_taxable_income conclusions the contracts issued by taxpayer are variable_contracts within the meaning of sec_817 issuance of the contracts to tax-exempt organizations will not prevent other contracts funded by the separate_accounts from constituting variable_contracts under sec_817 if such other contracts otherwise satisfy the definition of variable_contracts under sec_817 and the regulations thereunder for federal_income_tax purposes taxpayer rather than contract owner is the owner of assets funding the separate_accounts no opinion is expressed as to the tax treatment of the transaction under the provisions of any other section of the code or regulations such as sec_72 or to the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above ruling this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely yours s donald j drees jr senior technician reviewer branch office of associate chief_counsel financial institutions products


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service attn mandatory review mc dal commerce st dallas tx date date release number release date org address employer_identification_number person to contact id number contact numbers certified mail - return receipt requested dear in a determination_letter dated february 19xx you were held to be exempt from federal_income_tax under sec_501 of the internal_revenue_code the code based on recent information received we have determined you have not operated in accordance with the provisions of sec_501 of the code accordingly your exemption from federal_income_tax is revoked effective january 20xx this is a final adverse determination_letter with regard to your status under sec_501 of the code we previously provided you a report of examination explaining why we believe revocation of your exempt status is necessary at that time we informed you of your right to contact the taxpayer_advocate as well as your appeal rights on may 20xx you signed form 6018-a consent to proposed action agreeing to the revocation of your exempt status under sec_501 of the code you have filed taxable return on form 1120-pc u s property and casualty insurance_company income_tax return for the years ended december 20xx and december 20xx with us appropriate service_center indicated in the instructions for the return for future periods you are required to file form 1120-pc with the you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please contact the person whose name and telephone number are shown at the beginning of this letter sincerely nanette m downing acting director eo examinations cc cpa department of the treasury internal_revenue_service commerce street dallas tx ak exempt and povernment entities division date legend org organization name xx date address address taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax dear we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization's exempt status is necessary we have also enclosed publication exempt_organization appeal procedures for unagreed issues and publication the examination process publications include information on your rights as a taxpayer including administrative appeal procedures within the internal_revenue_service these if you request a conference with appeals we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference the appeals_office will advise you of its final_decision if you elect not to request appeals consideration but instead accept our findings please sign and return the enclosed form 6018-a consent to proposed adverse action we will then send you a final letter modifying or revoking your exempt status under ilr c sec_501 if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and send a final letter advising of our determination in either situation outlined in the paragraph above execution of form 6018-a or failure to respond within days you are required to file federal_income_tax returns for the tax period s shown above for all years still open under the statute_of_limitations and for all later years file the federal tax_return for the tax period s shown above with this agent within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely sunita lough sunita lough director eo examinations enclosures publication publication form 6018-a report of examination envelope oan 886a department of the ‘treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx legend org organization name co-1 company issues xx date state state city city does org qualify for tax exempt status under internal_revenue_code irc sec_501 for the years beginning january 20xx if org does not qualify for tax exempt status for years beginning january 20xx what are the tax consequences if the tax exempt status is revoked how will it affect future years facts org org was formed in the state of state in 18xx purpose of the organization is to provide insurance to policyholders in case of damage or loss due to fire lightning and smoke the articles of incorporation filed with the state of state on april 19xx stated the following purpose e conduct and operate a org under and pursuant to the provisions and conditions of chapter of the insurance code of the state of state said insurance code being set forth and appearing in and as chapter of the state session laws of 19xx and to insure and reinsure property against loss or damage by fire or other_casualty in the manner and to the extent provided in and by said chapter the bylaws dated march 20xx stated the following information e e e e all persons holding a valid policy of insurance in this company the same being full force and effect are members thereof and such are entitled to one vote at all meetings of the members board_of directors not less than or more than officers organization shall not insure any property outside the limits of the state counties of city city city city city and city except personal_property temporarily removed the company shall only insure the following property against loss or damage by fire lightning smoke explosion riot riot attending a strike aircraft vehicles and livestock by electrocution a farm dwellings and buildings including the usual contents therein livestock farm machinery and other forms of farm property b dwellings designed for occupancy by not over two families or the usual contents form 886-a rev department of the treasury - internal_revenue_service page -1- leone 886a department of the ‘l'reasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx thereof and private garages situated in a city or town c churches schools and community buildings or the usual contents thereof application form_1024 was filed on august 19xx in the form the organization stated that the organization's past present and future activities and objectives are to insure buildings household goods and other personal_property against loss from fire lightning and smoke it also stated that organization is owned by its members and the members are the current policyholders on february 19xx org received a determination_letter granting tax exempt status under sec_501 during the course of the examination org provided a copy of a letter issued by the service dated august 19xx granting tax exempt status under sec_101 of the code of 19xx sec_101 is equivalent to sec_501 today however no records were able to be secured from organization or from the service regarding this letter and any application forms that may have been filed during the year under examination org issued policies to members to cover loss or damage due to fire lightning and smoke policyholders were able to insure their dwellings personal_property farm buildings and equipment livestock and grain and more at the end of 20xx there were a total of policies outstanding with a total insurance in force of dollar_figure org was involved in a reinsurance agreement with co-1 co-1 a letter dated november 20xx from co-1 with a renewal agreement for 20xx was secured in schedule a retention and limit it stated the co-1 shall not be liable for any loss occurrence until the company’s ultimate net_loss on any one risk any one loss occurrence exceeds dollar_figure and then the co-1 shall be liable for of the amount of ultimate net_loss sustained by the company in excess of dollar_figure on any one risk any one loss occurrence but the co-1’s liability shall not exceed of dollar_figure with respect to any one risk any one loss occurrence however the liability shall be limited to dollar_figure dollar_figure as respects any one loss occurrence irrespective of the number of risks involved total premiums of dollar_figure for the year was to be paid to the co-1 quarterly in payments of dollar_figure form_990 was filed for the 20xx tax_year the following is a breakdown of the gross_receipts received by org for the year ending december 20xx based on the form_990 and annual_statement provided to the state burial association board and the percentage of gross premiums to gross_receipts for the same year per notice 20xx- form 886-a rev department of the treasury - internal_revenue_service page -2- exhibit year period ended 20xx 20xx roe 886a department of the ‘l'reasury - internal_revenue_service schedule no or explanation of items name of taxpayer org - org burial premiums written _ total premiums written interest dividend income misc income total gross_receipts _ _ percentage- gross premium reinsurance income to gross_receipts the amount for premiums written above does not include the amount of commissions received and the premiums refunded the form_990 combined all these items to arrive at the dollar_figure amount reported total gross_receipts also do not include these amounts the commissions received are considered a reduction in reinsurance premiums_paid and the premiums refunded are considered an expense an election under sec_831 has never been filed as of the writing of this report there has never been a filing of the election either with the filing of the forms or separately org was not involved in any court ordered liquidation or receivership during or 20xx law and analysi sec_1 does qualify for tax exempt status under internal_revenue_code irc sec_501 for the years beginning date internal_revenue_code sec_501 exempts from federal_income_tax insurance_companies as defined in sec_816 other than life including interinsurers and reciprocal underwriters if- i i the gross_receipts for the taxable_year do not exceed dollar_figure and ii more than percent of such gross_receipts consist of premiums or ii in the case of a mutual insurance company- i the gross_receipts of which for the taxable_year do not exceed dollar_figure and ii more than percent of such gross_receipts consist of premiums clause ii shall not apply to a company if any employee of the company or a member of the employee’s family as defined in sec_2032 is an employee of another company exempt from taxation by reason of this paragraph or would be so exempt but for this sentence form 886-a rev department of the treasury - internal_revenue_service page -3- bossa sec_86a name of taxpayer org schedule no or exhibit year period ended 20xx explanation of items department of the ‘l'reasury - internal_revenue_service sec clarification of exemption from tax for small property and casualty insurance_companies of the pension funding equity act of p l amended sec_501 to change the definition of small property and casualty insurance_companies insurance_companies other than life_insurance_companies exempt from income taxes to a company whose gross_receipts for the taxable_year do not exceed dollar_figure and over half such gross_receipts consist of premiums currently whose net written premiums or if greater direct written premiums for the taxable_year do not exceed dollar_figure or a mutual_insurance_company a whose gross_receipts for the taxable_year do not exceed dollar_figure and more than percent of which consist of premiums and b none of whose employees or member of the employee’s family is an employee of another company exempt from tax under sec_501 _ these changes were applicable after date notice_2006_42 irb provides guidance as to the meaning of gross_receipts for purposes of sec_501 of the internal_revenue_code this notice advises taxpayers that the service will include amounts received from the following sources during the taxable_year in gross_receipts for purposes of sec_501 a premiums including deposits and assessments without reduction for return_premiums or premiums_paid for reinsurance b items described in sec_834 gross_investment_income of a non-life insurance_company and c other items that are properly included in the taxpayer’s gross_income under subchapter_b of chapter subtitle a of the code thus gross_receipts include both tax-free interest and the gain but not the entire amount_realized from the sale_or_exchange of capital assets because those items are described in sec_834 gross_receipts do not however include amounts other than premium income or gross_investment_income unless those amounts are otherwise included in gross_income accordingly the term gross_receipts does not include contributions to capital excluded from gross_income under sec_118 or salvage or reinsurance recovered accounted for as offsets to losses_incurred under sec_832 sec_834 of the internal_revenue_code includes under gross_receipts the gains from the sale or exchanges of capital assets to the extent provided in subchapter_p sec_1201 and following relating to capital_gains_and_losses sec_834 of the internal_revenue_code allows a deduction for capital losses to the extent provided in subchapter_p sec_1201 and following plus losses from capital assets sold or exchanged in order to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends_and_similar_distributions to policyholders i orm 886-a rev depar tment of the treasury - internal_revenue_service page -4- department of the treasury - internal_revenue_service foren 886a name of taxpayer org schedule no or exhibit year period ended 20xx explanation of items based on the changes in the limitations under internal_revenue_code irc sec_501 and the operation chart above january dollar_figure during it was determined from the did not qualify for tax exempt status for the years beginning but was unable to meet either the or requirement did have gross_receipts of under dollar_figure and dollar_figure section e of the pension funding act of p l provides the effective date of the new requirements for exemption under sec_501 it states effective date- ingeneral- except as provided in paragraph the amendments made by this section shall apply to taxable years beginning after date transition rule for companies in receivership or liquidation- in the case of a company or association which-- a for the taxable_year which includes date meets the requirements of sec_501 of the internal_revenue_code_of_1986 as in effect for the last taxable_year beginning before date and b on date is in a receivership liquidation or similar proceeding under the supervision of a state court the amendments made by this section shall apply to taxable years beginning after the earlier of the date such proceeding ends or date was not involved in a court ordered liquidation or receivership during therefore section e does not apply to this organization therefore for the years beginning date exempt status under sec_501 did not qualify for tax if for tax exempt status for years beginning january consequences does not qualify what are the tax did not qualify for tax exempt status under sec_501 for the since years beginning january years beginning january incorrect should have filed form 1120-pc for years beginning january tax exempt status should be revoked for filing of the form_990 for was sec_831 discusses tax on insurance_companies other than life_insurance_companies form 886-a crev department of the treasury - internal_revenue_service page -5- foun 886a name of taxpayer org schedule no or exhibit year period ended 20xx explanation of items department of the ‘treasury - internal_revenue_service sec_831 states as a general_rule taxes computed as provided in sec_11 shall be imposed for each taxable_year on the taxable_income of every insurance_company other than a life_insurance_company sec_831 provides an alternative_tax for certain small companies t states in sec_831 that in general in lieu of the tax otherwise applicable under subsection a there is hereby imposed for each taxable_year on the income of every insurance_company to which this subsection applies a tax computed by multiplying the taxable_investment_income of such company for such taxable_year by the rates provided in sec_11 sec_831 discusses the companies to which this subsection applies a in general this subsection shall apply to every insurance_company other than life including interinsurers and reciprocal underwriters if- ii the net written premiums or if greater direct written premiums for the taxable_year do not exceed dollar_figure and such company elects the application of this subsection for such taxable_year the election under clause ii shall apply to the taxable_year for which made and for all subsequent taxable years for which the requirements of clause are met such election once made may be revoked only with the consent of the secretary regulations regs a discusses the time for making elections under i described in paragraph a of this section must be made by the later of- it states in general that except as otherwise provided in this section the elections a the due_date taking into account any extensions of time to file obtained by the taxpayer of the tax_return for the first taxable_year for which the election is effective or b date in which case the election generally must be made by amended_return regs a mentioned above includes sec_831 regs a describes the manner of making elections otherwise provided in this section the elections described in paragraph a of this section must be made by attaching a statement to the tax_return for the first taxable_year for which the election is to be effective it states except based on the code and regulation sections above under b for years under examination and for any future year until they decide to file the election the election has never been filed either with the form_990 or is not entitled to the relief form 886-a rev department of the treasury - internal_revenue_service page -6- department of the treasury - internal_revenue_service baye 886a name of taxpayer org schedule no or exhibit year period ended 20xx explanation of items any election filed now or in the future would only be effective for the year separately the election was filed and all subsequent years the election can not be made retroactive if the tax exempt status is revoked how will it affect future years the tax exempt status should be revoked for the years beginning january form 1120-pc is required for each year and all future years where qualify for exemption if years it may be allowed to file the form_990 for each year they qualify as a self- declared entity otherwise form 1120-pc would be required any year in the future that the form 1120-pc is required is allowed to make an election under sec_831 once the election is made it is effective for the year the election was made and for all future years that the form 1120-pc is required the election can not be made retroactive meets the requirements under sec_501 in future does not taxpayer’s position unknown at the time of this writing summary it is the governments position based on the above facts law and analysis that the tax exemption status of org for the years beginning january 20xx should be revoked based on not meeting the qualifications for exemption under sec_501 form 1120-pc would be required to be filed for any year where org does not qualify for exemption under sec_501 form 886-a rev department of the treasury - internal_revenue_service page -7-


internal_revenue_service department of the treasury index number u i l no washington dc person to contact telephone number refer reply to cc dom p si plr-119983-98 date date number release date legend company state shareholders a dear this letter responds to a letter dated date requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has two shareholders shareholders it is represented that company has intended to be an s_corporation since its incorporation believing itself to be an s_corporation company has operated accordingly after the end of its first taxable_year however company discovered that its s election had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for its taxable_year that begins on a sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 explains when an s election will be effective generally if an s election is made within the first two and one half months of a corporation's taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 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 then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply applying the relevant law to the facts submitted and representations made we rule that company's sec_1362 election will be treated as timely made for its taxable_year that begins on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours jeff erickson assistant to the chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date c h i ef c ou n sel number info release date conex-146345-07 uil ---------------------------- --------------------- --------------------------------- dear ------------- this is in response to your letter dated ------------------- requesting permission to revoke an election under sec_1_163_d_-1t c of the income_tax regulations to treat qualified_dividend_income as investment_income under sec_163 and sec_163 of the internal_revenue_code for tax_year ------- as you are aware the election under sec_163 is revocable with the consent of the commissioner sec_301_9100-3 of the regulations provides that a taxpayer requesting an extension of time to make or revoke a regulatory election must provide evidence including affidavits described in the regulations to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government the procedures that must be followed to request consent to revoke your election are set out in revproc_2007_1 2007_1_irb_1 available online at www irs gov and involve requesting a private_letter_ruling from our office a letter_ruling is a written_determination issued to a taxpayer by our office in response to a written inquiry from an individual or an organization about the tax effects of its acts or transactions please refer to revproc_2007_1 for the complete instructions on how to apply for a letter_ruling please note that the letter request must be sent to the proper associate office here income_tax accounting along with the correct user_fee at a minimum the letter_ruling request must include a complete statement of facts any relevant documents a statement and analysis of the law relevant to the request and a penalties of perjury statement please see sections appendix b and appendix c of revproc_2007_1 for other necessary and relevant information that must be included in the request you may wish to consult with your tax advisor in preparing such a request this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see revproc_2007_1 2007_1_irb_1 i hope this information is helpful if you need further assistance please contact me or -----------------at ----- ------------- sincerely christopher f kane branch chief branch income_tax accounting


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 b01 plr-117725-15 date date legend purchaser ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ -------------------------------------------------------------- s_corporation target --------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- ------------------------------------------------------------------------------ -------------------------------------------------------------- s_corporation shareholder state a state b date date company official --------------------- --------- ------------ --------------------- --------------------- ------------------- ------------------------------------------------------------- tax professional ------------------------------------------------------------------------------------------------------------------ ---------------------------------------- ------ dear --------------- this letter responds to a letter dated date submitted on behalf of purchaser s_corporation shareholder and s_corporation target requesting an extension of time plr-117725-15 under sec_301_9100-3 of the procedure and administration regulations to file an election purchaser s_corporation shareholder and s_corporation target are requesting an extension of time for s_corporation target to file an election statement under sec_1 h iii of the income_tax regulations election statement with respect to purchaser’s acquisition of the stock of s_corporation target from s_corporation shareholder on date the material information submitted is summarized below on date purchaser a state a limited_partnership acquired all of the stock of s_corporation target an s_corporation incorporated in state b from s_corporation shareholder in exchange for cash the disposition it has been represented that the disposition qualified as a qualified_stock_disposition as defined in sec_1_336-1 prior to the due_date for s_corporation target’s tax_return for the taxable_year that included date year s_corporation shareholder and s_corporation target entered into a written binding agreement providing that a sec_336 election would be made with respect to the disposition but s_corporation target did not timely file its tax_return for year subsequently this request was submitted under sec_301_9100-3 of the procedure and administration regulations for an extension of time to file the election statement it has been represented that none of purchaser s_corporation shareholder or s_corporation target is seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 regulations promulgated under sec_336 permit certain_sales exchanges or distributions of stock of a corporation to be treated as asset dispositions if the disposition is a qualified_stock_disposition as defined in sec_1_336-1 and a sec_336 election is made sec_1_336-2 provides that a sec_336 election for an s_corporation target is made by i all of the s_corporation shareholders including those who do not dispose_of any stock in the qualified_stock_disposition and the s_corporation target entering into a written binding agreement on or before the due_date including extensions of the federal_income_tax return of the s_corporation target for the taxable_year that includes the disposition date to make a sec_336 election ii the s_corporation target retaining a copy of the written_agreement and iii the s_corporation target attaching the sec_336 election statement described in sec_1_336-2 and to its timely filed including extensions federal_income_tax return for the taxable_year that includes the disposition date under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six 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 plr-117725-15 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner 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 the time for filing the election statement is fixed by the regulations ie sec_1 h iii therefore the commissioner has discretionary authority under sec_301 to grant an extension of time for s_corporation target to file the election statement provided purchaser s_corporation shareholder and s_corporation target acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief would not prejudice the interests of the government information affidavits and representations submitted by purchaser s_corporation shareholder s_corporation target company official and tax professional explain the circumstances that resulted in the failure to timely file the election statement the information establishes that purchaser s_corporation shareholder and s_corporation target reasonably relied on a qualified_tax professional who failed to file or advise them to timely file the election statement and that the request for relief was filed before the failure_to_file the election statement was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that purchaser s_corporation shareholder and s_corporation target have acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for s_corporation target to file the election statement with respect to the disposition within days of the date on this letter s_corporation target must file the election statement in accordance with sec_1_336-2 the election statement must be attached to s_corporation target’s tax_return for year in addition a copy of this letter must be attached to s_corporation target’s return alternatively if s_corporation target files its return electronically it may satisfy the requirement of attaching a copy of this letter to the return by attaching a statement to its return that provides the date and control number plr-117725-15 of this letter_ruling within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction consistently with the making of a sec_336 election for the taxable_year in which the transaction was consummated and for any other affected_taxable_year plr-117725-15 the above extension of time is conditioned on the taxpayers’ ie purchaser’s s_corporation target’s and s_corporation shareholder’s tax_liability if any being not lower in the aggregate for all years to which the sec_336 election applies than it would have been if the election statement had been timely filed taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved we express no opinion as to whether the disposition qualifies as a qualified_stock_disposition or any other tax consequences arising from the sec_336 election in addition we express no opinion as to the tax consequences of filing the return or election statement late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election statement late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we have relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election statement penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely _ken cohen____________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


internal_revenue_service number release date index numbers -------------------- --------------------------- -------------------------------- ------------------------------------- ------------------------------------ legend distributing controlled company sub sub llc llc llc dre 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-107326-07 date date --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- ----------------------------------------- plr-107326-07 dre dre lp lp lp corporation corporation corporation business y business z date a date b date c date d date e date f a b c d e --------------------------------------------------------------- ----------------------------------------- --------------------------------------------------------------- ----------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- --------------------------------------------------------------- --------------------------------------------------------------- ----------------------- -------------------------- ----------------------- -------------------------- ------------------------- --------------- ------------------ ------------------- ------------------- ------------------------ ------------------------ -------------------------------- ------ ----------- ----------- ---- -------- -------------------------------- ---- --- --------------- ---- --- --- ---- plr-107326-07 f g h i j k l m n o p dear ------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of a series of proposed transactions the information submitted in that letter and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayers and accompanied by penalty of perjury statements executed by the appropriate parties this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether internal distribution internal distribution and the share exchange all defined below i satisfy the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii are being used principally as a device for the distribution of the earnings_and_profits of the distributing and the controlled corporations discussed below see sec_355 of the internal_revenue_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 percent or greater interest in any of the distributing or the controlled corporations see sec_355 and sec_1_355-7 summary of facts distributing is a publicly traded holding_company and the common parent of an affiliated_group_of_corporations that file a consolidated federal_income_tax return plr-107326-07 collectively the distributing group distributing has a single class of stock outstanding the distributing stock distributing also has dollar_figurec in certain term loans outstanding the tranche a debt in addition to other debt lp lp and lp each a limited_partnership and collectively the lps in the aggregate own indirectly through dre dre and dre collectively the dres a percent of the distributing stock dre dre and dre are each classified as an entity disregarded as separate from its single owner for federal_income_tax purposes certain individuals associated with the advisor to the lps collectively the individuals own b percent of the distributing stock the dres and the individuals together are referred to hereafter as the shareholders distributing wholly owns sub sub wholly owns sub and sub wholly owns company company directly engages in business y and sub directly engages in business z company and sub have each engaged in its respective business for each of the past five years controlled is a corporation that was newly formed by distributing to hold all of the assets of business y following the separation as defined below controlled has a single class of stock outstanding the controlled stock management of distributing has determined to separate business y from business z the separation in order to allow the management of each business to focus on its respective business in furtherance of the separation distributing and the dres on date a entered into a share exchange_agreement pursuant to which distributing agreed to distribute all of the controlled stock to the shareholders in exchange for approximately d percent close to percent of the distributing stock held by the shareholders the share exchange lp lp and lp acquired the majority of their shares of distributing stock on date b in exchange for the contribution of i all of the stock of corporation corporation and corporation respectively collectively the corporations and ii in the case of lp and lp certain class c units in llc the stock in the corporations and the contributed class c units collectively the contributed interests to the then newly-formed distributing the distributing contribution in connection with an initial_public_offering of the distributing stock the ipo the lps had acquired the contributed interests i principally on date c and date d dates more than five years prior to the execution date of the share exchange_agreement and ii to a lesser extent on date e lp and lp acquired the remainder of their shares of distributing stock as a contribution from certain partners of lp and lp immediately after the distributing contribution the lps had acquired their stock in the corporations in connection with the initial capitalization of llc and llc the operating partnerships that acquired the plr-107326-07 distributing business that acquisition occurred on date c and date d dates more than five years prior to the execution date of the share exchange_agreement on date f lp and lp engaged in transactions that the taxpayers believe are properly characterized as contributions by lp and lp of approximately dollar_figuree and dollar_figuref in cash to corporation and corporation respectively the cash contributions since that time the lps have not transferred any other_property to the corporations on date e lp and lp acquired certain partnership interests in llc the class c units in exchange for cash llc contributed the cash to llc a newly formed limited_liability_company classified as a corporation for federal_income_tax purposes and llc used the cash to purchase the stock of an unrelated target_corporation under the operating_agreement of llc the class c units were allocated all of the profits and losses from the llc investment and none of the profits and losses from the llc investment in the distributing contribution the lps contributed the stock of the corporations and the class c units to distributing in exchange for distributing stock approximately g percent of the distributing stock received by lp and lp and all of the distributing stock received by lp in the distributing contribution was attributable to the stock of the corporations contributed by the lps the lps sold approximately h percent of their distributing stock pursuant to the exercise of the underwriters’ overallotment option in the ipo the overallotment sales the proposed transactions in order to accomplish the separation the following series of transactions have been proposed collectively the proposed transactions i sub will distribute all of the company stock to sub internal distribution ii sub will distribute all of the company stock to distributing internal distribution iii distributing will contribute all of the stock of company and business y assets to controlled in exchange for additional controlled stock dollar_figurei in cash the special dividend and debt securities to be issued by controlled the controlled securities that will have a term of not less than j years and will be callable no earlier than k years after their issuance the contribution iv the shareholders will exchange an aggregate of l shares of distributing stock including approximately d percent of the shares of distributing stock held by each of the dres in exchange for controlled stock in the share exchange all of the plr-107326-07 controlled stock held by distributing will be distributed to the shareholders in the share exchange v distributing expects to transfer such transfer the debt exchange all of the controlled securities received by it in the contribution to one or more investment banks collectively the creditor in exchange for existing tranche a debt or other existing debt of distributing the distributing debt that the creditor acting as principal for its own account will have acquired at least m days prior to the consummation of the debt exchange distributing expects to consummate the debt exchange pursuant to an exchange_agreement entered into by distributing and the creditor no sooner than n days after the creditor acquires the distributing debt in the marketplace and at least o days prior to the closing of the debt exchange pursuant to which the parties will agree to exchange the controlled securities for an amount of distributing debt with a fair_market_value to be determined as of the date the exchange is consummated solely in order to comply with covenants under distributing's senior note indentures distributing may be required to sell the retired distributing debt back to the creditor immediately after the debt exchange and then use the cash proceeds from that sale to immediately repurchase such distributing debt from the creditor any such purchase and sale will be accomplished by means of accounting entries between distributing and the creditor vi as soon as practicable after the contribution but in no event later than p months after the contribution distributing will use the special dividend to repay existing indebtedness that was not incurred in connection with the transaction and or will distribute the proceeds to distributing's shareholders in each case in pursuance of the plan_of_reorganization that includes the contribution vii in connection with the proposed transactions distributing controlled and company will enter into certain continuing transactions between the companies including certain transitional agreements and a tax_sharing_agreement collectively the ancillary agreements the taxpayers have made the following representations regarding the proposed representations transactions internal distribution any indebtedness owed by company to sub after internal distribution will not constitute stock_or_securities no part of the consideration to be distributed by sub with respect to the sub stock will be received by sub as a creditor employee or in any capacity other than that of a shareholder of sub a b plr-107326-07 c d e f g h i j k l the five years of financial information submitted on behalf of the business directly conducted by company is representative of the present business operations of company and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of the business directly conducted by sub is representative of the present business operations of sub and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted following internal distribution sub and company will continue the active_conduct of their respective businesses independently and with their own employees internal distribution is being carried out to facilitate the share exchange internal distribution is motivated in whole or substantial part by this corporate business_purpose internal distribution is not used principally as a device for the distribution of the earnings_and_profits of sub or company or both no indebtedness between sub and its subsidiaries and company and its subsidiaries has been or will be cancelled in connection with internal distribution other than the settlement of open intercompany account balances attributable to the normal business operations of distributing and its subsidiaries prior to the share exchange no intercorporate debt will exist between sub and its subsidiaries and company and its subsidiaries at the time of or subsequent to internal distribution except for payables arising under the transitional agreements or in the ordinary course of business payments made in connection with any continuing transactions between sub and its subsidiaries and company and its subsidiaries following internal distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length neither sub nor company is an investment_company as defined in sec_368 and iv for purposes of sec_355 immediately after internal 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 sub plr-107326-07 stock entitled to vote or percent or more of the total value of shares of all classes of sub 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 internal distribution m for purposes of sec_355 immediately after internal distribution assuming that the sec_355 assumptions set forth below apply no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of stock of company entitled to vote or percent or more of the total value of shares of all classes of stock of company that was either acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal distribution or attributable to distributions on stock of sub 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 internal distribution n o p q internal 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 percent or greater interest within the meaning of sec_355 in sub or company including any predecessor or successor of any such corporation neither sub nor company will be a disqualified_investment_corporation within the meaning of sec_355 at the time of internal distribution no member of the distributing group will have an excess_loss_account in the company stock or in the stock of any company subsidiary at the time of the share exchange no member of the distributing group will have an excess_loss_account in controlled or in the stock of any controlled subsidiary including company the allocation_of_basis under sec_358 that will occur in connection with internal distribution will not result in company stock having a higher basis than it had immediately before internal distribution internal distribution r s any indebtedness owed by company to sub after internal distribution will not constitute stock_or_securities no part of the consideration to be distributed by sub with respect to the sub stock will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of sub plr-107326-07 t u v w x y z the five years of financial information submitted on behalf of the business directly conducted by company is representative of the present business operations of company and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of the business directly conducted by sub a member of the separate_affiliated_group as defined in sec_355 of sub hereafter the sub sag is representative of the present business operations of sub and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted following internal distribution the sub sag and company will continue the active_conduct of their respective businesses independently and with their own employees internal distribution is being carried out to facilitate the share exchange internal distribution is motivated in whole or substantial part by this corporate business_purpose internal distribution is not used principally as a device for the distribution of the earnings_and_profits of sub or company or both no indebtedness between sub and its subsidiaries and company and its subsidiaries has been or will be cancelled in connection with internal distribution other than the settlement of open intercompany account balances attributable to the normal business operations of distributing and its subsidiaries prior to the share exchange no intercorporate debt will exist between sub and its subsidiaries and company and its subsidiaries at the time of or subsequent to internal distribution except for payables arising under the transitional agreements or in the ordinary course of business aa payments made in connection with any continuing transactions between sub and its subsidiaries and company and its subsidiaries following internal distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length bb neither sub nor company is an investment_company as defined in sec_368 and iv cc for purposes of sec_355 immediately after internal distribution no person determined after applying sec_355 will hold stock possessing plr-107326-07 percent or more of the total combined voting power of all classes of sub stock entitled to vote or percent or more of the total value of shares of all classes of sub 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 internal distribution dd for purposes of sec_355 assuming that the sec_355 assumptions set forth below apply immediately after internal 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 stock of company entitled to vote or percent or more of the total value of shares of all classes of stock of company that was either acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal distribution or attributable to distributions on stock of sub 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 internal distribution ee internal 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 percent or greater interest within the meaning of sec_355 in sub or company including any predecessor or successor of any such corporation ff neither sub nor company will be a disqualified_investment_corporation within the meaning of sec_355 gg at the time of internal distribution no member of the distributing group will have an excess_loss_account in the company stock or in the stock of any company subsidiary at the time of the share exchange no member of the distributing group will have an excess_loss_account in controlled or in the stock of any controlled subsidiary including company hh the allocation_of_basis under sec_358 that will occur in connection with internal distribution will not result in company stock having a higher basis than it had immediately before internal distribution the contribution and the share exchange ii other than the controlled securities to be held by distributing prior to their distribution to creditor any indebtedness owed by controlled to distributing after the share exchange will not constitute stock_or_securities plr-107326-07 jj the fair_market_value of the controlled stock received by each shareholder in the share exchange will be approximately equal to the fair_market_value of the distributing stock surrendered in exchange therefor kk no part of the consideration to be distributed by distributing with respect to the distributing stock will be received by any shareholder of distributing as a creditor employee or in any capacity other than that of a shareholder of distributing ll the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing in the contribution each equals or exceeds the sum of i the total liabilities assumed as determined under sec_357 by controlled and ii the total amount of money and other_property within the meaning of sec_361 received by distributing and transferred by it to its creditors and shareholders in connection with the plan_of_reorganization the liabilities assumed as determined under sec_357 in the proposed transaction were incurred in the ordinary course of business and are associated with the assets being transferred mm the total adjusted_basis and the fair_market_value of the assets transferred by distributing to controlled in the contribution will equal or exceed the sum of a the amount of any liabilities assumed within the meaning of sec_357 by controlled in the contribution b the amount of any liabilities owed to controlled by distributing if any that are discharged or extinguished in the contribution and c the amount of any cash and the fair_market_value of any property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing from controlled in the contribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the contribution nn the five years of financial information submitted on behalf of the business directly conducted by sub a member of the separate_affiliated_group of distributing the distributing sag is representative of the present business operations of sub and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted oo the five years of financial information submitted on behalf of the business directly conducted by company a member of the separate_affiliated_group of controlled the controlled sag is representative of the present business operations of company and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted plr-107326-07 pp following the share exchange the distributing sag and the controlled sag will continue the active_conduct of their respective business independently and with their own employees qq the share exchange is being carried out to allow the management of business y and business z to focus on its own respective business the share exchange is motivated in whole or substantial part by this corporate business_purpose rr the share exchange is not being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both ss no indebtedness between distributing and its subsidiaries and controlled and its subsidiaries has been or will be cancelled in connection with the share exchange other than the settlement of open intercompany account balances attributable to the normal business operations of distributing and its subsidiaries prior to the share exchange tt no intercorporate debt will exist between distributing and its subsidiaries and controlled and its subsidiaries at the time of or subsequent to the share exchange except for the controlled securities to be issued to distributing and expected to be distributed to distributing's creditors in the debt exchange and payables arising under the transitional agreements or otherwise in the ordinary course of business uu no property will be transferred by distributing to controlled for which an investment_credit allowed under sec_47 will be claimed vv immediately before the share exchange items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further distributing's excess_loss_account if any with respect to its controlled stock will be included in income immediately before the share exchange to the extent required by applicable regulations see sec_1_1502-19 ww payments made in connection with any continuing transactions between distributing and its subsidiaries and controlled and its subsidiaries following the share exchange will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length xx neither distributing nor controlled is an investment_company as defined in sec_368 and iv plr-107326-07 yy for purposes of sec_355 immediately after the share exchange 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 share exchange zz for purposes of sec_355 assuming that the sec_355 assumptions set forth below apply immediately after the share exchange 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 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 share exchange or attributable to distributions on 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 share exchange aaa the share exchange 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 percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation bbb neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 ccc the controlled securities issued to distributing will qualify as securities within the meaning of sec_361 ddd distributing will transfer the special dividend received from controlled to its creditors and or its shareholders pursuant to the plan_of_reorganization within p months after the share exchange the sec_355 assumptions the taxpayers made the following assumptions for purposes of the foregoing sec_355 representations eee for purposes of sec_355 in connection with the cash contributions each of lp and lp is deemed to have acquired a portion of each share of its stock in the respective corporation in an amount equal to the ratio that i plr-107326-07 the amount of the applicable cash contribution bears to ii the aggregate fair_market_value of the stock of the applicable_corporation immediately after the cash contribution this portion of the stock of each corporation will be deemed for purposes of sec_355 to have been purchased by the applicable lp on date f the remainder of each share of the stock of each corporation retained its original purchase date and other characteristics for purposes of sec_355 fff for purposes of sec_355 each share of distributing stock received by an lp in the distributing contribution has a split holding_period and therefore a split date of original purchase for purposes of sec_355 determined by reference to the holding_period and date of original purchase of the various items of property contributed by the lp to distributing in the distributing contribution if a portion of a share of distributing stock was received by an lp in the distributing contribution in exchange for an item of contributed_property that was acquired by purchase more than five years before the execution of the share exchange_agreement then that portion of the share of distributing stock is not to be treated as stock in the distributing_corporation acquired by purchase during the five-year period for purposes of sec_1_355-6 ggg for purposes of sec_355 and in applying assumption fff above the portion of a share of distributing stock received by an lp in the distributing contribution that is deemed to have been received for a particular item of contributed_property is equal to the ratio that i the net fair_market_value of that item of contributed_property bears to ii the net fair_market_value of all of the property contributed by the lp to distributing in the distributing contribution for purposes of determining the net fair_market_value of the items of property contributed by lp and lp the amount of any liabilities to which the class c units were subject at the time of the distributing contribution as determined under the rules of subchapter_k will be allocated among and will be deemed to reduce the fair_market_value of those items of contributed_property in proportion to their relative fair market values at the time of the distributing contribution determined without regard to such liabilities hhh to the extent that a shareholder sold shares of distributing stock in the overallotment sale having different original purchase dates or other characteristics that are relevant for purposes of sec_355 the shares sold in the overallotment sale by such shareholder will be determined in accordance with the rules of sec_1_1012-1 iii if i a shareholder surrenders less than all of its shares of distributing stock in the share exchange and ii the shareholder holds shares of distributing plr-107326-07 stock having different original purchase dates or other characteristics that are relevant for purposes of sec_355 then the shares of distributing stock surrendered by the shareholder in the share exchange will be identified in accordance with the rules of sec_1_1012-1 and or if such identification is not made will be determined in accordance with the rules of sec_1_1012-1 jjj during any period in which an lp simply holds distributing stock or a predecessor asset and does not sell distribute or transfer that distributing stock or other asset mere changes in the value of the distributing stock or other asset and in the other assets of the lp do not cause any purchase of the distributing stock or other asset even if under the governing documents of the lp those changes in value affect the moment-to-moment sharing percentages of the partners of the lp rulings based solely on the information submitted and the representations made we rule as follows regarding the proposed transactions internal distribution no gain_or_loss will be recognized by sub on the distribution of company stock to sub in internal distribution sec_355 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of sub on the receipt of company stock in internal distribution sec_355 the aggregate basis of the sub and the company stock held by sub after internal distribution will be the same as the basis of the sub stock held by sub immediately prior to internal distribution allocated in proportion to the fair market values of the sub and company stock in accordance with sec_1_358-2 sec_358 b and c the holding_period of the company stock received by sub will include the holding_period of the sub stock with respect to which internal distribution is made provided that the sub stock is held as a capital_asset on the date of internal distribution sec_1223 earnings_and_profits will be allocated between sub and company in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 internal distribution plr-107326-07 no gain_or_loss will recognized by sub on its distribution of company stock to distributing in internal distribution sec_355 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of distributing on its receipt of company stock in internal distribution sec_355 the aggregate basis of the sub and company stock held by distributing after internal distribution will be the same as the basis of the sub stock held by distributing immediately before internal distribution allocated in proportion to the fair market values of the sub and company stock in accordance with sec_1_358-2 sec_358 b c the holding_period of the company stock will include the holding_period of the sub stock with respect to which internal distribution is made provided that the sub stock is held as a capital_asset on the date of internal distribution sec_1223 earnings_and_profits will be allocated between sub and company in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 the contribution and the share exchange the contribution together with the share exchange will be a reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization under sec_368 provided that distributing distributes out all of the proceeds of the special dividend as described in step vi above no gain_or_loss will be recognized by distributing as a result of the contribution sec_361 sec_361 and sec_357 no gain_or_loss will be recognized by controlled in the contribution sec_1032 controlled's basis in each asset received from distributing in the contribution will equal the basis of that asset in the hands of distributing immediately before its transfer sec_362 controlled's holding_period in each asset received from distributing in the contribution will include the period during which distributing held the asset sec_1223 no gain_or_loss will be recognized by distributing in the share exchange sec_361 plr-107326-07 provided that all of the controlled securities are transferred to creditor in the debt exchange as described in step v above then under the intercompany_transaction regulations distributing will not recognize any income gain loss or deduction with respect to the controlled securities and the debt exchange other than any i amount of income gain loss or deduction that offsets controlled’s corresponding amount of income gain loss or deduction upon the deemed satisfaction of the controlled securities ii deductions attributable to the fact that the distributing debt may be redeemed at a premium iii income attributable to the fact that the distributing debt may be redeemed at a discount iv interest_expense accrued with respect to the distributing debt and v income gain deductions or loss realized on the transfer of the controlled securities in the debt exchange attributable to appreciation or depreciation in the controlled securities after the time they are acquired and prior to their disposition by distributing gain but not loss will be recognized by the shareholders upon their receipt of controlled stock and cash if any from distributing in the share exchange as described in step vi above in an amount not in excess of the cash if any received sec_356 the cash if any will be treated as a distribution_of_property to which sec_301 applies by reason of sec_356 any cash received by a shareholder of distributing other than the shareholders as described in step vi above will also be treated as a distribution_of_property to which sec_301 applies each shareholder’s basis in the controlled stock received in the share exchange will be equal to the basis of the shares of distributing stock exchanged therefor decreased by the amount of cash if any received by the shareholder in the transaction and increased by the amount if any which was treated as a dividend sec_358 and b each shareholder's holding_period in the controlled stock received in the share exchange will include the holding_period of the distributing stock exchanged therefor provided that the distributing stock is held as a capital_asset on the date of the share exchange sec_1223 distributing and controlled will allocate their earnings_and_profits if any in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 caveats no opinion is expressed about the tax treatment of the proposed transactions under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular no opinion is expressed regarding i whether internal distribution internal distribution and the share plr-107326-07 exchange satisfy the business_purpose requirement of sec_1_355-2 ii whether the proposed transactions are being used principally as a device for the distribution of earnings_and_profits of any of the distributing or controlled corporations see sec_355 and sec_1_355-2 and iii whether internal distribution internal distribution or the share exchange are acquisitions that are part of a plan or series of related transactions under sec_355 additionally no opinion is expressed regarding the federal_income_tax consequences of any transactions under the ancillary agreements 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 ruling letter must be attached to any federal_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 this ruling letter in accordance with a power_of_attorney on file in this office a copy of this ruling letter is being sent to your authorized representatives sincerely richard k passales richard k passales senior counsel branch office of associate chief_counsel corporate