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 intl b02 plr-103984-14 date date ty ------ legend shareholder ---------------------------------------------- partner fc state country date year year year ----------------------------- ---------------------------- ------------ --------------------- ------------------ ------ ------ ------ law firm ----------- accounting firm a -------- accounting firm b ------------------- accounting firm c ---------------------------------------- former director of tax -------------------- plr-103984-14 current director of tax --------------------- x y dear ----------- --- ------- this is in response to a letter dated date submitted by shareholder’s authorized representatives that requested the consent of the commissioner of the internal_revenue_service commissioner to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code and sec_1_1295-3 with respect to shareholder’s investment in fc the ruling contained in this letter is based upon information and representations submitted on behalf of shareholder by its authorized representatives 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 this request_for_ruling such material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts shareholder is a partnership organized under the laws of state shareholder’s tax_matters_partner partner owns a x direct interest in shareholder partner is a corporation organized under the laws of state it is classified as an association_taxable_as_a_corporation for u s federal_income_tax purposes partner is a publicly traded company shareholder invested in fc on date and owns y of fc fc is organized under the laws of country it is classified as an association_taxable_as_a_corporation for u s federal_income_tax purposes fc has been a pfic with respect to shareholder since date former director of tax partner’s former director of tax from year through year provided all international tax_advice with respect to the investment in fc during year through year former director of tax engaged law firm accounting firm a and accounting firm b in connection with return preparation for partner and shareholder former director of tax held himself out as a qualified_tax professional and partner reasonably believed that former director of tax was competent to render tax_advice with respect to the ownership of shares of a foreign_corporation former director of tax had access to all relevant facts and circumstances related to shareholder’s ownership of fc stock former director of tax did not advise shareholder of the possibility of making a qef election with respect to fc and thus did not advise shareholder of the plr-103984-14 consequences of making or failing to make a qef election law firm accounting firm a and accounting firm b also did not advise shareholder of the possibility of making a qef election with respect to fc and thus did not advise shareholder of the consequences of making or failing to make a qef election partner hired current director of tax partner’s current director of tax in year current director of tax engaged accounting firm c to review its international tax matters accounting firm c identified fc as being a pfic of shareholder from date shareholder submitted an affidavit under penalties of perjury which describes the events that led to its failure to make a qef election with respect to fc by the election due_date including the roles of law firm accounting firm a accounting firm b and former director of tax shareholder represents that as of the date of this request_for_ruling the pfic status of fc has not been raised by the irs on audit for any of the taxable years at issue ruling requested shareholder requests the consent of the commissioner to make a retroactive qef election with respect to fc for its year tax_year tax_year under sec_1_1295-3 law sec_1295 provides that a pfic will be treated as a qef with respect to a shareholder if an election by the shareholder under sec_1295 applies to the pfic for the taxable_year and the pfic complies with the requirements prescribed by the secretary for purposes of determining the ordinary_earnings and net capital_gains of the company under sec_1295 a qef election may be made for a taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for the taxable_year to the extent provided in regulations the election may be made after the due_date if the shareholder failed to make an election by the due_date because the shareholder reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united_states government as provided in sec_1_1295-3 plr-103984-14 the request is made before a representative of the irs raises upon audit the pfic status of the company for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of the failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on the professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with shareholder’s ruling_request we conclude that shareholder has satisfied sec_1_1295-3 accordingly consent is granted to shareholder to make a retroactive qef election with respect to fc for tax_year provided that shareholder complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this private_letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative plr-103984-14 a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely barbara e rasch senior technical reviewer branch international cc


department of the treasury internal_revenue_service washington d c ---- -------------------- contact person telephone number identification_number number release date date uil employer_identification_number legend p j b s a m dear ------------------ p and j request rulings under sec_507 sec_4940 sec_4941 sec_4942 sec_4944 and sec_4945 of the internal_revenue_code concerning p’s transfer under sec_507 of one-half of its assets to j statement of fact p is exempt under sec_501 of the code and is a private_foundation the officers and board_of directors of p currently consist of three individuals b s and a p annually makes grants and contributions to tax exempt_organizations in its geographic locale s a daughter of p’s original members live sec_120 miles away in another city s is active in charitable organizations in that city as a result of s’s desire to further charitable causes in her community she created j j is exempt under sec_501 of the code and is a private_foundation the officers and board_of directors of j consist of s and her husband m p’s board_of directors decided j could more effectively further charitable causes in j’s community if p transferred one-half of its assets to j the transfer the transfer is conditioned on the receipt of a favorable private_letter_ruling from the service p states it has never notified the service that it intends to terminate its private_foundation_status nor has p ever received notification its status as a private_foundation has been terminated furthermore p states it has not committed willful repeated acts or failures to act or a willful or flagrant act or failure to act giving rise to liability for tax under chapter of the code law sec_507 of the code and sec_1_507-1 of the income_tax regulations provide that a private_foundation may voluntarily terminate its private_foundation_status by submitting to the internal_revenue_service a statement of its intention to voluntarily terminate its private_foundation_status pursuant to sec_507 and by paying any termination_tax under sec_507 of the code sec_507 of the code impose excise_tax on a private_foundation which voluntarily terminates its private_foundation_status under sec_507 of the code and provides that this sec_507 tax is equal to the lower_of the aggregate tax benefits that have resulted from the private foundation's exempt status under sec_501 of the code or the value of the net assets of the private_foundation sec_507 of the code provides that in the case of a transfer of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment the transferee foundation shall not be treated as a newly created organization for purposes of sec_507 sec_1_507-3 of the regulations provides a transfer under sec_507 of the code includes a transfer of assets from one private_foundation to one or more other private_foundations pursuant to any reorganization including a significant disposition of or more of the transferor foundation's assets sec_1_507-1 of the regulations provides that a private_foundation which transfers all of its net assets is not required to file annual information returns required by sec_6033 of the code for subsequent tax years after its tax_year of such transfer when it has no assets or activities sec_1_507-3 of the regulations provides that a transferor private_foundation is required to meet its charitable distribution_requirements under sec_4942 of the code even for any_tax year in which it makes a transfer of its assets to another private_foundation pursuant to sec_507 of the code also where a private_foundation transfers all of its assets any recordkeeping requirements under sec_4942 of the code do not apply when the foundation has no assets sec_1_507-3 of the regulations provides that where the transferor has disposed of all of its assets during any period in which the transferor has no assets sec_4945 and h shall not apply to the transferee or the transferor with respect to any 'expenditure responsibility' grants made by the transferor however the exception contained in this subparagraph shall not apply with respect to any information reporting requirements imposed by sec_4945 and the regulations there under for any year in which any such transfer is made sec_1_507-3 of the regulations provides that if a private_foundation transfers assets to one or more private_foundations which are effectively controlled directly or indirectly within the meaning of sec_1_482-1 of the regulations by the same persons who effectively control the transferor foundation each transferee foundation will be treated as if it were the transferor foundation for purposes of sec_4940 through and sec_507 through of the code each transferee is treated as its transferor in the proportion which the fair_market_value of the transferor's assets transferred to the transferee bears to the fair_market_value of all of the transferor's assets immediately before the transfer sec_1_507-3 of the regulations provides that a transfer of assets under sec_507 of the code does not relieve the transferor private_foundation from filing its own final tax_year return as required by sec_6043 of the code sec_1_507-1 and sec_1_507-3 of the regulations provide that a transferor foundation's transfer of assets under sec_507 of the code will not constitute any termination of the transferor foundation's private_foundation_status under sec_509 of the code sec_4941 of the code imposes excise_tax on any act of self-dealing between a private_foundation and any of its disqualified persons under sec_4946 of the code sec_53_4946-1 of the regulations provides that for purposes of self-dealing under sec_4941 of the code an exempt_organization under sec_501 of the code is not a disqualified_person sec_4942 of the code requires that a private_foundation must expend annual qualifying distributions under sec_4942 of the code for the conduct of exempt purposes sec_4942 of the code defines the term qualifying_distribution to mean-- a any amount including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled directly or indirectly by the foundation or one or more disqualified persons with respect to the foundation or ii a private_foundation which is not an operating_foundation or b any amount_paid to acquire an asset used or held for use directly in carrying out one or more purposes described in sec_170 sec_4942 of the code defines the term qualifying_distribution to included a contribution to a sec_501 organization described in paragraph a i or ii if-- a not later than the close of the first taxable_year after its taxable_year in which such contribution is received such organization makes a distribution equal to the amount of such contribution and such distribution is a qualifying_distribution within the meaning of paragraph or without regard to this paragraph which is treated under subsection h as a distribution out of corpus or would be so treated if such sec_501 organization were a private_foundation which is not an operating_foundation and b the private_foundation making the contribution obtains adequate_records or other_sufficient_evidence from such organization showing that the qualifying_distribution described in subparagraph a has been made by such organization revrul_78_387 1978_2_cb_270 describes the carryover of a transferor private foundation's excess qualifying distributions under sec_4942 of the code where the transferor and the transferee foundations are controlled by the same persons under sec_1_507-3 of the regulations the transferee is treated as the transferor so that the transferee can reduce its own distributable_amount under sec_4942 of the code by its share of the transferor foundation's excess qualifying distributions under sec_4942 of the code sec_4944 of the code imposes tax upon a private_foundation which invests any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes sec_4945 of the code imposes excise_tax on any private foundation's making of a taxable_expenditure under sec_4945 of the code sec_53_4945-6 allows a private_foundation to transfer its assets to exempt_organizations under sec_501 of the code including private_foundations pursuant to sec_507 of the code without the transfers being taxable_expenditures under sec_4945 of the code sec_4945 of the code requires that in order to avoid making a taxable_expenditure a transferor private_foundation must exercise expenditure_responsibility under sec_4945 of the code on its grants to another private_foundation sec_4945 of the code on expenditure_responsibility provides in part that the grantor private_foundation must obtain proper reports from its grantee private_foundation as to the grantee's uses of the grant sec_53_4945-5 of the regulations provides that expenditure_responsibility includes a requirement that the grantor private_foundation must make a pre-grant inquiry of the prospective grantee private_foundation thus before making a grant the grantor must conduct a limited inquiry of the potential grantee such pre-grant inquiry must be complete enough to give a reasonable person assurance that the grantee will use the grant for the proper exempt purposes this inquiry should concern matters such as the identity prior history and experience of the grantee organization and its managers and any knowledge which the grantor has based on prior experience or other information which is readily available concerning the management activities and practices of the grantee foundation the scope of this inquiry may vary from case to case depending upon the size and purpose of the grant the period of time over which it is to be paid and the prior experience which the grantor has had with respect to the capacity of the grantee to use the grant for the proper purposes sec_53_4945-5 of the regulations provides that in order to exercise expenditure_responsibility the grantor private_foundation must require that the grantee organization be made subject_to a written commitment signed by an appropriate officer director or trustee of the grantee to repay any portion of the amount granted which is not used for the purposes of the grant to submit full and complete annual reports on the manner in which the grant funds are spent and the progress made in accomplishing the purposes of the grant to maintain records of receipts and expenditures and to make its books_and_records available to the grantor at reasonable times and not to use any of the funds to carry on propaganda or otherwise attempt to influence legislation within sec_4945 of the code or to influence the outcome of any specific public election or to carry on any voter registration drive within the meaning of sec_4945 or to make any grant which does not comply with the requirements of sec_4945 or sec_4945 or to undertake any activity for any purpose other than one specified in sec_170 of the code the agreement must clearly specify the purposes of the grant such purposes may include contributing for capital endowment provided that neither the grants nor the income there from may be used for purposes other than those in sec_170 of the code sec_53_4945-5 of the regulations on capital endowment grants made to private_foundations provides that if a private_foundation makes a grant to another private_foundation for endowment or for other capital purposes the grantor foundation must require reports from the grantee foundation on the uses of the principal and the income if any from the grant funds the grantee must make such reports annually for its tax_year in which the grant was made and for its immediately succeeding two tax years only if it is reasonably apparent to the grantor before the end of such grantee's second succeeding tax_year that neither the principal nor the income from the grant funds has been used for any purpose which would result in liability for tax under sec_4945 of the code may the grantor then allow the grantee's reports to be discontinued analysis under sec_507 of the code and sec_1_507-3 of the regulations a transfer under sec_507 of the code includes a transfer of assets from one private_foundation to one or more other private_foundations pursuant to any reorganization or liquidation which includes any significant disposition of or more of the transferor's assets because p will be transferring approximately one-half of its assets p's transfer of assets to j will be a transfer under sec_507 of the code p's transfer of assets to j will not be investment_income will not be a taxable disposition of property and will not result in tax under sec_4940 of the code under sec_4944 of the code p's transfer of its assets to j will not constitute a jeopardizing investment or result in tax under that section p's transfer of assets will be made for p’s and j’s sec_501 exempt purposes under sec_53_4946-1 of the regulations j is not a disqualified_person under sec_4946 of the code for purposes of sec_4941 because j is exempt from federal_income_tax under sec_501 because p's transfer of assets will not be a transfer to a disqualified_person under sec_4946 of the code p's transfer will not be an act of self-dealing under sec_4941 sec_1_507-3 of the regulations provides that for purposes of chapter and sec_507 through of the code j will be treated as if it were p in the proportion to which the fair_market_value of the assets less encumbrances transferred to j bears to the fair_market_value of the assets less encumbrances of p immediately before the transfer the attributes under chapter and sec_507 through of the code transferred to j from p include the minimum distribution_requirements under sec_4942 and the right to reduce its distributable_amount under sec_4942 by the amount of any excess qualifying_distribution carryover the proposed transfer of assets from p to j is for endowment purposes and j will not make a qualifying_distribution equal to the amount of the grant it will receive from p thus the proposed transfer from p to j will not be treated by p as a qualifying_distribution under sec_4942 of the code under sec_53_4945-6 of the regulations a private_foundation can transfer its assets to private_foundations pursuant to sec_507 of the code without the transfer being a taxable_expenditure under sec_4945 thus p's transfer of assets will not be a taxable_expenditure under sec_4945 of the code p must exercise expenditure_responsibility under sec_4945 of the code and sec_53_4945-5 of the regulations on its transfer of some of its assets to j because the exception under sec_1_507-3 to expenditure_responsibility for a transfer of all assets does not apply to p because p's transfer to j consists of approximately one-half rather than all of p's assets conclusion accordingly based on the information furnished we rule as follows the transfer of one-half of the assets from p to j will qualify as a transfer under sec_507 of the code because p will not terminate p will not be subject_to any_tax under sec_507 of the code the proposed transfer of assets from p to j will not give rise to net_investment_income and therefore will not give rise to the imposition of tax under sec_4940 of the code for p p will not be required to pay the tax imposed by sec_4940 in the tax_year of distribution and p and j will report their share of net_investment_income for the year of distribution and pay the tax imposed by sec_4940 on such share based on investment_income earned by the respective foundation the proposed transfer of assets to j will not be treated as an investment that jeopardizes the charitable purposes of p the proposed transfer of assets from p to j will not constitute an act of self-dealing which will result in an excise_tax under sec_4941 of the code assuming j pays the distribution_requirements of p p will not be required to meet p’s distribution_requirements under sec_4942 for the taxable_year in which p transfers one-half of its assets p’s and j's minimum distributable_amount will be determined on a prorata basis determined on asset ownership during the taxable_year of the transfer likewise p and j will be credited with a proportionate amount of the qualifying distributions actually made by the respective foundation in the fiscal_year of the transfer the proposed transfer of assets from p to j will not constitute a taxable_expenditure within the meaning of sec_4945 of the code because p will be required to exercise expenditure_responsibility with respect to one-half of the assets it transferred to j j however will not be required to exercise expenditure responsibilities over the assets transferred by p this ruling is based on the understanding there will be no material changes in the facts upon which it is based this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described this ruling is directed only to the organization that requested it sec_6110 of the code provides it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative michael seto manager exempt_organizations technical group sincerely


v538029 tvterval revenue serene uniform issue list jun set ep ra ty legend taxpayer a amount b ira x bank e bank f company g date i date j non-quailified annuity k dear this is in response to your letter dated day rollover requirement contained in sec_408 of the internal_revenue_code the code in which you request a waiver of the page the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a maintained ira x with bank e an investor advisor at bank e explained to the advantages of moving amount b into an annuity taxpayer a contract yielding a higher rate of interest on date the investor advisor at bank e transferred amount b from ira x to establish a non-ira annuity k in favor of taxpayer a at company g two weeks later taxpayer a received certain paperwork from company g regarding annuity k taxpayer a was not satisfied with the terms of annuity k and cancelled annuity k with company g days before the 60-day rollover period expired taxpayer a received a on date j check for amount b from company g representing the canéellation of annuity k taxpayer a deposited the check for amount b at bank f with the intention of rolling over amount b into an ira at bank f into an existing account taxpayer a had taxpayer a asserts that she was under medical_care for various health problems during the final months ofl documentation submitted by taxpayer a demonstrates that she was being treated during this time taxpayer asserts that her medical_condition impaired her ability to accomplish a timely rollover when preparing her ii income_tax return taxpayer a discovered she had not made any rollover deposit into an ira and that the 60-day rollover period had expired taxpayer a now wants to deposit amount b as a rollover into an ira account at bank f based on the above facts and representations you request that the service waive the 60-day rollover requirement with respect to amount b sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or _ page ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid - into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 ap fp sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented by taxpayer a demonstrates that taxpayer a withdrew ira funds to purchase a non-ira annuity which she subsequently cancelled taxpayer a deposited the funds into an existing non-ira account and did not discover her failure to rollover into an ira until she was preparing herfiliiiincome tax_return the documentation submitted by taxpayer a demonstrates that because of medical treatment for various health problems she was unable to deposit amount b into an ira within the 60-day rollover period page therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount b an eligible_rollover_distribution can consist only of pre-tax amounts and earnings and does not include after-tax employee contributions or distributions required by sec_401 a of the code because you are over age minimum distributions are required under this code section for the taxable_year of the ira distribution taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount b into an ira provided all other requirements of sec_408 of the code except the day requirement are met with respect to such contributions this amount will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto oo ‘ this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact please address all correspondence to at sincerely yours pe employee_plans technical group manager enclosures deleted copy of ruling letter notice of intention to disclose


internal_revenue_service department of the treasury number release date index number 04-big_number washington dc person to contact telephone number refer reply to cc corp b03 plr-102326-03 date date distributing controlled shareholder shareholder shareholder shareholder shareholder country a shareholders business m business n plr-102326-03 business o country a aa bb cc dd ee ff gg hh ii jj kk ll dear we respond to your representative’s letter dated date for rulings concerning the federal_income_tax consequences of a proposed transaction additional information was submitted in letters dated march april and date the material information submitted for consideration is summarized below distributing a corporation formed under the laws of country a is a controlled_foreign_corporation cfc within the meaning of sec_957 of the internal_revenue_code and is currently engaged directly in business m business n and business o distributing has one class of stock outstanding which is owned as follows aa shares by shareholder bb shares by shareholder cc shares by shareholder dd shares by shareholder plr-102326-03 ee shares by shareholder and ff shares by other shareholders who are citizens of country a the country a shareholders who own less than percent of the total shares in distributing shareholder shareholder shareholder shareholder and shareholder are all united_states persons as defined in sec_951 shareholder and shareholder serve as president and general counsel respectively of distributing we have received financial information indicating that business m and business n each have had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years in order to take advantage of various country a tax incentives available under a recently enacted country a tax law including the permanent reduction of a certain tax projected to far exceed one percent of the base_period net_income of distributing distributing proposes the following transaction i ii distributing will undergo a tax free demerger under country a law distributing will form controlled under country a law and transfer assets and liabilities relating to business n and business o to controlled hereinafter referred to as the contribution in addition as part of the demerger transaction distributing will issue new distributing shares to each of its shareholders in exchange for each shareholder’s preexisting shares in distributing the newly issued stock will be issued to the shareholders in the same proportion in which they held the old distributing stock shareholder will exchange aa old shares for gg new shares shareholder will exchange bb old shares for hh new shares shareholder will exchange cc old shares for ii new shares shareholder will exchange dd old shares for jj new shares shareholder will exchange ee old shares for kk new shares and the country a shareholders will exchange ff old shares for ll new shares both before and after the demerger distributing will have only one class of stock outstanding which will have unlimited rights to participate in the earnings and assets of distributing and the distributing shareholders’ percentage interest in distributing will not change iii pursuant to country a law controlled will directly issue its shares pro_rata to distributing’s shareholders to be owned as follows gg shares by shareholder hh shares by shareholder ii shares by shareholder jj shares by shareholder kk shares by shareholder and ll shares by the country a shareholders hereinafter referred to as the distribution plr-102326-03 following the distribution distributing and controlled will each be owned by shareholder shareholder shareholder shareholder shareholder and the country a shareholders distributing will be directly engaged in business m and controlled will be directly engaged in business n the taxpayers have made the following representations in connection with the proposed transaction a b c d e f g the indebtedness owed by controlled to distributing after the distribution will not constitute stock_or_securities 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 of a shareholder of distributing the five years of financial information submitted on behalf of distributing’s business m and business n is representative of each business’ respective present operations and with regard to each business there has been no substantial operational changes since the date of the last financial statements submitted following the distribution distributing and controlled will each continue the active_conduct of its business independently and with its separate employees and controlled may employ shareholder and shareholder as its president and general counsel respectively the proposed transaction is carried out for the following corporate business purposes reduction of foreign taxes cost savings the distribution is motivated in whole or substantial part by this corporate business purposes there is no plan or intention by the shareholders or security holders of distributing to sell exchange transfer by gift or otherwise dispose_of any of their stock in or securities of either distributing or controlled after the distribution there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the distribution other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 plr-102326-03 h i j k l m n o p there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the distribution except in the ordinary course of business the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing equals or exceeds the sum of the liabilities assumed by controlled plus any liabilities to which the transferred assets are subject the liabilities assumed in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred no intercorporate debt will exist between distributing and controlled at the time of or after the distribution payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length neither distributing nor controlled is an investment_company as defined in sec_368 and iv 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 percent or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of distributing or controlled distributing is and controlled will be a corporation within the meaning of sec_7701 at all times before and immediately after the contribution and distribution distributing is and controlled will be a cfc within the meaning of sec_957 before and after the contribution and distribution but neither corporation is or will be a passive_foreign_investment_company as defined by sec_1297 plr-102326-03 q r s shareholder shareholder shareholder shareholder and shareholder will be sec_1248 shareholders with respect to each of distributing and controlled within the meaning of sec_1_367_b_-2 immediately before and after the distribution the notice requirements of sec_1_367_b_-1 will be met for the contribution and distribution following the distribution each shareholder of distributing who is a united_states_shareholder as defined in sec_951 will compute his her predistribution and postdistribution amount with respect to distributing and controlled as defined under sec_1_367_b_-5 and to the extent the predistribution amount exceeds the postdistribution amount with respect to either distributing or controlled the united_states_shareholder will make basis adjustments and recognize income if any as required under the applicable treasury regulations the taxpayer has made the following additional representation regarding step ii of the proposed transaction t the exchange by shareholder shareholder shareholder shareholder shareholder and the country a shareholders of their distributing shares for a different number and class of distributing shares qualifies either as an exchange of common_stock for common_stock under sec_1036 or an exchange of common_stock for common_stock under sec_354 pursuant to a recapitalization of distributing under sec_368 based solely on the information submitted and the representations as set forth above we hold as follows for federal_income_tax purposes the proposed transaction will be treated as if distributing transferred the assets of business n and business o to controlled in exchange for all of the stock of controlled and the assumption by controlled of the liabilities of business n and business o followed immediately by a distribution of all of the controlled stock pro_rata to shareholder shareholder shareholder shareholder shareholder and the country a shareholders cf revrul_77_191 c b the contribution followed by the distribution will constitute a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 plr-102326-03 distributing will recognize no gain_or_loss on the contribution sec_361 sec_357 and sec_357 controlled will recognize no gain_or_loss on the contribution sec_1032 controlled’s basis in each asset received in the contribution will equal the basis of that asset in the hands of distributing immediately prior to the transfer sec_362 controlled’s holding_period for each asset received from distributing will include the period during which distributing held such asset sec_1223 distributing will recognize no gain_or_loss on the distribution sec_361 shareholder shareholder shareholder shareholder shareholder and the country a shareholders will recognize no gain_or_loss and no amount will be included in their income upon receipt of the controlled stock pursuant to the distribution sec_355 except to the extent stated in ruling the aggregate basis of the stock of controlled and distributing received by each of shareholder shareholder shareholder shareholder shareholder and the country a shareholders will equal the basis of the distributing stock held by each shareholder before the distribution allocated in proportion to the fair_market_value of each in accordance with sec_1_358-2 subject_to the adjustments stated in ruling the holding_period of the controlled stock received by shareholder shareholder shareholder shareholder shareholder and the country a shareholders will include the holding_period of the distributing stock with respect to which the distribution is made provided the respective shareholder held the distributing stock as a capital_asset on the date of the distribution sec_1223 the contribution will be an exchange to which sec_1_367_b_-1 and sec_1_367_b_-4 apply distributing and controlled will be treated as corporations for purposes of the contribution and the distribution the distribution will be a distribution to which sec_1_367_b_-1 sec_1 b - a b -5 c and b -5 f apply if shareholder shareholder shareholder shareholder or shareholder 5's postdistribution amounts as defined in sec_1_367_b_-5 with respect to distributing or controlled is less than shareholder shareholder shareholder shareholder or shareholder 5's predistribution amounts respectively as defined in sec_1_367_b_-5 with respect to distributing or controlled plr-102326-03 shareholder shareholder shareholder shareholder or shareholder 5's basis in such stock immediately after the distribution must be reduced by the amount of the difference however shareholder shareholder shareholder shareholder or shareholder 5's basis in their stock must not be reduced below zero and to the extent the foregoing reduction would have reduced basis below zero shareholder shareholder shareholder shareholder or shareholder must instead include such amount in income as a deemed_dividend from such corporation if shareholder shareholder shareholder shareholder or shareholder reduce their basis in the stock of distributing or controlled or has an inclusion with respect to such stock shareholder shareholder shareholder shareholder or shareholder shall increase their basis in the stock of the other corporation to the extent provided in sec_1_367_b_-5 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the proposed transaction under any other provision 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 specifically no opinion is expressed concerning step ii above of the proposed transaction the exchange by shareholder shareholder shareholder shareholder shareholder and the country a shareholders of their old distributing shares for a different number and class of shares of distributing stock no opinion is expressed regarding whether distributing or controlled is a passive_foreign_investment_company within the meaning of sec_1297 and the regulations to be promulgated thereunder foreign_personal_holding_company within the meaning of sec_552 and the regulations thereunder or personal_holding_company within the meaning of sec_542 and the regulations thereunder if it is determined that distributing or controlled is a passive foreign investment companies no opinion is expressed with respect to the application of sec_1291 through to the proposed transaction in particular in a transaction in which gain is not otherwise recognized regulations under sec_1291 may require gain recognition notwithstanding any other provision of the code the rulings contained in this letter are predicated upon the facts and representations submitted by the taxpayers and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for a ruling verification of the information representations and other data may be required as part of the audit process see sections dollar_figure and dollar_figure of revproc_2003_1 2003_1_irb_1 which discuss in greater detail the revocation or modification of ruling letters however when the criteria in section dollar_figure of revproc_2003_1 i r b pincite are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances plr-102326-03 this ruling is directed only to the taxpayer s 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 pursuant to a power_of_attorney on file in this office a copy of this letter has been sent to your authorized representative sincerely richard e coss senior counsel branch office of associate chief_counsel corporate cc