internal_revenue_service number release date index number ------------------------------------------------ ---------------------------------------------- ------------------------ ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ----------------- telephone number --------------------- refer reply to cc corp plr-142534-11 date february legend distributing distributing distributing controlled controlled sub sub ---------------------------------------------- ------------------------------- ----------------------- -------------------------------------------- ------------------------------- ----------------------- ----------------------- ------------------------------- ----------------------- ------------------------------------- ------------------------------- ---------------------------- ----------------------------- ------------------------------- ---------------------------- --------------------------------------------- ------------------------------- ----------------------- ----------------------------------------------- ------------------------------- ----------------------- plr-142534-11 llc division state state business a business b a b c d ---------------------------------------------------------- ------------------------------------------------ ------------------ ------------- ------------- --------------------- ---------------------------------- ------------- ------------- ---------------------- ------------------------------ dear ---------------------- this letter is in response to your date request for rulings on certain u s federal_income_tax consequences of the proposed transaction defined below the information submitted in that request and in subsequent correspondence is summarized below the rulings contained in this letter are based upon the facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process moreover this office has not verified any information pertaining to and has made no determination regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of earnings_and_profits of any of the distributing corporations the controlled corporations or both see sec_355 and sec_1_355-2 and iii is part of a plan or series or related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest in any of the distributing corporations or the controlled corporations see sec_355 and sec_1_355-7 plr-142534-11 summary of facts distributing is a publicly traded corporation organized under the laws of state distributing is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return the distributing consolidated_group distributing is a holding_company and derives all of its operating income from its wholly owned subsidiary distributing a state corporation and distributing 2’s subsidiaries among its other subsidiaries and assets distributing wholly owns distributing a state corporation sub a state corporation and llc a state limited_liability_company which is treated as a disregarded_entity for federal_income_tax purposes distributing owns the assets in division and the stock of sub a state corporation in addition to sub distributing owns other assets which are treated as divisions of distributing and are engaged in the retained business defined below sub and the divisions of distributing will be collectively referred to as the retained controlled assets and liabilities prior to the proposed transaction and as part of the overall restructuring some or all of the retained controlled assets and liabilities that are in divisional form may be incorporated the division incorporations distributing has a note payable of approximately dollar_figurea plus accrued interest to llc the distributing note payable additionally distributing has accounts_receivable of approximately dollar_figureb from distributing the distributing accounts_receivable distributing and its subsidiaries collectively engage in two lines of business the spin business and the retained business for purposes of satisfying the active trade_or_business requirements of sec_355 the parties to each spin-off will be relying on business a which is conducted by distributing and is part of the spin business and business b which is conducted by sub and is a part of the retained business the taxpayer has submitted financial information indicating that business a as conducted by distributing has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years the taxpayer also submitted financial information indicating that business b as conducted by sub has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years distributing distributing distributing controlled and controlled will enter into a series of customary agreements governing the proposed transaction including a tax_sharing_agreement and certain other liabilities and obligations arising from a separation agreement a transition services agreement and a continuing relationship agreement it is anticipated that distributing and controlled may lease or sublease some amount of office space to one another under the terms of existing lease arrangements plr-142534-11 proposed transaction for what are represented to be valid business purposes taxpayer has proposed the following steps the proposed transaction i distributing will form controlled a state corporation and contribute the retained controlled assets and liabilities to controlled contribution ii distributing will satisfy its approximately dollar_figurea note payable to llc by offsetting that portion of its approximately dollar_figureb accounts_receivable to distributing iii distributing will borrow approximately dollar_figurec from one or more third party financing sources the borrowed funds iv distributing will declare and distribute approximately dollar_figured of dividends consisting of the proceeds of the borrowed funds and the remainder of the distributing accounts_receivable that remains after the satisfaction of the distributing note payable in step ii above to distributing dividend distribution v distributing will distribute controlled to distributing distribution vi distributing will form controlled a state corporation and contribute distributing and sub to controlled contribution vii controlled will contribute sub to distributing contribution viii distributing will distribute controlled to distributing distribution ix distributing will distribute controlled to its shareholders distribution representations the following representations have been made with respect to the proposed transaction contribution and distribution a no part of the consideration to be distributed by distributing in distribution will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of distributing the five years of financial information submitted for business a conducted by b distributing is representative of the present operations and there have been no plr-142534-11 substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted for business b that will be c conducted by controlled through its interest in sub is representative of the present operations and there have been no substantial operational changes since the date of the last financial statements submitted following distribution no person will hold a greater than percent interest in d either distributing or controlled within the meaning of sec_355 who did not hold such an interest immediately before distribution following distribution distributing will continue the active_conduct of e business a independently and with its separate employees following distribution controlled through its separate_affiliated_group will f continue the active_conduct of business b independently and with its separate employees distribution will be carried out for the corporate business purposes of aligning g all the entities and assets related to the retained business under the ownership of distributing and facilitating distribution sec_2 and distribution is motivated in whole or substantial part by these corporate business purposes distribution will not be used principally as a device for distributing the earnings h and profits of distributing or controlled or both for purposes of sec_355 immediately after distribution no person determined i after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of distribution for purposes of sec_355 immediately after distribution no person determined j after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of distribution or ii attributable to distributions on distributing 1’s stock_or_securities that were acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of distribution plr-142534-11 k no intercorporate debt will exist between distributing and controlled at the time of distribution except that distributing or its successors may owe controlled or controlled may owe distributing or its successors amounts payable under the separation agreements and transition services agreement or indebtedness arising in the ordinary course of business any such indebtedness owed by controlled to distributing on completion of distribution will not constitute stock_or_securities except as set forth in the transition services agreement payments made in l connection with all continuing transactions following the proposed transaction between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length no party to distribution will be an investment_company as defined in m sec_368 and iv distributing and controlled each will pay its own expenses if any incurred in n connection with contribution and distribution o distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor to any such corporation p neither business a of distributing nor business b of controlled nor control of any entity conducting these businesses was acquired during the five year period ending on the date of distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of distribution distributing has been the principal_owner of the goodwill and significant assets of business a and business b and controlled will continue to be the principal_owner of business b following distribution immediately before distribution items of income gain loss deduction and q credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account of distributing in the stock of controlled that is required to be taken into account by sec_1_1502-19 will be included in income immediately before distribution at the time of distribution distributing will not have an excess_loss_account in r the stock of controlled the total adjusted_basis of the assets to be transferred to controlled by s distributing will equal or exceed the sum of the liabilities assumed as determined plr-142534-11 under sec_357 by controlled plus any liabilities to which the transferred assets are subject the liabilities assumed if any as determined under sec_357 by controlled will be incurred in the ordinary course of business and will be associated with the assets transferred the total fair_market_value of the assets transferred to controlled by t distributing in the contribution will exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by controlled in connection with the exchange ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange and iii the amount of cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange contribution and distribution u no part of the consideration to be distributed by distributing in distribution will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of distributing the five years of financial information submitted for the business b conducted by v distributing is representative of the present operations and there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted for business a that will be w conducted by controlled is representative of the present operations and there have been no substantial operational changes since the date of the last financial statements submitted following distribution no person will hold a greater than percent interest in x either distributing or controlled within the meaning of sec_355 who did not hold such an interest immediately before distribution following distribution distributing through its separate_affiliated_group will y continue the active_conduct of business b independently and with its separate employees following distribution controlled through its separate_affiliated_group will continue the active_conduct of business a independently and with its separate employees z distribution will be carried out for the corporate business_purpose of facilitating distribution by aligning the entities conducting the spin business under controlled plr-142534-11 distribution is motivated in whole or substantial part by this corporate business_purpose aa distribution will not be used principally as a device for distributing the earnings_and_profits of distributing or controlled or both bb for purposes of sec_355 immediately after distribution no person determined after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of distribution for purposes of sec_355 immediately after distribution no person determined cc after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of distribution or ii attributable to distributions on distributing 2’s stock_or_securities that were acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of distribution dd no intercorporate debt will exist between distributing and controlled at the time of distribution except that distributing or its successors may owe controlled or controlled may owe distributing or its successors amounts payable under the separation agreements and transition services agreement or indebtedness arising in the ordinary course of business any such indebtedness owed by controlled to distributing on completion of distribution will not constitute stock_or_securities ee except as set forth in the transition services agreement payments made in connection with all continuing transactions following the proposed transaction between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length neither distributing nor controlled is an investment_company as defined in ff sec_368 and iv gg distributing and controlled each will pay its own expenses if any incurred in connection with contribution and distribution hh distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or plr-142534-11 indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor to any such corporation neither business a nor business b nor control of any entity conducting these ii businesses was acquired during the five year period ending on the date of distribution in a transaction in which gain_or_loss will be recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of distribution distributing has been the principal_owner of the goodwill and significant assets of business a and business b and controlled will continue to be the principal_owner of business a following distribution immediately before distribution items of income gain loss deduction and jj credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account of distributing in the stock of controlled that is required to be taken into account by sec_1_1502-19 will be included in income immediately before distribution at the time of distribution distributing will not have an excess_loss_account in kk the stock of controlled the total adjusted_basis of the assets transferred to controlled by distributing ll will equal or exceed the sum of the liabilities assumed as determined under sec_357 by controlled plus any liabilities to which the transferred assets are subject the liabilities to be assumed if any as determined under sec_357 by controlled will be incurred in the ordinary course of business and will be associated with the assets transferred mm the total fair_market_value of the assets transferred to controlled by distributing in contribution will exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by controlled in connection with the exchange ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange and iii the amount of cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange contribution nn no stock_or_securities will be issued for services rendered to or for the benefit of distributing and no stock_or_securities will be issued for indebtedness of distributing plr-142534-11 oo contribution will not be the result of the solicitation by a promoter broker or investment house pp controlled will not retain any rights in the property transferred to distributing qq there will be no assumption of any liabilities of controlled by distributing as a result of contribution there will be no indebtedness between distributing and controlled and there rr will be no indebtedness created in favor of controlled as a result of contribution ss contribution will occur under a plan agreed upon before the transactions in which the rights of the parties are defined there is no plan or intention on the part of distributing to redeem or otherwise tt reacquire any stock to be issued in contribution uu taking into account any issuance of additional shares of distributing stock any issuance of stock for services the exercise of any distributing stock_rights warrants or subscriptions a public offering of distributing stock and the sale exchange transfer by gift or other_disposition of any of the stock of distributing to be received in the exchange controlled will be in control of distributing within the meaning of sec_368 vv controlled will receive or be deemed to receive stock approximately equal in value to the fair_market_value of the property transferred to distributing ww each of distributing and sub will remain in existence xx there is no plan or intention by distributing to dispose_of the shares of sub transferred in contribution yy each of the parties to contribution will pay its own expenses if any incurred in connection with contribution zz distributing will not be an investment_company within the meaning of sec_351 and sec_1_351-1 aaa neither controlled distributing nor sub are under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 bbb distributing will not be a personal_service_corporation within the meaning of sec_269a plr-142534-11 ccc contribution will be undertaken for the corporate business_purpose of facilitating the execution of the financing arrangements that are expected to be established at the distributing level distribution ddd no part of the consideration to be distributed by distributing in distribution will be received by the distributing shareholders as creditors employees or in any capacity other than that of shareholders of distributing eee the five years of financial information submitted for business b operations conducted by distributing is representative of the present operations and there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted for business a that will be fff conducted by controlled is representative of the present operations and there have been no substantial operational changes since the date of the last financial statements submitted ggg following distribution no person will hold a greater than percent interest in either distributing or controlled within the meaning of sec_355 who did not hold such an interest immediately before distribution hhh following distribution distributing through its separate_affiliated_group will continue the active_conduct of business b independently and with its separate employees following distribution controlled through its separate_affiliated_group will iii continue the active_conduct of business a independently and with its separate employees distribution will be carried out for the following corporate business purposes i jjj to separate the spin business from the retained business in order to facilitate the adoption of different business models management practices and objectives appropriate to the business environment in which each operates and ii to enable both distributing and controlled to provide equity incentives that are tied exclusively to each respective business distribution is motivated in whole or substantial part by these corporate business purposes kkk distribution will not be used principally as a device for distributing the earnings_and_profits of distributing or controlled or both for purposes of sec_355 immediately after distribution no person determined lll after applying the aggregation rules of sec_355 will hold stock possessing plr-142534-11 percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of distribution mmm for purposes of sec_355 immediately after distribution no person determined after applying the aggregation rules of sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of distribution or ii attributable to distributions on distributing 3’s stock_or_securities that were acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of distribution nnn no intercorporate debt will exist between distributing and controlled at the time of distribution except that distributing or its successors may owe controlled or controlled may owe distributing or its successors amounts payable under the separation agreements and transition services agreement or indebtedness arising in the ordinary course of business any such indebtedness owed by controlled to distributing on completion of distribution will not constitute stock_or_securities ooo except as set forth in the transition services agreement payments made in connection with all continuing transactions following the proposed transaction between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length ppp neither distributing nor controlled is an investment_company as defined in sec_368 and iv qqq distributing and controlled each will pay its own expenses if any incurred in connection with distribution rrr distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor to any such corporation sss neither business a nor business b nor control of any entity conducting these businesses was acquired during the five year period ending on the date of distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of distribution plr-142534-11 distributing has been the principal_owner of the goodwill and significant assets of business a and business b and controlled will continue to be the principal_owner of business a following distribution immediately before distribution items of income gain loss deduction and ttt credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account of distributing in the stock of controlled that is required to be taken into account by sec_1_1502-19 will be included in income immediately before distribution uuu the payment of cash in lieu of fractional shares of controlled will be solely for the purpose of avoiding the expense and inconvenience to controlled of issuing fractional shares and does not represent separately bargained-for consideration the method used for handling fractional share interests is intended to limit the amount of cash received by any one of the shareholders to less than the value of one full share of controlled stock the fractional share interests of each distributing shareholder will be aggregated and no distributing shareholder will receive cash in an amount equal to or greater than the value of one full share of controlled stock rulings based solely upon the information submitted and the representations made we rule as follows on the proposed transaction contribution and distribution contribution together with distribution will qualify as a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 distributing will not recognize any gain_or_loss pursuant to contribution sec_361 and sec_357 controlled will not recognize any gain_or_loss on contribution sec_1032 controlled 1’s basis in each asset received from distributing pursuant to contribution will be the same as the basis of that asset in the hands of distributing immediately before its transfer sec_362 controlled 1’s holding_period in each asset received from distributing pursuant to contribution will include the period during which distributing held that asset sec_1223 plr-142534-11 distributing will not recognize any gain_or_loss upon the distribution of controlled stock in distribution sec_361 distributing will not recognize any gain_or_loss and will not otherwise include any amount in income on the receipt of shares of controlled stock in distribution sec_355 the dividend distribution will be treated as a distribution to which sec_301 applies sec_356 and sec_1_356-2 the amount of the dividend distribution will not be included in the gross_income of distributing and will reduce distributing 2’s basis in its distributing stock sec_1_1502-13 and sec_1_1502-32 the aggregate basis of the distributing stock and the controlled stock in the hands of distributing immediately after distribution will be the same as distributing 2’s aggregate basis in the distributing stock held immediately before distribution allocated in the manner described in sec_1_358-2 in accordance with sec_358 through c the holding_period of the controlled stock received by distributing in distribution will include the holding_period of the distributing stock with respect to which distribution was made provided that the distributing stock is held as a capital_asset on the date of distribution sec_1223 earnings_and_profits of distributing if any will be allocated between distributing and controlled in accordance with sec_1_312-10 contribution and distribution contribution together with the distribution will qualify as a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 distributing will not recognize any gain_or_loss pursuant to contribution sec_361 and sec_357 controlled will not recognize any gain_or_loss on contribution sec_1032 controlled 2’s basis in each asset received from distributing pursuant to contribution will be the same as the basis of that asset in the hands of distributing immediately before its transfer sec_362 controlled 2’s holding_period in each asset received from distributing pursuant to contribution will include the period during which distributing held that asset sec_1223 plr-142534-11 distributing will not recognize any gain_or_loss upon the distribution of controlled stock in distribution sec_361 distributing will not recognize any gain_or_loss and will not otherwise include any amount in income on the receipt of shares of controlled stock in distribution sec_355 the aggregate basis of the distributing stock and the controlled stock in the hands of distributing immediately after distribution will be the same as the distributing 3’s aggregate basis in the distributing stock held immediately before distribution allocated in the manner described in sec_1_358-2 in accordance with sec_358 through c the holding_period of the controlled stock received by distributing in distribution will include the holding_period of the distributing stock with respect to which distribution was made provided that the distributing stock is held as a capital_asset on the date of distribution sec_1223 earnings_and_profits of distributing if any will be allocated between distributing and controlled in accordance with sec_1_312-10 contribution contribution will constitute a transfer to a controlled_corporation meeting the requirements of sec_351 no gain_or_loss will be recognized by controlled upon the transfer of the sub stock solely in exchange for distributing 1’s stock sec_351 the basis of the distributing stock received by controlled in contribution will be the same as controlled 2’ basis in the sub stock transferred to distributing sec_358 no gain_or_loss will be recognized by distributing on the receipt of the sub stock in exchange for distributing 1’s stock sec_1032 the basis of the sub stock received by distributing will be the same as it would be in the hands of controlled increased by the amount of gain if any recognized sec_362 the holding_period for the sub stock received by distributing will include the period during which such stock was held by controlled sec_1223 distribution plr-142534-11 the shareholders of distributing will not recognize any gain_or_loss and will not otherwise include any amount in income on the receipt of shares of controlled stock in the distribution sec_355 no gain_or_loss will be recognized by distributing on the distribution of controlled stock in the distribution sec_355 the aggregate basis of the distributing stock and the controlled stock in the hands of the distributing shareholders immediately after distribution will be the same as the distributing shareholders’ aggregate basis in the distributing stock held immediately before distribution allocated in the manner described in sec_1_358-2 in accordance with sec_358 through c the holding_period of the controlled stock received by the distributing shareholders in distribution will include the holding_period of the distributing stock with respect to which distribution was made provided that the distributing stock is held as a capital_asset on the date of distribution sec_1223 earnings_and_profits of distributing if any will be allocated between distributing and controlled in accordance with sec_1_312-10 the payment of cash in lieu of any fractional shares of distributing if any will be treated for federal_income_tax purposes as if the fractional shares were distributed as part of distribution and then sold by the distributing shareholders the cash payments will be treated as having been received in exchange for the fractional distributing shares sold any gain_or_loss will be treated as capital_gain or loss provided that such fractional shares are held as capital assets on the date of distribution sec_1221 and sec_1222 caveats except as expressly provided herein no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the proposed distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the proposed distribution is used principally as a device for the distribution of the earnings_and_profits of distributing distributing distributing controlled controlled or any combination thereof see sec_355 and sec_1_355-2 iii whether the proposed distribution is part of a plan or series or related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest in any of the distributing or controlled corporations see sec_355 and sec_1_355-7 iv any non-arm’s length transactions between distributing distributing distributing controlled and controlled v except as otherwise necessary to the rulings herein plr-142534-11 the federal_income_tax consequences of steps ii and iii of the proposed transaction and vi whether the division incorporations qualify as sec_351 exchanges procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this letter_ruling in accordance with the power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representatives sincerely ____________________________ richard k passales senior counsel branch office of associate chief_counsel corporate cc


internal_revenue_service department of the dollar_figure index number washington dc person to contact telephone number refer reply to cc dom corp plr-110335-99 date date legend purchaser sub target sellers date a date b date c ll plr-110335-99 x y business l business m company official outside tax professional authorized representative dear this responds to your authorized representatives’ letter dated date requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election purchaser and seller are requesting an extension to file a sec_338 election under sec_338 and sec_338 of the internal_revenue_code and sec_1_338_h_10_-1 of the income_tax regulations the election with respect to purchaser's acquisition of the target stock on date d additional information was received in letters dated july and date the material information is summarized below fod plr-110335-99 purchaser a publicly traded corporation engaged in business l is the common parent of a consolidated_group sub was a wholly owned subsidiary of purchaser that was newly formed as a special acquisition corporation target was an s_corporation within the meaning of sec_1361 engaged in business m and was wholly owned by sellers ie grantor trusts for three individuals target does not have any subsidiaries or disregarded entities on date a purchaser sub sellers and target entered into a stock acquisition agreement and plan of merger pursuant to which sub would merge with and into target in an acquisition structured as a reverse_triangular_merger with the sellers receiving purchaser stock and dissenters receiving some cash provided by target also on date a pursuant to the plan sub merged into target with the exchanging shareholders however the exchanging sellers receiving purchaser voting_stock for approximately x of the target stock and with the dissenting shareholders ie the dissenting sellers receiving cash supplied by purchaser for approximately y of the target stock j e cash supplied by purchaser constituted more than of the total consideration for the stock of target -- see sec_368 it is represented that the transaction was a fully taxable transaction and that it did not qualify as a reorganization under sec_368 because of the amount of cash received by the dissenting sellers that was supplied by purchaser it related to sellers within the meaning of sec_338 and purchaser's acquisition of target stock qualified as a qualified_stock_purchase as defined in sec_338 following the acquisition new target was included in purchaser's consolidated_group as a subchapter_c_corporation is also represented that purchaser was not purchaser and sellers intended to file the election the election was due on date b which is after date a however for various reasons a valid election was not filed on date c which is after date b company official outside tax professional and authorized representatives discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessments under sec_6501 has not expired for purchaser's sellers’ or target's taxable_year s in which the acquisition occurred the taxable_year s in which the election should have been filed or any taxable_year s that would have been affected by the election had it been timely filed further the service has not discovered that the election has not been filed and none of the taxpayers or related entities or individuals have filed a return or otherwise taken a reporting position that is not consistent with making the election sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election under sec_338 and the acquisition is a qualified_stock i plr-110335-99 purchase qsp sec_1_338-1 provides that a sec_338 election is an election to apply sec_338 to target sec_338 specifies the requirements for making a sec_338 election sec_1_338_h_10_-1 provides that if a sec_338 election is made for t a sec_338 election is deemed made for t sec_338 defines a qsp as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of corporation is acquired by another corporation by purchase during the month acquisition period sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined i in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or il under sec_1014 relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under sec_318 other than paragraph thereof be attributed to the person acquiring such stock sec_338 permits the purchasing and selling corporations to jointly elect to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation the sale of stock included in the qsp is generally ignored a sec_338 election may be made for target only if selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 gain_or_loss on the deemed sale is included in the consolidated_return of the selling group unless the target_corporation is a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 provides that a sec_338 election may be made for the target_corporation if the purchasing_corporation makes a qsp of the target_corporation stock sec_1_338_h_10_-1 and provide that if a sec_338 election is made for the target_corporation it for the target_corporation is irrevocable and a sec_338 election is deemed made it is a member of a - more specifically target is treated as if while a member of the selling group or owned by the selling affiliate or s_corporation shareholders it distributed all of its assets in complete_liquidation if target is an s_corporation immediately before the acquisition_date nothing in the sec_338 provisions prevents a holder of target stock from taking deemed sale gain into account under sec_1366 and sec_1367 see sec_331 or sec_332 for gain_or_loss recognized by the old target shareholders as a result of the deemed liquidation sec_1_338_h_10_-1 no gain_or_loss is recognized on the sale_or_exchange by the selling_consolidated_group or the selling affiliate or an s_corporation shareholder of target stock included in the qsp if target is an s_corporation immediately before target's acquisition_date the sale_or_exchange of old y plr-110335-99 target does not result in a termination of the sec_1362 election for the s_corporation sec_1_338_h_10_-1 sec_1_338_h_10_-1 provides that a sec_338 election is jointly made by a purchaser and the selling_consolidated_group or the selling affiliate or the s_corporation shareholders on form_8023 in accordance with the instructions to the form the regulations further provide that the election must be made not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs the instructions to form_8023 provide that a sec_338 election must be made jointly by the purchasing_corporation or the common parent of the consolidated_group of which the purchasing_corporation is a member or the selling affiliate or s_corporation shareholders and the selling corporation or the common parent of the consolidated_group of which the selling corporation is a member or the selling affiliate or s_corporation shareholders the instructions provide that the form must be signed by each person authorized to act on behalf of each corporation and if made for an s_corporation it must be signed by each s_corporation shareholder who sells target stock in the qualified_stock_purchase the instructions further provide that the signatures dates and titles if applicable of those persons must be provided in a signature attachment and they provide specific details as to the preparation of the signature attachment and its attachment to form_8023 sec_1_1502-77 provides that the common parent for all purposes other than for several purposes not relevant here shall be the sole agent for each subsidiary in the group duly authorized to act in its own name in all matters relating to the tax liabitity of the consolidated_return_year see also form_8023 and the instructions thereto under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and provided the taxpayer demonstrates to the satisfaction of the commissioner that - the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides sec_301_9100-1 through plr-110335-99 evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a in this case the time for filing the election is fixed by the regulations ie sec_1_338_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser and sellers to file the election provided purchaser and sellers show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser sellers company official outside tax professional and authorized representatives explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the service has not discovered that the election has not been filed and that none of the taxpayers or related entities or individuals have filed a return or otherwise taken a reporting position that is not consistent with making the election the information also establishes that the government will not be prejudiced if relief is granted see sec_301_9100-3 and sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that purchaser and sellers have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301 -1 until days from the date_of_issuance of this letter for purchaser and sellers to file the election with respect to the acquisition of target as described above the above extension of time is conditioned on i purchaser and each and every one of the sellers signing the election ii purchaser and each and every one of the sellers treating the acquisition sale of the target stock as a sec_338 transaction and iii the taxpayers’ ie purchaser's and sellers’ tax_liability if any being not lower in the aggregate for all years to which the election apply than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the district director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if c it is determined that the taxpayers’ liability is lower section purchaser and sellers must file the election in accordance with sec_1 h - d that is a new election on form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions to the form attached to the e action form see announcement -2 -2 a copy of this letter should be r b f716 plr-110335-99 purchaser and sellers must file their returns to report the transaction as a sec_338 transaction for the year in with the transaction was consummated and attach to the return a copy of this letter and a copy of the election we express no opinion as to whether the acquisition sale of target's stock qualifies as a qsp under sec_338 as to whether the acquisition sale of target's stock qualifies for sec_338 treatment or if sec_338 is applicable as to the amount and character of gain_or_loss if any recognized by target and thus by sellers on target’s deemed asset sale in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the district_director s should verify all essential facts file the election penalties and interest that would otherwise be applicable if any continue to apply in addition notwithstanding that an extension is granted under sec_301_9100-1 to this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the powers of attorney on file in this office copies of this letter are being sent to designated authorized representatives for delivery to purchaser and seller sincerely yours assistant chief_counsel corporate r i c h a r d t o d d counsel to the assistant chiet counsel corporate


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-118020-98 date date legend x state d1 this responds to your letter dated date and prior correspondence submitted on behalf of x requesting a ruling that x’s s_corporation status will be effective as of d1 x was incorporated under state law and began business operations on di x’s shareholders intended that x be a subchapter_s_corporation from d1 however the s_corporation_election under sec_1362 of the internal_revenue_code was not timely filed facts s_corporation sec_1362 provides that a small_business_corporation may elect to be an law and analysis sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of its tax_year cc dom p si plr-118020-98 x’s s_corporation_election was not filed timely for the election to be effective as of its tax_year beginning on d1 nevertheless x has established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and assuming that x otherwise qualifies as a subchapter_s_corporation as of d1 we conclude that x will be recognized as an s_corporation effective d1 please file a completed form_2553 along with a copy of this ruling reflecting x’s election of subchapter_s_corporation status as of d1 with the applicable service_center within days of the date of this ruling except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely signed daniel j coburn daniel j coburn assistant to the branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


ulc 4a1s d4-0l- department of the treasury internal_revenue_service washington d c covernen entiies tax exempt and may ep pa legend company a company b plan x dear this letter is in response to a request for a ruling letter submitted on your behalf by your authorized representative on date as supplemented by correspondence dated date date date date date date date and date concerning the prepayment of an exempt loan upon termination of an employee_stock_ownership_plan esop company a established plan x an esop effective date for the benefit of its employees plan x is intended to be qualified under sec_401 of the internal_revenue_code code and to meet the requirements of sec_4975 of the code plan x had several loans which were intended to be exempt loans as described in code sec_4975 collectively the loans the loans were consolidated as of date and are represented by one note with a maturity_date of date the loan the shares purchased with the proceeds of the loans were pledged as collateral for the loans and were placed in plan x’s suspense_account plan x’s unallocated employer stock continued to be pledged as collateral for the loan at the time of the loans company a contemplated that page plan x would continue beyond the repayment of the loans and the allocation to participants’ accounts of all of the company a shares held in the plan x suspense_account company a has made substantial and recurring contributions to plan x resulting in significant payment of the loans purchased by plan x with the proceeds of the loans had been allocated to participant accounts in plan x as of date approximately percent of the employer_securities effective date company a entered into an agreement and plan of merger with company b pursuant to this agreement company a merged with and into company b on date with company b being the survivor corporation of the merger transaction plan x will be terminated as of the effective date of the merger termination of plan x is a condition of this merger as a result of the merger the company a stock held in plan x both allocated to participant accounts and unallocated in the suspense_account was exchanged for company b stock and cash the cash received which is attributable to the unallocated shares held in the plan x suspense_account will be applied first to repay the loan sell a sufficient number of shares of unallocated stock held in the plan x suspense_account to repay the balance due on the loan in accordance with the terms of plan x the remaining shares of company b stock held in the plan x suspense_account will be allocated to the accounts of eligible_plan x participants in the same proportion that each such participant’s_compensation for the prior plan_year bears to the total compensation of all participants for such prior plan_year the trustee of plan x will then your authorized representatives have requested rulings to the effect of the following on your behalf the repayment of the loan with a the cash received for the exchange of unallocated employer stock in connection with the corporate merger of company a and company b and b the cash proceeds from the sale of part of the unallocated employer stock by plan x will not cause the loan to violate the requirements for exemption under code sec_4975 the allocation to plan x participants’ accounts of the excess unallocated employer stock following the retirement of the loan will not constitute annual_additions for purposes of code sec_415 with respect to your first requested ruling an esop is designed to invest primarily in employer_securities an esop must be part of a stock_bonus_plan qualified under sec_401 of the code or a stock_bonus_plan in a money purchase plan qualified under sec_401 a leveraged_esop borrows funds which it uses to purchase employer_securities usually from the employer the esop_loan or loans are generally from the employer or guaranteed by the employer the acquired employer_securities are held in a suspense_account pending allocation to the accounts of plan participants in accordance with the rules of sec_54_4975-11 of the excise_tax regulations regulations an esop generally uses employer contributions to the plan and cash dividends on employer stock held by the plan to repay the exempt loan page sec_54_4975-7 of the regulations provides that all of under sec_4975 of the code an esop_loan generally is exempt from the prohibitions provided in sec_4975 and the excise_taxes imposed by sec_4975 and b only if the loan is primarily for the benefit of the participants and beneficiaries of the plan primary benefit requirement the surrounding facts and circumstances will be considered in determining whether an esop_loan satisfies the primary benefit requirement among the relevant facts and circumstances are whether the transaction promotes employee ownership of the employer stock whether contributions to the esop are recurring and substantial and the extent to which the method of repayment of the loan benefits the employees all aspects of the loan transaction including the method of repayment will be scrutinized to determine whether the primary benefit requirement is satisfied sec_54_4975-7 of the regulations indicates that the employer has the primary responsibility for the repayment of an exempt loan through contributions to the plan sec_54_4975-7 provides for the repayment of an exempt loan in the event of default however the exemption provided by sec_4975 of the code and described in the associated regulations will not fail to be met merely because the trustee sells the unallocated suspense_account shares and uses the proceeds to repay the exempt loan if the transaction satisfies the primary benefit requirement based on all the surrounding facts and circumstances sec_54_4975-7 of the regulations also provides that the only assets of an esop that may be given as collateral on an exempt loan are qualifying employer_securities of two classes those acquired with the proceeds of the loan and those that were used as collateral on a prior exempt joan repaid with the proceeds of the current exempt loan no person entitled to payment under the exempt loan shall have any right to assets of the esop other than i collateral given for the loan ii contributions other than contributions of employer_securities that are made under an esop to meet its obligations under the loan and iii earnings attributable to such collateral and the investment of such contributions sec_54_4975-7 of the regulations does not establish a per se prohibition against exempt loan prepayment by an esop however as noted above if an esop contemplates prepaying an exempt loan the funds used to prepay the loan must be limited as described in this regulation in this case company a has made consistent and substantial contributions to plan x since its inception in more than one-half the shares purchased with the proceeds of the loans have been allocated to participants’ accounts at the time plan x was established and at the time the loans occurred company a intended that plan x would continue until the loans were repaid and all shares of common_stock held in the suspense_account were allocated to participants however company a has merged into company b and the termination of plan x is a condition pursuant to the merger company a stock held in plan x was exchanged for of the merger company b stock and cash the cash received which is attributable to the unallocated shares held in the plan x suspense_account will be applied first to repay the loan plan x will then sell a sufficient number of shares of unallocated stock held in the plan x in accordance with the terms of suspense_account to repay the balance due on the loan plan x the remaining shares of company b stock held in the plan x suspense_account will be the trustee of page allocated to the accounts of eligible_plan x participants in the same proportion that each such participant’s_compensation for the prior plan_year bears to the total compensation of all participants for such prior plan_year accordingly with respect to your first requested ruling we conclude that the repayment of the loan with a the cash received for the exchange of unallocated employer stock in connection with the corporate merger of company a and company b and b the cash proceeds from the sale of part of the unallocated employer stock by plan x will not cause the loan to violate the requirements for exemption under code sec_4975 with respect to your second requested ruling sec_415 of the code provides that contributions and other additions under a defined_contribution_plan including an esop with respect to a participant for any taxable_year may not exceed the limits of subsection c sec_415 of the code states that contributions and other additions with respect to a participant exceed the limitation of this subsection if when expressed as an annual_addition to the participant’s account such annual_addition is greater than the lesser_of dollar_figure or of the participant’s_compensation sec_415 generally defines annual_addition as the sum for any year of employer contributions the employee contributions and forfeitures sec_1 g of the income_tax regulations sets forth special rules for esops sec_1 g provides in part that for purposes of applying the limitations of sec_415 of the code and sec_1 g of the income_tax regulations to an esop to which an exempt ' loan has been made the amount of employer contributions which is considered an annual_addition for the limitation_year is calculated with respect to employer contributions of both - principal and interest used to repay the exempt loan for that limitation_year sec_1 b i of the income_tax regulations provides in part that the commissioner may in appropriate cases considering all of the facts and circumstances treat transactions between the plan and the employer as giving rise to annual_additions in the present case the shares remaining in plan x’s suspense_account following the prepayment of the loan remain there because it was not necessary to sell them to prepay the loan thus they reflect the extent of the appreciation in the value of the shares held in the suspense_account and are in effect earnings and are properly treated as such as part of the termination of plan x since the shares remaining in plan x’s suspense_account are treated as earnings they do not constitute annual_additions under sec_1 b i of the regulations upon their allocation to participants’ accounts in this situation accordingly we conclude with respect to your second requested ruling that the allocation to plan x participants’ accounts of the excess unallocated employer stock following the retirement of the loan will not constitute annual_additions for purposes of code sec_415 this ruling letter is based on the assumption that plan x is qualified under code sec_401 including sec_401 at all times relevant to the transaction described herein and that it is an esop as described in sec_4975 page we note that the department of labor has jurisdiction with respect to the provisions of part of title i of the employee_retirement_income_security_act_of_1974 erisa including the requirement in sec_404 and sec_404 of erisa that fiduciaries discharge their duties for the exclusive purpose of providing benefits to participants and their beneficiaries in a prudent manner therefore we express no opinion as to whether the subject transactions are consistent with such provisions this ruling letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this ruling letter has been sent to your authorized representative in accordance with a power_of_attorney on file with this office if you have any questions please contact please refer to se t ep ra t3 sincerely yours so-tuce vflow frances v sloan manager employee_plans technical group enclosures notice deleted copy of ruling letter cc