t c summary opinion united_states tax_court michael david lieber petitioner v commissioner of internal revenue respondent docket no 15703-07s filed date michael david lieber pro_se jeffrey d heiderscheit for respondent jacobs judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax for the deficiency arises from the imposition of the 10-percent penalty mandated by sec_72 for premature distributions from an annuity_contract respondent asserts that the penalty is applicable because petitioner received distributions in from an annuity policy contract annuity policy that do not qualify for any of the exceptions set forth in sec_72 petitioner asserts that the percent penalty should not apply because the distributions were used for his college expenses background the parties submitted this case fully stipulated pursuant to rule the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time he filed his petition petitioner resided in texas in when petitioner was very young his father died at the date of his death petitioner’s father was the insured under a life_insurance_policy issued by jackson national life_insurance co of texas jackson life a portion of the proceeds from that policy was used to purchase a single premium nonqualified deferred_annuity policy for the benefit of petitioner the annuity policy permitted partial withdrawals before the contract’s maturity_date of april in petitioner attended college in texas petitioner’s mother as the owner of the annuity policy requested and received on behalf of petitioner as the annuitant distributions from jackson life during totaling dollar_figure which were used for petitioner’s college expenses discussion sec_72 imposes a 10-percent penalty on distributions from an annuity_contract unless the distribution satisfies one of the exceptions set forth in sec_72 namely distributions a made on or after the date in which the taxpayer attains age 1the annuity policy was purchased pursuant to the order of the district_court of el paso county tex 243rd judicial district dated date the order was issued in response to a motion to invest funds of a minor filed by t udell moore guardian ad litem and gail lieber natural mother and next friend of michael david lieber a minor under the terms of the annuity policy jackson life agreed to pay the annuitant michael david lieber if living on the maturity_date a monthly income with months certain and pursuant to the terms of the annuity policy while the annuitant is living the owner gail lieber may exercise all rights under the annuity policy subject_to the interest of any assignee or irrevocable beneficiary sec_72 was enacted as part of the tax equity and fiscal responsibility act of publaw_97_248 96_stat_546 to discourage the use of annuity_contracts as short-term tax sheltered investments for certain premature distributions see s rept no vol pincite b made on or after the death of the holder c attributable to the taxpayer’s becoming disabled d that are part of a series of substantially_equal_periodic_payments e from certain qualified_plans as described in sec_72 f allocable to investment_in_the_contract before date g under a qualified_funding_asset within the meaning of sec_130 without regard to whether there is a qualified_assignment h to which sec_72 applies without regard to paragraph thereof i under an immediate_annuity contract within the meaning of sec_72 or j from an annuity purchased by an employer under certain circumstances none of the sec_72 distribution exceptions is herein applicable nonetheless petitioner contends that the higher education exception sec_72 which applies to the penalty for early distributions from qualified_retirement_plans sec_72 should apply to distributions from annuity_contracts since the title of sec_72 annuities 3the annuity policy involved herein would not qualify as an immediate_annuity contract although it was purchased with a single premium the annuity policy’s starting date the first day of the first period for which an amount is received as an annuity under the policy was not within year from the date of the purchase of the annuity policy and it did not provide for a series of substantially_equal_periodic_payments during the annuity period certain proceeds of endowment and life_insurance contracts indicates that all of the section’s provisions apply to annuities this argument fails inasmuch as it is well settled that the heading of a section does not limit the plain meaning of the text see bhd of r r trainmen v balt ohio r r 331_us_519 114_tc_343 the relevant text of sec_72 is clear nothing therein contains either an exception for higher education expenses or a provision that the exception found in sec_72 applies to the 10-percent penalty under sec_72 sec_72 specifically limits its reach to the percent additional tax on distributions from qualified_retirement_plans under sec_72 and we have held that the higher education expense exception found in sec_72 does not apply to the sec_72 penalty for premature_distributions_from_annuity_contracts see sadberry v commissioner tcmemo_2004_40 affd 153_fedappx_336 5th cir petitioner next makes an equitable argument namely that the distributions he received in should not be subject_to the sec_72 penalty because the annuity policy was purchased to provide funds for petitioner’s college expenses and therefore should be excepted from the sec_72 penalty by sec_72 and petitioner’s mother was informed by her father who was an insurance agent and who worked with annuities that there would be no repercussions for early_withdrawals if the funds were used solely for higher educational_purposes moreover petitioner asserts that the certified_public_accountant who prepared his tax_return knew that the annuity policy had been purchased in order to provide funds for petitioner’s educational expenses the equitable argument petitioner advances is not relevant this court like all other courts construes statutes as written we do not enlarge them we cannot create exceptions in order to reach what someone believes is an equitable outcome see 270_us_245 pollock v commissioner t c __ 50_tc_567 affd 414_f2d_265 10th cir moreover we are mindful that a letter from jackson life dated date informed petitioner we have also researched how this policy should be qualified per the court order we have in our records it instructed us to issue a deferred_annuity the court order did not state that this should be issued as a retirement annuity or an educational annuity therefore this policy was issued as a non-qualified annuity finally petitioner maintains that the annuity distributions are excepted from the 10-percent penalty by sec_72 which provides that no penalty shall be imposed on any distribution made on or after the death of the holder of the annuity because the annuity was funded by the proceeds from his father’s life_insurance_policy again we disagree with petitioner’s assertion the distributions involved herein were not made on or after the death of the holder of the annuity policy we have considered all petitioner’s arguments and to the extent not discussed herein we reject them as irrelevant and or without merit we sustain the deficiency of dollar_figure determined in respondent’s notice_of_deficiency to reflect the foregoing decision will be entered for respondent


department of the treasury ai internal_revenue_service p o box irs cincinnati oh release number release date uil code date date employer id number contact person id number contact telephone number form you must file tax years dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action we’ll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements letter rev catalog number 47632s if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 we sent a copy of this letter to your representative as indicated in your power_of_attorney sincerely stephen a martin director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 c redacted letter final adverse determination under sec_501 - no protest cc letter rev catalog number 47632s department of the treasury internal_revenue_service rs p o box i cincinnati oh legend e borough x date y state v shares of stock w dollars par_value of stock date mav emplover id number contact person id number contact teleohone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records do you meet the organizational_test under sec_1_501_c_3_-1 no for the reasons stated below do your governing documents allow the distribution of earnings to private shareholders or individuals in violation of sec_1_501_c_3_-1 yes as described below do you qualify for exemption under sec_501 of the code no for the reasons stated below e e dear issues e facts you were incorporated on date x in the state of y you incorporated under y’s for-profit corporation law article second of your certificate of incorporation states in part you were formed to engage in any lawful act or activity for which a corporation may be organized under the state corporation law letter rev catalog number 47630w article fourth states the total number of shares which the corporation shall have the authority to issue is v shares of common_stock and the par_value of each of such shares is w dollars your certificate is silent as to the disposition of your assets upon dissolution article vill sec_1 of your bylaws states in part the corporation shall issue certificates for its shares when fully paid certificates of stock shall be issued in numerical order and shall state the name of the record holder of the shares represented thereby the number designation if any and the class or series of shares represented thereby and contain any statement or summary required by any applicable_provision of the corporation’s code article vill sec_2 of the bylaws states in part upon surrender to the secretary or transfer agent of the corporation of a certificate of shares corporation to issue a new certificate to the person entitled thereto to cancel the old certificate and to record the transaction upon the share register of the corporation it shall be the duty_of the secretary of the article viii sec_3 of the bylaws states in part the board_of directors may fix a time in the future as a record_date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders or entitled to receive payment of any dividend or distribution or any allotment of rights or to exercise rights in respect to any other lawful action you state your activities will be to serve the youth and families of the e area in arts and education of the african diaspora culture self and spiritual-awareness by offering classes in ballet modern jazz tap traditional dance african dance and african percussion you also indicate you have developed a performing ensemble out of your longstanding committed students which performs locally throughout e and neighboring areas for schools churches youth events etc the group also presents two dance productions per year at a local theatre in e you further indicated that in the future you want to expand to become a cultural arts center and to provide e a violence prevention initiative targeted to pre-school and elementary and children to teach children and families to love and work tighter to build their community through letter rev catalog number 47630w the art of dance cultural awareness workshops and college readiness services you want to continue working with the children through age a pre-professional program for children who want to have a professional career as a dancer or dance teacher an after-school out-of-school-time programs for elementary through high school students providing homework assistance tutoring and dance classes anextended summer dance camp for elementary through high school campers offering intensive dance classes swim lessons arts and crafts nature team building skills and hiking a saturday arts program including arts and crafts dance drama african percussion choral vocal mental health prevention services education in the arts e e e e e e law sec_501 of the code exempts from federal income_taxation organizations described in sec_501 sec_501 of the code provides in part for the exemption from federal_income_tax of corporations and any community chest fund or foundation organized and operated exclusively for charitable and educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual furthermore sec_501 sets forth two main tests to qualify for exempt status an organization must be both organized and operated exclusively for purposes described in sec_501 sec_1_501_c_3_-1 states in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 provides that an organization will be regarded as organized exclusively for one or more exempt purposes only if its articles of organization limit the purposes of such organization to one or more exempt purposes and do not expressly empower the organization to engage otherwise that as an insubstantial part of its activities in activities which in themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 provides that an organization’s purposes as stated in its articles may be as broad as or more specific than the purposes stated in sec_501 sec_1_501_c_3_-1 provides that an organization is not organized exclusively for one or more exempt purposes if its articles expressly empower it to carry on otherwise than as an insubstantial part of its activities activities that are not in furtherance of one or more exempt purposes letter rev catalog number 47630w sec_1_501_c_3_-1 provides that an organization’s assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization’s articles be distributed for one or more exempt purposes sec_1_501_c_3_-1 states an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_c_3_-1 lists the exempt purposes of sec_501 and includes such purposes such as charitable educational religious etc sec_1_501_c_3_-1 indicates that an organization is not organized or operated exclusively for one or more exempt purposes specified in sec_501 unless it serves a public rather than a private interest accordingly it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 states the term ‘charitable’ is to be used in sec_501 in its generally accepted legal sense and includes such terms as relief of the poor and distressed or underprivileged advancement of religion and advancement of education revproc_2017_5 2017_1_irb_230 section provides that a favorable determination_letter or ruling will be issued to an organization only if its application and supporting documents establish that it meets the particular requirements of the section under which exemption from federal_income_tax is claimed application of law you do not meet the organizational_test under sec_1_501_c_3_-1 because your certificate of incorporation does not limit your purposes to one or more exempt purposes under sec_1_501_c_3_-1 in addition your purpose of engaging in any lawful act or activity for which a corporation may be organized under your state corporation law does not meet the requirements of sec_1_501_c_3_-1 which states an organization is not organized for one or more purposes if its articles expressly empowers it to carry on activities that are not in furtherance of one or more exempt purposes your purpose as stated in your certificate is much broader than the purposes state in sec_501 in contravention to sec_1_501_c_3_-1 you do not meet the provisions of sec_1_501_c_3_-1 because your certificate is silent as to the dedication of assets should you dissolve although your activities appear to further charitable activities under sec_1 c - d i and c -1 d your allowance of the distribution of earnings to private shareholders or individuals as stated in your certificate and bylaws prohibits exemption under sec_1_501_c_3_-1 letter rev catalog number 47630w you have not established that you are not organized or operated for the benefit of private interests such as your founder in contravention of sec_1_501_c_3_-1 since you meet neither the organizational_test nor the operational_test you do not meet the requirements of sec_1_501_c_3_-1 which requires you to be both organized and operated for one or more exempt purposes therefore you are not exempt under sec_501 your governing documents do not show you meet the requirements of sec_501 and the regulations promulgated thereunder therefore under revproc_2017_5 we cannot issue a favorable determination_letter to you conclusion based on the facts presented we conclude the following e e e you do not meet the organizational_test under sec_1_501_c_3_-1 your governing documents allow the distribution of earnings to private shareholders or individuals in violation of sec_1_501_c_3_-1 you do not qualify for exemption under sec_501 of the code if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization letter rev catalog number 47630w under penalties of perjury declare that examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury declare that prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn't already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we'll continue to process your case considering the information you provided if you haven't provided a basis for reconsideration we'll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax-exempt status if you don't file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we'll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements letter rev catalog number 47630w you an find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter we sent a copy of this letter to your representative as indicated in your power_of_attorney sincerely steve martin director exempt_organizations rulings and agreements enclosure publication cc letter rev catalog number 47630w


internal_revenue_service number release date index numbers ----------------------------- ------------------------------------------------------------ ------------- ------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ----------------- telephone number ---------------------- refer reply to cc psi plr-137134-16 date april x ----------------------------------------- ----------------------------- state date ---------------- -------------------------- dear --------------- this letter responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an election under sec_754 of the internal_revenue_code code facts the information submitted states that x is a state limited_liability_company that is classified as a partnership for federal tax purposes x’s tax_return for the taxable_year ended date was timely filed but a sec_754 election to adjust the basis of partnership property was inadvertently not filed with the return x represents that it has acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government law sec_754 provides in part that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of partnership property is adjusted in the case of a distribution_of_property in the manner provided in sec_734 and plr-137134-16 in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides in part that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1_6031_a_-1 including extensions thereof for filing the return for the taxable_year sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election under sec_754 effective for its taxable_year ended date and thereafter the election should be made in a written_statement filed with the appropriate service_center for association with x’s return for its taxable_year ended date a copy of this letter should be attached to the election except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of plr-137134-16 the code and the regulations thereunder this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to x's authorized representatives sincerely associate chief_counsel passthroughs and special industries by ______________________________ richard t probst senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number --------------------- --------------------------------- ------------------------------------------------- ------------------------------------------------------------ ------------------------ ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no ----------------- telephone number --------------------- refer reply to cc corp plr-100998-09 date date legend foreign parent ----------------------------- ----------------------------------------------------------------- ----------------------------------------------------------- parent ------------------------------------------------------------------- ----------------------------------------------------------- -------------------------------------------------- holdco ------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------- holdco sub1 ------------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------- holdco sub2 ------------------------------------------------------------------- ----------------------------------------------------------- -------------------------------------- holdco sub3 ------------------------------------------------------------------- ----------------------------------------------------------- --------------------------------------- holdco sub4 ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------- plr-100998-09 holdco sub5 ----------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------------- holdco sub6 ----------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------- holdco sub7 ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------ holdco sub8 -------------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------- holdco sub9 ------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------- holdco sub10 ------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------- holdco sub11 ------------------------------------------------------------------ ----------------------------------------------------------- --------------------------------------------------------------- holdco sub12 ------------------------------------------------------------------------ ----------------------------------------------------------- ----------------------------------------- holdco sub13 ---------------------------------------------------------------------- ----------------------------------------------------------- -------------------------------------------------- holdco sub14 ------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------- holdco sub15 -------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------- plr-100998-09 holdco sub16 ---------------------------------------------------------------------------------------------------------- -------------------------------------------------------------- ----------------------------------------------------------- -------------------------------------------------------------------------------- holdco sub17 ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------ holdco sub18 ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------ holdco sub19 ------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------- holdco sub20 ------------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------- holdco sub21 ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------------ holdco sub22 ------------------------------------------------------------------- ----------------------------------------------------------- --------------------------------------- holdco sub23 ------------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------- holdco sub24 ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------ holdco sub25 ------------------------------------------------------------------- ----------------------------------------------------------- -------------------------------------------------- holdco sub26 --------------------------------------------------------------------- -------------------------------------------------------------- plr-100998-09 ----------------------------------------------------------- holdco sub27 ----------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------- holdco sub28 ------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------- holdco sub29 ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------- holdco sub30 ------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------- holdco sub31 ------------------------------------------------------------------ ----------------------------------------------------------- --------------------------------------- holdco sub32 ---------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------- holdco sub33 ------------------------------------------------------------------- ----------------------------------------------------------- --------------------------------------------------- holdco sub34 -------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------- holdco sub35 -------------------------------------------------------------------------- ----------------------------------------------------------- --------------------------------------------------- holdco sub36 ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------ holdco sub37 ------------------------------------------------------------------- ----------------------------------------- plr-100998-09 ----------------------------------------------------------- holdco sub38 ------------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------- holdco sub39 ---------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------------- holdco sub40 -------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------- holdco sub41 ------------------------------------------------------------------- ----------------------------------------------------------- --------------------------- holdco sub42 ----------------------------- ------------------------------------------------------------------- ----------------------------------------------------------- holdco sub43 ------------------------------------------------------------------- ----------------------------------------------------------- ------------------ finco ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------- u s affiliate ------------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------- foreign_affiliate ------------------------------------------------------------------ ----------------------------------------------------------- ---------------------------------------- country x state y business a ----------- ------------- -------------------------- plr-100998-09 date date z ----------------------- ----------------------- ---- dear ---------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of a series of proposed transactions the information provided in that request and in later correspondence is summarized below the rulings contained in this letter are based upon facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts foreign parent a country x corporation is the common parent of a worldwide group of corporations the worldwide group the worldwide group is engaged in business a foreign parent owns all of the stock of parent parent a state y corporation is the common parent of an affiliated_group_of_corporations the parent group that files a consolidated federal_income_tax return for u s federal_income_tax purposes parent directly owns all of the stock of holdco a state y corporation holdco performs some direct operations with respect to business a but is primarily a holding_company holdco owns directly and indirectly interests in a number of entities including corporate subsidiaries partnerships and disregarded entities in particular holdco owns directly and indirectly all of the stock of holdco sub1 through holdco sub43 each a holdco subsidiary and collectively the holdco subsidiaries each of the holdco subsidiaries is an operating company and is engaged in business a holdco also directly owns all of the stock of finco a state y corporation on date foreign parent commenced a bankruptcy proceeding in country x thereafter on date parent and certain of the parent subsidiaries filed a voluntary petition for relief under chapter of the u s bankruptcy code the u s petitioners the u s petitioners continue to operate their ongoing business as debtors-in- possession under the jurisdiction of the u s bankruptcy court and in accordance with the applicable provisions of the u s bankruptcy code and orders of the u s bankruptcy court plr-100998-09 members of the parent group have issued a substantial amount of debt to various third- party lenders to u s affiliate a related non-consolidated entity treated as a corporation for u s federal tax purposes and to foreign_affiliate a foreign finance corporation wholly owned by foreign parent in addition finco borrowed from third- party lenders pursuant to the issuance of bonds the finco bonds and lent the proceeds to holdco as intercompany debt the holdco intercompany notes the terms of the holdco intercompany notes to a large extent mirror the terms of the finco bonds the parent group historically has grown through acquisitions and there are now over z separate legal entities in the u s notwithstanding the proliferation of legal entities the management and administrative functions of the worldwide group are highly centralized most administrative functions and transactions are approved and executed at the head office in country x the parent group has made several attempts over a number of years to reduce the number of entities in the u s and achieve the goal of entity simplification in connection with the bankruptcy process the worldwide group is under significant pressure to simplify and reduce compliance and financial_accounting functions and costs associated with its complex corporate structure accordingly the bankruptcy has created a further impetus and an opportunity for the parent group to implement entity simplification in the context of the larger restructuring of the worldwide group in bankruptcy proposed transactions consistent with its entity simplification and cost reduction objectives the parent group has proposed the following transactions the u s restructuring which will occur pursuant to the joint plan_of_reorganization of the u s petitioners approved by the bankruptcy court i ii through a series of transactions the debt of the holdco subsidiaries and certain other u s petitioners will be restructured the holdco subsidiaries debt restructuring pursuant to the holdco subsidiaries debt restructuring third-party creditors u s affiliate and foreign_affiliate will exchange their respective pre-petition debt claims against the holdco subsidiaries for cash foreign parent stock warrants to acquire foreign parent stock parent stock and or new debt through a series of transactions the debt of each of parent and holdco will be restructured the parent holdco debt restructuring pursuant to the parent holdco debt restructuring third-party creditors u s affiliate and foreign_affiliate will exchange their respective pre-petition debt claims against parent and holdco for cash foreign parent stock warrants to acquire plr-100998-09 foreign parent stock parent stock and or new debt iii iv through a series of transactions the debt of finco will be restructured individually the finco debt restructuring and collectively with the holdco subsidiaries debt restructuring and the parent holdco debt restructuring the external debt restructuring pursuant to the finco debt restructuring the holders of the finco bonds will exchange their pre-petition debt claims for foreign parent stock and or warrants to acquire foreign parent stock certain intercompany debts among members of the parent group will be restructured the intercompany debt restructuring the objectives of the intercompany debt restructuring are a to resolve intercompany debt between two members of the parent group in a manner that consistent with the principles of revrul_78_330 1978_2_cb_147 assures that each holdco subsidiary that is merged into group two acquiror or group three acquiror as defined below is solvent prior to the merger and b to leave each of group two acquiror and group three acquiror owing an amount of intercompany debt that is consistent with a reasonable capital structure portions of the intercompany debt restructuring may occur prior to one or more restructurings described above or after one or more of the mergers described below as a result of the external debt restructuring and intercompany debt restructuring various members of the parent group will realize discharge_of_indebtedness income following the holdco subsidiaries debt restructuring certain holdco subsidiaries will be solvent each a group one subsidiary and collectively the group one subsidiaries other holdco subsidiaries will become solvent following the holdco subsidiaries debt restructuring and the intercompany debt restructuring as a result of the resolution of amounts owed to parent holdco and group one subsidiaries each a group two subsidiary and collectively the group two subsidiaries moreover certain holdco subsidiaries will become solvent following the holdco subsidiaries debt restructuring and the intercompany debt restructuring as a result of the resolution of amounts owed to parent holdco group one subsidiaries and group two subsidiaries each a group three subsidiary and collectively the group three subsidiaries to the extent that any group two subsidiary or group three subsidiary is the intermediate parent of another lower-tier holdco subsidiary such holdco subsidiary will be in the same group as its respective intermediate parent v finco will form one or more single member limited_liability companies which will be disregarded as entities separate from finco for u s federal income plr-100998-09 tax purposes individually and collectively newco llc vi each of the group one subsidiaries will merge into newco llc with newco llc surviving each a newco merger and collectively the newco mergers the newco mergers will occur simultaneously or sequentially or a combination thereof each under applicable state law in the case of lower- tier group one subsidiaries the merger of the companies will be deemed to occur or actually will occur successively from the lowest tier to the highest tier with respect to each newco merger the shareholder of the group one subsidiary that merges into newco llc will surrender its shares of such group one subsidiary solely in actual or constructive exchange for finco common_stock vii holdco will merge downstream into finco with finco surviving the holdco merger and the holdco intercompany notes will be cancelled parent will exchange its holdco stock solely for finco common_stock viii finco will contribute certain assets received in the holdco merger to newco llc solely in exchange for newco llc interests and newco llc’s assumption of associated liabilities ix x each of the group two subsidiaries other than group two acquiror will merge into group two acquiror an existing holdco subsidiary with group two acquiror surviving each a group two merger and collectively the group two mergers the group two mergers will occur simultaneously or sequentially or a combination thereof each under applicable state law in the case of lower-tier group two subsidiaries the merger of the companies will be deemed to occur or actually will occur successively from the lowest tier to the highest tier with respect to each group two merger the shareholder of the group two subsidiary that merges into group two acquiror will surrender its shares of such group two subsidiary solely in actual or constructive exchange for group two acquiror common_stock each of the group three subsidiaries other than group three acquiror will merge into a group three acquiror an existing holdco subsidiary with group three acquiror surviving or b one or more single member limited_liability companies which will be disregarded as entities separate from group three acquiror for u s federal_income_tax purposes individually and collectively group three acquiror llc with group three acquiror llc surviving each a group three merger and collectively the group three mergers the group three mergers will occur simultaneously or sequentially or a combination thereof each under applicable state law in the case of lower-tier group three subsidiaries the merger of the companies will be deemed to occur or actually will occur successively from the lowest plr-100998-09 tier to the highest tier with respect to each group three merger the shareholder of the group three subsidiary will surrender its shares of such group three subsidiary solely in actual or constructive exchange for group three acquiror common_stock xi certain inactive or finance subsidiaries of finco may be merged or liquidated following the u s restructuring parent will remain as the common parent of the parent group and will own all of the stock of finco finco will own all of the stock of group two acquiror all of the stock of group three acquiror the member interests in newco llc and certain other limited_liability companies that will be disregarded as separate from finco and directly or indirectly all of the stock of certain inactive or finance entities group three acquiror will own all of the member interests in group three acquiror llc representations general representations 1a parent will remain as the common parent of the parent group and the parent group will not terminate 1b all of the rights and obligations under the holdco intercompany notes will be extinguished in the holdco merger 1c the adjusted_issue_price of the holdco intercompany notes is equal to finco’s basis in the holdco intercompany notes 1d holdco’s corresponding_item and finco’s intercompany_item after taking into account the special rules of sec_1_1502-13 with respect to the holdco intercompany notes offset in amount 1e neither holdco finco nor any group one subsidiary has a special status within the meaning of sec_1_1502-13 or attributes subject_to a limitation under the separate_return_limitation_year srly rules eg sec_1_1502-15 sec_1_1502-21 or sec_1_1502-22 newco mergers parent makes the following representations with respect to the newco mergers described above in step vi 2a newco llc will be a single member limited_liability_company that is disregarded as an entity separate from finco within the meaning of treas plr-100998-09 reg sec_1_368-2 2b the newco mergers will be effected pursuant to the laws of the applicable state s and will qualify as a statutory merger under applicable state law pursuant to the plan of merger by operation of law the following will occur simultaneously i all of the assets and liabilities of each group one subsidiary except to the extent satisfied or discharged in the transaction will become assets and liabilities of newco llc and ii such group one subsidiary will cease its separate legal existence 2c the fair_market_value of finco stock actually or constructively received by the shareholder of each group one subsidiary will be approximately equal to the fair_market_value of the applicable group one subsidiary stock surrendered in the exchange 2d at least percent of the proprietary interest in each group one subsidiary will be exchanged actually or constructively for finco stock and will be preserved within the meaning of sec_1_368-1 2e except as described herein neither finco nor any person related within the meaning of sec_1_368-1 to finco has any plan or intention to reacquire any finco stock issued in the newco mergers 2f 2g finco has no plan or intention to sell or otherwise dispose_of any of the assets of each group one subsidiary acquired in the applicable newco merger except for dispositions made in the ordinary course of business or transfers described in sec_368 or sec_1_368-2 the liabilities of each group one subsidiary assumed within the meaning of sec_357 by finco were incurred by such group one subsidiary in the ordinary course of its business and are associated with the assets transferred 2h following the newco mergers finco will continue the historic_business of each group one subsidiary or will use a significant portion of such group one subsidiary’s historic_business_assets in a business 2i 2j the parties to the newco mergers will pay their respective expenses if any incurred in connection with the newco mergers no intercorporate indebtedness exists between any group one subsidiary and finco that was issued acquired or will be settled at a discount plr-100998-09 2k no two parties to any newco merger are investment companies as defined in sec_368 and iv 2l following the external debt restructuring and immediately before the applicable newco merger the total fair_market_value of each group one subsidiary’s assets transferred to finco will exceed the sum of i the amount of liabilities assumed as determined under sec_357 by finco in connection with the applicable newco merger ii the amount of liabilities owed to finco by the applicable group one subsidiary that is discharged or extinguished in connection with the applicable newco merger and iii the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_361 without the recognition of gain received by the applicable group one subsidiary in connection with the applicable newco merger 2m the fair_market_value of finco’s assets will exceed its liabilities immediately after the newco mergers holdco merger parent makes the following representations with respect to the holdco merger described above in step vii 3a the holdco merger will be effected pursuant to the laws of the applicable state s and will qualify as a statutory merger under applicable state law pursuant to the plan of merger by operation of law the following will occur simultaneously i all of the assets and liabilities of holdco except to the extent satisfied or discharged in the transaction will become assets and liabilities of finco and ii holdco will cease its separate legal existence 3b the fair_market_value of finco stock received by parent will be approximately equal to the fair_market_value of the holdco stock surrendered in the exchange 3c at least percent of the proprietary interest in holdco will be exchanged for finco stock and will be preserved within the meaning of sec_1_368-1 3d neither finco nor any person related within the meaning of sec_1_368-1 to finco has any plan or intention to reacquire any finco stock issued in the holdco merger 3e finco has no plan or intention to sell or otherwise dispose_of any of the assets of holdco acquired in the holdco merger except for dispositions plr-100998-09 made in the ordinary course of business or transfers described in sec_368 or sec_1_368-2 3f 3g the liabilities of holdco assumed within the meaning of sec_357 by finco were incurred by holdco in the ordinary course of its business and are associated with the assets transferred following the holdco merger finco will continue the historic_business of holdco or will use a significant portion of holdco’s historic_business_assets in a business 3h holdco and finco will pay their respective expenses if any incurred in connection with the holdco merger 3i 3j 3k no intercorporate indebtedness exists between holdco and finco that was issued acquired or will be settled at a discount no two parties to the holdco merger are investment companies as defined in sec_368 and iv following the external debt restructuring and immediately before the holdco merger the total fair_market_value of holdco’s assets transferred to finco will exceed the sum of i the amount of liabilities assumed as determined under sec_357 by finco in connection with the holdco merger ii the amount of liabilities owed to finco by holdco that is discharged or extinguished in connection with the holdco merger and iii the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_361 without the recognition of gain received by holdco in connection with the holdco merger 3l the fair_market_value of finco’s assets will exceed its liabilities immediately after the holdco merger group two mergers parent makes the following representations with respect to the group two mergers described above in step ix 4a the group two mergers will be effected pursuant to the laws of the applicable state s and will qualify as a statutory merger under applicable state law pursuant to the plan of merger by operation of law the following will occur simultaneously i all of the assets and liabilities of each group two subsidiary except to the extent satisfied or discharged in the transaction will plr-100998-09 become assets and liabilities of group two acquiror and ii such group two subsidiary will cease its separate legal existence 4b the fair_market_value of group two acquiror stock actually or constructively received by the shareholder of each group two subsidiary will be approximately equal to the fair_market_value of the applicable group two subsidiary stock surrendered in the exchange 4c at least percent of the proprietary interest in each group two subsidiary will be exchanged actually or constructively for group two acquiror stock and will be preserved within the meaning of sec_1_368-1 4d except as described herein neither group two acquiror nor any person related within the meaning of sec_1_368-1 to group two acquiror has any plan or intention to reacquire any group two acquiror stock issued in each of the group two mergers 4e group two acquiror has no plan or intention to sell or otherwise dispose_of any of the assets of each group two subsidiary acquired in the applicable group two merger except for dispositions made in the ordinary course of business or transfers described in sec_368 or sec_1_368-2 4f 4g the liabilities of each group two subsidiary assumed within the meaning of sec_357 by group two acquiror were incurred by such group two subsidiary in the ordinary course of its business and are associated with the assets transferred following the group two mergers group two acquiror will continue the historic_business of each group two subsidiary or will use a significant portion of such group two subsidiary’s historic_business_assets in a business 4h the parties to the group two mergers will pay their respective expenses if any incurred in connection with the group two mergers 4i 4j no intercorporate indebtedness exists between any group two subsidiary and group two acquiror that was issued acquired or will be settled at a discount no two parties to any group two merger are investment companies as defined in sec_368 and iv plr-100998-09 4k following the external debt restructuring and the intercompany debt restructuring and immediately before the applicable group two merger the total fair_market_value of each group two subsidiary’s assets transferred to group two acquiror will exceed the sum of i the amount of liabilities assumed as determined under sec_357 by group two acquiror in connection with the applicable group two merger ii the amount of liabilities owed to group two acquiror by the applicable group two subsidiary that is discharged or extinguished in connection with the applicable group two merger and iii the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_361 without the recognition of gain received by the applicable group two subsidiary in connection with the applicable group two merger 4l the fair_market_value of group two acquiror’s assets will exceed its liabilities immediately after the group two mergers group three mergers parent makes the following representations with respect to the group three mergers described above in step x 5a group three acquiror llc will be a single member limited_liability_company that is disregarded as an entity separate from group three acquiror within the meaning of sec_1_368-2 5b the group three mergers will be effected pursuant to the laws of the applicable state s and will qualify as a statutory merger under applicable state law pursuant to the plan of merger by operation of law the following will occur simultaneously i all of the assets and liabilities of each group three subsidiary except to the extent satisfied or discharged in the transaction will become assets and liabilities of group three acquiror or group three acquiror llc as described in step x above and ii such group three subsidiary will cease its separate legal existence 5c the fair_market_value of group three acquiror stock actually or constructively received by the shareholder of each group three subsidiary will be approximately equal to the fair_market_value of the applicable group three subsidiary stock surrendered in the exchange 5d at least percent of the proprietary interest in each group three subsidiary will be exchanged actually or constructively for group three acquiror stock and will be preserved within the meaning of sec_1_368-1 plr-100998-09 5e except as described herein neither group three acquiror nor any person related within the meaning of sec_1_368-1 to group three acquiror has any plan or intention to reacquire any group three acquiror stock issued in each of the group three mergers 5f group three acquiror has no plan or intention to sell or otherwise dispose_of any of the assets of each group three subsidiary acquired in the applicable group three merger except for dispositions made in the ordinary course of business or transfers described in sec_368 or sec_1_368-2 5g the liabilities of each group three subsidiary assumed within the meaning of sec_357 by group three acquiror were incurred by such group three subsidiary in the ordinary course of its business and are associated with the assets transferred 5h following the group three mergers group three acquiror will continue the historic_business of each group three subsidiary or will use a significant portion of such group three subsidiary’s historic_business_assets in a business 5i 5j the parties to the group three mergers will pay their respective expenses if any incurred in connection with the group three mergers no intercorporate indebtedness exists between any group three subsidiary and group three acquiror that was issued acquired or will be settled at a discount 5k no two parties to any group three merger are investment companies as defined in sec_368 and iv 5l following the external debt restructuring and the intercompany debt restructuring and immediately before the applicable group three merger the total fair_market_value of each group three subsidiary’s assets transferred to group three acquiror will exceed the sum of i the amount of liabilities assumed as determined under sec_357 by group three acquiror in connection with the applicable group three merger ii the amount of liabilities owed to group three acquiror by the applicable group three acquiror that is discharged or extinguished in connection with the applicable group three merger and iii the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_361 without the recognition of gain received by the applicable group three subsidiary in connection with the applicable group plr-100998-09 three merger 5m the fair_market_value of group three acquiror’s assets will exceed its liabilities immediately after the group three mergers rulings general rulings based solely on the information submitted and the representations set forth above we rule as follows the holdco merger will not result in the creation and recapture or in an increase to and recapture of an excess_loss_account ela if any with respect to the stock of finco as a result of the extinguishment of the holdco intercompany notes sec_1_1502-13 sec_1_1502-19 and c with respect to discharge_of_indebtedness income cod income that is realized directly direct cod income by holdco finco and the group one subsidiaries as a result of the external debt restructuring and that is excluded from gross_income under sec_108 the liability floor of sec_1017 will be determined at the finco level by taking into account the bases of finco’s assets and the amount of finco’s liabilities immediately after all of the steps of the u s restructuring sec_1_1502-28 solely for purposes of applying the liability floor of sec_1017 at the finco level the external debt restructuring will be deemed to occur immediately after the other steps of the u s restructuring with respect to any cod income treated as realized pursuant to sec_1 a ii look-through cod income by finco as a result of the external debt restructuring the liability floor of sec_1017 will be determined at the finco level by taking into account the bases of finco’s assets and the amount of finco’s liabilities on the last day of the taxable_year of the higher- tier member that includes the date on which the higher-tier member realized the cod income giving rise to the look-through cod income at the finco level with respect to direct cod income that is realized by group two acquiror and the group two subsidiaries as a result of the external debt restructuring and that is excluded from gross_income under sec_108 the liability floor of sec_1017 will be determined at the group two acquiror level by taking into account the bases of group two acquiror’s assets and the amount of group two acquiror’s liabilities immediately after all of the steps of the u s restructuring sec_1_1502-28 solely for purposes of applying the liability floor of sec_1017 at the group plr-100998-09 two acquiror level the external debt restructuring will be deemed to occur immediately after the other steps of the u s restructuring with respect to any look-through cod income treated as realized by group two acquiror as a result of the external debt restructuring the liability floor of sec_1017 will be determined at the group two acquiror level by taking into account the bases of group two acquiror’s assets and the amount of group two acquiror’s liabilities on the last day of the taxable_year of the higher-tier member that includes the date on which the higher-tier member realized the cod income giving rise to the look-through cod income at the group two acquiror level with respect to direct cod income that is realized by group three acquiror and the group three subsidiaries as a result of the external debt restructuring and that is excluded from gross_income under sec_108 the liability floor of sec_1017 will be determined at the group three acquiror level by taking into account the bases of group three acquiror’s assets and the amount of group three acquiror’s liabilities immediately after all of the steps of the u s restructuring sec_1_1502-28 solely for purposes of applying the liability floor of sec_1017 at the group three acquiror level the external debt restructuring will be deemed to occur immediately after the other steps of the u s restructuring with respect to any look-through cod income treated as realized by group three acquiror as a result of the external debt restructuring the liability floor of sec_1017 will be determined at the group three acquiror level by taking into account the bases of group three acquiror’s assets and the amount of group three acquiror’s liabilities on the last day of the taxable_year of the higher-tier member that includes the date on which the higher-tier member realized the cod income giving rise to the look-through cod income at the group three acquiror level the extent to which an ela in a share of finco stock or a share of any predecessor thereto in the newco mergers or the holdco merger must be taken into account as a result of direct cod income realized by holdco finco and the group one subsidiaries that is not included in gross_income and not treated as tax exempt_income under sec_1 b ii c will be determined after giving effect to all of the steps of the u s restructuring and will be based upon parent’s basis in the finco stock immediately after the u s restructuring sec_1_1502-19 c and f and b and the extent to which an ela in a share of group two acquiror stock or a share of any predecessor thereto in the group two mergers must be taken into account as a result of direct cod income realized by group two acquiror and the group two subsidiaries that is not included in gross_income and not plr-100998-09 treated as tax exempt_income under sec_1_1502-32 will be determined after giving effect to all of the steps of the u s restructuring and will be based upon finco’s basis in the group two acquiror stock immediately after the u s restructuring sec_1_1502-19 c and f and b and the extent to which an ela in a share of group three acquiror stock or a share of any predecessor thereto in the group three mergers must be taken into account as a result of direct cod income realized by group three acquiror and the group three subsidiaries that is not included in gross_income and not treated as tax exempt_income under sec_1 b ii c will be determined after giving effect to all of the steps of the u s restructuring and will be based upon finco’s basis in the group three acquiror stock immediately after the u s restructuring sec_1_1502-19 c and f and b and newco mergers based solely on the information submitted and the representations set forth above we rule as follows with respect to the newco mergers provided that each of the newco mergers qualifies as a statutory merger under applicable state law each of the newco mergers will constitute a reorganization within the meaning of sec_368 revrul_78_330 1978_2_cb_147 revrul_68_526 1968_2_cb_156 finco and each group one subsidiary each will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by each group one subsidiary on the transfer of its assets to finco in exchange for finco stock and the assumption by finco of the liabilities of each respective group one subsidiary sec_361 and sec_357 no gain_or_loss will be recognized by finco on its receipt of assets of each group one subsidiary in exchange for finco stock and the assumption_of_liabilities by finco of each respective group one subsidiary sec_1032 each group one subsidiary will recognize no gain_or_loss on the distribution of finco stock to its shareholders sec_361 the basis of the assets of each group one subsidiary in the hands of finco will be the same as the basis of such assets in the hands of each respective plr-100998-09 group one subsidiary sec_362 the holding_period of the assets of each group one subsidiary received by finco will include the period during which the assets were held by each respective group one subsidiary sec_1223 no shareholder of a group one subsidiary will recognize gain_or_loss on the receipt of finco stock including a fractional share interest in exchange for group one subsidiary stock pursuant to the newco mergers sec_354 a group one subsidiary shareholder’s basis in the finco stock including a fractional share interest received pursuant to the newco mergers will equal the basis of the group one subsidiary stock held immediately before the newco mergers and will be adjusted for any allocation to eliminate and equalize an excess_loss_account sec_358 and sec_1_1502-19 a group one subsidiary shareholder’s holding_period in the finco stock including a fractional share interest received pursuant to the newco mergers will include the period during which the group one subsidiary stock surrendered in exchange therefor was held provided that the group one subsidiary stock was held as a capital_asset on the date of the newco mergers sec_1223 finco will succeed to and take into account as of the close of the date of each newco merger the items of each group one subsidiary described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder finco will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of each group one subsidiary as of the date of each newco merger sec_381 and sec_1_381_c_2_-1 and sec_1_1502-33 any deficit in the earnings_and_profits of finco or a group one subsidiary will be used only to offset earnings_and_profits accumulated after the date of the newco mergers sec_381 holdco merger based solely on the information submitted and the representations set forth above we rule as follows with respect to the holdco merger provided that the holdco merger qualifies as a statutory merger under applicable state law the holdco merger will constitute a reorganization within plr-100998-09 the meaning of sec_368 revrul_78_330 1978_2_cb_147 finco and holdco each will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by holdco on the transfer of its assets to finco in exchange for finco stock and the assumption by finco of the liabilities of holdco sec_361 and sec_357 no gain_or_loss will be recognized by finco on the receipt of assets of holdco in exchange for finco stock and the assumption_of_liabilities by finco of holdco sec_1032 holdco will recognize no gain_or_loss on the distribution of finco stock to parent sec_361 the basis of the assets of holdco in the hands of finco will be the same as the basis of such assets in the hands of holdco sec_362 the holding_period of the assets of holdco received by finco will include the period during which the assets were held by holdco sec_1223 parent will not recognize gain_or_loss on the receipt of finco stock including a fractional share interest in exchange for holdco stock pursuant to the holdco merger sec_354 parent’s basis in the finco stock including a fractional share interest received pursuant to the holdco merger will equal the basis of the holdco stock held immediately before the holdco merger sec_358 parent’s holding_period in the finco stock including a fractional share interest received pursuant to the holdco merger will include the period during which the holdco stock surrendered in exchange therefor was held provided that the holdco stock was held as a capital_asset on the date of the holdco merger sec_1223 finco will succeed to and take into account as of the close of the date of the holdco merger the items of holdco described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder finco will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of holdco as of the date of the holdco merger sec_381 and sec_1_381_c_2_-1 and sec_1_1502-33 any deficit in the earnings_and_profits of finco or holdco will be used only to plr-100998-09 offset earnings_and_profits accumulated after the date of the holdco merger sec_381 group two mergers based solely on the information submitted and the representations set forth above we rule as follows with respect to the group two mergers provided that each of the group two mergers qualifies as a statutory merger under applicable state law each of the group two mergers will constitute a reorganization within the meaning of sec_368 revrul_78_330 1978_2_cb_147 revrul_68_526 1968_2_cb_156 group two acquiror and each group two subsidiary each will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by each group two subsidiary on the transfer of its assets to group two acquiror in exchange for group two acquiror stock and the assumption by group two acquiror of the liabilities of each respective group two subsidiary sec_361 and sec_357 no gain_or_loss will be recognized by group two acquiror on the receipt of assets of each group two subsidiary in exchange for group two acquiror stock and the assumption_of_liabilities by group two acquiror of each respective group two subsidiary sec_1032 each group two subsidiary will recognize no gain_or_loss on the distribution of group two acquiror stock to its shareholders sec_361 the basis of the assets of each group two subsidiary in the hands of group two acquiror will be the same as the basis of such assets in the hands of each respective group two subsidiary sec_362 the holding_period of the assets of each group two subsidiary received by group two acquiror will include the period during which the assets were held by each respective group two subsidiary sec_1223 no shareholder of a group two subsidiary will recognize gain_or_loss on the receipt of group two acquiror stock including a fractional share interest in exchange for group two subsidiary stock pursuant to the group two mergers sec_354 a group two subsidiary shareholder’s basis in the group two acquiror stock including a fractional share interest received pursuant to the group two mergers will equal the basis of the group two subsidiary stock held plr-100998-09 immediately before the group two mergers and will be adjusted for any allocation to eliminate and equalize an excess_loss_account sec_358 and sec_1_1502-19 a group two subsidiary shareholder’s holding_period in the group two acquiror stock including a fractional share interest received pursuant to the group two mergers will include the period during which the group two subsidiary stock surrendered in exchange therefor was held provided that the group two subsidiary stock was held as a capital_asset on the date of the group two mergers sec_1223 group two acquiror will succeed to and take into account as of the close of the date of each group two merger the items of each group two subsidiary described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder group two acquiror will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of each group two subsidiary as of the date of each group two merger sec_381 and sec_1_381_c_2_-1 and sec_1_1502-33 any deficit in the earnings_and_profits of group two acquiror or a group two subsidiary will be used only to offset earnings_and_profits accumulated after the date of the group two mergers sec_381 group three mergers based solely on the information submitted and the representations set forth above we rule as follows with respect to group three mergers provided that each of the group three mergers qualifies as a statutory merger under applicable state law each of the group three mergers will constitute a reorganization within the meaning of sec_368 revrul_78_330 1978_2_cb_147 revrul_68_526 1968_2_cb_156 group three acquiror and each group three subsidiary each will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by each group three subsidiary on the transfer of its assets to group three acquiror in exchange for group three acquiror stock and the assumption by group three acquiror of the liabilities of each respective group three subsidiary sec_361 and sec_357 no gain_or_loss will be recognized by group three acquiror on the receipt of assets of each group three subsidiary in exchange for group three acquiror stock and the assumption_of_liabilities by group three acquiror of each plr-100998-09 respective group three subsidiary sec_1032 each group three subsidiary will recognize no gain_or_loss on the distribution of group three acquiror stock to its shareholders sec_361 the basis of the assets of each group three subsidiary in the hands of group three acquiror will be the same as the basis of such assets in the hands of each respective group three subsidiary sec_362 the holding_period of the assets of each group three subsidiary received by group three acquiror will include the period during which the assets were held by each respective group three subsidiary sec_1223 no shareholder of a group three subsidiary will recognize gain_or_loss on the receipt of group three acquiror stock including a fractional share interest in exchange for group three subsidiary stock pursuant to the group three mergers sec_354 a group three subsidiary shareholder’s basis in the group three acquiror stock including a fractional share interest received pursuant to the group three mergers will equal the basis of the group three subsidiary stock held immediately before the group three mergers and will be adjusted for any allocation to eliminate and equalize an excess_loss_account sec_358 and sec_1_1502-19 a group three subsidiary shareholder’s holding_period in the group three acquiror stock including a fractional share interest received pursuant to the group three mergers will include the period during which the group three subsidiary stock surrendered in exchange therefor was held provided that the group three subsidiary stock was held as a capital_asset on the date of the group three mergers sec_1223 group three acquiror will succeed to and take into account as of the close of the date of each group three merger the items of each group three subsidiary described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder group three acquiror will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of each group three subsidiary as of the date of each group three merger sec_381 and sec_1_381_c_2_-1 and sec_1_1502-33 any deficit in the earnings_and_profits of group three acquiror or a group three subsidiary will be used only to offset plr-100998-09 earnings_and_profits accumulated after the date of the group three mergers sec_381 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the u s restructuring under other provisions of the code or the regulations or the tax treatment of any conditions existing at the time of or effects resulting from the u s restructuring that are not specifically covered by the above rulings in particular we express no opinion regarding the federal_income_tax consequences of i ii iii iv the external debt restructuring as described in steps i ii and iii above the intercompany debt restructuring as described in step iv above the possible merger or liquidation of any inactive or finance subsidiaries of finco as described in step xi above and the newco mergers the holdco merger the group two mergers or the group three mergers with respect to any partnerships owned by members of the parent group procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely frances l kelly assistant to the branch chief branch office_of_chief_counsel corporate


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 b06 plr-120199-14 date date parent -------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ ----------------------------- sub -------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- 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------------------------------------------------------------------------------- -------------------------------------------------------------- date date date ------------------ ---------------------- --------------------------- plr-120199-14 date date year end dollar_figurea dollar_figureb ---------------------------- -------------- ------------------------------------------------- ------------ ---------------- company official ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------------------------------------------- dear --------------- this letter is in response to your authorized representative’s letter dated date requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election under sec_1_1502-13 of the income_tax regulations hereinafter referred to as the election additional information was received in letters dated date date date date and date the material information is summarized below parent is the common parent of a consolidated_group that has a taxable_year ending year end the parent group parent owns all the stock of sub and sub sub owns all the stock of sub sub owns all the stock of sub sub sub sub and sub are all members of the parent group as part of a proposed restructuring sub will liquidate into sub and sub will convert to an entity disregarded as separate from parent for federal tax purposes in date the internal_revenue_service and treasury_department published new intercompany_transaction regulations under sec_1_1502-13 governing the treatment of transactions between members of a consolidated_group the regulations are generally effective for transactions occurring in taxable years beginning on or after date sec_1_1502-13 sec_1_1502-13 of the regulations permitted taxpayers to elect to have the regulations apply to certain stock elimination elections ie those transactions described in sec_1_1502-13 that occurred in a year to which prior_law would otherwise apply the prior sec_1_1502-13 regulations to make the election under plr-120199-14 sec_1_1502-13 taxpayers were required to include a statement making the election with their original return for the taxable_year including date prior to date the following transactions were entered into by members of the parent group on date a wholly-owned subsidiary of sub merged with and into sub in a stockless merger treated as a tax-free reorganization sub was treated as distributing to parent the deemed sub shares received in the merger to properly reflect stock ownership in sub sub recognized approximately dollar_figurea of gain on the deemed_distribution of sub stock all of which was deferred under the prior sec_1_1502-13 regulations on date a wholly-owned subsidiary of sub merged with and into sub in a stockless merger treated as a tax-free reorganization sub was treated as distributing the deemed sub shares received in the merger to sub which in turn was treated as distributing the deemed shares to parent to properly reflect stock ownership in sub sub recognized approximately dollar_figureb of gain on the deemed_distribution all of which was deferred under the prior sec_1_1502-13 regulations on date parent transferred the stock of sub to sub in a transaction intended to qualify as a tax-free_exchange described in sec_351 the election was required to be filed by date but for various reasons a valid election was not filed on date which was after the due_date for the election it was discovered that no election was made by parent with respect to the parent group parent has represented that except for the transactions described in this letter no member of the parent group had any deferred stock gain_or_loss at any time during the taxable_year that included date from an intercompany_transaction parent has also represented that it is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 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 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 that the taxpayer acted reasonably and in plr-120199-14 good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 l therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent shows it 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 information affidavits and representations submitted by parent and company official explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent has shown it 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 parent to file the election the election must be attached to an amended_return for the period including date the above extension of time is conditioned on parent’s consolidated group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely filed taking into account the time_value_of_money no opinion is expressed as to the taxpayer’s 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 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular we express no opinion with respect to whether parent group qualifies substantively to make the election in addition we express no opinion as to the tax consequences of filing the election 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 late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayer 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 penalties and interest that would otherwise be applicable if any continue to apply plr-120199-14 this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively 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 letter_ruling pursuant to the power_of_attorney on file in this office copies of this letter are being sent to your authorized representatives sincerely _ken cohen_________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate