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 b05 plr-116796-11 date date legend distributing controlled ---------------------------------- ------------------------------- ------------------------ -------------------------------------------------------- ------------------------------- ------------------------ corporation ------------------------------- ------------------------------- ------------------------ sub ------------------------------------------- ------------------------------- ------------------------ sub subs ---------------------------------------------------------------------------------------- ---------------------------------------------------- sub sub -------------------------------------------- ------------------------------- ------------------------ ------------------------------------------------------ ------------------------------- ------------------------ plr-116796-11 sub sub sub sub ------------------------- ------------------------------- ------------------------ ---------------------- ------------------------------- ------------------------ -------------------------------------------- ------------------------------- ------------------------ ------------------------------------------------------------- ------------------------------- ------------------------ sub subs ------------------------------------------------------------------------------ sub sub sub sub -------------------------------------------------------------------- ------------------------------- ------------------------ ------------------------ ------------------------------- ------------------------ ------------------------------------------- ------------------------------- ------------------------ ----------------------------- ------------------------------- ------------------------ sec subs ----------------------------------------- ------------------------------- ------------------------ ---------------------------------- ------------------------------- ------------------------ ----------------------------------- plr-116796-11 ------------------------------- ------------------------ ------------------------------------ ------------------------------- ------------------------ ------------------------------------------ ------------------------------- ------------------------ ------------------------------------------ ------------------------------- ------------------------ ------------------------------------------ ------------------------------- -------------------------- ------------------------------------------ ------------------------------- ------------------------ ------------------------------------------ ------------------------------- ------------------------ sec llc llc llc --------------------------------------------------- ------------------------- ------------------------------------------------ ------------------------ ------------------------------- ------------------------------------------------ ------------------------ --------------------------------------------------- ------------------------------------------------ ------------------------ plr-116796-11 llc llc subs llc partnership partnership ------------------------------------- ------------------------------------------------ ------------------------ ---------------------------------------------------------------------------------------- ------------------------------------- ----------------------------------- ------------------------------------------------ ------------------------ ------------------- ----------------------------------------- ------------------------ ------------------------------ ----------------------------------------- ------------------------ f distributing ------------------------------------------ ------------------------------------------------------------- f distributing ------------------------------------------------------------- ------------------------------------------------------------- f controlled ---------------------------------------------------------- ------------------------------------------------------------- fsub fsub fsub fsub fsub ------------------------------------------------------------ ------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------------- ---------------------------------------------------- ------------------------------------------- ------------------------------------------------- ---------------------------------------------------------------------------------------- ----------------------- ---------------------------------------------- ---------------------------------------------------------------------------------------- plr-116796-11 fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub ----------------------- ----------------- ---------------------------------------- -------------------------------------- ---------------------------------------- --------------------------------------------------------- ---------------------------------------------- ------------------------ ------------------------------------------------------------- ------------------------------------------------- ------------------------------------ ------------------------------------------------ ---------------------------------------------------------------------------------------- ----------------------- ------------------------------------- ---------------------------------------------------------------------------------------- ----------------------- ------------------------------------- ---------------------------------------------------------------- ------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------- --------------- -------------------------------------------- --------- ----------------------------------------------------- --------- ------------------------------- ------------ fsub -------------------------------------------- plr-116796-11 entity entity entity entity entity entity entity entity entity entity entity entity entity entity ---------------------------------------------------- ----------------------------------------- ----------------- 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---------------------------------------------------- plr-116796-11 entity entity entity entity entity entity entity entity entity entity entity entity ------------------------------------- ---------------------------------------------------- ------------------------- --------- ---------------------------- ------------------------------------ ------------------------------------------- -------------------------------------------------- ---------------------------------------------------- -------------------------------------------------- -------------------------------------------------------- -------------------------------------- ------------------------------------ ------------------------------------------------- ------------------------------ ------------------------------------ ------------------------------------------------------ --------------- ------------------------------- ------------ ----------------------------------------------------------- -------- --------------------------------- ------------- shareholder ---------------------- shareholder ------------------------- shareholder ----------------------------------------- investors -------------------------------------------- plr-116796-11 insiders business a business b country a country b country c country d country e country f country g country h country i country j country k country l ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------- ---------------------------------------------------------------------------------------- ---------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- --------------------------- ------------------------- --------- ----------------- ---------------- --------------- -------- --------- --------- --------------------- -------- ---------------------- ------------- country m -------------- country n country o country p ---------- --------------------------- -------- plr-116796-11 country q country r --------- ------------ aa bb cc dd ee ff gg hh ii jj kk ll mm nn oo pp qq rr ss tt ---- -- -- ---- ---------------------------------- ---- -- -- -- -- -- ---- -- ---- ---- ---- -- -- -------------- -------------- plr-116796-11 dear -------------- this letter responds to your date letter requesting rulings on certain federal_income_tax consequences of the proposed transactions defined below the material information provided in that letter and in subsequent correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination moreover this office has not reviewed any information pertaining to and has made no determination regarding whether any distribution occurring as part of the proposed transactions and for which qualification under sec_355 of the internal_revenue_code the code is sought will i satisfy the business_purpose requirement of sec_1_355-2 ii be used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 and sec_1_355-2 or iii be part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1 summary of facts except where noted all entities are domestic corporations distributing is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return the distributing group and the parent of a multi-national group of corporations that operates business a and business b the authorized and outstanding capital stock of distributing consists of one class of common_stock that is publicly traded based on filings with the securities_and_exchange_commission each of shareholder shareholder and shareholder owns directly and indirectly more than percent of the outstanding distributing common_stock distributing will form controlled and corporation for purposes of the proposed transactions at its formation and prior to the proposed transactions each has one class of common_stock outstanding all of which is owned by distributing distributing directly owns all of the stock of sub sub sub sub sub sub and the sec subs distributing directly owns all of the membership interests of sec llc and llc1 each of which is classified for federal_income_tax purposes as an entity that is disregarded as separate from distributing sub directly owns all of the plr-116796-11 stock of sub sub fsub a country a corporation and fsub a country b corporation sub also owns directly and indirectly all of the stock of the sub subs sub directly owns all of the stock of fsub and owns directly and indirectly all of the stock of the sub subs sub directly owns all of the stock of sub sub and sub own all of the partnership interests of partnership which is classified as a partnership for federal_income_tax purposes sub sub sub sub and partnership directly own all of the common membership interests of llc which is also classified as a partnership for federal_income_tax purposes sub directly owns all of the preferred membership interests of llc llc directly owns all of the membership interests of llc which is classified for federal_income_tax purposes as an entity that is disregarded as separate from llc llc directly and indirectly owns all of the equity interests of the llc subs each of which is classified for federal_income_tax purposes as an entity that is disregarded as separate from llc llc and llc subs directly and indirectly conduct business b sub directly owns all of the stock of sub distributing indirectly owns all of the stock of sub sub sub and sub directly own all of the partnership interests of partnership which is classified as a partnership for federal_income_tax purposes partnership directly owns all of the membership interests of llc which is classified for federal_income_tax purposes as an entity that is disregarded as separate from partnership llc directly and indirectly conducts business b llc directly owns all of the stock of f distributing a country c_corporation f distributing directly owns all of the stock of f distributing a country c_corporation f distributing and f distributing serve as holding_companies for a significant portion of the foreign operations of business a and business b f distributing directly owns all of the stock of fsub a country d corporation all of the stock of fsub a country d corporation and all of the equity interests of entity a country c entity that is classified for federal_income_tax purposes as an entity that is disregarded as separate from f distributing fsub directly owns all of the stock of fsub a country d corporation fsub directly owns all of the stock of fsub a country e corporation fsub directly owns all of the stock of fsub a country e corporation fsub directly owns all of the stock of fsub a country f corporation fsub directly owns aa of the stock of fsub entity directly owns all of equity interests of entity a country c entity that is classified for federal_income_tax purposes as an entity that is disregarded as separate from f distributing entity directly owns all of the equity interests of entity a country c entity that is classified for federal_income_tax purposes as an entity that is disregarded as separate from f distributing f controlled a country c_corporation plr-116796-11 has recently been incorporated for purposes of the proposed transactions and has one class of common_stock outstanding all of which is owned by entity entity directly owns all of the stock of fsub a country g entity and all of the equity interests or stock of entity a country d entity entity a country h entity and entity a country i entity each of which is classified for federal_income_tax purposes as an entity that is disregarded as separate from f distributing entity directly owns all of the stock of fsub a country d entity and all of the equity interests of entity a country i entity entity a country d entity entity a country i entity and entity a country i entity each of which is classified for federal_income_tax purposes as an entity that is disregarded as separate from f distributing fsub directly owns the remaining bb of the stock of fsub entity directly owns all of the equity interests of entity a country j entity that is classified for federal_income_tax purposes as an entity that is disregarded as separate from f distributing entity directly owns all of the equity interests of entity and entity each of which is a country j entity that is classified for federal_income_tax purposes as an entity that is disregarded as separate from f distributing entity directly owns all of the equity interests of entity a country h entity that is classified for federal_income_tax purposes as an entity that is disregarded as separate from f distributing entity directly owns all of the equity interests of entity a country h entity that is classified for federal_income_tax purposes as an entity that is disregarded as separate from f distributing entity directly owns all of the equity interests of entity a country h entity that is classified for federal_income_tax purposes as an entity that is disregarded as separate from f distributing fsub directly owns all of the stock of fsub and fsub each of which is a country n corporation fsub directly owns all of the equity interests of entity a country g entity entity a country k entity entity a country e entity entity a country l entity and entity a country m entity each of which is classified for federal_income_tax purposes as an entity that is disregarded as separate from fsub entity directly owns all of the equity interests of entity a country g entity entity directly owns all of the stock of fsub a country e entity and cc of the stock of each of fsub and fsub each a country q corporation entity also directly owns all of the equity interests of entity a country e entity and entity a country r entity each of which is classified for federal_income_tax purposes as an entity that is disregarded as separate from fsub entity directly owns the remaining dd of the stock of each of fsub and fsub and all of the equity interests of entity a country p entity which is classified for federal_income_tax purposes as an entity that is disregarded as separate from fsub entity directly owns all of the stock of fsub a country r corporation fsub directly owns all of the stock of fsub a country o corporation fsub directly owns all of the equity interests of entity a country l entity that is plr-116796-11 classified for federal_income_tax purposes as an entity that is disregarded as separate from fsub distributing and its subsidiaries conduct business a and business b following the distribution distributing through its separate_affiliated_group as defined in sec_355 the distributing sag will continue to conduct business a controlled through its separate_affiliated_group as defined in sec_355 the controlled sag will continue to conduct business b financial information has been received indicating that each of business a and business b has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years distributing has determined that it is necessary to separate business b from business a for the following corporate business reasons i fit and focus ie optimizing the potential of each of business a and business b by allowing each separate management team to focus on its respective business ii obtaining the opportunity to raise equity and debt financing based on business a or business b alone iii the ability to use stock of business b as a separate acquisition currency and iv allowing compensatory grants to employees within business a and business b of equity awards that are more closely aligned with the performance of such employees the corporate business purposes the following series of transactions constitute the proposed transactions proposed transactions i ii iii iv v vi sub will distribute all of the stock of fsub to sub sub will distribute all of the stock of sub fsub fsub and fsub to distributing together with the stock_distribution in step i stock distributions llc will distribute all of the membership interests of llc3 to sub in redemption of all or a portion of the common and or preferred membership interests in llc2 that are held by sub partnership will distribute all of the membership interests of llc to sub distributing will contribute the membership interests of the sec llc to one of the sec subs prior to the corporation contribution described in step vii below distributing will enter into an agreement to sell all of the corporation preferred_stock defined below to investors and insiders which will plr-116796-11 create binding obligations for distributing to sell and for investors and insiders to buy the corporation preferred_stock sale agreement vii distributing will contribute all of the stock of sub and the sec subs to corporation in exchange for a portion of the common_stock of corporation corporation common_stock and all of the nonvoting preferred_stock of corporation corporation preferred_stock which has a liquidation preference of approximately dollar_figureee and will either be mandatorily redeemable after ff years and callable after gg years or mandatorily redeemable after hh years the dollar_figureee liquidation preference of the corporation preferred_stock is expected to represent approximately ii of the initial fair_market_value of corporation in the event of a change-in-control of controlled or corporation holders of the corporation preferred_stock will have the option of requiring corporation to redeem the corporation preferred_stock for an amount equal to its liquidation preference plus any accrued but unpaid dividends to the extent dividends remain unpaid on the corporation preferred_stock for jj quarterly periods whether or not consecutive the holders of the majority of the corporation preferred_stock will have the ability to appoint a representative to attend meetings of the board_of directors of controlled in a nonvoting observer capacity until all unpaid dividends have been paid viii sub will contribute all of the membership interests in llc to corporation and sub will contribute all of the membership interests in llc to corporation in exchange for the remaining corporation common_stock together with step vii corporation contribution ix x xi sub will distribute all of its corporation common_stock to distributing sub will distribute all of its corporation common_stock to sub and sub will distribute all of such corporation common_stock to distributing entity will sell all of the equity interests of entity to entity in exchange for cash fsub will sell all of the stock of fsub and all of the equity interests of entity to entity in exchange for cash xii fsub will sell all of the stock of fsub to entity in exchange for cash xiii fsub will sell all of the stock of fsub to entity in exchange for cash xiv entity will contribute cash and all of the equity interests of entity entity entity and entity and all of the stock of fsub fsub and plr-116796-11 fsub to f controlled in exchange for all of the common_stock of f controlled f controlled contribution xv fsub will sell all of the equity interests of entity entity entity and entity to f controlled in exchange for cash xvi entity will distribute all of the common_stock of f controlled to entity entity will distribute all of the common_stock of f controlled to entity entity will distribute all of the common_stock of f controlled to f distributing xvii f distributing will distribute all of the common_stock of f controlled to f distributing internal distribution xviii f distributing will distribute all of the common_stock of f controlled to llc llc will distribute all of the common_stock of f controlled to distributing internal distribution xix distributing will contribute all of the corporation common_stock all of the common_stock of f controlled and all of the stock of sub fsub fsub and fsub to controlled in exchange for all of the common_stock of controlled controlled contribution xx distributing will sell all of the corporation preferred_stock to investors and insiders pursuant to a pre-existing binding commitment under the sale agreement distributing and corporation will jointly make elections under sec_338 with respect to sub and the sub subsidiaries and sub and the sub subsidiaries xxi the u s federal consolidated_group of distributing expects to recognize substantial tax losses in respect of the business b assets held by sub and the sub subs sub and the sub subs llc and the llc subs and llc in connection with corporation contribution including as a result of the elections under sec_338 collectively business b losses xxii distributing will distribute all of the common_stock of controlled to its shareholders pro_rata distribution fractional shares of controlled common_stock will not be distributed in the distribution instead fractional shares of controlled common_stock will be aggregated into whole shares and sold in the public markets by the distribution agent for the distribution and the distribution agent will distribute the aggregate sales proceeds ratably to distributing shareholders who otherwise would have received fractional shares of controlled common_stock plr-116796-11 in connection with the proposed transactions distributing and controlled and their respective subsidiaries will enter into various agreements distribution agreements relating to the separation of business b from business a and continuing transactions between them following the distribution the distribution agreements will include a tax sharing and indemnification agreement and a separation agreement the distribution agreements also will include agreements involving obligations that will arise after the distribution and relate to transitional and administrative support services including payroll human resources tax and financial reporting that distributing and its subsidiaries will provide to controlled and its subsidiaries or that controlled and its subsidiaries will provide to distributing and its subsidiaries for an interim period while distributing and controlled establish separate administrative support and corporate service arrangements transitional agreements the transitional agreements are expected to have terms of kk years and to the extent extended the services would be performed on a fair_market_value basis in addition distributing and controlled will enter into license agreements pursuant to which controlled and its subsidiaries will have the exclusive right and in certain instances the non-exclusive right to use certain distributing trademarks and trade names and related intellectual_property in the operation of business b subject_to certain restrictions license agreements pursuant to the license agreements controlled will pay distributing an annual royalty payment that has a fixed component as well as a contingent component that will be based on percentages of sales of products of business b the license agreements will have initial terms of ll years which at controlled’s option and subject_to certain conditions can be extended for mm additional nn-year periods upon termination of the license agreements controlled and its subsidiaries will have the non-exclusive right to use the distributing trademarks trade names and intellectual_property for an additional oo years subject_to certain restrictions the license agreements will contain restrictions regarding the use of the distributing trademarks and trade names that will be intended to maintain their value and reputation in addition controlled will be required to obtain distributing’s approval to develop and operate business b products using the distributing trademarks and trade names which approval generally can be withheld only if design standards are not met the location of the products is not appropriate or contractual or legal restrictions applicable to distributing would be breached finally so long as the license agreements are in effect controlled and its subsidiaries may use distributing trade names in their corporate names unless the number of products that use distributing trademarks and trade names fall below a certain percentage or after a certain period of time controlled acquires a business that is the same business as business b from a distributing competitor and uses the trademarks and trade names of such acquired_business distributing and controlled also will enter into an affiliation agreement pursuant to which business b will offer incentives for the purchase of business b products and in certain other instances which can be used towards the purchase of business a plr-116796-11 products affiliation agreement the affiliation agreement will have the same term as the license agreements under the affiliation agreement controlled will be permitted to purchase these incentives from distributing so long as controlled markets the receipt and use of the incentives as a benefit of purchasing or using business b products in addition controlled may only use these incentives in connection with business b products that use distributing trademarks and trade names pursuant to the affiliation agreement controlled will pay distributing an amount related to the cost of the business a products for which the incentives can be used when the incentives are issued with respect to any incentives existing at the time of the distribution controlled will pay distributing when the incentives are actually used to acquire business a products except that on the pp anniversary of the distribution any outstanding balance of existing incentives will be repaid in full finally to the extent distributing customers use incentives to purchase business b products distributing will pay controlled an amount related to the cost that large purchasers pay for such business b products the board_of directors of controlled is expected to consist of qq members rr of which will be independent directors one of the members of the board_of directors of controlled who will be subject_to re-election is related to shareholder the chief_executive_officer and chairman of the board_of directors of distributing and will be employed by distributing following the distribution controlled will enter into a lending facility with an unrelated group of lenders pursuant to which controlled will securitize notes receivable originated in business b in connection with the sale of products to customers lending facility under the lending facility controlled generally will receive all of the cash flows generated from the notes receivable that are in excess of payments made to the lenders prior to the distribution subsidiaries of controlled are expected to securitize notes receivable under the lending facility and receive funds in the range of dollar_figuress to dollar_figurett lending facility proceeds these controlled_subsidiaries will use the lending facility proceeds to repay existing intercompany payables that are owed to distributing and that were incurred by the controlled_subsidiaries in the ordinary course of business representations a with respect to any existing gain_recognition_agreement gra previously entered into by distributing as parent of the distributing consolidated_group in connection with a prior transfer of stock_or_securities or any gra to be entered into in connection with the proposed transactions distributing will in accordance with sec_1_367_a_-8 and sec_1_367_a_-8 enter into a new gra i identifying all triggering events and exceptions thereto resulting from the proposed transactions ii designating a successor transferor_corporation transferee corporation and or transferred corporation as applicable and iii complying with all other requirements for gras under sec_1_367_a_-8 additionally distributing will comply with the notification requirements of sec_1_367_a_-8 with respect to any such gra plr-116796-11 b distributing will satisfy the notice requirements of sec_1 b - c as applicable with respect to all transfers of assets or stock in the proposed transactions the following representations are made with respect to the corporation contribution c the distribution would be pursued by distributing regardless of whether the business b losses would be recognized by virtue of the proposed transactions d sub and the sub subs and sub and the sub subs would each be entitled to recognize the losses in respect of their business b assets upon a taxable sale of such business b assets to an unrelated third party sub and sub would each be entitled to recognize the losses in respect of the business b assets held by llc and the llc subs and llc respectively upon a taxable sale of such business b assets to an unrelated third party e all of the stock of sub will be acquired by corporation in a single transfer by distributing pursuant to the corporation contribution f at the time of the corporation contribution sub will not have outstanding any warrants options convertible securities or any other type of right pursuant to which any person could acquire stock in sub g the amount of consideration paid for the sub stock in the corporation contribution will be approximately equal to the value of the sub stock acquired h the fair_market_value of the assets of each sub and sub subs sub and sub subs will exceed each subsidiary’s liabilities during the corporation contribution and after the distribution i distributing will be a member of the selling_consolidated_group as defined in sec_338 for the taxable_period that includes the corporation contribution j for the taxable_period that includes the corporation contribution each of sub and the sub subs and sub and the sub subs will be a consolidated target within the meaning of sec_1_338_h_10_-1 k except for any asset described in sec_1_338-8 neither corporation nor any member of the corporation affiliated_group within the meaning of sec_338 has any plan or intention to acquire from sub or any sub subs or sub or any sub subs any asset described in sec_1_338-8 after application of sec_1_338-8 plr-116796-11 l the corporation preferred_stock will constitute stock in corporation and not indebtedness for u s federal_income_tax purposes m the terms of the sale agreement pursuant to which distributing will sell the corporation preferred_stock to investors and insiders will be determined pursuant to arm's-length negotiations between distributing on the one hand and investors and insiders on the other hand n no more than percent of the shares of the corporation preferred_stock will be acquired by the insiders o investors and insiders which will acquire the corporation preferred_stock pursuant to the sale agreement will not be parties whose ownership of corporation would be attributed to distributing pursuant to sec_318 p at the time distributing transfers the corporation preferred_stock to the investors and insiders there will be no current plan or intention to redeem the corporation preferred_stock before the first date that the corporation preferred_stock is callable or if the corporation preferred_stock is not callable before the mandatory redemption date q immediately after the proposed transactions corporation will not be attributed any stock held by distributing under sec_318 without regard to sec_318 r there is no plan or intention for distributing_corporation sub and sub subs sub and sub subs to cease to remain in existence as separate corporations for federal_income_tax purposes s there is no plan or intention on the part of corporation to sell or otherwise dispose_of any of the shares of sub acquired in the corporation contribution t investors and insiders will not cause distributing and corporation or sub and the sub subs or sub and the sub subs to be members of the same controlled_group as defined in sec_267 if that section was amended by substituting percent for percent following the distribution ie or fewer individuals trusts or estates that hold corporation preferred_stock will not own more than percent of the total combined voting power or value of all classes of stock of distributing on the one hand and corporation or sub and the sub subs or sub and the sub subs on the other hand u distributing on the one hand and corporation and sub and the sub subs and sub and the sub subs on the other hand will cease to be plr-116796-11 members of the same controlled_group as defined in sec_267 upon the consummation of the distribution ie i distributing will not own more than percent of the total voting power or value of all classes of stock of corporation or sub and the sub subs or sub and the sub subs and ii or fewer individuals trusts or estates will not own more than percent of the total voting power or value of all classes of stock of corporation and sub and the sub subs and sub and the sub subs v no holder of distributing common_stock or controlled common_stock or corporation stock immediately following the distribution will own within the meaning of sec_318 percent or more of the distributing common_stock or the controlled common_stock or the corporation stock other than controlled in the case of corporation stock w for purposes of sec_1_197-2 i the beneficial_ownership interest of distributing in the stock of each of controlled and corporation represents less than percent of the total combined voting power of all classes of stock of controlled and corporation entitled to vote and less than percent of the total value of the shares of all classes of stock of controlled and corporation outstanding and ii the beneficial_ownership interest in each of controlled and corporation in stock of distributing represents less than percent of the total combined voting power of all classes of stock of distributing entitled to vote and less than percent of the total value of the shares of all classes of stock of distributing outstanding x the distribution of business b to the shareholders of distributing pursuant to the distribution is not being engaged in or structured with a principal purpose to avoid the provisions of sec_267 including for example by avoiding treatment as an intercompany sale or by distorting the timing of losses or deductions within the meaning of sec_1_267_f_-1 y the formation of corporation and the corporation contribution is not an acquisition described in sec_269 or a the principal purpose of which is evasion or avoidance of u s federal_income_tax within the meaning of sec_269 z the acquisition of intangible assets of sub and the sub subs and sub and the sub subs pursuant to the elections under sec_338 and the acquisition of intangible assets of llc the llc subs and llc in the proposed transactions is not being undertaken to avoid the operation of the anti- churning rules of sec_197 and sec_1_197-2 the following representations are made with respect to f controlled contribution and internal distribution plr-116796-11 aa f distributing 2’s transfer of assets to f controlled in exchange for all the stock of f controlled is not an exchange described in sec_1 b - b i -4 b i or -4 b bb f distributing f controlled and fsub fsub fsub and fsub will be controlled_foreign_corporations within the meaning of sec_957 immediately before and after the distribution cc f distributing f controlled and fsub fsub13 fsub19 and fsub will not be passive foreign investment companies pfics within the meaning of sec_1297 immediately before or after the distribution dd distributing will be a sec_1248 shareholder within the meaning of sec_1_367_b_-2 with respect to each of f distributing and f controlled and fsub fsub fsub and fsub immediately before and after internal distribution ee any indebtedness owed by f controlled and its subsidiaries to f distributing and its subsidiaries after internal distribution will not constitute stock_or_securities ff each of f distributing and f controlled will pay its own expenses if any incurred in connection with internal distribution gg no part of the consideration to be distributed by f distributing in the internal distribution will be received by f distributing as a creditor employee or in any capacity other than that of an f distributing shareholder hh each of f distributing and f controlled will treat all members of its respective sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business ii the five years of financial information submitted on behalf of business a conducted by f distributing is representative of the present business operations of the business a and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted jj the five years of financial information submitted on behalf of business b to be conducted by f controlled is representative of the present business operations of business b and with regard to such business there have been no plr-116796-11 substantial operational changes since the date of the last financial statements submitted kk immediately after the internal distribution f distributing will continue the active_conduct of business a independently and with its separate employees or employees of the other members of its sag ll immediately after the internal distribution f controlled will continue the active_conduct of business b independently and with its separate employees or employees of the other members of its sag mm neither business a nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of internal distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except for transactions that have expanded business a nn neither business b nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the internal distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except for transactions that have expanded business b and transactions that are part of the proposed transactions and pursuant to which an entity was sold by a member of the sag of f distributing to f controlled or between members of the sag of f distributing oo internal distribution is being carried out to facilitate the distribution which is being carried out for the corporate business purposes the distribution of the stock of f controlled in internal distribution is motivated in whole or substantial part by this corporate business_purpose pp internal distribution will not be used principally as a device for the distribution of the earnings_and_profits of f distributing or f controlled or both qq the total adjusted bases and the fair_market_value of the assets transferred to f controlled in the f controlled contribution will each equal or exceed the sum of the liabilities assumed by f controlled as determined under sec_357 rr any liabilities assumed as determined under sec_357 by f controlled in the f controlled contribution will have been incurred in the ordinary course of business and will be associated with the transferred assets ss no property will be transferred by f distributing to f controlled for which an investment_credit allowed under sec_46 has or will be claimed plr-116796-11 tt no indebtedness between f distributing and its subsidiaries and f controlled and its subsidiaries has been or will be settled or cancelled in connection with internal distribution other than the settlement of intercompany loans and intercompany open account balances attributable to the normal business operations of f distributing and its subsidiaries prior to internal distribution uu no intercorporate debt will exist between f distributing and its subsidiaries and f controlled and its subsidiaries at the time of or after internal distribution other than obligations arising in the ordinary course of business and obligations arising pursuant to the distribution agreements the license agreement and certain other agreements entered into in connection with the distribution vv payments made in connection with all continuing transactions between f distributing and its subsidiaries and f controlled and its subsidiaries following internal distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length except in the case of the transitional agreements which may be provided at cost or on cost-plus pricing terms ww neither f distributing nor f controlled is an investment_company as defined in sec_368 and iv xx for purposes of sec_355 immediately after the internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of f distributing stock entitled to vote or percent or more of the total value of shares of all classes of f distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal distribution yy for purposes of sec_355 immediately after internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of f controlled stock entitled to vote or percent or more of the total value of shares of all classes of f controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal distribution or ii attributable to distributions on f distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal distribution plr-116796-11 zz internal distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in f distributing or f controlled including any predecessor or successor of any such corporation aaa immediately after the transaction as defined in sec_355 i neither f distributing nor f controlled will be a disqualified_investment_corporation within the meaning of sec_355 and ii no person will hold a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation immediately after the transaction who did not so hold directly or indirectly such interest immediately before the transaction bbb the total fair_market_value of the assets transferred to f controlled in the f controlled contribution will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by f controlled in connection with the f controlled contribution and ii the amount of any liabilities owed to f controlled by f distributing that are discharged or extinguished in connection with the f controlled contribution the fair_market_value of the assets of f controlled will exceed the amount of its liabilities immediately after the f controlled contribution the following representations are made with respect to internal distribution ccc f distributing and f controlled will be controlled_foreign_corporations within the meaning of sec_957 immediately before and after the distribution ddd f distributing and f controlled will not be pfics within the meaning of sec_1297 immediately before or after the distribution eee distributing will be a sec_1248 shareholder within the meaning of sec_1_367_b_-2 with respect to each of f distributing and f controlled immediately before and after internal distribution fff any indebtedness owed by f controlled and its subsidiaries to f distributing and its subsidiaries after the internal distribution will not constitute stock_or_securities ggg each of f distributing and f controlled will pay its own expenses if any incurred in connection with internal distribution hhh no part of the consideration to be distributed by f distributing in internal distribution will be received by distributing as a creditor employee or in any capacity other than that of a f distributing shareholder plr-116796-11 iii each of f distributing and f controlled will treat all members of its respective sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business jjj the five years of financial information submitted on behalf of business a conducted by f distributing is representative of the present business operations of business a and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted kkk the five years of financial information submitted on behalf of business b to be conducted by f controlled is representative of the present business operations of business b and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted lll immediately after the internal distribution f distributing will continue the active_conduct of business a independently and with its separate employees or employees of the other members of its sag mmm immediately after the internal distribution f controlled will continue the active_conduct of business b independently and with its separate employees or employees of the other members of its sag nnn neither business a nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of internal distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except for transactions that have expanded business a ooo neither business b nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of internal distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except for transactions that have expanded business b or that are part of the proposed transactions and pursuant to which an entity was sold by a member of the sag of f distributing to f controlled or between members of the sag of f distributing ppp internal distribution is being carried out to facilitate the distribution which is being carried out for the corporate business purposes the distribution of the stock of f controlled in internal distribution is motivated in whole or substantial part by this corporate business_purpose plr-116796-11 qqq internal distribution will not be used principally as a device for the distribution of the earnings_and_profits of f distributing or f controlled or both rrr no property will be transferred by f distributing to f controlled for which an investment_credit allowed under sec_46 has or will be claimed sss no indebtedness between f distributing and its subsidiaries and f controlled and its subsidiaries has been or will be settled or cancelled in connection with internal distribution other than the settlement of intercompany loans and intercompany open account balances attributable to the normal business operations of f distributing and its subsidiaries prior to internal distribution ttt no intercorporate debt will exist between f distributing and its subsidiaries and f controlled and its subsidiaries at the time of or after internal distribution other than obligations arising in the ordinary course of business and obligations arising pursuant to the distribution agreements the license agreement and certain other agreements entered into in connection with the distribution uuu payments made in connection with all continuing transactions between f distributing and its subsidiaries and f controlled and its subsidiaries following internal distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length except in the case of the transitional agreements which may be provided at cost or on cost-plus pricing terms vvv neither f distributing nor f controlled is an investment_company as defined in sec_368 and iv www for purposes of sec_355 immediately after internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of f distributing stock entitled to vote or percent or more of the total value of shares of all classes of f distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal distribution xxx for purposes of sec_355 immediately after internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of f controlled stock entitled to vote or percent or more of the total value of shares of all classes of f controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal plr-116796-11 distribution or ii attributable to distributions on f distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal distribution yyy internal distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in f distributing or f controlled including any predecessor or successor of any such corporation zzz immediately after the transaction as defined in sec_355 i neither f distributing nor f controlled will be a disqualified_investment_corporation within the meaning of sec_355 and ii no person will hold a 50-percent_or_greater_interest in any disqualified_investment_corporation within the meaning of sec_355 immediately after the transaction who did not so hold directly or indirectly such interest immediately before the transaction the following representations are made with respect to the controlled contribution and the distribution aaaa distributing has not been and will not be a united_states_real_property_holding_corporation as defined in sec_897 usrphc at any time during the five-year period ending on the date of the distribution bbbb distributing will not be a usrphc immediately after the distribution cccc distributing does not believe that any foreign_person will own a percent or greater interest in either distributing or controlled after the distribution dddd any indebtedness owed by controlled and its subsidiaries to distributing and its subsidiaries after the distribution will not constitute stock_or_securities eeee each of distributing and controlled will pay its own expenses if any incurred in connection with the distribution ffff no part of the consideration to be distributed by distributing in the distribution will be received by a distributing shareholder as a creditor employee or in any capacity other than that of an distributing shareholder gggg each of distributing and controlled will treat all members of its respective sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business plr-116796-11 hhhh the five years of financial information submitted on behalf of business a conducted by distributing is representative of the present business operations of business a and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted iiii the five years of financial information submitted on behalf of business b to be conducted by controlled is representative of the present business operations of business b and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted jjjj immediately after the distribution distributing will continue the active_conduct of business a independently and with its separate employees or employees of the other members of its sag kkkk immediately after the distribution controlled will continue the active_conduct of business b independently and with its separate employees or employees of the other members of its sag llll neither business a nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except for transactions that have expanded business a mmmm neither business b nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except for transactions that have expanded business b nnnn the distribution is being carried out for the following corporate business purposes i fit and focus ie optimizing the potential of business a and business b by allowing separate management teams to focus on its respective business ii obtaining the opportunity to raise equity or debt financing based on business a or business b alone iii the ability to use stock of business b as a separate acquisition currency and iv allowing compensatory grants to employees within business a and business b of equity awards that are more closely aligned with the performance of such employees the corporate business purposes the distribution of the controlled common_stock in the distribution is motivated in whole or substantial part by one or more of these corporate business purposes oooo the distribution will not be used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both plr-116796-11 pppp the total adjusted bases and the fair_market_value of the business b assets transferred to controlled in the controlled contribution each will equal or exceed the sum of the liabilities as determined under sec_357 assumed by controlled qqqq any liabilities assumed as determined under sec_357 by controlled in the controlled contribution will have been incurred in the ordinary course of business and will be associated with the business b assets transferred rrrr no property will be transferred by distributing to controlled for which an investment_credit allowed under sec_46 has or will be claimed ssss no indebtedness between distributing and its subsidiaries and controlled and its subsidiaries has been or will be settled or cancelled in connection with the distribution other than the settlement of intercompany loans and intercompany open account balances attributable to the normal business operations of distributing and its subsidiaries prior to the distribution tttt no intercorporate debt will exist between distributing and its subsidiaries and controlled and its subsidiaries at the time of or after the distribution other than obligations arising in the ordinary course of business and obligations arising pursuant to the distribution agreements the license agreement and certain other agreements entered into in connection with the distribution uuuu immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by applicable treasury regulations see sec_1_1502-13 and -14 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further distributing’s excess_loss_account if any with respect to its controlled common_stock will be included in income immediately before the distribution to the extent required by treasury regulations see sec_1_1502-19 vvvv payments made in connection with all continuing transactions between distributing and its subsidiaries and controlled and its subsidiaries following the distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length except in the case of the transitional agreements which may be provided at cost or on cost-plus pricing terms wwww neither distributing nor controlled is an investment_company as defined in sec_368 and iv xxxx for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing plr-116796-11 percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution yyyy for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution zzzz the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation aaaaa immediately after the transaction as defined in sec_355 i neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 and ii no person will hold a 50-percent_or_greater_interest in any disqualified_investment_corporation within the meaning of sec_355 immediately after the transaction who did not so hold directly or indirectly such interest immediately before the transaction bbbbb the total fair_market_value of the assets transferred to controlled in the controlled contribution will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by controlled in connection with the contribution and ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the controlled contribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the controlled contribution rulings based solely on the information submitted and the representations set forth above we rule as follows on the corporation contribution plr-116796-11 the corporation contribution followed by the pre-arranged sale of the corporation preferred_stock pursuant to the sale agreement will be treated as i a sale of the stock of sub and each of the sec subs by distributing ii a sale of the assets of llc and the llc subs by sub and iii a sale of the assets of llc by sub in each case to corporation pursuant to which gain_or_loss is recognized sec_1001 and revrul_79_70 c b assuming completion of the proposed transactions corporation 1’s acquisition of the sub stock from distributing pursuant to the corporation contribution will be a qualified_stock_purchase within the meaning of sec_338 assuming completion of the proposed transactions distributing and corporation will be eligible to make the election under sec_338 in respect of corporation 1’s acquisition of the sub stock pursuant to the corporation contribution assuming an election under sec_338 is effected with respect to sub an election under sec_338 may be made with respect to the deemed purchase by corporation of the sub stock assuming an election under sec_338 is effected with respect to sub an election under sec_338 can be made for any of the domestic sub subs or the domestic sub subs or an election under sec_338 can be made for any of the foreign sub subs or any of the foreign sub subs so long as an election under sec_338 or g as applicable is made for each higher-tier corporation in the same chain of corporations as the domestic sub subs the domestic sub subs the foreign sub subs or the foreign sub subs assuming an election under sec_338 is made with respect to the sub stock and the sub stock and any domestic sub subs or domestic sub subs immediately before the distribution distributing will take into account the business b losses recognized as a result of such elections under sec_338 sec_267 and sec_1_267_f_-1 assuming an election under sec_338 is made with respect to sub and sub subs and sub and sub subs any goodwill going_concern_value and other sec_197 intangibles for which depreciation or amortization would not have been allowable but for sec_197 of sub and sub subs and sub and sub subs will not be subject_to the anti-churning_rules of sec_197 and will constitute amortizable sec_197 intangibles sec_1 h plr-116796-11 assuming an election under sec_338 is made with respect to the sub stock and the sub stock the distribution of the stock of fsub by sub to sub and the distribution of the stock of sub fsub fsub and fsub by sub to distributing will be treated as distributions pursuant to the deemed liquidations of sub and sub sec_1_338_h_10_-1 immediately before the distribution sub and sub will take into account the business b losses recognized as a result of corporation contribution sec_267 and sec_1_267_f_-1 any goodwill going_concern_value and other sec_197 intangibles for which depreciation or amortization would not have been allowable but for sec_197 with respect to llc and the llc subs and llc will not be subject_to the anti-churning_rules of sec_197 and will constitute amortizable sec_197 intangibles sec_1_197-2 based solely on the information submitted and the representations set forth above we rule as follows on the f controlled contribution and internal distribution for federal_income_tax purposes step xiv of the proposed transactions will be treated as if f distributing formed f controlled and contributed i cash ii all of the assets of entity other than the stock of fsub entity entity entity entity entity entity entity entity entity entity entity other than the stock of fsub fsub and fsub entity other then the stock of fsub and fsub entity other than the stock of fsub and entity and iii all of the stock of fsub fsub fsub fsub fsub fsub fsub and fsub to f controlled in exchange for all of the common_stock of f controlled for federal_income_tax purposes the distributions of all of the common_stock of f controlled pursuant to step xvi of the proposed transactions will be disregarded the f controlled contribution and the internal distribution together will qualify as a reorganization within the meaning of sec_368 each of f distributing and f controlled will be a_party_to_a_reorganization within the meaning of sec_368 f distributing will not recognize gain_or_loss in the f controlled contribution sec_361 and sec_357 f controlled will not recognize gain_or_loss in the f controlled contribution sec_1032 f controlled’s basis in each asset or the stock received from f distributing in the f controlled contribution will be the same as it would be in the hands of f distributing sec_362 plr-116796-11 f controlled’s holding_period for each asset or the stock received from f distributing will include the period during which f distributing held that asset sec_1223 no gain_or_loss will be recognized by and no amount will be included in the income of f distributing upon its receipt of f controlled stock in the internal distribution sec_355 no gain_or_loss will be recognized by f distributing on its distribution of f controlled stock in the internal distribution sec_361 immediately after the internal distribution the sum of the basis of all the f distributing stock plus the basis of all the f controlled stock will be the same as the basis of the f distributing stock with respect to which the distribution is made immediately before the internal distribution allocated in the manner described in sec_1_358-2 sec_358 and b and sec_1_358-1 the holding_period of the f controlled stock received by f distributing in the internal distribution will include the holding_period of the f distributing stock with respect to which the internal distribution is made provided the f distributing stock was held as a capital_asset on the date of the internal distribution sec_1223 earnings_and_profits will be allocated between f distributing and f controlled in accordance with sec_312 and sec_1_312-10 f distributing 2’s transfer of assets to f controlled in exchange for all the stock of f controlled will be an exchange to which sec_1_367_b_-1 and -4 a apply the distribution of f controlled stock by f distributing to f distributing will be an exchange to which sec_1_367_b_-1 sec_1_367_b_-5 and sec_1_367_b_-5 apply if f distributing 1’s postdistribution amount as defined in sec_1_367_b_-5 with respect to f distributing or f controlled is less than its predistribution amount with respect to such corporation then f distributing 1’s basis in such stock immediately after the distribution must be reduced by the amount of the difference however f distributing 1’s basis in such stock must not be reduced below zero and to the extent the foregoing reduction would reduce its basis below zero f distributing must instead include such amount in income as a deemed_dividend from such corporation if f distributing reduces the basis in the stock of f distributing or f controlled or has an inclusion with respect to such stock f distributing must increase its basis in the stock of the other corporation to the extent provided in sec_1_367_b_-5 plr-116796-11 based solely on the information submitted and the representations set forth above we rule as follows on the internal distribution for federal_income_tax purposes i internal distribution will be treated as if f distributing directly distributed all of the common_stock of f controlled to distributing and ii the distribution of all of the common_stock of f controlled by llc to distributing pursuant to step xviii of the proposed transactions will be disregarded no gain_or_loss will be recognized by and no amount will be included in the income of distributing upon its receipt of f controlled in the internal distribution sec_355 no gain_or_loss will be recognized by f distributing on its distribution of f controlled common_stock in the internal distribution sec_355 immediately after the internal distribution the sum of the basis of all the f distributing stock plus the basis of all the f controlled stock will be the same as the basis of the f distributing stock with respect to which the distribution is made immediately before the internal distribution allocated in the manner described in sec_1_358-2 sec_358 and b and sec_1_358-1 distributing will have a holding_period in its stock of foreign controlled that will include its holding_period for the stock of foreign distributing with respect to which the stock of foreign controlled is received provided that its stock of foreign distributing was held as a capital_asset on the date of internal distribution sec_1223 as provided in sec_312 proper allocation of earnings_and_profits among f distributing and f controlled will be made under sec_1 b the distribution of f controlled stock by f distributing to distributing will be an exchange to which sec_1_367_b_-1 sec_1_367_b_-5 and sec_1_367_b_-5 apply if distributing’s postdistribution amount as defined in sec_1_367_b_-5 with respect to f distributing or f controlled is less than its predistribution amount with respect to such corporation then distributing’s basis in such stock immediately after the distribution must be reduced by the amount of the difference however distributing’s basis in such stock must not be reduced below zero and to the extent the foregoing reduction would reduce its basis below zero distributing must instead include such amount in income as a deemed_dividend from such corporation if distributing reduces the basis in the stock of f distributing or f controlled or has an inclusion with plr-116796-11 respect to such stock distributing must increase its basis in the stock of the other corporation to the extent provided in sec_1_367_b_-5 based solely on the information submitted and the representations set forth above we rule as follows on the controlled contribution and the distribution the controlled contribution together with the distribution will qualify as a reorganization within the meaning of sec_368 each of distributing and controlled will be a_party_to_a_reorganization within the meaning of sec_368 distributing will not recognize gain_or_loss in the controlled contribution sec_361 and sec_357 controlled will not recognize gain_or_loss in the controlled contribution sec_1032 controlled’s basis in the corporation common_stock the common_stock of f controlled the stock of sub fsub fsub fsub and the sec subs received in the controlled contribution will be the same as it would be in the hands of distributing sec_362 controlled’s holding_period for the corporation common_stock the common_stock of f controlled the stock of sub fsub fsub fsub and the sec subs received from distributing will include the period during which distributing held that stock sec_1223 no gain_or_loss will be recognized by and no amount will be included in the income of the shareholders of distributing on receipt of controlled common_stock in the distribution sec_355 no gain_or_loss will be recognized by distributing on its distribution of controlled common_stock in the distribution sec_361 immediately after the distribution the sum of the basis of all the distributing stock plus the basis of all the controlled common_stock will be the same as the basis of the distributing stock with respect to which the distribution is made immediately before the distribution allocated in the manner described in sec_1_358-2 sec_358 and b and sec_1_358-1 the holding_period of the controlled common_stock received by distributing shareholders in the distribution will include the holding_period of the distributing common_stock with respect to which the distribution is made provided the distributing stock is held as a capital_asset on the date of the distribution sec_1223 plr-116796-11 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1 f the receipt by distributing shareholders of cash in lieu of fractional shares of controlled common_stock will be treated for federal_income_tax purposes as if the fractional shares had been distributed to the distributing shareholders as part of the distribution and then had been disposed of by such shareholders for the amount of such cash in a sale_or_exchange the gain_or_loss if any determined using the basis allocated to the fractional shares in ruling and the holding_period attributed to the fractional shares in ruling will be treated as a capital_gain or loss provided the stock was held as a capital_asset by the selling stockholder sec_1001 the earnings_and_profits of f controlled fsub fsub and fsub to the extent attributable to such stock under sec_1_1248-2 or sec_1_1248-3 whichever is applicable that were accumulated in tax years of such foreign_corporations beginning after date and during the period in which such corporations were cfcs will be attributable to such stock held by controlled sec_1_1248-1 caveats 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 this office has not reviewed any information pertaining to and has made no determination regarding the following i whether the distribution or any internal distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the distribution or any internal distribution is being used principally as a device for the distribution of the earnings_and_profits of applicable distributing_corporation or controlled_corporation or both see sec_355 and sec_1_355-2 iii whether the distribution or any internal distribution is part of a plan or series of related transactions under sec_355 and sec_1_355-7 iv to the extent not otherwise specifically ruled upon above the adjustments to earnings_and_profits or deficits in earnings_and_profits if any in any one of the transactions to which sec_367 or b apply plr-116796-11 v to the extent not otherwise specifically ruled upon above any other consequences under sec_367 with respect to any transaction described in this letter_ruling vi the federal_income_tax treatment of step iii step iv step v step ix step x step xi step xii step xiii and step xv of the proposed transactions and vii the potential application of sec_482 to any payments made in connection with continuing transactions between distributing and its subsidiaries and controlled and its subsidiaries that are not made for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length procedural statements 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _gerald b fleming_________ gerald b fleming senior technician reviewer branch office of associate 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 ---------------------------------- -------------- telephone number ---------------------- refer reply to cc psi b01 plr-103151-16 date date legend x a_trust trust trust trust trust trust trust -------------------------------------------------------------------------------------------------------------------- ------- -------------------------------------------------------------------------------------------------------------------- -------------------------- -------------------------------------------------------------------------------------------------------------------- --------- -------------------------------------------------------------------------------------------------------------------- ---------------------------------- -------------------------------------------------------------------------------------------------------------------- ---------- -------------------------------------------------------------------------------------------------------------------- ---------- -------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- ---------- -------------------------------------------------------------------------------------------------------------------- ---------- trust -------------------------------------------------------------------------------------------------------------------- plr-103151-16 ---------- trust trust state date date date date years -------------------------------------------------------------------------------------------------------------------- ---------- -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- ----------- ---------------------- ------------------ -------------------------- ---------------------- -------------------------- dear----------------- this responds to a letter dated date and supplemental information submitted on behalf of x by x’s authorized representative requesting relief under sec_1362 of the internal_revenue_code the code facts the information submitted states that x was incorporated under the laws of state on date x filed a timely election under sec_1362 to be taxed as an s_corporation effective date on date trust trust trust trust and trust the group one trusts owned shares of x stock x represents that the group one trusts were qualified to be electing small_business trusts esbts but their common trustee failed to make esbt elections for each of the trusts consequently the group one trusts were ineligible shareholders and as a result x’s s_corporation_election was ineffective additionally on date a an individual owned shares of x stock beginning date a contributed shares of x stock to trust trust trust trust and trust the group two trusts during each of the calendar years x represents that the group two trusts are eligible to elect to be treated as qssts but their respective beneficiaries failed to make timely qsst elections effective date thus x’s s_corporation_election would have terminated on date if it had not already made an ineffective election because the group two trusts were ineligible shareholders plr-103151-16 each of the five group two trusts has the same beneficiary as its corresponding group one trust effective date the group one trusts merged with and into the group two trusts established for the benefit of the same beneficiary with the group two trusts being the surviving trusts in the merger x represents that the circumstances resulting in the ineffectiveness and potential termination of x’s s_corporation_election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning additionally x represents that x and its shareholders have filed their federal_income_tax returns consistent with having a valid s_corporation_election in effect for x x and its shareholders have agreed to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 law and analysis sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1361 provides that for the purposes of sec_1362 a_trust all of which is treated under title_26 subtitle a chapter subchapter_j part i subpart e of the united_states_code as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder of an s_corporation sec_1361 provides that an esbt within the meaning of sec_1361 may be a shareholder for purposes of sec_1361 sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under sec_1361 a such trust will be treated as a_trust described in sec_1361 and b for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qsst or his legal_representative may elect to have sec_1361 apply sec_1361 provides that an election under sec_1361 shall be effective up to days and months before the date of the election plr-103151-16 sec_1361 defines a qsst as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of the beneficiary’s death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1361 provides that for purposes of sec_1361 except as provided in sec_1361 the term electing_small_business_trust means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust the trustee of the trust makes the esbt election pursuant to sec_1361 sec_1_1361-1 provides that the trustee of an esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the tax_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the event resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary plr-103151-16 conclusion based solely on the facts submitted and representation made we conclude x’s s election was ineffective for the taxable_year beginning date upon the failure to timely file esbt elections for the group one trusts accordingly x will be treated as continuing to be an s_corporation from date and thereafter provided that its s_corporation_election was otherwise valid and was not otherwise terminated under sec_1362 excepted as addressed below each of the group one trusts will be treated as an esbt from date until their merger with and into their corresponding group two trust on date provided the trustee files an esbt election for each group one trust with the appropriate service_center effective date within days of the date of this letter a copy of this letter should be attached to each esbt election we further conclude that x’s s_corporation_election would have terminated on date due to the failure to timely file qsst elections for the group two trusts had the initial s election been valid we also conclude that such termination would have constituted an inadvertent termination within the meaning of sec_1362 accordingly x will be treated as continuing to be an s_corporation from date and thereafter provided that its s_corporation_election was otherwise valid and was not otherwise terminated under sec_1362 the group two trusts will be treated as qssts from date and thereafter provided the income beneficiaries of the group two trusts file a qsst election for their respective group two trust effective date within days from the date of this letter a copy of this letter should be attached each qsst election 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 specifically no opinion is expressed or implied concerning the eligibility of x to be an s_corporation this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent plr-103151-16 pursuant to the power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative sincerely david r haglund david r haglund chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc