tax_exempt_and_government_entities_division number release date date date department of the treasury internal_revenue_service washington d c contact person identification_number contact number employer_identification_number form required to be filed uil tax years dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final since you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions you should follow the instructions in notice our deletions you do not need to take any further action if you agree with letter cg catalog number in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter about your federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is if you have any questions sincerely holly o paz director exempt_organizations rulings and agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter letter cg catalog number department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date date contact person identification_number contact number fax number employer_identification_number ulls legend b state d date c organization d dollar amount e dollar amount x individual dear we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code code based on the information provided we have concluded that you do not qualify for exemption under sec_501 of the code the basis for our conclusion is set forth below issue do you qualify for exemption under sec_501 of the code no for the reasons stated below facts you were incorporated on d as a nonprofit under b law your articles of incorporation state that you are organized exclusively for charitable purposes within the meaning of sec_501 of the code including for such purposes the making of distributions to organizations that also qualify as sec_501 organizations your articles also state that you provide monthly educational workshops to teach your clients on how to save their homes and credit history and provide loss mitigation options including but not limited to loan modifications short payoff refinances repayments plans and special forbearance you initially had four board members but due to the time and lack of funds you are now down to one board member x your founder and president you state you were initially registered as an s-corporation and you submitted materials outlining your history in that letter x would only have interest in ownership of you the company is minority owned and operated you have not held any board meetings for last three years of your time is spent providing mortgage foreclosure counseling and loss mitigation services to homeowners in trouble with their mortgages as a u s department of housing and urban development hud or c certified counseling agency you aim to help homeowners stay in their homes educate them and avoid foreclosure you will also provide loan counseling in the form of workouts and modification and loan servicing for refinancing of potential foreclosures since your inception you have provided many homeowners with these services you do not have any income or asset limitation on who qualifies stating everyone who is a homeowner may receive guidance activities consist of housing and financial seminars workshops and classes to the public the rest of your time consists of wellness food and job aid programs to needy people of your foreclosure counseling starts with a phone consultation to gauge a potential client's eligibility gather their personal and mortgage information and schedule a one-on-one in person appointment you then conduct an interview and a budget analysis to determine ability to maintain their home you have not performed any foreclosure counseling and have no forms or materials regarding your counseling service for mortgage mitigation clients you collect further information including tax returns bank statements and bills and provide a complete financial analysis and property value report you prepare and present a mortgage modification package to lenders negotiating lower mortgage payments with the lenders and providing the modification agreement to the clients you contact mortgage modification clients either by email or phone weekly as well as telephoning lenders to ensure there are no outstanding documents needed and to update the status of the modification to the clients you are involved with your clients for months after the approval of the mortgage modification by keeping a track of the clients’ payments conducting mandatory quarterly seminars and holding a open forum your educational seminars and forums consist of explain how you carry out the mandatory seminars nor did you provide any seminar schedule or copies of the materials you will use these classes would be open to the public and free however you have conducted none of these and have none scheduled you do not charge fees to your clients however you charge a d dollars fee per file to lenders for your fee-for-fee services you plan on serving at least clients per month foreclosure counseling you did not you will not advertise your services due to limited funding relying on word of mouth you indicated that when you open your doors you will provide services to friends and family as payment for referrals to help people become familiar with what you offer you plan on support from grants member partner fees and service fees regarding member fees you stated in return they would receive additional services but not what additional services further partners would benefit as you help them streamline their process of mediation between them and their customers with modifications forbearance foreclosures etc regarding services fees you intend on contracting with loss mitigation departments of banks to offer services as reasonable fees - the fee for fee service mentioned above you also presented details for fundraising including benefit concerts and vendor markets given your statements on operations and income these were planned but did not occur your main expenses include compensation occupancy and professional fees you have projected compensation_for x of e dollars your budget shows you will pay additional officer s compensation totaling at least dollar_figure operations rising to at least dollar_figure will depend on volunteer workers for first months of your operation when questioned about your professional fees you stated this was to contract housing and real_estate professionals to teach and conduct your counseling and educational_services throughout the year no further details were provided as to any facility in your second year however you have stated you for the first year of law sec_501 of the code provides that corporations may be exempt from tax if they are organized and operated exclusively for charitable or educational_purposes and no part of their net_earnings inures to the benefit of any private_shareholder_or_individual sec_501 of the code provides that organizations which provide credit_counseling_services as a substantial purpose shall not be exempt from taxation under sec_501 unless they are described in sec_501 or sec_501 and they are organized and operated in accordance with the following requirements d at all times the organization has a board_of directors or other governing body-- i which is controlled by persons who represent the broad interests of the public such as public officials acting in their capacities as such persons having special knowledge or expertise in credit or financial education and community leaders ii not more than percent of the voting power of which is vested in persons who are employed by the organization or who will benefit financially directly or indirectly from the organization's activities other than through the receipt of reasonable directors’ fees or the repayment of consumer debt to creditors other than the credit_counseling_organization or its affiliates and iii not more than percent of the voting power of which is vested in persons who are employed by the organization or who will benefit financially directly or indirectly from the organization's activities other than through the receipt of reasonable directors' fees sec_501 defines for purposes of sec_501 the term credit_counseling_services to mean i the providing of educational information to the general_public on budgeting personal finance financial literacy saving and spending practices and the sound use of consumer credit ii the assisting of individuals and families with financial problems by providing them with counseling or iii a combination of the activities described above sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if primarily in activities that accomplish one or more such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose it engages sec_1_501_c_3_-1 of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_a_-1 of the regulations defines the words private_shareholder_or_individual in sec_501 of the code to refer to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 of the regulations provides that an applicant organization is not organized or operated exclusively for one or more of the purposes specified in subdivision i of this subparagraph unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 in its generally accepted legal sense and includes the relief of the poor and distressed or of the underprivileged sec_1_501_c_3_-1 of the regulations provides that the term educational as used in sec_501 of the code relates to a the instruction or training of the individual for the purpose of improving or developing his capabilities or b the instruction of the public on subjects useful to the individual and beneficial to the community in revrul_69_441 1969_2_cb_115 the service found that a non-profit organization formed to help reduce personal bankruptcy by informing the public on personal money management and aiding low-income individuals and families with financial problems was exempt under sec_501 of the code its board_of directors was comprised of representatives from religious organizations civic groups labor unions business groups and educational institutions the organization provided information to the public on budgeting buying practices and the sound use of consumer credit with films speakers and publications it aided low- income individuals and families who have financial problems by providing them with individual counseling and if necessary by establishing budget plans under the budget plan the debtor voluntarily made fixed payments to the organization holding the funds in a_trust account and disbursing the funds on a partial payment basis to the creditors the organization neither charged fees for counseling services nor prorated their services the organization did not make loans to debtors or negotiate loans on their behalf finally the organization relied upon contributions primarily from the creditors participating in the organization's budget plans for its support creditors were not required though to make such contributions as a condition of participation the service found that by aiding low-income individuals and families who have financial problems and by providing without charge counseling and a means for the orderly discharge_of_indebtedness the organization was relieving the poor and distressed moreover by providing the public with information on budgeting buying practices and the sound use of consumer credit the organization was instructing the public on subjects useful to the individual and beneficial to the community thus the organization was exempt from federal_income_tax under sec_501 of the code revrul_76_441 1976_2_cb_147 presents two situations concerning school operations in the first scenario a nonprofit school succeeded to the assets of a for-profit school while the former owners were employed in the new school the board_of directors was completely different the ruling concludes that the transfer did not serve private interests part of that conclusion was based on the independence of the board in the second scenario the for-profit school converted to a nonprofit school the former owners became the new school's directors the former owners new directors benefited financially from the conversion the ruling concludes that private interests were served revproc_86_43 1986_2_cb_729 describes the methodology test the service uses to determine when the advocacy of a particular viewpoint or position is educational under sec_501 of the code and c -1 d of the regulations the revenue_procedure states that the focus of sec_1_501_c_3_-1 is on the method the organization uses to communicate to others not the content of its communication the method of communication is not educational if it fails to provide a development from the relevant facts that would materially aid a listener or reader in a learning process one factor indicating the method is not educational is as follows t he approach used in the organization's presentations is not aimed at developing an understanding on the part of the intended audience or readership because it does not consider their background or training in the subject matter the remaining factors relate specifically to advocacy organizations and the full and fair exposition part of the regulation revproc_2012_9 r b provides that exempt status may be recognized in advance of the organization’s operations if its proposed operations are described in sufficient detail to permit a conclusion that it will clearly meet the particular requirements for exemption pursuant to the section of the code under which exemption is claimed sec_4 states that the organization must fully describe all of the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures in 326_us_279 66_sct_112 90_led_67 the supreme court held that the presence of a single nonexempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes in 302_f2d_934 ct_cl the court considered an organization that provided analyses of securities and industries and of the economic climate in general it sold subscriptions to various periodicals and services providing advice for purchases of individual securities the court noted that education is a broad concept and assumed arguendo that the organization had an educational purpose however the totality of the organization’s activities which included the sale of many publications as well as the sale of advice for a fee to individuals was indicative of a business therefore the court held that the organization had a significant non-exempt commercial purpose that was not incidental to the educational purpose and was not entitled to be regarded as exempt in 505_f2d_1068 the court held that an organization seeking a ruling as to recognition of its tax-exempt status has the burden of proving that it satisfies the requirements of the particular exemption statute in consumer credit counseling service of alabama inc v united_states u s t c d d c the court held that an organization that provided free information on budgeting buying practices and the sound use of consumer credit qualified for exemption from income_tax because its activities were charitable and educational the consumer credit counseling service of alabama was an umbrella organization made up of numerous credit counseling service agencies these agencies provided information to the general_public through the use of speakers films and publications on the subjects of budgeting buying practices and the sound use of consumer credit they also provided counseling on budgeting and the appropriate use of consumer credit to debt-distressed individuals and families they did not limit these services to low-income individuals and families but they did provide such services free of charge as an adjunct to the counseling function they offered a debt management plan approximately percent of a professional counselor's time was applied to the debt management plan as opposed to education the agencies charged a nominal fee of up to dollar_figure per month for the debt management plan this fee was waived in instances when payment of the fee would work a financial hardship the professional counselors employed by the organizations spent about percent of their time in activities such as information dissemination and counseling assistance rather than those connected with the debt management programs as such the community and education counseling assistance programs were the agencies’ primary activities the primary sources of revenue for these organizations were provided by government and private_foundation grants contributions and assistance from labor agencies and united way an incidental amount of their revenue was from service fees thus the court concluded that each of the plaintiff consumer credit counseling agencies was an organization described in sec_501 as a charitable and educational_organization see also credit counseling centers of oklahoma inc v united_states u s t c d d c in which the facts were virtually identical and the law was identical to those in consumer credit counseling service of alabama inc v united_states discussed immediately above in 82_tc_215 an organization was formed to provide education and charity but failed to provide sufficient details regarding its proposed operations the court held that it failed to prove that it would operate exclusively for exempt purposes under sec_501 of the code in 58_f3d_401 the court affirmed the judgment of the trial_court that the organization was not entitled to tax-exempt status as a corporation operated exclusively for charitable purposes within the meaning of sec_501 of the code the court found that the organization’s substantial purpose of helping a for-profit business take advantage of its tax-exempt status was a nonexempt purpose even if it had the effect of making housing more affordable in kj's fund raisers inc v commissioner t c memo aff'd aftr 2d the tax_court found that gaming organization was not exempt while the organization raised money for charitable purposes it also operated for the substantial benefit of private interests the organization's founders kristine hurd and james gould were the sole owners of a bar kj's place the organization through the owners and employees of kj's place sold lottery tickets exclusively at kj's place during regular business hours while in kj's place the lottery ticket purchasers were sold beverages the initial directors were hurd gould and a related individual the initial board was replaced several times until hurd and gould were no longer on the board at all times hurd and gould were the organization's officers salaries had been paid to hurd and gould and rent had been paid to kj's place the organization maintained that the fact that salaries and rent were no longer paid in this fashion indicated the independence of the board the court took another view although those practices ceased and are not in issue here the current board_of directors is composed of at least the majority of the same members who allowed those amounts to be paid this strongly suggests that hurd and gould are free to set policy for their own benefit without objection from the board 70_fedclaims_782 was an action for declaratory_judgment that the petitioner brought to challenge the denial of his application_for exempt status the court in finding that the actual purposes displayed in the administrative record supported the service’s denial stated it is well-accepted that in initial qualification cases such as this gaps in the administrative record are resolved against the applicant the court noted that if the petitioner had evidence that contradicted these findings it should have submitted it as part of the administrative process the court also highlighted the principle that exemptions from income_tax are matters of legislative grace application of law you are not operated exclusively for charitable educational or religious purposes consistent with sec_501 of the code nor sec_1_501_c_3_-1 of the income_tax regulations and therefore fail to meet the operational_test specifically the facts above indicate that you are not operated for c purposes as more than an insubstantial part of your activities are not in furtherance of an exempt_purpose you fail to meet the operational_test and do not qualify for exemption under c operational_test an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes as specified in sec_501 of the code and sec_1 c - c of the regulations under the operational_test the purpose towards which an organization's activities are directed and not the nature of the activities themselves is ultimately dispositive of the organization's right to be classified as a sec_501 organization you are distinguishable from the organizations in consumer credit counseling service of alabama above and revrul_69_441 by the methodology you use to conduct your counseling activities you do not offer counseling that structured primarily to improve your clients’ understanding of their financial problems or their skills in solving them you are only providing a service when you assess and analyze a homeowner's financial situation or prepare paper work to negotiate with lenders for lower mortgage payments such work does not provide a development from the relevant facts that would materially aid a listener or reader in a learning process see revproc_86_43 above you conduct mandatory quarterly seminars and a open forum as part of your counseling however you did not provide further explanation or detail how you actually carry out these seminars you also failed to provide a seminar schedule or identify seminar materials denial of exemption may be based solely upon failure to provide information describing in adequate detail how the operational_test will be met see la verdad v commissioner and section dollar_figure of revproc_2012_9 above you failed to establish that your interactions with clients provide instruction or training useful to the individual and beneficial to the community within the meaning of sec_1_501_c_3_-1 of the regulations you are not operated exclusively for charitable purposes you failed to show that your activity is charitable since you do not limit your services providing mitigation and counseling services to those with mortgage problems does not provide the relief of the poor and distressed or of the underprivileged see sec_1_501_c_3_-1 of the regulations the individuals who are eligible for a modification or other forms of mortgage assistance include all income levels thus you are unlike the organizations described in revrul_69_441 above which aided low-income individuals and families who have financial problems and therefore relieved the poor and distressed you have a substantial non-exempt purpose you operate for the substantial commercial purpose of providing foreclosure counseling to the public see 326_us_279 in which the supreme court held that the presence of a single non- exempt_purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes your foreclosure counseling is no different from those of a commercial mortgage mitigation company you do not charge your clients instead you intend to negotiate contract fees with entities such as banks the court in american institute for economic research v united_states above held that an educational_organization was not entitled to the exemption because it conducted the sale of many publications as well as the sale of advice for a fee to individuals you are similar in terms of selling services for lenders' payments inurement private benefit you have failed to establish your structure and manner of operation will not result in inurement and or private benefit to x sec_1_501_c_3_-1 of the regulations x started you as her private company sets her own compensation is the only board member and as a result has unchecked control_over your operations and finances in fact you are similar to the organization in kj's fund raisers inc v commissioner in that you do not have checks and balances over your founders' compensation in this case the court ruled even with independent board members the presence of private benefit to the bar owner was far too evident also see the case of housing pioneers inc v commissioner above the court did not allow the organization's exemption regardless of its valid exempt_activities because it helped a for-profit business revrul_76_441 confirms the importance of an independent board in determining the presence of private interests and benefits you do not have an independent board your only board member is described as an owner and has sole control_over you therefore you failed to establish that you are not operated for your founders' private interests in accordance with sec_1_501_c_3_-1 of the regulations sec_501 of the code an organization that provides educational information on financial topics or financial counseling to homeowners who are at risk of foreclosure is providing credit_counseling_services within the meaning of sec_501 of the code thus to be exempt from taxation you must in addition to complying with the requirements of sec_501 comply with the provisions of sec_501 only one governing member is compensated for the work they provide for you therefore your governing body does not comply with sec_501 that requires that at all times the organization must have a board_of directors or other governing body not more than percent of the voting power of which is vested in persons who are employed by the organization or who will benefit financially directly or indirectly from the organization's activities because of your governing body directly benefits from your organization's activities therefore had you established that your operations satisfied the requirements of sec_501 your failure to satisfy the requirements of sec_501 would prevent you from being exempt from taxation under sec_501 failure to establish qualification for recognition of exempt status an applicant is required to submit sufficient information during the application process for the service to conclude that the organization is in compliance before a ruling is issued see la verdad v commissioner and section dollar_figure of revproc_2012_9 above in many instances you did not provide explanations required for example you did not describe how you will apply for certification as a hud housing counseling agency even if you clearly intend to be one you did not provide any details or scripts of your foreclosure counseling citing that you have not performed any yet your business plan shows that you have provided service to many homeowners you also failed to provide any details about your fee-for-fee service to lenders which is an important factor in distinguishing you from a commercial entity exemption from federal_income_tax is not a right but rather a matter of legislative grace see new dynamics foundation above in addition an organization has the burden of providing sufficient substantive information regarding its activities and operations to establish entitlement to tax-exempt status see harding hospital inc v united_states above you failed to provide an adequate basis for us to determine that you are organized and operated exclusively for exempt purposes conclusion based on the facts and information provided you are not operated exclusively for exempt purposes because your activities are not exclusively charitable you serve a substantial non exempt_purpose and have failed to show you are not serving private interests resulting in inurement additionally you do not meet the requirements under sec_501 accordingly you do not qualify for exemption as an organization described in sec_501 of the code you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination if your statement does not provide a basis to reconsider our determination we will forward your case to our appeals_office you can find more information about the role of the appeals_office in publication exempt_organization appeal procedures for unagreed issues types of information that should be included in your appeal can be found on page of publication under the heading regional_office appeal item must be accompanied by the following declaration the statement of facts under penalties of perjury declare that have examined the statement of facts presented in this appeal and in any accompanying schedules and statements and to the best of my knowledge and belief they are true correct and complete the declaration must be signed by an officer or trustee of the organization who has personal knowledge of the facts your appeal will be considered incomplete without this statement if an organization’s representative submits the appeal a substitute declaration must be included stating that the representative prepared the appeal and accompanying documents and whether the representative knows personally that the statements of facts contained in the appeal and accompanying documents are true and correct an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you during the appeal process if you want representation during the appeal process you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to appeal as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to the applicable address mail to deliver to internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you may fax your statement using the fax number shown in the heading of this letter if you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely holly o paz director exempt_organizations rulings and agreements enclosure publication


internal_revenue_service number release date index number ---------------------- ----------------------------------------------- -------------------------------------------------- ------------------------------ re--------------------------------- - - department of the treasury washington dc person to contact ---------------- id ------------- telephone number --------------------- refer reply to cc corp - plr-150124-03 date january ------------------------- ------------------------------ ---------------------------------------- ------------------------------------------------------------------------ legend distributing -------------------------------------------------------------------- controlled ------------------------------------------------------------------------- business a -------------------------------------------------------------------------------------------------------- business b state x dear --------------- income_tax consequences of a proposed transaction additional information was submitted in letters dated november december and date the information submitted for consideration is summarized below and business b distributing utilizes the accrual_method of accounting the taxpayer has supplied financial information which indicates that distributing has been conducting business a and business b each of which has had gross_receipts and operating_expenses representative of the active_conduct of the business for each of the past five years we reply to your letter dated date requesting rulings as to the federal distributing an s_corporation incorporated in state x is engaged in business a --------- distributing will form controlled as a wholly owned subsidiary by transferring all distributing has demonstrated that the nature of business a exposes business b plr-150124-03 to liabilities arising from various hazards distributing desires to insulate business b and its assets from the regulations liabilities and risks associated with the operation of business a we have received information demonstrating that distributing cannot acquire insurance sufficient to protect the business b assets from the hazards of business a distributing also has submitted information indicating its belief that the separation of business a and business b would achieve significant cost savings and would enable business b to compete more successfully in the marketplace accordingly distributing has proposed the following transaction the proposed transaction of the assets of business b to controlled in exchange for stock of controlled immediately after the formation of controlled and the transfer of the business b assets to controlled all of the outstanding_stock of controlled will be distributed by distributing to its shareholders controlled will make an s election on the first available date after the transaction transaction a b c d e the five years of financial information submitted on behalf of distributing is representative of the corporation's present operation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted except for the gradual expansion of business b and a planned sec_301 distribution no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that as a shareholder of distributing following the transaction distributing and controlled will continue independently and with its separate employees the active_conduct of business a and business b respectively there will be no debt outstanding between distributing and controlled after the proposed transaction the distribution of stock of controlled is being carried out for the following corporate business purposes risk reduction cost savings and to resolve the following representations have been made in connection with the proposed problems with competition the distribution of the stock of controlled is motivated in whole or in substantial part by these corporate business purposes there is no plan or intention by the shareholders of distributing to sell exchange transfer by gift or otherwise dispose_of any of their stock in distributing or controlled after the transaction there is no plan or intention by distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any corporation or to sell or otherwise dispose_of either corporation’s assets after the transaction except in the ordinary course of business the total adjusted_basis and fair_market_value of the assets transferred to controlled by distributing equals or exceeds the sum of the liabilities to which the transferred assets are subject no existing liabilities of distributing will be 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 distributing and controlled respectively have and will have no accumulated_earnings_and_profits at the beginning of their respective taxable years distributing and controlled will have no current_earnings_and_profits as of the date of the distribution no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of controlled stock no two parties to the transaction are investment companies as defined in sec_368 and iv of the internal_revenue_code the distribution 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 or more of the total value or total combined voting power of all classes of stock of distributing or controlled plr-150124-03 f g h i j k l m plr-150124-03 n o above we rule as follows no distributing shareholder or shareholders will hold immediately after the distribution disqualified_stock within the meaning of sec_355 which constitutes a 50-percent_or_greater_interest in distributing or controlled there is no plan or intention to revoke or otherwise terminate the s_corporation_election of either distributing or controlled based solely on the information submitted and on the representations set forth the transfer by distributing of its business b assets to controlled in exchange for controlled stock followed by the immediate distribution of all the controlled stock to the shareholders of distributing constitutes a reorganization within the meaning of sec_368 distributing and controlled will be a party to the reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss upon the transfer of the business b assets and related liabilities to controlled in exchange for the stock of controlled sec_361 and sec_357 controlled will recognize no gain_or_loss upon the receipt of the business b assets and related liabilities in exchange for shares of stock of controlled sec_1032 the basis of the assets received by controlled will be the same as the basis of such assets in the hands of distributing immediately prior to its transfer to controlled sec_362 the holding_period of the distributing assets received by controlled will include the period during which such assets were held by distributing sec_1223 the shareholders of distributing will recognize no gain_or_loss upon the receipt of the shares of controlled sec_355 distributing will recognize no gain_or_loss upon the distribution of stock of controlled to the shareholders of distributing sec_361 the aggregate basis of the distributing stock and controlled stock in the hands of the shareholders of distributing immediately after the distribution will be the same as the basis of the distributing stock in the hands of the shareholders of distributing immediately prior to the distribution sec_358 such aggregate basis will be allocated between the distributing stock and the controlled stock in proportion to the relative fair_market_value of each corporation’s stock in accordance with sec_1_358-2 distributing and controlled will be made under a of the income_tax regulations qualified subchapter_s shareholders distributing’s momentary ownership of the stock in connection with a reorganization under sec_368 will not cause controlled to have an ineligible shareholder under sec_1361 the holding_period of the controlled stock received by the shareholders of distributing will include the holding_period of the distributing stock with respect to which the distribution will be made provided that the distributing stock is held as a capital_asset on the date of the distribution sec_1223 plr-150124-03 as provided in sec_312 proper allocation of earnings_and_profits between provided that distributing immediately distributes the stock of controlled to 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 directly covered by the above rulings this ruling letter is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination letter is being sent to the taxpayer in accordance with the power_of_attorney on file with this office a copy of this we express no opinion about the tax treatment of the proposed transaction the rulings contained in this letter are based upon information and sincerely mark s jennings mark s jennings chief branch plr-150124-03 office of associate chief_counsel corporate


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date -------------- cc ita b01 genin-112710-19 number release date uil --------------------- --------------------- ---------------------------------------------------------------- -------------------------------------------- -------------------------------- dear thank you for your letter dated date you asked that we extend eligibility under revproc_2018_09 to taxpayers affected by hurricane michael and other federally declared disasters or issue a new rule specifying that the affected taxpayers may use the cost_indexes_safe_harbor_method we know that taxpayers often have difficulty determining the amount of their casualty losses under the methods provided in sec_1_165-7 of the income_tax regulations to assist taxpayers we issued revproc_2018_08 and revproc_2018_09 in date these revenue procedures provide safe_harbor methods that individuals may use to determine the amount of their casualty losses unlike revproc_2018_09 which provides the cost_indexes_safe_harbor_method that is specific to taxpayers in the particular geographic regions affected by hurricanes harvey irma and maria revproc_2018_08 provides certain safe_harbor methods that are available to any taxpayer taxpayers affected by hurricane michael and other federally declared disasters are eligible to use the estimated repair cost safe_harbor method the de_minimis safe_harbor method the insurance_safe_harbor_method the contractor_safe_harbor_method and the disaster loan appraisal safe_harbor method to determine the amount of their casualty losses for personal-use residential_real_property similarly taxpayers affected by hurricane michael and other federally declared disasters are eligible to use the de_minimis safe_harbor method and the replacement cost safe_harbor method to determine the amount of their casualty losses for personal belongings again revproc_2018_08 was intended to assist all taxpayers who suffer losses resulting from any type of casualty genin-112710-19 i hope this information is helpful if you have any questions please feel free to contact me or a member of your staff may contact -------------------- -------------------- at sincerely norma c rotunno branch chief branch office of associate chief_counsel income_tax accounting


internal_revenue_service number release date index number ------------------- ----------------------------- ----------------- --------------------------------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ---------------- telephone number -------------------- refer reply to cc corp b02 plr-136923-13 date date legend distributing distributing distributing1 controlled2 llc1 llc2 llc3 llc4 controlled ------------------------------------------------------------------------ ------------------------------------------------------------------------ --------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------------- ------------------------------------------------------------------------ plr-136923-13 controlled busine sec_1 busine sec_2 busine sec_3 busine sec_4 state a x project shareholder a shareholder b shareholder c date date date date a b c d ------------------------------------------------------------------------ -------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------ ---------------------------------- -------------------------------- ------------------------------------- -------------------------- ------------ -------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ---------- ----------------------------------------------------------- ------------------------------------------------------ ---------------------------------- ---------------- ------------------ ------------------------ ------------------ ---------------- -------------- ------------ --- plr-136923-13 dear ------------ this letter responds to your representative’s date letter requesting rulings on certain federal_income_tax consequences of the proposed transaction the material information submitted in that letter and subsequent correspondence is summarized below the rulings contained in this letter are based on 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 rulings verification of the facts representations and other information may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the internal distributions and external distribution both defined below i satisfy the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii are used principally as a device for the distribution of the earnings_and_profits of any distributing_corporation or any controlled_corporation or both see sec_355 of the internal_revenue_code code and sec_1_355-2 or iii are part of a plan or a series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in any distributing_corporation or any controlled_corporation see sec_355 and sec_1_355-7 facts distributing is a publicly traded corporation that has elected to be classified as a real_estate_investment_trust a reit within the meaning of sec_856 distributing wholly owns llc1 which is disregarded as an entity separate from distributing for federal_income_tax purposes a disregarded_entity distributing through llc1 and certain llc1 disregarded subsidiaries some of which are treated as qualified reit subsidiaries by the taxpayer owns all the outstanding_stock of distributing distributing is the common parent of an affiliated_group_of_corporations that file a consolidated federal_income_tax return distributing wholly owns distributing1 controlled2 formerly a limited_liability_company that had elected to be treated as a corporation for federal_income_tax purposes and effective as of date pursuant to a conversion under state a law a corporation distributing has outstanding one class of common_stock and no preferred_stock as of date distributing has a shares of common_stock outstanding plr-136923-13 the distributing group is primarily engaged in four businesses busine sec_1 busine sec_2 busine sec_3 and busine sec_4 distributing through its disregarded entities and subsidiary reits operates busine sec_1 which is reit-qualifying disregarded entities of distributing1 controlled2 operate the other three businesses which are non-reit qualifying specifically busine sec_2 is conducted primarily through llc2 busine sec_3 is conducted primarily through llc3 and busine sec_4 is conducted primarily through llc4 financial information has been submitted indicating that each of busine sec_2 and busine sec_3 has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years prior to date distributing conducted the operations of busine sec_2 and busine sec_3 on date distributing transferred all its operating_assets including busine sec_2 and busine sec_3 to distributing1 controlled2 in exchange for the deemed issuance to it of distributing1 controlled2’s membership interests and distributing1 controlled2’s assumption of related liabilities historically busine sec_3 included the production of x however since the completion of project on or about date busine sec_3 has substantially exited the business of producing x proposed transaction for what are represented as valid business reasons the taxpayer proposes the following transactions the proposed transaction distributing1 controlled2 will borrow dollar_figureb from third-party lenders the external opco debt distributing1 controlled2 will transfer all the proceeds of the external opco debt to distributing in repayment of intercompany debt if any and will transfer the remainder to distributing as a distribution the amount of cash distributed with respect to the stock of distributing1 controlled2 will not exceed distributing 2’s basis in the stock of distributing1 controlled2 distributing1 controlled2 will transfer all its assets except for the interests in llc3 and certain related entities to a newly formed corporation controlled in exchange for all of controlled 1’s stock the first contribution controlled will assume certain liabilities associated with the contributed assets all or a portion of the assumed_liabilities will be deductible or capitalized into the basis of assets by controlled under its normal method_of_accounting following the proposed transaction the distributing1 controlled2 deductible liabilities distributing1 controlled2 will distribute all of its controlled shares to distributing the first internal distribution plr-136923-13 distributing will distribute all of the shares of distributing1 controlled2 indirectly through disregarded entities and qualified reit subsidiaries to distributing the second internal distribution together with the first internal distribution the internal distributions following the second internal distribution distributing will transfer all of the shares of distributing1 controlled2 to a newly formed corporation controlled in exchange for dollar_figurec the sec_361 proceeds and all of controlled 3’s stock the second contribution controlled will fund the sec_361 proceeds with a loan from third-party lenders the controlled debt the sec_361 proceeds dollar_figurec will be in excess of distributing 3’s basis in its controlled stock moreover in connection with the second contribution controlled will assume certain liabilities associated with the contributed assets all of the liabilities assumed by controlled will be deductible or capitalized into the basis of assets by controlled under its method_of_accounting following the proposed transaction the distributing deductible liabilities distributing will distribute all of its controlled stock pro_rata to its shareholders the external distribution distributing will use all of the sec_361 proceeds to repurchase outstanding distributing stock and to pay quarterly or special dividends to its shareholders the repurchase and distribution will be completed within d months after the external distribution following the proposed transaction distributing and controlled will operate as two independent companies immediately after the proposed transaction it is anticipated that the board_of directors of distributing and controlled will have no common directors the current chairman president and ceo of distributing will become the chairman president and ceo of controlled in connection with the proposed transaction distributing and controlled may enter into certain agreements and arrangements including a separation and distribution agreement a transition services agreement the transition services agreement tax_matters_agreement and an intellectual_property agreement the ip agreement collectively the continuing arrangements the transition services agreement will not last more than d months and the services will be provided at cost the ip agreement will be world-wide fully paid-up royalty free and perpetual among other things the agreement will provide controlled with a license to use and display certain specified distributing trademarks moreover distributing and controlled will receive a license to use certain intellectual_property of the other plr-136923-13 due to the proposed transaction certain controlled employees officers and directors may own awards granted by distributing moreover because of the conversion of certain outstanding distributing share based awards some distributing employees officers and directors will own awards granted by controlled in particular each distributing stock_option will be converted into an adjusted distributing stock_option and a controlled stock_option with each having a vesting period of up to three years additionally holders of distributing restricted_stock will retain those awards and will also receive restricted_stock of controlled with each having a vesting period of up to three years representations the taxpayer has made the following representations in connection with the proposed transaction first contribution and first internal distribution 1a no part of the consideration to be distributed by distributing1 controlled2 will be received by a shareholder of distributing1 controlled2 as a creditor or an employee or in any capacity other than that of a shareholder of distributing1 controlled2 in addition the distribution of controlled stock to distributing in the first internal distribution is with respect to distributing 2’s ownership of distributing1 controlled2 stock 1b distributing1 controlled2 will treat all members of its separate_affiliated_group within the meaning of sec_355 the distributing1 controlled2 sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business 1c controlled will treat all members of its separate_affiliated_group within the meaning of sec_355 the controlled sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business 1d no intercorporate debt will exist between distributing1 controlled2 or any member of the distributing1 controlled2 sag and controlled or any member of the controlled sag at the time of or subsequent to the first internal distribution other than intercompany loans or obligations that have arisen or will arise between the parties in the ordinary course of business or as a result of the continuing arrangements any indebtedness owed by controlled or any member of the controlled sag to distributing1 controlled2 or any member of the distributing1 controlled2 sag after the first internal distribution will not constitute stock_or_securities plr-136923-13 1e the five years of financial information submitted on behalf of busine sec_2 conducted by the distributing1 controlled2 sag and to be conducted by the controlled sag following the first internal distribution is representative of the present business operations and there have been no substantial operational changes to busine sec_2 since the date of the last financial statements submitted 1f 1g the five years of financial information submitted on behalf of busine sec_3 conducted by the distributing1 controlled sag is representative of the present business operations except for the change to busine sec_3 previously noted there have been no substantial operational changes to busine sec_3 since the date of the last financial statements submitted the controlled sag neither acquired busine sec_2 nor acquired control of an entity conducting busine sec_2 during the five-year period ending on the date of the first internal distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except i transfers between members of the affiliated_group as defined in sec_1504 determined without regard to sec_1504 of which distributing was the parent and ii certain acquisitions which were immaterial relative to the overall size and scope of busine sec_2 1h the distributing1 controlled2 sag neither acquired busine sec_3 nor acquired control of an entity conducting busine sec_3 during the five-year period ending on the date of the first internal distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except i transfers between members of the affiliated_group as defined in sec_1504 determined without regard to sec_1504 of which distributing was the parent and ii certain acquisitions which were immaterial relative to the overall size and scope of busine sec_3 1i 1j 1k following the first internal distribution the distributing1 controlled2 sag will continue the active_conduct of busine sec_3 independently and with its separate employees except as provided pursuant to the continuing arrangements following the first internal distribution the controlled sag will continue the active_conduct of busine sec_2 independently and with its separate employees or employees of related entities consistent with past practice except as provided pursuant to the continuing arrangements the first internal distribution will be carried out for the corporate business purposes of facilitating the second internal distribution and facilitating the external distribution thereby achieving the benefits associated with the external distribution the first internal distribution is motivated in whole or in substantial part by these corporate business purposes plr-136923-13 1l the first internal distribution is not being used principally as a device for the distribution of the earnings_and_profits of distributing1 controlled2 or controlled or both 1m the total fair_market_value of the assets transferred to controlled by distributing1 controlled2 in the first contribution will equal or exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by controlled ii the amount of any liabilities owed to controlled by distributing1 controlled2 that are discharged or extinguished in connection with the exchange and iii the amount of any 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 distributing1 controlled2 in connection with the exchange 1n the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the first contribution 1o the total adjusted bases of the assets transferred by distributing1 controlled2 to controlled in the first contribution will equal or exceed the sum of the liabilities other than distributing1 controlled2 deductible liabilities assumed by controlled as determined under sec_357 1p the liabilities if any to be assumed within the meaning of sec_357 by controlled in the first contribution were incurred in the ordinary course of business and are associated with the assets being transferred 1q 1r the incurrence of distributing1 controlled2 deductible liabilities assumed by controlled did not result in the creation of or increase in basis of any assets of distributing1 controlled2 or controlled or the stock of distributing1 controlled2 or controlled prior to the first internal distribution the distributing1 controlled2 deductible liabilities are accrued liabilities for financial_accounting purposes by distributing1 controlled2 but will not meet the timing requirements for a deduction by distributing1 controlled2 before the first contribution under distributing1 controlled2’s method of tax_accounting the distributing1 controlled2 deductible liabilities will meet the timing requirements for a deduction by controlled after the first contribution under controlled 1’s method of tax_accounting 1s except pursuant to the proposed transaction distributing1 controlled2 will neither accumulate its receivables nor make extraordinary payment of its payables in anticipation of the proposed transaction plr-136923-13 1t at the time of the first internal distribution distributing1 controlled2 will have no excess_loss_account within the meaning of sec_1_1502-19 with respect to the controlled stock 1u for purposes of sec_355 immediately after the first internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing1 controlled2 stock entitled to vote or percent or more of the total value of all classes of distributing1 controlled2 stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the first internal distribution 1v for purposes of sec_355 immediately after the first internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or 50-percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the first internal distribution or ii attributable to distributions on distributing1 controlled2 stock_or_securities that were acquired by purchase as defined in sec_355 and during the five- year period determined after applying sec_355 ending on the date of the first internal distribution 1w payments made in connection with all continuing transactions between distributing1 controlled2 or any of its subsidiaries and controlled or any of its subsidiaries following the first internal distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length except as provided in the continuing arrangements 1x no two parties to the first internal distribution are investment companies as defined in sec_368 and iv 1y distributing1 controlled2 controlled and distributing will each pay their own expenses if any incurred in connection with the first internal distribution 1z the first internal distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in either distributing1 controlled2 or controlled including any predecessor of or successor to any such corporation 1aa immediately after the transaction within the meaning of sec_355 either i no person will hold a 50-percent_or_greater_interest within the meaning of plr-136923-13 sec_355 in distributing1 controlled2 or controlled ii if any person holds a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 such person will have held such interest in such corporation directly or through attribution immediately before the transaction or iii neither distributing1 controlled2 nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 second internal distribution 2a no part of the consideration to be distributed by distributing in the second internal distribution will be received by a shareholder as a creditor or an employee or in any capacity other than that of a shareholder of distributing in addition the distribution of distributing1 controlled2 stock to distributing in the second internal distribution is with respect to distributing 3’s ownership of distributing stock 2b distributing will treat all members of its separate_affiliated_group within the meaning of sec_355 the distributing sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business 2c distributing1 controlled2 will treat all members of the distributing1 controlled2 sag as one corporation in determining whether it meets the requirements of sec_355 b a regarding the active_conduct_of_a_trade_or_business 2d no intercorporate debt will exist between distributing or any member of the distributing sag and distributing1 controlled2 or any member of the distributing1 controlled2 sag at the time of or subsequent to the second internal distribution other than intercompany loans or obligations that have arisen or will arise between the parties in the ordinary course of business or as a result of the continuing arrangements any indebtedness owed by distributing1 controlled2 or any member of the distributing1 controlled2 sag to distributing or any member of the distributing sag after the second internal distribution will not constitute stock_or_securities 2e the five years of financial information submitted on behalf of busine sec_2 conducted by the distributing1 controlled2 sag and to be conducted by the distributing sag following the second internal distribution is representative of the present operations of the business and there have been no substantial operational changes in the business since the date of the last financial statements submitted plr-136923-13 2f 2g the five years of financial information submitted on behalf of busine sec_3 conducted by the distributing1 controlled2 sag is representative of the present operations of the business except for the change to busine sec_3 previously noted there have been no substantial operational changes to busine sec_3 since the date of the last financial statements submitted the distributing sag neither acquired busine sec_2 nor acquired control of an entity conducting busine sec_2 during the five-year period ending on the date of the second internal distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except i transfers between members of the affiliated_group as defined in sec_1504 determined without regard to sec_1504 of which distributing was the parent and ii certain acquisitions which were immaterial relative to the overall size and scope of busine sec_2 2h the distributing1 controlled2 sag neither acquired busine sec_3 nor acquired control of an entity conducting busine sec_3 during the five-year period ending on the date of the second internal distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except i transfers between members of the affiliated_group as defined in sec_1504 determined without regard to sec_1504 of which distributing was the parent and ii certain acquisitions which were immaterial relative to the overall size and scope of busine sec_3 2i 2j 2k 2l 2m following the second internal distribution the distributing sag will continue the active_conduct of busine sec_2 independently and with its separate employees or employees of related entities consistent with past practice except as provided pursuant to the continuing arrangements following the second internal distribution the distributing1 controlled2 sag will continue the active_conduct of busine sec_3 independently and with its separate employees except as provided pursuant to the continuing arrangements the second internal distribution will be carried out for the corporate business_purpose of facilitating the external distribution thereby achieving the benefits associated with the external distribution the second internal distribution is motivated in whole or in part by this corporate business_purpose the second internal distribution is not being used principally as a device for the distribution of the earnings_and_profits of distributing or distributing1 controlled2 or both immediately before the second internal distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in plr-136923-13 effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account of a member in the stock of another member that is required to be taken into account by sec_1_1502-19 will be included in income as appropriate at the time of the second internal distribution neither distributing nor any member of distributing 2’s consolidated_group will have an excess_loss_account in the stock of distributing1 controlled2 or any subsidiary of distributing1 controlled2 2n for purposes of sec_355 immediately after the second internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or 50-percent or more of the total combined value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the second internal distribution 2o for purposes of sec_355 immediately after the second internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing1 controlled2 stock entitled to vote or 50-percent or more of the total value of all classes of distributing1 controlled2 stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the second internal distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the second internal distribution 2p except pursuant to the proposed transaction distributing will neither accumulate its receivables nor make extraordinary payment of its payables in anticipation of the proposed transaction 2q payments made in connection with all continuing transactions if any between distributing or any of its subsidiaries and distributing1 controlled2 or any of its subsidiaries following the second internal distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length except as provided in the continuing arrangements 2r the second internal distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in either distributing or distributing1 controlled2 including any predecessor of or successor to any such corporation plr-136923-13 2s immediately after the transaction within the meaning of sec_355 either i no person will hold a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or distributing1 controlled2 ii if any person holds a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 such person will have held such interest in such corporation directly or through attribution immediately before the transaction or iii neither distributing nor distributing1 controlled2 will be a disqualified_investment_corporation within the meaning of sec_355 second contribution and external distribution 3a other than the conversion of distributing share based awards into controlled share based awards no part of the consideration to be distributed by distributing will be received by a shareholder of distributing as a creditor or an employee or in any capacity other than that of a shareholder of distributing in addition the distribution of controlled stock to distributing 3’s shareholders in the external distribution is with respect to their ownership of distributing stock 3b distributing will treat all members of its separate_affiliated_group within the meaning of sec_355 the distributing sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business 3c controlled will treat all members of its separate_affiliated_group within the meaning of sec_355 the controlled sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business 3d no intercorporate debt will exist between distributing or any member of the distributing sag and controlled or any member of the controlled sag at the time of or subsequent to the external distribution other than intercompany loans or obligations that have arisen or will arise between the parties in the ordinary course of business or as a result of the continuing arrangements any indebtedness owed by controlled or any member of the controlled sag to distributing or any member of the distributing sag after the external distribution will not constitute stock_or_securities 3e the five years of financial information submitted on behalf of busine sec_2 conducted by the distributing1 controlled2 sag and to be conducted by the distributing sag following the external distribution is representative of the present operations of the business and there have been no substantial operational changes in the business since the date of the last financial statements submitted plr-136923-13 3f 3g the five years of financial information submitted on behalf of busine sec_3 conducted by the distributing1 controlled2 sag and to be conducted by the controlled sag following the external distribution is representative of the present operations of the business except for the change to busine sec_3 previously noted there have been no substantial operational changes to busine sec_3 since the date of the last financial statements submitted the distributing sag neither acquired busine sec_2 nor acquired control of an entity conducting busine sec_2 during the five-year period ending on the date of the external distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except for i transfers between members of the affiliated_group as defined in sec_1504 determined without regard to sec_1504 of which distributing was the parent and ii certain acquisitions which were immaterial relative to the overall size and scope of busine sec_2 3h the controlled sag neither acquired busine sec_3 nor acquired control of an entity conducting busine sec_3 during the five-year period ending on the date of the external distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part except for i transfers between members of the affiliated_group as defined in sec_1504 determined without regard to sec_1504 of which distributing was the parent and ii certain acquisitions which were immaterial relative to the overall size and scope of busine sec_3 3i 3j 3k following the external distribution the distributing sag will continue the active_conduct of busine sec_2 independently and with its separate employees or employees of related entities consistent with past practice except as provided pursuant to the continuing arrangements following the external distribution the controlled sag will continue the active_conduct of busine sec_3 independently and with its separate employees except as provided pursuant to the continuing arrangements the external distribution will be carried out for the corporate business purposes of i providing busine sec_3 with enhanced strategic and financial flexibility and enhanced management focus to pursue its business plan and acquisition strategy free from the reit structural and capital allocation constraints that could limit the growth potential of busine sec_3 ii enabling management of distributing to concentrate exclusively on its reit-qualifying busine sec_1 and its complementary busine sec_2 and busine sec_4 iii facilitating the ability of both distributing and controlled to establish appropriate capital structures for their respective businesses iv providing distributing with flexibility to pursue share repurchases in connection with the external distribution v providing each of distributing and controlled flexibility in raising future capital vi enhancing plr-136923-13 the ability of both distributing and controlled to make strategic acquisitions and vii enhancing employee hiring retention and alignment of management compensation with performance of the business the external distribution is motivated in whole or in substantial part by these corporate business purposes 3l the external distribution is not being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both 3m the total fair_market_value of the assets transferred to controlled by distributing in the second contribution will equal or exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by controlled 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 any 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 3n the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately after the second contribution 3o the fair_market_value of the assets distributing transfers to controlled in the second contribution will equal or exceed the aggregate adjusted_basis of those assets 3p the total adjusted bases of the assets transferred by distributing to controlled in the second contribution will equal or exceed the sum of i the liabilities other than distributing deductible liabilities assumed by controlled as determined under sec_357 and ii the total amount of money and the fair_market_value of other_property within the meaning of sec_361 received by distributing and transferred by it to its creditors in the external distribution 3q 3r 3s the liabilities if any to be assumed within the meaning of sec_357 by controlled in the second contribution were incurred in the ordinary course of business and are associated with the assets being transferred the incurrence of distributing deductible liabilities assumed by controlled did not result in the creation of or increase in basis of any assets of distributing or controlled or the stock of distributing or controlled prior to the external distribution the distributing deductible liabilities are accrued liabilities for financial_accounting purposes by distributing but will not meet the timing requirements for a deduction by distributing before the second contribution under distributing 3’s method of tax_accounting the distributing deductible plr-136923-13 liabilities will meet the timing requirements for a deduction by controlled after the second contribution under controlled 3’s method of tax_accounting 3t distributing will neither accumulate its receivables nor make extraordinary payment of its payables in anticipation of the proposed transaction 3u for purposes of sec_355 immediately after the external distribution no person determined after applying sec_355 will hold stock possessing 50-percent or more of the total combined voting power of all classes of distributing stock entitled to vote or 50-percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the external distribution 3v for purposes of sec_355 immediately after the external distribution no person determined after applying sec_355 will hold stock possessing 50-percent or more of the total combined voting power of all classes of controlled stock entitled to vote or 50-percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the external distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the external distribution 3w payments made in connection with all continuing transactions between distributing or any of its subsidiaries and controlled or any of its subsidiaries following the external distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length except as provided in the continuing arrangements 3x no two parties to the external distribution are investment companies as defined in sec_368 and iv 3y distributing controlled and distributing shareholders will each pay their own expenses if any incurred in connection with the external distribution 3z the external 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 either distributing or controlled including any predecessor of or successor to any such corporation 3aa immediately after the transaction within the meaning of sec_355 either i no person will hold a 50-percent_or_greater_interest within the meaning of plr-136923-13 sec_355 in distributing or controlled ii if any person holds a 50-percent_or_greater_interest within the meaning of sec_355 in any disqualified_investment_corporation within the meaning of sec_355 such person will have held such interest in such corporation directly or through attribution immediately before the transaction or iii neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 3bb distributing is a united_states_real_property_holding_corporation a usrphc as defined in sec_897 during the five-year period ending on the date of the external distribution following the external distribution distributing will continue to be a usrphc 3cc all of the stock of distributing has been regularly_traded on an established_securities_market in the united_states for the past five years 3dd to the best knowledge of distributing i shareholder a shareholder b and shareholder c are the only shareholders of distributing that held more than five percent of the stock of distributing at any time during the past five years ii all of the greater than five percent shareholders of distributing the five-percent shareholders during the past five years are united_states persons within the meaning of sec_7701 a u_s_person and iii none of the five-percent shareholders is a partnership or trust having partners or beneficiaries respectively who are not u s persons rulings first contribution and first internal distribution based solely on the information submitted and the representations set forth above and provided that i the distribution of controlled stock to distributing1 controlled2’s shareholder in the first internal distribution is with respect to distributing 2’s ownership of distributing1 controlled2 stock ii any money property or stock contributed by distributing1 controlled2 to controlled in the first contribution is exchanged solely for stock_or_securities in controlled and iii any other transfer of stock money or property between distributing1 controlled controlled or distributing and any person related to distributing1 controlled2 controlled or distributing is respected as a separate transaction we rule as follows on the first contribution and first internal distribution the first contribution followed by the first internal distribution will be a reorganization under sec_368 distributing1 controlled2 and controlled will each be a party to the reorganization under sec_368 plr-136923-13 distributing1 controlled2 will recognize no gain_or_loss on the first contribution sec_357 and sec_361 the distributing controlled deductible liabilities will be excluded in determining the amount of liabilities of distributing1 controlled2 assumed by controlled for purposes of sec_357 and sec_358 controlled will recognize no gain_or_loss on the first contribution sec_1032 immediately after the first contribution controlled 1’s basis in each asset received in the first contribution will equal the basis of that asset in the hands of distributing1 controlled2 immediately before the first contribution sec_362 controlled 1’s holding_period for each asset received in the first contribution will include the period during which distributing1 controlled2 held the asset sec_1223 distributing1 controlled2 will recognize no gain_or_loss on the first internal distribution sec_361 distributing will not recognize any gain_or_loss and will not otherwise include any amount in income upon its receipt of controlled stock in the first internal distribution sec_355 the basis of the distributing1 controlled2 stock and the controlled stock in the hands of distributing immediately after the first internal distribution will equal the basis of the distributing1 controlled2 stock held by distributing immediately before the first internal distribution allocated between the stock of distributing1 controlled2 and controlled in proportion to the fair_market_value of each immediately following the first internal distribution in accordance with sec_1_358-2 sec_358 the holding_period of the controlled stock received by distributing in the first internal distribution will include the holding_period of the distributing1 controlled2 stock on which the first internal distribution is made provided the distributing1 controlled2 stock is held as a capital_asset on the date of the first internal distribution sec_1223 earnings_and_profits will be allocated between distributing1 controlled2 and controlled in accordance with sec_312 and sec_1_312-10 and sec_1 e second internal distribution plr-136923-13 based solely on the information submitted and the representations set forth above and provided that i the distribution of distributing1 controlled2 stock to distributing in the second internal distribution is with respect to distributing 3’s ownership of distributing stock and ii any transfer of stock money or property between distributing distributing1 controlled2 or distributing and any person related to distributing distributing1 controlled2 or distributing is respected as a separate transaction we rule as follows on the second internal distribution distributing will not recognize any gain_or_loss and will not otherwise include any amount in income upon its receipt of distributing1 controlled2 stock in the second internal distribution sec_355 distributing will recognize no gain_or_loss on the second internal distribution sec_355 the basis of the distributing stock and the distributing1 controlled2 stock in the hands of distributing immediately after the second internal distribution will equal the basis of the distributing stock held by distributing immediately before the second internal distribution allocated between the stock of distributing and distributing1 controlled2 in proportion to the fair_market_value of each immediately following the second internal distribution in accordance with sec_1_358-2 sec_358 the holding_period of the distributing1 controlled2 stock to be received by distributing in the second internal distribution will include the holding_period of the distributing stock on which the second internal distribution is made provided the distributing stock is held as a capital_asset on the date of the second internal distribution sec_1223 earnings_and_profits will be allocated between distributing and distributing1 controlled2 in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 second contribution and external distribution based solely on the information submitted and the representations set forth above and provided that i the distribution of controlled stock to distributing 3’s shareholders in the external distribution is with respect to their ownership of distributing stock ii any money property or stock contributed by distributing to controlled in the second contribution is exchanged solely for stock_or_securities in controlled and iii any other transfer of stock money or property between distributing controlled or any distributing shareholder and any person related to distributing controlled or any distributing shareholder is respected as a separate transaction we rule as follows on the second contribution and external distribution plr-136923-13 the second contribution together with the external distribution will qualify as a reorganization within the meaning of sec_368 distributing and controlled each will be a party to the reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss on its transfer of the stock of distributing1 controlled2 to controlled in the second contribution sec_357 and sec_361 the distributing deductible liabilities will be excluded in determining the amount of liabilities of distributing assumed by controlled for purposes of sec_357 and sec_358 controlled will recognize no gain_or_loss on the second contribution sec_1032 immediately after the second contribution controlled 3’s basis in each asset received in the second contribution will equal the basis of that asset in the hands of distributing immediately before the second contribution sec_362 controlled 3’s holding_period for each asset received in the second contribution will include the period during which distributing held that asset sec_1223 distributing will recognize no gain_or_loss on the external distribution sec_361 distributing 3’s shareholders will not recognize any gain_or_loss and will not otherwise include any amount in income upon their receipt of controlled stock in the external distribution sec_355 the basis of the distributing stock and the controlled stock in the hands of distributing shareholders immediately after the external distribution will equal the basis of the distributing stock held by distributing shareholders immediately before the external distribution allocated between the stock of distributing and the stock of controlled in proportion to the fair_market_value of each immediately following the external distribution in accordance with sec_1_358-2 sec_358 the holding_period of the controlled stock received by distributing shareholders in the external distribution will include the holding_period of the distributing stock on which the external distribution is made provided the distributing stock is held as a capital_asset on the date of the external distribution sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 plr-136923-13 except for purposes of sec_355 payments made between distributing and controlled and their respective affiliates under any of the continuing arrangements regarding liabilities indemnities or other obligations that i have arisen or will arise for a taxable_period ending on or before the external distribution or for a taxable_period beginning before and ending after the external distribution and ii will not become fixed and ascertainable until after the external distribution will be viewed as occurring immediately before the external distribution see 344_us_6 revrul_83_73 c b caveats except as specifically provided herein we express no opinion concerning the tax consequences of any aspect of any matter or item discussed or referenced in this letter moreover no opinion is expressed about the tax treatment of the transactions or of any other matter under other provisions of the code or regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction not specifically covered by the above rulings in particular distributing has represented that it is a u s real_property holding corporation under sec_897 and sec_1_897-6t gain is recognized if there is an exchange of stock that is a u s real_property interest for stock that is not a u s real_property interest see sec_1_897-6t no opinion is expressed in regard to the application of sec_897 or the regulations thereunder to the receipt of any of the stock of controlled pursuant to sec_355 moreover no opinion is expressed regarding i ii whether the internal distributions and external distribution satisfy the business_purpose requirement of sec_1_355-2 whether the internal distributions and external distribution are used principally as a device for the distribution of the earnings_and_profits of any distributing_corporation any controlled_corporation or any combination thereof see sec_355 and sec_1_355-2 iii whether the internal distributions and external distribution are part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest in any distributing_corporation or any controlled_corporation see sec_355 and sec_1_355-7 iv whether distributing qualifies as a reit under subchapter_m of the code v whether distributing qualifies as a taxable_reit_subsidiary under sec_856 and plr-136923-13 vi the proper treatment under sec_856 of income earned or attributable to distributing and of assets held by distributing procedural statements this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that this letter 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 ruling letter pursuant to the power_of_attorney on file in this matter a copy of this letter is being sent to your authorized representatives sincerely ______________________________ gerald b fleming senior technician reviewer branch office of associate chief_counsel corporate cc