internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp 5-plr-115187-99 date date in re distributing old controlled controlled holding holding holding sub sub sub sub sub sub sub partnership fsub fsub plr-115187-99 fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub newco newco 1a newco newco newco newco business a business b a b c d plr-115187-99 e f g h i j k l m n o p q r u v w x y z aa shareholder p plr-115187-99 shareholder q state a state 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 date a date b date c date d date e date f plr-115187-99 brand exchange dear this is in reply to a letter dated date requesting rulings as to the federal_income_tax consequences of a proposed transaction the information submitted in that request and in subsequent correspondence is substantially as set forth below distributing a domestic_corporation incorporated in state a has outstanding one class of stock which is publicly traded voting common_stock shareholder p owns a percent and shareholder q owns b percent of distributing’s outstanding shares distributing is engaged directly and through affiliated entities in business a and business b in the united_states and various foreign countries financial information has been received indicating that each of distributing’s businesses has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past years distributing owns i all of the outstanding_stock of sub a domestic_corporation engaged in business b ii c percent of the outstanding_stock of fsub a country c holding corporation iii d percent of the outstanding_stock of fsub a country d corporation engaged in both business a and business b iv e percent of the outstanding_stock of fsub a country g corporation engaged in both business a and business b and v all of the outstanding_stock of domestic holding_companies holding holding and holding fsub owns all of the outstanding_stock of two country c subsidiaries fsub which is engaged in business a and fsub which is engaged in business b until its recent sale to an unrelated_person fsub also owned all of the outstanding_stock of fsub a country c_corporation engaged in business b holding is a state b holding_company for five second- and third-tier domestic and foreign subsidiaries engaged in business a holding is a state b holding_company for two second-tier subsidiaries and two other lower-tier subsidiaries holding holds i a dollar_figuref receivable reflecting intercompany loans to distributing the distributing debt ii a dollar_figureg receivable reflecting intercompany loans to sub the sub debt iii a constantly fluctuating intercompany account balance running from distributing the intercompany account and iv approximately h percent of the shares of x a publicly-traded domestic_corporation the x shares plr-115187-99 holding owns all of the outstanding_stock of sub a domestic_corporation engaged in business b sub and certain of its foreign affiliates have recently sold some of their business b operations to unrelated persons sub owns all of the outstanding_stock of old controlled a state b corporation the sole asset of old controlled is i percent of fsub a country a corporation engaged in business b sub also owns all of the outstanding_stock of controlled a state a corporation that was formed on date a as described below prior to the distribution of controlled to distributing’s shareholders old controlled will be merged into controlled references to controlled will be to the reincorporated entity unless the context requires otherwise holding also owns all of the outstanding_stock of sub a domestic_corporation sub currently owns i approximately j percent of the outstanding_stock of y a publicly-traded domestic_corporation the y shares ii approximately k percent of the outstanding_stock of z another publicly-traded domestic_corporation the z shares iii l percent of the outstanding_stock of fsub and iv an m percent interest in partnership a country b entity that the taxpayer represents is a foreign_partnership for u s tax purposes partnership is directly engaged in business b in country b and also owns all of the stock of several foreign subsidiaries which are engaged in business b partnership also owns all of the stock of fsub a country b corporation that is a holding_company for two country b business a subsidiaries holding a state b holding_company owns i an n percent interest in partnership the remaining m percent being owned by sub ii l percent of the outstanding_stock of fsub the remaining e percent being owned by distributing iii o percent of the outstanding_stock of fsub the remaining i percent being owned by controlled iv p percent of the outstanding_stock of fsub the remaining stock being owned by distributing percent and sub l percent and v c percent of the outstanding_stock of fsub the remaining d percent being owned by distributing holding also owns q percent of the outstanding_stock of fsub a country e corporation the remaining r percent being owned by sub fsub is directly engaged in both business a and business b fsub owns all of the outstanding_stock of fsub a country f corporation except for nominal shares owned by directors of fsub to comply with local law requirements fsub is engaged in both business a and business b holding owns almost all of the outstanding_stock of fsub a country m corporation distributing owns the balance of the fsub stock fsub owns all of the outstanding_stock of fsub also a country m corporation fsub intends to sell all of its fsub stock to holding for cash prior to the spin-off of the stock of controlled to distributing’s shareholders business a and business b are fundamentally different businesses moreover in terms of sales volume and profitability business a has shown dramatic increases in recent years whereas business b has been experiencing significant decreases and a plr-115187-99 substantial loss of market share based on various internal reports the management of distributing has determined that being able to provide direct equity incentives to employees of business b in business b is an especially important element of any effort to improve profitability and regain market share for that business by separating business b into a stand-alone public company the new business b entity will be able to establish a separate esop which will cover approximately x domestic employees it also will permit implementation of other equity-based programs necessary to attract better motivate and retain senior management and other key personnel who move to or join controlled after it is a stand-alone company distributing’s management has determined that it is not possible to provide the same opportunities for direct equity incentives to business b employees while that business remains part of the distributing group since sec_409 prohibits an esop from holding stock in a subsidiary of a publicly traded company the equity incentives presently available to business b employees through the distributing esop are tied only indirectly to the performance of business b the motivational impact of these incentives moreover is lessened by the fact that they are subject_to the vagaries and the market’s perception of another business in which the business b employees play no role by making controlled a stand-alone business b company business b employees will have a direct and exclusive linkage to business b at the same time the distributing esop and other equity-based incentives now available to business a employees will become linked solely to business a -- and that is expected to have a positive motivational effect on many business a employees who now feel that the value of their distributing stock is being held down by the lagging performance of business b accordingly distributing's management and board_of directors propose to separate business a and business b internal restructuring and spin-off the following internal restructuring transactions will occur within the distributing group in order to set the stage for the separation of business a from business b via the spin-off of the stock of controlled to distributing’s shareholders the spin-off i reincorporation of old controlled prior to the spin-off old controlled will reincorporate from state b to state a by merger into controlled the reincorporation merger ii country b restructuring partnership will sell all the stock of its business b subsidiaries to newco a newly-formed country b entity which taxpayer represents will constitute a partnership for u s income_tax purposes newco will have as its partners holding q percent plr-115187-99 and controlled percent concurrently partnership will sell its directly conducted business b net assets to a newly-formed country b corporation newco 1a all of the stock of which will be owned by newco the cash proceeds will be applied by partnership to pay down existing debt and to completely redeem holding 3's n percent partnership_interest it is anticipated that part of the redemption consideration will be paid with funds loaned to partnership by distributing prior to the redemption of holding 3’s partnership_interest distributing will contribute cash to the partnership in exchange for an r percent interest with the result that the partnership will continue after the spin-off with sub q percent and distributing percent as its partners partnership will also continue to own the stock of fsub after the spin-off iii country c restructuring fsub will distribute all of the stock of fsub to holding in complete redemption of holding 3’s p percent stock interest in fsub after the distribution of the fsub stock fsub will be owned u percent by distributing and v percent by sub fsub will continue to conduct business a operations through fsub iv country d restructuring fsub currently intends to sell its business b operations for cash to a newly- formed wholly owned country d subsidiary of holding newco alternatively business b in country d may be terminated either before the spin-off by fsub or after by newco in either case prior to the spin-off holding will distribute all of its stock interest in fsub to distributing v country e country f restructuring fsub will sell its business a operations for cash to a new wholly owned subsidiary of holding newco holding and sub will each transfer to holding and sub respectively portions of their fsub stock reflecting the relative value of fsub 8’s business a operations fsub will then divide into separate business a and business b companies pursuant to the laws of country e specifically fsub will transfer its entire stock interest in fsub and its business b net assets to a new country e corporation newco having the same shareholders as fsub with identical proportionate shareholdings holding and sub will then exchange their newco shares for the fsub shares owned by holding and sub this will result in i holding q percent and sub percent owning all of the stock of newco which will solely conduct business b ii holding q percent and sub percent owning all of the stock of fsub which will solely conduct business a and iii fsub then conducting solely the business b becoming a subsidiary of newco vi distribution of controlled stock to holding plr-115187-99 following the above transactions sub will distribute all of the stock of controlled to holding the sole shareholder of sub vii merger of holding into distributing pursuant to the laws of state a and state b holding will merge with and into distributing the merger in the merger all assets and liabilities of holding will be transferred to distributing by operation of law the intercompany account running from distributing to holding will be extinguished incident to the merger distributing will obtain direct ownership of all of the stock of controlled sub and sub as a result of the merger both the distributing debt and the x shares will be transferred to sub by holding as a contribution_to_capital immediately prior to the merger viii country g restructuring immediately following the merger distributing will contribute a portion of its fsub stock to controlled resulting in controlled and holding having a combined stock ownership_interest in fsub equal in value to the fsub business b operations holding and controlled will each transfer all of their stock in fsub to a newly-formed country g corporation newco in exchange for newco common_stock of proportionate value fsub will transfer business b to newco in exchange for newco preferred_stock fsub will issue a note to newco in complete redemption of the fsub common_stock held by newco and newco will issue to fsub a note of equal value in redemption of the newco preferred_stock held by fsub the two notes will then be offset against one another and canceled resulting in distributing owning all of the stock of fsub which will conduct only business a and holding and controlled in the aggregate owning all of the stock of newco which will conduct only business b ix other post-merger transfers debt assumption following the merger and the country g restructuring distributing will transfer to holding the sub debt and all of the stock of sub distributing will then transfer the stock of holding to sub distributing will transfer to controlled all of the stock of sub controlled will assume distributing’s liabilities with respect to newly-placed debt new debt reflecting the portion of non-assumable existing debt of distributing which is considered attributable to business b distributing will use the proceeds from the new debt to pay down some existing debt to bolster working_capital needs and for other corporate purposes x asset substitution prior to the spin-off and the shareholder record_date for the receipt of controlled stock distributing will substitute other assets of equal fair_market_value for the plr-115187-99 distributing common_stock currently held by the trust in accordance with the terms of the trust agreement after the substitution and as of the record_date for the spin-off the trust will not be a shareholder of distributing and therefore will not be entitled to receive controlled stock in the spin-off following the spin-off distributing’s management may replace some or all of the substituted trust assets with shares of stock of distributing under the trust agreement any such resubstitution must be effectuated on an equal fair_market_value basis determined with reference to the then value of the distributing stock and the replaced assets xi recapitalization of controlled controlled will be recapitalized the recapitalization will result in an increase in the number of shares of controlled stock outstanding so as to allow for the distribution of a certain number of shares of controlled stock for each outstanding share of distributing stock xii spin-off distributing will distribute all of the stock of controlled on a pro_rata basis to all of its shareholders controlled will adopt a shareholders’ rights plan similar to distributing’s plan xiii controlled esop a separate non-leveraged esop will be established by controlled for its employees it is expected that the controlled esop will result in business b employees owning outright in the aggregate approximately percent of the controlled voting_stock within year following the distribution of the stock of controlled and approximately percent within years this will result in approximately dollar_figurey aggregate employee ownership after year and almost dollar_figurez after years in date b distributing established a rabbi_trust the trust which is a grantor_trust under sec_671 of the internal_revenue_code that currently holds w percent of the outstanding common_stock of distributing on date c distributing adopted a shareholders’ rights plan which provides its shareholders with the opportunity to purchase shares of distributing in the event of certain unsolicited offers to buy distributing approximately aa percent of distributing’s shares are held by distributing employees subject_to a substantial_risk_of_forfeiture under sec_83 of the internal_revenue_code restricted shares it is contemplated that distributing and controlled will enter into a tax sharing plr-115187-99 agreement which will set forth the method by which undetermined tax_liabilities will be allocated between the parties in addition such agreement will prohibit both distributing and controlled from engaging in certain post-spin-off transactions it is also contemplated that distributing will provide certain administrative services to controlled following the distribution controlled will assume distributing’s liabilities with respect to the new debt reflecting that portion of the non-assumable existing debt of distributing attributable to business b in setting the aggregate amount of new debt and existing indebtedness to be maintained by controlled at the time of the spin-off the target indebtedness the controlled_group will have an agreed cash balance as of the date of the spin-off the target cash position to be determined in accordance with accounting practices historically employed by distributing as soon as reasonably practicable after the spin-off controlled’s actual cash position will be determined as of p m on the date of the spin-off to the extent that controlled’s cash position is less than the target cash position distributing will pay to controlled cash in an amount equal to the shortfall to the extent the cash position of controlled exceeds the target cash position controlled will pay to distributing cash in an amount equal to the excess on the date immediately preceding the spin-off distributing will be the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return the distributing group that includes certain domestic corporations having foreign branches within the meaning of sec_1_367_a_-6t of the temporary income_tax regulations that are treated as separate units within the meaning of sec_1 c and dual resident corporations within the meaning of sec_1_1503-2 taxpayer represents that each of the following domestic corporations with foreign branches that are treated as separate units and dual resident corporations may have a dual_consolidated_loss within the meaning of sec_1_1503-2 on the date of the spin-off including i sub a wholly owned subsidiary_corporation of holding having a foreign_branch in country h ii sub a wholly owned subsidiary_corporation of holding having a foreign_branch in country iii sub a wholly owned subsidiary_corporation of holding having a foreign_branch in country j iv sub having a foreign_branch in country k and v sub a wholly owned subsidiary_corporation of holding having a foreign_branch in country l immediately following the spin-off each of sub sub sub sub and sub together with their respective foreign branches will no longer be members of the distributing group representations a in connection with these transactions the following representations are made regarding the country e country f restructuring plr-115187-99 the following representations are made in connection with the following deemed transactions arising out of the country e country f restructuring i the transfer of the fsub business b net assets and the stock of fsub by fsub to newco ii the pro_rata distribution of the newco stock by fsub to holding and sub internal spin iii the distribution of its q percent fsub stock interest by holding to distributing internal spin and iv the contribution of such fsub stock by distributing to holding a b c d e f g the total adjusted_basis and fair_market_value of the assets transferred by fsub to newco will each equal or exceed the sum of the liabilities assumed plus any liabilities taken subject_to by newco in connection with the transfer the liabilities assumed by newco in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred no part of the newco stock to be distributed by fsub will be received by holding and sub as a creditor employee or in any capacity other than that of a shareholder in the corporation the years of financial information submitted on behalf of fsub is representative of the corporation’s present operations and with regard to such corporation there have been no substantial operational changes since the last financial statements submitted the years of financial information submitted on behalf of newco is representative of present operations of business b as conducted during such periods by fsub and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted following internal spin fsub and newco will each continue the active_conduct of their respective business independently and with their own separate employees the distribution of the stock of newco is designed to facilitate the subsequent distribution of the stock of controlled by distributing and thereby to accomplish the following corporate business_purpose to more effectively motivate business b employees both rank and file and managerial through establishing the controlled esop and otherwise offering compensation packages which include equity interests tied solely and directly to the performance of business b and to correspondingly better motivate business a employees by providing equity-based plr-115187-99 compensation through the distributing esop and otherwise tied directly and primarily to the performance of business a the distribution of the stock of newco is motivated in whole or substantial part by this corporate business_purpose there is no plan or intention on the part of holding or sub to sell exchange transfer by gift or otherwise dispose_of any stock in or securities of either fsub or newco after internal spin except for i holding 3’s distribution of the fsub stock to distributing pursuant to internal spin and ii sub 3’s transfer of its r percent of the fsub stock to sub there is no plan or intention by either fsub or newco directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction there is no plan or intention to liquidate either fsub or newco to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business no intercorporate debt will exist between fsub and newco at the time of or subsequent to internal spin payments made in connection with all continuing transactions if any between fsub and newco will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length no two parties to internal spin are investment companies as defined in sec_368 and iv immediately prior to internal spin holding will own q percent of the outstanding_stock of fsub and all of such stock will be distributed to distributing pursuant to internal spin no assets will be transferred by holding to fsub and no liabilities of holding will be assumed_or_taken_subject_to by fsub in connection with internal spin no part of the fsub stock to be distributed by holding pursuant to internal spin will be received by distributing as a creditor employee or in any capacity other than that of a shareholder in the corporation the years of financial information submitted on behalf of fsub is representative of the corporation’s present operations and with regard to such corporation there have been no substantial operational changes h i j k l m n o p plr-115187-99 q r s t u v w since the date of the last financial statements submitted following internal spin holding and fsub will each continue the active_conduct of their respective businesses independently and with their own separate employees if necessary to meet the then applicable_requirements of sec_355 holding will acquire a 5-year active business from one of its subsidiaries through a nontaxable_transaction the distribution of the stock of fsub pursuant to internal spin is designed to facilitate the subsequent distribution of the stock of controlled by distributing and thereby to accomplish the following corporate business_purpose to more effectively motivate business b employees both rank and file and managerial through establishing the controlled esop and otherwise offering compensation packages which include equity interests tied solely and directly to the performance of business b and to correspondingly better motivate business a employees by providing equity-based compensation through the distributing esop and otherwise tied directly and primarily to the performance of business a the distribution of the stock of fsub is motivated in whole or substantial part by this corporate business_purpose there is no plan or intention on the part of distributing to sell exchange transfer by gift or otherwise dispose_of any stock in either holding or fsub after internal spin except for the contributions by distributing prior to the spin-off of all of its fsub stock to holding and the holding stock to controlled there is no plan or intention by either holding or fsub directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction there is no plan or intention to liquidate either holding or fsub to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except for the distribution by holding prior to the spin-off of its stock interest in fsub to distributing and except in the ordinary course of business no intercorporate debt will exist between holding and fsub at the time of or subsequent to internal spin payments made in connection with all continuing transactions if any between holding and fsub will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length plr-115187-99 x y z no two parties to internal spin are investment companies as defined in sec_368 and iv no stock_or_securities will be issued for services rendered to or for the benefit of holding in connection with the contribution of the fsub stock by distributing to holding following internal spin and no stock_or_securities will be issued for indebtedness of holding the fsub stock was not received by distributing as part of a plan_of_liquidation of another corporation the transfer is not the result of a solicitation by a promoter broker or investment house the transfer will occur under a plan agreed upon before the transaction in which the rights of the parties are defined aa distributing will not retain any rights in the fsub stock transferred to holding bb holding will not assume or take subject_to any liabilities of distributing in connection with the transfer of the fsub stock to holding following internal spin cc there is no indebtedness between distributing and holding and there will be no indebtedness created in favor of distributing as a result of the transfer of the fsub stock to holding dd distributing will be in control of holding within the meaning of sec_368 immediately after the constructive exchange of the fsub stock for holding stock distributing has no plan or intention to dispose_of any holding stock ee there is no plan or intention on the part of holding to redeem or otherwise reacquire any of the stock to be constructively issued in exchange for the fsub stock contributed by distributing ff the fair_market_value of the stock of holding constructively received by distributing in exchange for the fsub stock will be approximately equal to the aggregate fair_market_value of the fsub stock gg holding will remain in existence the transferred property will be used in a trade_or_business by holding or another member of the distributing group there is no plan or intention by holding to dispose_of the fsub stock hh each of the parties to the proposed transaction will pay its own expenses plr-115187-99 if any incurred in connection with the transaction ii jj holding is not an investment_company within the meaning of sec_351 and sec_1_351-1 of the income_tax regulations holding will not be a personal_service_corporation within the meaning of sec_269a kk distributing is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock constructively received by distributing in exchange for the fsub stock will not satisfy any indebtedness of distributing ll each of fsub fsub and newco will have been a controlled_foreign_corporation cfc within the meaning of sec_957 at all times during the 5-year period immediately preceding the date of internal spin fsub fsub and newco will each be a cfc immediately thereafter mm with respect to each of fsub fsub and newco each of holding and sub will be a u s shareholder within the meaning of b - b on the date immediately preceding internal spin and immediately thereafter nn neither fsub nor fsub will be a passive_foreign_investment_company pfic within the meaning of sec_1297 on the date immediately preceding internal spin or immediately thereafter oo fsub will have been a cfc within the meaning of sec_957 at all times during the 5-year period immediately preceding the date of internal spin and fsub will be a cfc immediately thereafter pp with respect to fsub each of holding and sub will be a u s shareholder within the meaning of b -2 b on the date immediately preceding internal spin and distributing will be a u s shareholder immediately thereafter qq fsub will not be a pfic within the meaning of sec_1297 on the date immediately preceding internal spin or immediately thereafter b regarding the reincorporation merger the following representation is made in connection with the reincorporation merger plr-115187-99 to the best of the knowledge and belief of the taxpayer the reincorporation merger will qualify as a tax-free reorganization under sec_368 c regarding the distribution of controlled stock to holding the following representations are made in connection with the distribution by sub to holding of all of the stock of controlled internal spin a b c d e f immediately prior to internal spin sub will own all of the outstanding_stock of controlled and all of such stock will be distributed to holding pursuant to internal spin no assets will be transferred by sub to controlled and no liabilities of sub will be assumed_or_taken_subject_to by controlled in connection with internal spin no part of the controlled stock to be distributed by sub pursuant to internal spin will be received by holding as a creditor employee or in any capacity other than that of a shareholder in the corporation the years of financial information submitted on behalf of sub is representative of the corporation’s present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted the years of financial information submitted on behalf of controlled and its subsidiary fsub is representative of the corporation’s present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted following internal spin sub and controlled through fsub will each continue the active_conduct of their respective business independently and with their own separate employees immediately after the distribution at least percent of the fair_market_value of the gross assets of controlled will consist of stock in a corporation that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 the distribution of the stock of controlled pursuant to internal spin is designed to enable distributing to ultimately distribute to its shareholders the stock of a holding_company entity which bears the well-known brand name and can be listed on the exchange under that name the distribution of the stock of controlled is motivated in whole or substantial part by this corporate business_purpose g there is no plan or intention on the part of holding to sell exchange plr-115187-99 transfer by gift or otherwise dispose_of any stock in either sub or controlled after internal spin except for the subsequent transfer of the sub stock and the controlled stock to distributing pursuant to the merger there is no plan or intention by either sub or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction there is no plan or intention to liquidate either sub or controlled to merge either corporation with any other corporation except insofar as such corporations will become wholly owned subsidiaries of distributing pursuant to the merger or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business no intercorporate debt will exist between sub and controlled at the time of or subsequent to internal spin payments made in connection with all continuing transactions if any between sub and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length no two parties to internal spin are investment companies as defined in sec_368 and iv immediately before the distribution of controlled stock pursuant to internal spin items of income gain loss deduction and credit and any excess_loss_account with respect to the controlled stock will be taken into account as required by the applicable intercompany_transaction regulations h i j k l m d regarding the transfer of the x shares and the distributing debt the following representations are made in connection with the transfer prior to the merger of the x shares and the distributing debt by holding to sub a b no stock_or_securities will be issued for services rendered to or for the benefit of sub in connection with the proposed transaction and no stock_or_securities will be issued for indebtedness of sub neither the distributing debt nor the x shares were received by holding as part of a plan_of_liquidation of another corporation plr-115187-99 c d e f g h i j k holding will not retain any rights in the x shares or the distributing debt the transfer of the x shares and the distributing debt by holding to sub is not the result of a solicitation by a promoter broker or investment house the transfer will occur under a plan agreed upon before the transaction in which the rights of the parties are defined all exchanges will occur on approximately the same date sub will not assume any liabilities of holding and the distributing debt and the x shares will not be transferred subject_to any liabilities of holding there is no indebtedness between sub and holding and there will be no indebtedness created in favor of holding as a result of the transaction holding will be in control of sub within the meaning of sec_368 immediately after the constructive exchange of the distributing debt and the x shares for sub stock except for the distribution of the sub stock constructively received by distributing incident to the merger there is no plan or intention to dispose_of any sub stock there is no plan or intention on the part of sub to redeem or otherwise reacquire any of the stock to be constructively issued in exchange for the distributing debt and the x shares the fair_market_value of the stock of sub constructively received by holding in exchange for the distributing debt and the x shares will be approximately equal to the aggregate fair_market_value of the distributing debt and the x shares sub will remain in existence the property transferred will be used in a trade_or_business by sub or another member of the distributing group there is no plan or intention by sub to dispose_of the transferred property other than in the ordinary course of business except for the required disposition by date d of a portion of the x shares pursuant to the agreement under which such shares were acquired the distributing debt will be repaid by distributing to sub in accordance with its terms l each of the parties to the proposed transaction will pay its own expenses if any incurred in connection with the proposed transaction m the transfer of the distributing debt and the x shares by holding to plr-115187-99 n o sub will not result directly or indirectly in diversification of holding 2's interests within the meaning of sec_1_351-1 and c sub will not be a personal_service_corporation within the meaning of sec_269a holding is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 a a and the stock constructively received by holding in exchange for the distributing debt and x shares will not satisfy any indebtedness of holding e regarding the merger the following representations are made in connection with the merger of holding with and into distributing a b c d e f distributing on the date of adoption of the plan of complete_liquidation and at all times until the final liquidating_distribution is completed will be the owner of at least percent of the single outstanding class of holding stock no shares of holding stock will have been redeemed during the years preceding the adoption of the plan of complete_liquidation of holding all distributions from holding to distributing pursuant to the plan of complete_liquidation will be made within a single taxable_year of holding as soon as the first liquidating_distribution has been made holding will cease to be a going concern and its activities will be limited to winding up its affairs paying its debts and distributing its remaining assets to its sole shareholder holding will retain no assets following the final liquidating_distribution holding will not have acquired assets in any nontaxable_transaction at any time except for i certain intercompany receivables previously held by distributing and contributed in late date e to holding in a transaction qualifying under sec_351 ii additional shares of x shares received on date f as the result of a stock split with respect to such shares and iii acquisitions occurring more than years prior to the date of adoption of the plan_of_liquidation g no assets of holding have been or will be disposed of by either holding or distributing except for i the pre-merger transfer of the plr-115187-99 distributing debt and the x shares by holding to sub ii the post- merger transfer of the sub debt by distributing to holding iii holding 2’s market sales from time to time of portions of its x shares iv required dispositions of additional x shares by date d pursuant to the agreement under which such shares were acquired v dispositions in the ordinary course of business and vi dispositions occurring more than years prior to adoption of the plan of complete_liquidation except for the post-merger transfers by distributing of i the sub debt to holding and ii the sub stock to controlled liquidation of holding will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the business or assets of holding if persons holding directly or indirectly more than percent in value of the holding stock also hold directly or indirectly more than percent in value of the stock in recipient for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 as modified by sec_304 prior to adoption of the liquidation plan no assets of holding will have been distributed in_kind transferred or sold to distributing except for i transactions occurring in the normal course of business and ii transactions occurring more than years prior to adoption of the liquidation plan holding does not hold and will not hold at the time of the liquidation any assets representing earned but unreported income the fair_market_value of the assets of holding will exceed its liabilities both at the date of adoption of the plan of complete_liquidation and immediately prior to the time the liquidating_distribution is made there is no intercorporate debt existing between distributing and holding and none has been canceled forgiven or discounted except for i the distributing debt which will be transferred to sub by holding as a contribution_to_capital immediately prior to the merger ii the intercompany account which will be extinguished incident to the merger and iii transactions that occurred more than years prior to the date of adoption of the liquidation plan distributing is not an organization that is exempt from federal_income_tax under sec_501 or any other provision of the code all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the proposed liquidation of h i j k l m n plr-115187-99 holding have been fully disclosed f regarding the country g restructuring the following representations are made in connection with the deemed transfer of country g business b net assets by fsub to newco and the subsequent deemed_distribution of the newco stock to holding and controlled in complete redemption of their fsub stock internal split a b c d e f g h the total adjusted_basis and fair_market_value of the assets transferred by fsub to newco will each equal or exceed the sum of the amount of the liabilities assumed plus any liabilities taken subject_to by newco in connection with the transfer the liabilities assumed in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred the fair_market_value of the newco stock to be received by controlled and holding will in each instance be approximately equal to the fair_market_value of the fsub stock surrendered by such shareholders in the exchange no part of the newco stock to be distributed by fsub will be received by holding or controlled as a creditor employee or in any capacity other than that of a shareholder in fsub the years of financial information submitted on behalf of fsub is representative of the corporation’s present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted the years of financial information submitted on behalf of newco is representative of the present operations of business b as conducted during such periods by fsub and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted following the transaction fsub and newco will each continue the active_conduct of their respective businesses independently and with their own separate employees the distribution of the stock of newco is designed to facilitate the subsequent distribution of the stock of controlled by distributing and plr-115187-99 thereby to accomplish the following corporate business_purpose to more effectively motivate business b employees both rank and file and managerial through establishing the controlled esop and otherwise offering compensation packages which include equity interests tied solely and directly to the performance of business b and to correspondingly better motivate business a employees by providing equity-based compensation through the distributing esop and otherwise tied directly and primarily to the performance of business a the distribution of the stock of newco is motivated in whole or substantial part by this corporate business_purpose there is no plan or intention by the shareholders of fsub to sell exchange transfer by gift or otherwise dispose_of any of their stock in either fsub or newco after the transaction there is no plan or intention by either fsub or newco directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction there is no plan or intention to liquidate either fsub or newco to merge either corporation with any other corporation or to sell or otherwise to dispose_of the assets of either corporation after the transaction except in the ordinary course of business no intercorporate debt will exist between fsub and newco at the time of or subsequent to the distribution of the newco stock payments made in connection with all continuing transactions if any between fsub and newco will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length no two parties to the transaction are investment companies as defined in sec_368 and iv each of fsub and newco will have been a cfc within the meaning of sec_957 at all times during the 5-year period immediately preceding the date of the internal split and fsub and newco will each be a cfc immediately thereafter i j k l m n o p with respect to fsub and newco each of distributing holding and controlled will be a u s shareholder within the meaning of b - b on the date immediately preceding the internal split immediately thereafter each of holding and controlled will be a u s shareholder with respect to newco and distributing will be a u s shareholder with plr-115187-99 respect to fsub q fsub will not be a pfic within the meaning of sec_1297 on the date immediately preceding the internal split or immediately thereafter g regarding the spin-off and prior asset transfers the following representations are made in connection with i the post-merger transfer by distributing to controlled of the sub stock and a portion of the fsub stock the spin-off assets ii the assumption by controlled of the new debt and iii the subsequent distribution by distributing to its shareholders of the controlled stock a b c d the total adjusted_basis and fair_market_value of the spin-off assets and the stock of sub and holding transferred and constructively transferred to controlled by distributing will equal or exceed the amount of the new debt no other liabilities of distributing will be assumed_or_taken_subject_to by controlled in connection with the transfers of the spin- off assets other than certain deferred unfunded employee benefit obligations which are attributable to business b employees and the payment of which would give rise to a deduction the liabilities assumed by controlled in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred except to the extent that the receipt of controlled stock by holders of restricted shares may be considered compensatory for federal_income_tax purposes no part of the controlled stock to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder in the corporation the total number of shares of controlled stock to be distributed in respect of the restricted shares will represent less than percent of the controlled stock outstanding immediately after the distribution the years of financial information submitted on behalf of distributing is representative of the corporation’s present operations except insofar as such information relates to directly and indirectly conducted non-business a businesses previously spun off or otherwise_disposed_of by distributing during such period and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted e the years of financial information submitted on behalf of controlled and plr-115187-99 f g h i its subsidiary fsub is representative of the corporation’s present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted following the spin-off distributing and controlled through fsub and sub will each continue the active_conduct of their respective business independently and with their own separate employees immediately after the distribution at least percent of the fair_market_value of the gross assets of controlled will consist of stock in controlled corporations that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 the distribution of the stock of controlled is carried out for the following corporate business_purpose to more effectively motivate business b employees both rank and file and managerial through establishing the controlled esop and otherwise offering compensation packages which include equity interests tied solely and directly to the performance of business b and correspondingly to better motivate business a employees by providing equity-based compensation through the distributing esop and otherwise tied directly and primarily to the performance of business a the distribution of the stock of controlled is motivated in whole or substantial part by this corporate business_purpose there is no plan or intention by any shareholder who own sec_5 percent or more of the stock of distributing and the management of distributing to its best knowledge is not aware of any plan or intention on the part of any remaining shareholder or security holder of distributing to sell exchange transfer by gift or otherwise dispose_of any stock in or securities of either distributing or controlled after the spin-off except for certain dispositions by the trustees of distributing’ sec_401 plan and retirement_plan and controlled’ sec_401 plan and retirement_plan qualified_plans under sec_401 as mandated by the terms of those plans there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through i stock purchases meeting the requirements of sec_4 b of revproc_96_30 and ii probable purchases from trustees of distributing’s or controlled’ sec_401 plans or retirement plans respectively as permitted under the terms of such plans j there is no plan or intention to liquidate either distributing or controlled plr-115187-99 to merge either corporation with any other corporation except as to controlled incident to the merger of holding into distributing prior to the spin-off or to sell or otherwise to dispose_of the assets of either corporation after the transaction except in the ordinary course of business no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of the controlled stock other than debt obligations created in the ordinary course of business in accordance with terms of agreements between distributing and controlled immediately before the distribution of the stock of controlled items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations further any distributing excess_loss_account with respect to the stock of controlled will be included in income immediately before the distribution except for certain corporate support services eg benefit plan administration to be provided by distributing to controlled on a fully allocated cost_basis payments made in connection with all continuing transactions between distributing and controlled or controlled affiliates will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length no two parties to the transaction are investment companies as defined in sec_368 and iv any share purchase rights attached to the stock of controlled in the distribution will not be traded apart from the stock of controlled before the occurrence of certain triggering events before the occurrence of such events the share purchase rights may be redeemed by controlled at the time the controlled stock is issued to distributing and at the time of the distribution the likelihood that the share purchase rights would be exercised will be both remote and uncertain the payment of cash in lieu of fractional shares of controlled is solely for the purpose of avoiding the expense and inconvenience of issuing fractional shares and does not represent separately bargained for consideration the method used for handling fractional share interests is designed to limit the amount of cash received by any one shareholder to less than the value of one full share of controlled stock k l m n o p q neither distributing nor controlled will have been a united_states real plr-115187-99 r s t u v w property holding corporation usrphc within the meaning of sec_897 at any time during the 5-year period immediately preceding the date of the spin-off neither distributing nor controlled will be a usrphc immediately thereafter neither distributing nor controlled contemplate that there will be any outbound_transfers of property to a foreign_corporation in an exchange described in sec_367 neither distributing nor its domestic subsidiaries contemplate that they will transfer directly or indirectly any intangible_property to a foreign_corporation in an exchange described in sec_367 neither distributing nor its domestic subsidiaries contemplate that there will be any transfers of property to a foreign_partnership which would be subject_to the reporting requirements of sec_6038b except for transfers of cash by distributing to partnership and by holding and controlled to newco in connection with the country b restructuring no entity involved in any of the proposed transactions is treated as a disregarded_entity for u s federal_income_tax purposes under sec_301_7701-3 nor is any such entity treated as a hybrid or reverse hybrid for u s federal_income_tax purposes and for applicable foreign law income_tax purposes except for i partnership a hybrid which is treated as a corporation for country b income_tax purposes and as a partnership for u s income_tax purposes and ii newco a hybrid which will be similarly treated for country b and u s income_tax purposes the distribution of the stock of controlled pursuant to the spin-off is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power or total value of all classes of stock of distributing or controlled in the event that the cash position of controlled exceeds the target cash position the entire excess_amount that controlled must pay to distributing will be used by distributing to pay off or reduce indebtedness to outside creditors no portion of such excess_amount will be used to pay off or reduce any indebtedness of distributing to its subsidiaries or other affiliates h regarding the constructive transfer by distributing of the sub stock and the holding stock to controlled plr-115187-99 the following representations are made in connection with the constructive transfer by distributing prior to the spin-off of the sub stock and the holding stock to controlled a b c d e f g h i j no stock_or_securities will be issued for services rendered to or for the benefit of controlled in connection with the proposed transaction and no stock_or_securities will be issued for indebtedness of controlled the constructive transfer of the sub stock and the holding stock by distributing to controlled is not the result of a solicitation by a promoter broker or investment house distributing will not retain any rights in the sub stock or the holding stock transferred to controlled the total adjusted_basis and fair_market_value of the assets transferred to controlled by distributing which will include in addition to the spin-off assets the stock in sub and holding will equal or exceed the amount of the new debt no other liabilities of distributing will be assumed_or_taken_subject_to by controlled in connection with the transfer of the spin- off assets and the stock of sub and holding other than certain deferred unfunded employee benefit obligations that are attributable to business b employees and the payment of which would give rise to a deduction the liabilities assumed by controlled in the transactions and the liabilities to which the stock of sub and holding are subject were incurred in the ordinary course of business and associated with these assets there is no indebtedness between distributing and controlled and there will be no indebtedness created in favor of distributing as a result of the transaction the transfers will occur under a plan agreed upon before the transaction in which the rights of the parties are defined all exchanges will occur on approximately the same date there is no plan or intention on the part of controlled to redeem or otherwise reacquire any of the stock to be constructively issued in exchange for the sub stock and the holding stock distributing will be in control of controlled within the meaning of sec_368 immediately after the constructive exchange of the sub stock plr-115187-99 k l m n o and the holding stock for controlled stock distributing has no plan or intention to dispose_of any controlled stock other than in the spin-off the fair_market_value of the stock of controlled constructively received by distributing in exchange for the sub stock and the holding stock will be approximately equal to the aggregate fair_market_value of the sub stock and the holding stock controlled will remain in existence the transferred property will be used in a trade_or_business by controlled or another member of the controlled_group there is no plan or intention by controlled to dispose_of the sub stock and the holding stock other than the constructive transfers by controlled of the sub stock and the holding stock to sub followed by the constructive transfer by sub of the sub stock to holding each of the parties to the proposed transaction will pay its own expenses if any incurred in connection with the proposed transaction controlled is not an investment_company within the meaning of sec_351 and sec_1_351-1 distributing is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock constructively received by distributing in exchange for the sub stock and the holding stock will not satisfy any indebtedness of distributing p controlled will not be a personal_service_corporation within the meaning of sec_269a regarding the constructive transfer by controlled of the sub stock and the holding stock to sub i the following representations are made in connection with the constructive transfer prior to the spin-off of the sub stock and the holding stock by controlled to sub a b no stock_or_securities will be issued for services rendered to or for the benefit of sub in connection with the proposed transaction and no stock_or_securities will be issued for indebtedness of sub the constructive transfer of the sub stock and the holding stock by controlled to sub is not the result of a solicitation by a promoter broker or investment house plr-115187-99 c d e f g h i j k l m n controlled will not retain any rights in the sub stock or the holding stock transferred to sub sub will not assume any liabilities of controlled and the sub stock and the holding stock will not be transferred to sub subject_to any liabilities of controlled there is no indebtedness between controlled and sub and there will be no indebtedness created in favor of controlled as a result of the transaction the transfer will occur under a plan agreed upon before the transaction in which the rights of the parties are defined there is no plan or intention on the part of sub to redeem or otherwise reacquire any of the stock to be constructively issued in exchange for the sub and the holding stock controlled will be in control of sub within the meaning of sec_368 immediately after the constructive exchange of the sub stock and the holding stock for sub stock controlled has no plan or intention to dispose_of any sub stock the fair_market_value of the stock of sub constructively received by controlled in exchange for the sub stock and the holding stock will be approximately equal to the aggregate fair_market_value of the sub stock and the holding stock sub will remain in existence the transferred property will be used in a trade_or_business by sub or another member of the controlled_group there is no plan or intention by sub to dispose_of the sub stock other than the constructive transfer of the sub stock to holding or the holding stock each of the parties to the proposed transaction will pay its own expenses if any incurred in connection with the proposed transaction sub is not an investment_company within the meaning of sec_351 and sec_1_351-1 controlled is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock constructively received by controlled in exchange for the sub stock and the holding plr-115187-99 stock will not satisfy any indebtedness of controlled o sub will not be a personal_service_corporation within the meaning of sec_269a j regarding the constructive transfer of the sub stock by sub to holding the following representations are made in connection with the constructive transfer prior to the spin-off of the sub stock by sub to holding a b c d e f g h i j no stock_or_securities will be issued for services rendered to or for the benefit of holding in connection with the proposed transaction and no stock_or_securities will be issued for indebtedness of holding the transfer is not the result of a solicitation by a promoter broker or investment house sub will not retain any rights in the sub stock transferred to holding holding will not assume any liabilities of sub and the sub stock will not be transferred to holding subject_to any liabilities of sub there is no indebtedness between sub and holding and there will be no indebtedness created in favor of sub as a result of the transaction the transfer will occur under a plan agreed upon before the transaction in which the rights of the parties are defined there is no plan or intention on the part of holding to redeem or otherwise reacquire any of the stock to be constructively issued in exchange for the sub stock sub will be in control of holding within the meaning of sec_368 immediately after the constructive exchange of the sub stock for holding stock sub has no plan or intention to dispose_of any holding stock the fair_market_value of the stock of holding constructively received by sub in exchange for the sub stock will be approximately equal to the aggregate fair_market_value of the sub holding will remain in existence the transferred property will be used in a trade_or_business by holding or another member of the holding plr-115187-99 group d l m n there is no plan or intention by holding to dispose_of the sub stock each of the parties to the proposed transaction will pay its own expenses if any incurred in connection with the proposed transaction holding is not an investment_company within the meaning of sec_351 and sec_1_351-1 sub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock constructively received by sub in exchange for the sub stock will not satisfy any indebtedness of sub o holding will not be a personal_service_corporation within the meaning of sec_269a rulings a regarding the country e country f restructuring internal spin sec_1 and and the transfer of fsub stock with regard to internal spin sec_1 and including the transfer of the fsub stock to holding following internal spin based solely on the information submitted and on the representations set forth above and provided that distributing holding and fsub if required to file a u s federal_income_tax return each satisfy the requirements of paragraph c of sec_1_367_b_-1 and paragraphs c and d of b -1 it is held as follows the transfers by holding and sub of portions of their fsub stock to holding and sub respectively followed by the transfer of the net assets of the country e business b by fsub to newco and the exchanges of fsub stock held by holding and sub for newco stock held by holding and sub will be disregarded for federal_income_tax purposes and treated instead as if i fsub transferred stock of fsub and the country e business b assets to newco in exchange for all the stock of newco and newco 4's assumption of the country e business b liabilities ii fsub distributed the newco stock pro_rata to holding and sub internal spin iii holding distributed the fsub stock to distributing internal spin and iv distributing contributed the fsub stock to holding in constructive exchange for holding stock plr-115187-99 the transfer by fsub to newco of the fsub stock and the country e business b assets the internal spin assets in exchange for the stock of newco and the assumption of the country e business b liabilities followed by the distribution of the stock of newco to holding and sub will qualify as a reorganization within the meaning of sec_368 fsub and newco will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by fsub upon the transfer of the internal spin assets to newco solely in exchange for stock of newco and the assumption of the country e business b liabilities by newco sec_361 and sec_357 no gain_or_loss will be recognized by newco upon the receipt of the internal spin assets in exchange for the stock of newco sec_1032 the basis of the internal spin assets received by newco will be the same as the basis of such assets in the hands of fsub immediately before their transfer to newco sec_362 the holding_period of the internal spin assets transferred to newco will include the period during which such assets were held by fsub sec_1223 no gain_or_loss will be recognized by and no amount will be included in the income of holding and sub upon the receipt of the newco stock sec_355 no gain_or_loss will be recognized by fsub upon the distribution of all the stock of newco to holding and sub sec_361 the basis of the fsub stock and the newco stock in the hands of holding and sub immediately after the distribution will be the same as the basis of the fsub stock held immediately before the distribution allocated in proportion to the fair market values of the fsub stock and newco stock in accordance with sec_1_358-2 and a sec_358 and b the holding_period of the newco stock received by holding and sub shareholders will include the holding_period of the fsub stock with respect to which the newco stock is distributed provided that such stock is held as a capital_asset on the date of the distribution sec_1223 fsub 8's distribution of all its newco stock to holding and sub is a plr-115187-99 distribution to which b -10 c applies and the requirements of paragraphs d through j of b -10 must be satisfied however if the effective date of fsub 8's distribution of all its newco stock to holding and sub occurs after date or if an effective election is made under sec_1_367_b_-6 then such distribution is a distribution that is subject_to sec_1_367_b_-5 no gain_or_loss will be recognized by and no amount will be included in the income of distributing upon the receipt of the fsub stock distributed by holding pursuant to internal spin sec_355 no gain_or_loss will be recognized by holding upon the distribution of the fsub stock to distributing pursuant to internal spin sec_355 the basis of the holding stock in the hands of distributing immediately after the distribution will be the same as the holding stock held immediately before the distribution allocated in proportion to the fair market values of the holding and fsub stock in accordance with sec_1_358-2 and a sec_358 and b the basis of the fsub stock in the hands of distributing shall be the lesser_of the adjusted_basis of that stock in the hands of holding or the basis allocated to fsub 8's stock in accordance with sec_1_358-2 sec_1248 notice_87_64 c b the holding_period of the fsub stock received by distributing will be the greater of the holding_period of the fsub stock in the hands of holding or the holding_period of holding stock in the hands of distributing sec_1248 notice_87_64 c b sec_1248 will not be applicable to the distribution by holding of the fsub stock to distributing sec_1248 notice_87_64 c b if distributing does not recognize any gain under sec_1248 by virtue of the contribution of the stock of fsub to the capital of holding the earnings_and_profits of fsub to the extent attributable to such stock under sec_1_1248-2 or sec_1_1248-3 whichever is applicable which were accumulated in taxable years of such foreign_corporations beginning after date and during the period fsub was a cfc shall be attributable to such stock now held by holding sec_1_1248-1 distributing will not recognize gain_or_loss upon the transfer of the fsub stock immediately after internal spin to holding solely in constructive plr-115187-99 exchange for stock of holding sec_351 distributing’s basis in the stock of holding constructively received in the transaction will be the same as the basis of the fsub stock transferred in exchange therefor sec_358 distributing’s holding_period for the stock of holding constructively received in the transaction will include the period during which the fsub stock exchanged therefor was held by distributing provided that such property was a capital_asset on the date of the exchange sec_1223 holding will recognize no gain_or_loss upon its receipt of the fsub stock from distributing in constructive exchange for its stock sec_1032 holding 1's basis in the fsub stock will be the same as the basis of such property in the hands of distributing immediately prior to the exchange as determined under ruling above sec_362 holding 1's holding_period for the fsub stock will include the period during which such property was held by distributing as determined under ruling above b regarding the reincorporation merger with regard to the reincorporation merger based solely on the information submitted and on the representation set forth above it is held as follows neither i internal spin ii the transfer by distributing to controlled of the spin-off assets and the stock of sub and holding nor iii the spin-off will prevent the reincorporation merger from qualifying as a reorganization under sec_368 c regarding the distribution of controlled stock to holding internal spin with regard to internal spin based solely on the information submitted and on the representations set forth above it is held as follows no gain_or_loss will be recognized by and no amount will be included in the income of holding upon the receipt of the stock of controlled distributed by sub pursuant to internal spin sec_355 no gain_or_loss will be recognized by sub upon the distribution of the stock of controlled to holding pursuant to internal spin sec_355 plr-115187-99 the basis of the stock of sub and controlled in the hands of holding immediately after the distribution will be the same as the sub stock held immediately before the distribution allocated in proportion to the fair market values of the stock of sub and controlled in accordance with sec_1_358-2 and a sec_358 and b the holding_period of the controlled stock received by holding will include the holding_period of the sub stock with respect to which the controlled stock is distributed provided that such stock is held as a capital_asset on the date of the distribution sec_1223 d regarding the transfer of the x shares and the d debt with regard to the transfer by holding to sub of the distributing debt and the x shares based solely on the information submitted and on the representations set forth above it is held as follows holding will not recognize gain_or_loss upon the transfer of the distributing debt and the x shares to sub solely in constructive exchange for voting common_stock of sub sec_351 and c holding 2's basis in the stock of sub constructively received in the transaction will be the same as the aggregate basis of the distributing debt and the x shares transferred in exchange therefor sec_358 holding 2's holding_period for the stock of sub constructively received in the transaction will include the period during which the property exchanged was held by holding provided that such property was a capital_asset on the date of the exchange sec_1223 sub will recognize no gain_or_loss upon its receipt of the distributing debt and the x shares from holding in constructive exchange for its stock sec_1032 a sub 1's basis in the distributing debt and the x shares will be the same as the basis of such property in the hands of holding immediately prior to the exchange sec_362 sub 1's holding_period for the distributing debt and the x shares will include the period during which such property was held by holding sec_1223 e regarding the merger plr-115187-99 with regard to the merger based solely on the information submitted and on the representations set forth above it is held as follows for federal_income_tax purposes the merger of holding with and into distributing will be treated as a complete_liquidation of holding into distributing within the meaning of sec_332 sec_1_332-2 distributing will recognize no gain_or_loss on its receipt of the assets of holding distributed pursuant to the merger sec_332 distributing’s basis in each asset received in complete_liquidation of holding will be the same as the basis of such asset in the hands of holding immediately before the merger sec_334 distributing’s holding_period for each asset received in complete_liquidation of holding will include the period during which holding held such asset sec_1223 holding will recognize no gain_or_loss on the distribution of its assets to distributing in complete_liquidation pursuant to the merger sec_336 sec_337 and b distributing will succeed to and take into account the items of holding described in sec_381 and the regulations thereunder subject_to applicable conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 sec_381 sec_1_381_a_-1 distributing will succeed to and take into account the earnings_and_profits of holding as of the date of the merger any deficit in earnings_and_profits of holding or distributing will be used only to offset earnings_and_profits accumulated after the date of the merger sec_381 sec_1_381_c_2_-1 f regarding the country g restructuring internal split with regard to the internal split based solely on the information submitted and on the representations set forth above and provided that holding and fsub if required to file a u s federal_income_tax return each satisfy the requirements of paragraph c of sec_1_367_b_-1 and paragraphs c and d of b -1 it is held as follows the i transfers of fsub stock to newco by holding and controlled after the transfer by distributing to controlled of a portion of its fsub stock ii transfer of the country g business b net assets by fsub to plr-115187-99 newco in exchange for newco preferred_stock and iii issuance of offsetting newco and fsub notes in connection with the subsequent redemption of such preferred_stock and the fsub common_stock held by newco will all be disregarded for federal_income_tax purposes and treated instead as if x fsub transferred the country g business b assets to newco in exchange for all of the newco stock and newco 5’s assumption of the country g business b liabilities and y such newco stock was then distributed to holding and controlled in exchange for their respective stock interests in fsub the transfer by fsub to newco of the assets of the country g business b in exchange for the stock of newco and the assumption of the country g business b liabilities followed by the distribution of the newco stock to holding and controlled pursuant to the internal split will qualify as a reorganization within the meaning of sec_368 fsub and newco will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by fsub upon the transfer of the country g business b assets to newco solely in exchange for stock of newco and the assumption of the country g business b liabilities by newco sec_361 and sec_357 no gain_or_loss will be recognized by newco upon the receipt of the country g business b assets in exchange for the stock of newco sec_1032 the basis of the country g business b assets received by newco will be the same as the basis of such assets in the hands of fsub immediately before their transfer to newco sec_362 the holding_period of the country g business b assets transferred to newco will include the period during which such assets were held by fsub sec_1223 no gain_or_loss will be recognized by and no amount will be included in the income of holding and controlled upon the receipt of newco stock in exchange for their fsub stock sec_355 and a no gain_or_loss will be recognized by fsub upon the distribution of the newco stock to holding and controlled in exchange for their fsub stock sec_361 the basis of the newco stock in the hands of holding and controlled plr-115187-99 immediately after the distribution will be the same as their basis in the fsub stock exchanged therefor sec_358 the holding_period of the newco stock received by holding and controlled pursuant to the internal split will include the holding_period of the fsub stock exchanged therefor provided that such stock is held as a capital_asset on the date of the exchange sec_1223 fsub 9's distribution of all of its newco stock to holding and controlled is a distribution to which b -10 c applies and the requirements of paragraphs d through j of b -10 must be satisfied however if the effective date of fsub 9's distribution of all its newco stock to holding and controlled occurs after date or if an effective election is made under sec_1_367_b_-6 then such distribution is a distribution that is subject_to sec_1_367_b_-5 g regarding the spin-off and prior asset transfers with regard to i the transfer by distributing to controlled of the spin-off assets ii the assumption by controlled of the new debt and iii the subsequent distribution of the controlled stock by distributing to its shareholders based solely on the information submitted and on the representations set forth above it is held as follows the transfer by distributing to controlled of the spin-off assets in constructive exchange for stock of controlled and the assumption of the new debt by controlled followed by the distribution of the stock of controlled to distributing’s shareholders will qualify as a reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing upon the transfer of the spin-off assets to controlled solely in exchange for stock of controlled and the assumption of the new debt by controlled sec_361 and sec_357 no gain_or_loss will be recognized by controlled upon the receipt of the spin-off assets in exchange for the stock of controlled sec_1032 the basis of the spin-off assets received by controlled will be the same as the basis of such assets in the hands of distributing immediately before their transfer to controlled sec_362 the holding_period of the spin-off assets transferred to controlled will include the period during which such assets were held by distributing plr-115187-99 sec_1223 no gain_or_loss will be recognized to and no amount will be included in the income of distributing's shareholders who are not holders of restricted shares upon the receipt of the controlled stock including fractional share interests deemed received sec_355 provided that at the time of the distribution the share purchase rights remain contingent non-exercisable and subject_to redemption if issued the receipt of any share purchase rights attached to controlled stock by distributing or its shareholders will not be a distribution or receipt of property an exchange of stock or property either taxable or nontaxable or any other event giving rise to the realization of gross_income by either distributing controlled or the distributing shareholders rev_rul c b no gain_or_loss will be recognized to distributing upon the distribution of all the stock of controlled to the distributing shareholders including fractional share interests deemed received and any share purchase rights associated with the distributed controlled stock sec_361 the basis of the distributing stock and the controlled stock in the hands of distributing's shareholders immediately after the distribution including fractional share interests deemed received will be the same as the basis of the distributing stock held by such shareholders immediately before the distribution allocated in proportion to the fair market values of the distributing and controlled stock in accordance with sec_1_358-2 and a sec_358 and b the holding_period of the controlled stock received by the distributing shareholders including fractional share interests deemed received will include the holding_period of the distributing stock with respect to which the controlled stock is distributed provided that such stock is held as a capital_asset on the date of the distribution sec_1223 where cash is received by a distributing shareholder in lieu of fractional share interests of controlled stock such share will be treated as having been disposed of by such shareholder in a sale_or_exchange and the gain_or_loss will be treated as a capital_gain or loss provided such stock was held as a capital_asset by the selling distributing shareholder sec_1001 proper allocation of earnings_and_profits between distributing and controlled will be made in accordance with sec_1_312-10 of the regulations sec_312 plr-115187-99 payments made by distributing to controlled or by controlled to distributing under the tax_sharing_agreement that i have arisen or will arise for a taxable_period ending before the distribution or for a taxable_period beginning on or before and ending after the distribution and ii will not become fixed and ascertainable until after the distribution will be treated as occurring immediately before the distribution provided controlled and its subsidiaries are members of an affiliated_group for purposes of sec_1504 they will be permitted to elect to file consolidated_returns after the distribution of the controlled stock payments made after the spin-off to effectuate the agreement of the parties with respect to the target indebtedness and the target cash position will be treated as occurring immediately before and in conjunction with the spin-off distributing will not recognize gain or income in respect of any such payment received from controlled sec_361 h regarding the constructive transfer by distributing of the sub stock and the holding stock to controlled with regard to the constructive transfer by distributing of the sub stock and the holding stock to controlled based solely on the information submitted and on the representations set forth above it is held as follows distributing will not recognize gain_or_loss upon the constructive transfer of the sub stock and the holding stock to controlled solely in constructive exchange for voting common_stock of controlled sec_351 a pursuant to ruling g above distributing’s basis in the stock of controlled constructively received in the transaction will be the same as the basis of the sub stock and the holding stock transferred in exchange therefor sec_358 distributing’s holding_period for the stock of controlled constructively received in the transaction will include the period during which the property exchanged was held by distributing provided that such property was a capital_asset on the date of the exchange sec_1223 controlled will recognize no gain_or_loss upon its receipt of the sub stock and the holding stock from distributing in constructive exchange for its stock sec_1032 a controlled’s basis in the sub stock and the holding stock will be the plr-115187-99 same as the basis of such property in the hands of distributing immediately prior to the exchange sec_362 controlled’s holding_period for the sub stock and the holding stock will include the period during which such property was held by distributing sec_1223 i regarding the constructive transfer by controlled of the sub stock and the holding stock to sub with regard to the constructive transfer by controlled of the sub stock and the holding stock to sub based solely on the information submitted and on the representations set forth above it is held as follows controlled will not recognize gain_or_loss upon the constructive transfer of the sub stock and the holding stock to sub solely in constructive exchange for voting common_stock of sub sec_351 controlled’s basis in the stock of sub constructively received in the transaction will be the same as the basis of the sub stock and the holding stock transferred in exchange therefor as determined under ruling h above sec_358 controlled’s holding_period for the stock of sub constructively received in the transaction will include the period during which the property exchanged was held by controlled as determined under ruling h above provided that such property was a capital_asset on the date of the exchange sec_1223 sub will recognize no gain_or_loss upon its receipt of the sub stock and the holding stock from controlled in constructive exchange for its stock sec_1032 a sub 3's basis in the sub stock and the holding stock will be the same as the basis of such property in the hands of controlled immediately prior to the exchange as determined under ruling h above sec_362 sub 3's holding_period for the sub stock and the holding stock will include the period during which such property was held by controlled as determined under ruling h above sec_1223 j regarding the constructive transfer by sub of the sub stock to holding with regard to the constructive transfer by sub of the sub stock to holding plr-115187-99 based solely on the information submitted and on the representations set forth above it is held as follows sub will not recognize gain_or_loss upon the constructive transfer of the sub stock to holding solely in constructive exchange for voting common_stock of holding sec_351 sub 3’s basis in the stock of holding constructively received in the transaction will be the same as the basis of the sub stock transferred in exchange therefor as determined under ruling h above sec_358 sub 3’s holding_period for the stock of holding constructively received in the transaction will include the period during which the property exchanged was held by sub as determined under ruling h above provided that such property was a capital_asset on the date of the exchange sec_1223 holding will recognize no gain_or_loss upon its receipt of the sub stock from sub in constructive exchange for its stock sec_1032 a holding 3's basis in the sub stock will be the same as the basis of such property in the hands of sub immediately prior to the exchange as determined under ruling i above sec_362 holding 3's holding_period for the sub stock will include the period during which such property was held by sub as determined under ruling i above sec_1223 distributing understands that the national_office of the internal_revenue_service has as requested by distributing considered and ruled on the transactions described in steps v through ix and xii distributing acknowledges that all other transactions leading up to or occurring simultaneously with steps v through ix and xii including but not limited to transactions involving foreign_corporations have not been reviewed or ruled on by the national_office of the internal_revenue_service except in connection with the rulings set forth above the rulings contained in this letter are predicated upon the 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 materials submitted in support of the request for a ruling verification of the information representations and other data may be required as part of the audit process no opinion is expressed about the tax treatment of the proposed transaction plr-115187-99 under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed with regard to i whether the reincorporation merger is a tax-free reorganization under sec_368 ii the transfer of sub 3's r percent stock interest in fsub incident to the country e country f restructuring iii the transfer of the sub debt by distributing to holding iv the recapitalization of controlled v whether gain recognized is characterized as subpart_f_income by fsub from the sale of business a operations or by certain foreign affiliates of sub on the sale of business b operations vi whether newco will be treated as a partnership for u s federal_income_tax purposes vii the tax consequences of the country b country c and country d restructuring including a whether gain recognized is characterized as subpart_f_income by fsub from the sale of its stock in fsub or by fsub from the sale of its business b operations and b the extent to which gain recognized by each of fsub and holding on their respective distributions of fsub and fsub stock to holding and distributing respectively will be recharacterized as ordinary_income in accordance with sec_1248 or sec_1248 viii the applicability of any transfer_pricing issues under sec_482 in connection with the continuing transactions if any or other transactions contemplated in the ruling_request ix the applicability of sec_1503 regarding the disallowance or recapture of a dual_consolidated_loss to any dual_resident_corporation a that is no longer a member of the distributing group by reason of the spin-off or b that is involved in a putative triggering event in connection with any internal restructuring transaction and x the applicability of sec_304 to the sale of the fsub stock by fsub to holding finally no opinion is expressed as to whether any or all of the above-referenced foreign_corporations are pfics within the meaning of sec_1297 and the regulations to be promulgated thereunder if it is determined that any or all of the above-described foreign_corporations are pfics no opinion is expressed with respect to the application of sec_1291 through to the proposed transactions in particular in a transaction in which gain is not otherwise recognized regulations under sec_1291 may require gain recognition notwithstanding any other provision of the code temporary or final regulations pertaining to one or more of the issues addressed in this ruling letter have not yet been adopted therefore this ruling letter may be revoked or modified upon the issuance of temporary or final regulations or a notice with respect to their future issuance see section dollar_figure of revproc_2000_1 2000_1_irb_4 which discusses in greater detail the revocation or modification of ruling letters however when the criteria in section dollar_figure of revproc_2000_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances this ruling is directed only to the taxpayer who requested it sec_6110 plr-115187-99 of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated in accordance with the power_of_attorney on file in this office copies of this letter are being sent to your authorized representatives sincerely yours assistant chief_counsel corporate filiz a serbes assistant to the chief branch


id office uilc cca_2009081211044303 -------------- number release date from ---------------- sent wednesday date am to ----------------- cc -------------------------------------------- subject re stat_notice and carryback ------- - i was unable to reach you on the phone yesterday i have forwarded your question regarding the sec_6662 penalty to our branch that handles penalties because you requested an immediate answer i am sending you my response now with respect to the years to include on the stat_notice the stat_notice should list the years in which the service is asserting a deficiency describe the years listed should be ------- ------- and ------- because those are the years in which the service is asserting a deficiency should the taxpayer file a petition in tax_court the court would have jurisdiction to consider the transaction in ------- that generated the loss but the service would not be able to assert a deficiency for the ------- tax_year in the situation you please feel free to call me if you have any questions --------------- -------------------------------- ------------------------------------------ ------------------


t c memo united_states tax_court kern s and soledad d smith petitioners v commissioner of internal revenue respondent docket no filed date kern s smith and soledad d smith pro sese thomas g schleier for respondent memorandum opinion parr judge respondent determined a deficiency in petitioners' federal_income_tax for the taxable_year in the amount of dollar_figure an addition_to_tax of dollar_figure under sec_6651 and a penalty of dollar_figure under sec_6662 all section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated after a concession the issues for decision are as follows whether petitioners are entitled to previously unclaimed schedule c deductions in excess of the amount conceded by respondent we find they are not whether petitioners are liable for an addition_to_tax pursuant to sec_6651 for late filing we hold they are whether petitioners are liable for a penalty pursuant to sec_6662 for negligence we hold they are certain automatic adjustments will be required in the calculation of self-employment_tax and related items of a computational nature flowing from our findings some of the facts have been stipulated and are so found the stipulated facts and accompanying exhibits are incorporated into our findings by this reference when they filed their petition herein petitioners resided in oakland california petitioners filed their individual federal_income_tax return for on date the return was due on date petitioners had neither sought nor been granted an extension of time in which to file petitioners conceded that mr kern smith petitioner received dollar_figure as self-employment_income which petitioners failed to report respondent conceded petitioners are entitled to deduct dollar_figure in previously unclaimed deductions petitioners reported wages of dollar_figure consisting of dollar_figure paid to mrs soledad smith mrs smith by heritage flamingo apartments and dollar_figure paid to mr smith petitioner by alameda newspapers inc on line business income of form_1040 petitioners reported dollar_figure they did not attach a schedule c as required nor did they claim any deductions or cost_of_goods_sold petitioner also received nonemployee compensation from the alameda newspaper group in the amount of dollar_figure during which petitioners failed to report neither did they deduct any expenses connected with this sum a statutory_notice_of_deficiency was sent to petitioners on date on date they attempted to file an amended income_tax return form 1040x on which they reported the dollar_figure and claimed deductions totaling dollar_figure although requested to do so petitioners did not meet with respondent or present any substantiation for the claimed deductions until date days before the beginning of the trial session on which this case was scheduled the court’s standing pre-trial order which was served on petitioners by the court on date and a copy of which respondent had sent them when requesting an earlier meeting stated any documents or materials which a party expects to utilize in the event of trial but which are not stipulated shall be identified in writing and exchanged by the parties at least days before the first day of the trial session no such documents were shown to respondent within the allotted time and the court ruled that they were inadmissible at trial nevertheless in the interest of fairness respondent’s agent did consider petitioners' documents and conceded deductions totaling dollar_figure as follows schedule c on 1040x allowed advertising dollar_figure dollar_figure car and truck big_number big_number depreciation big_number insurance legal prof big_number big_number office exp big_number big_number other business prop big_number supplies big_number big_number taxes and license meals ent utilitie sec_811 answering service big_number bank charge sec_224 consulting big_number big_number demos training dues pubs equinox big_number management fees big_number misc newspaper big_number postage printing sales promotion big_number big_number telephone big_number big_number carriers big_number big_number totals dollar_figure dollar_figure respondent's determinations in the statutory_notice_of_deficiency are presumed correct and petitioners bear the burden of proving otherwise rule a 290_us_111 sec_61 includes in gross_income all income from whatever source derived including gross_income derived from business sec_61 petitioners have shown and respondent has conceded that they are entitled to deduct dollar_figure in business_expenses and we so find sec_6651 imposes an addition_to_tax for failure_to_file a timely return unless the taxpayer establishes the failure did not result from willful neglect and the failure was due to reasonable_cause petitioners did not offer any reason for the late filing of their return therefore respondent’s determination is sustained next we consider whether petitioners are liable for a negligence_penalty under sec_6662 the penalty amounts to percent of the portion of the underpayment attributable to negligence respondent determined that the entire underpayment is due to negligence we agree negligence includes any failure to make a reasonable attempt to comply with the internal_revenue_code sec_6662 petitioner failed to report dollar_figure in income in response to a question from the court he testified that he was trying to operate his business out of a_trust in order to avoid taxes but that he did not do it correctly he apparently believed that merely by designating his business income as trust income he would not have to report it petitioner did not file a_trust return nor did either petitioner consult an accountant or an attorney to determine whether the dollar_figure should be reported in short petitioners did not do what a reasonable and ordinarily prudent person would do under the circumstances 85_tc_934 moreover though instructed on line of form_1040 to do so petitioners did not file a schedule c even as to the business income of dollar_figure which they did report we find that petitioners are liable for the negligence_penalty to reflect the foregoing decision will be entered under rule