internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp 1-plr-158635-01 date date legend a b c d e investment banker distributing distributing controlled controlled mergedco plr-158635-01 mergedco country a assets sec_1 sec_2 sec_3 sec_4 sec_5 s6 s7 s8 s9 plr-158635-01 s10 s10a sec_11 sec_12 s13 s14 sec_15 s16 s17 s18 plr-158635-01 s19 s20 sec_21 sec_22 sec_23 sec_24 f1 f2 f3 f4 f5 f6 f7 plr-158635-01 f8 f9 f10 f11 f12 llc country a state a business a business b business c specialty a b c d e f g plr-158635-01 h i j k plan l plan m plan n plan o date dear this letter responds to a letter dated date as resubmitted on date submitted on your behalf by your authorized representative in which rulings are requested as to the federal_income_tax consequences of a proposed transaction the information submitted in that request and the additional information that was submitted in letters dated date date date date date date date and date is summarized below summary of facts distributing a publicly traded corporation and the common parent of an affiliated_group is organized under the laws of state a distributing is a holding_company whose operating subsidiaries carry on business in three distinct operating segments business a business b and business c distributing has common and preferred shares outstanding more than of distributing 1’s common shares are held by i a the chairman of the board and ceo of distributing ii two wholly-owned subsidiaries of distributing the specified shareholders iii b and iv c d and e own of distributing 1’s preferred shares distributing owns all of the stock of sec_1 sec_2 sec_3 sec_4 sec_5 s6 s7 f1 f2 and f3 all of the preferred_stock and a of the common_stock of distributing b of llc and c of the stock of f4 f5 and f6 distributing is a country a corporation that owns all the stock of f7 f8 f9 and f10 and the country a assets sec_2 owns all the stock of s8 and d of s9 sec_3 owns all the stock of s10 sec_1 owns the remaining e of f4 f5 and plr-158635-01 f6 and e of f11 sec_4 owns all of sec_11 sec_12 s13 s14 f of the common_stock of distributing and the remaining g of s9 sec_11 owns all of the stock of sec_15 and c of f11 sec_12 owns all of s16 s13 owns all of the stock of s17 s18 s19 s20 and sec_21 and h of sec_22 s14 owns i of the common_stock of distributing f10 owns all of f12 s8 owns all of sec_23 and sec_24 unrelated third parties own j of sec_22 and k of llc f8 f10 and f12 have each made an election under sec_1 to be treated as a disregarded_entity for united_states federal_income_tax purposes distributing seeks to separate business c from businesses a and b because of inherent conflicts of interest that exist between the businesses these conflicts are preventing each business from realizing its full potential and are making it difficult for business c to expand into specialty distributing has also been advised by investment banker that the announcement of a spin-off of business c would permit distributing to raise common equity_capital during a period after the announcement and before the spin-off of business c at a higher price per share net of transaction costs as compared to an offering absent a public commitment to the spin-off distributing thus intends to issue common shares after the announcement and before the spin-off of business c accordingly distributing intends to separate business c from businesses a and b in the following series of transactions step sec_1 through referred to as the facilitating transactions s13 will convert to a state a limited_liability_company llc and will then distribute its stock in s17 s18 s19 s20 sec_21 and its h interest in sec_22 to sec_4 in complete_liquidation sec_11 will distribute its stock in sec_15 and its c interest in f11 to sec_4 sec_4 will distribute its stock in sec_15 s17 s18 s19 s20 sec_21 its c interest in f11 and its h interest in sec_22 to distributing sec_12 will merge with and into a newly formed state a limited_liability_company llc all of the membership interests of which will be owned by sec_4 with llc as the surviving entity llc will distribute its stock in s16 to sec_4 sec_4 will distribute its stock in s16 to distributing sec_4 will purchase sec_2’s d interest in s9 either for cash or in exchange for property plr-158635-01 sec_2 will distribute the stock of s8 to distributing s8 will distribute the stock of sec_23 to distributing s8 will merge with and into sec_24 with sec_24 as the surviving entity distributing will form a country a corporation holdco distributing will contribute the country a assets other than entities engaged in business c to holdco such contributed country a assets the contributed a assets in exchange for all the stock of holdco and the assumption by holdco of the debt of distributing holdco will make an election under sec_1 to be treated as a disregarded_entity for united_states federal_income_tax purposes distributing sec_4 and s14 will form a country a corporation controlled sec_4 will contribute a note note to controlled in an amount equal to f of the fair_market_value of the common_stock of distributing s14 will contribute a note note to controlled in an amount equal to i of the fair_market_value of the common_stock of distributing distributing will contribute a note note to controlled in an amount equal to the value of holdco less the combined amounts of note and note controlled will acquire the stock of holdco from distributing for note note and note distributing will distribute note to sec_4 in exchange for sec_4’s f interest in distributing common_stock distributing will distribute note to s14 in exchange for s14’s i interest in distributing common_stock distributing will distribute note to distributing without a corresponding exchange of distributing 1’s shares in distributing steps through referred to as the internal spin-off distributing will contribute its stock in each first-tier entity other than distributing sec_1 sec_2 sec_3 sec_5 s7 sec_15 s17 s18 s19 s20 sec_21 f1 f2 f3 the specified shareholders its b interest in llc its h interest in sec_22 and its c interests in f4 f5 f6 and f11 to s16 distributing will form controlled a state a corporation distributing will contribute its interest in the following entities the business c entities to controlled the contribution distributing sec_1 sec_2 sec_3 s7 s19 s20 sec_21 its h interest in sec_22 its b interest in llc and its c interest in plr-158635-01 f4 f5 f6 and f11 distributing will transfer the following entities to sec_1 in partial satisfaction of the debt owed by distributing to sec_1 sec_5 s17 s18 f1 f2 and f3 distributing will transfer sec_15 to sec_2 in partial satisfaction of debt owed by distributing to sec_2 sec_3 will merge with and into s10 with s10 as the surviving entity s10 will change its name to s10a controlled will contribute the stock of s19 and s7 to s10a controlled will contribute the stock of s20 and sec_21 to sec_1 distributing will distribute all of the outstanding_stock of controlled to distributing 1’s common shareholders other than the specified shareholders the distribution will be pro_rata except the specified shareholders will receive additional common shares in distributing in lieu of controlled common shares this step referred to as the external spin-off stock_options and other stock-based employee_benefits stock_options presently distributing has in effect several stock_option plans for its executives and key employees including plan l plan m and plan n collectively the option plans outstanding options granted under the option plans are collectively referred to as current distributing options prior to the external spin-off controlled 1’s board_of directors will adopt a stock_option plan that will be substantially_similar to plan l the controlled option plan it is expected that the controlled option plan will be approved by the shareholders of controlled after the external spin-off under the controlled option plan i awards will be granted by a compensation committee comprised solely of two or more outside directors within the meaning of sec_162 and sec_1_162-27 ii the plan document will state the maximum number of shares of controlled common_stock with respect to which options may be granted during a specified period to any employee and iii except in the case of the substitute options described below it is expected that the exercise price of each option will be equal to the fair_market_value of one share of controlled common_stock as of the date of grant each current distributing option that was granted as an incentive_stock_option that is outstanding immediately prior to the external spin-off will be converted as of plr-158635-01 immediately prior to the external spin-off into i an adjusted incentive_stock_option to purchase distributing common shares an adjusted distributing iso and ii a substitute incentive_stock_option under the controlled option plan to purchase shares of controlled common_stock a controlled iso each nonqualified current distributing option that is outstanding immediately prior to the external spin-off will be converted as of immediately prior to the external spin-off into i an adjusted nonqualified option to purchase distributing common shares collectively with an adjusted distributing iso an adjusted distributing option and ii a substitute nonqualified option under the controlled option plan to purchase shares of controlled common_stock collectively with a controlled iso a controlled option the number of distributing common shares subject_to each adjusted distributing option will be the same as the number of shares subject_to the current distributing option the exercise price of each adjusted distributing option will equal the exercise price of the current distributing option multiplied by a fraction the numerator of which is the fair_market_value of one distributing common share immediately following the external spin-off and the denominator of which is the sum of i the fair_market_value of one distributing common share immediately following the external spin-off and ii the fair_market_value of one share of controlled common_stock immediately following the external spin-off multiplied by the number of shares of controlled common_stock received in the external spin-off with respect to each distributing common share the spin-off ratio distributing interprets the option plans as providing that employment with controlled after the external spin-off will be treated as employment with distributing for purposes of determining the optionee’s right to exercise the adjusted distributing options and the termination of the exercise period thereunder each adjusted distributing option will be identical in all other respects to the current distributing option being adjusted except that an adjusted distributing option may be stapled with the controlled option that relates to the same current distributing option if an adjusted distributing option is stapled with a controlled option such options must be exercised together the number of shares of controlled common_stock subject_to each controlled option granted in substitution of a current distributing option will equal the number of shares of controlled common_stock that would have been received in the external spin-off with respect to the number of distributing common shares subject_to the current distributing option the exercise price of each controlled option will equal the exercise price of the current distributing option multiplied by a fraction the numerator of which is the fair_market_value of one share of controlled common_stock immediately following the external spin-off and the denominator of which is the sum of i the fair_market_value of one distributing common share immediately following the external spin-off and ii the fair_market_value of one share of controlled common_stock immediately following the external spin-off multiplied by the spin-off ratio each controlled option will provide that employment with distributing after the external spin-off will be treated as employment with controlled in determining the plr-158635-01 optionee’s right to exercise the controlled option and the termination of the exercise period thereunder each controlled option will in all other respects be subject_to substantially the same terms as the current distributing option being substituted except that as described above a controlled option may be stapled with the adjusted distributing option that relates to the same current distributing option if a controlled option is stapled with an adjusted distributing option such options must be exercised together restricted_stock pursuant to the terms of plan l and plan m distributing has granted its executives and other key employees distributing common shares under outstanding restricted_stock awards pursuant to the external spin-off holders of restricted_stock outstanding immediately prior to the external spin-off outstanding distributing restricted_stock will receive shares of controlled common_stock in the same manner as any holder of distributing common shares such shares of controlled common_stock controlled restricted_stock will be subject_to the same terms and vesting schedule as the applicable current distributing restricted_stock distributing interprets plan l and plan m as providing that employment with controlled after the external spin-off will be treated as employment with distributing for purposes of determining the vesting of outstanding distributing restricted_stock and controlled restricted_stock stock acquired under the distributing employee_stock_purchase_plan pursuant to the terms of plan o distributing has granted eligible employees who have elected to participate in plan o options to purchase distributing common shares at a discounted price participating employees deposit a portion of their eligible compensation into an account a periodic deposit account that is used to purchase distributing common shares underlying the options at the end of each option period the option period distributing intends that the option period in effect immediately prior to the external spin-off will automatically terminate immediately prior to the external spin-off and the periodic deposit account of each participant will be used to purchase distributing common shares immediately prior to the external spin-off all holders of distributing common shares acquired under plan o will receive shares of controlled common_stock in the same manner as any holder of distributing common shares except that the shares of controlled common_stock received pursuant to the external spin-off will be subject_to the same holding_period requirements under sec_423 as the applicable distributing common shares stock-based deferred_compensation distributing maintains several plans each a distributing deferred_compensation plan that allow certain employees and directors to defer the receipt of compensation and to be paid such deferred_compensation in distributing common shares it is plr-158635-01 expected that prior to the external spin-off the board_of directors of controlled will adopt deferred_compensation plans that will be substantially_similar to the corresponding distributing deferred_compensation plans each a controlled deferred_compensation plan it is intended that each participant’s right to receive deferred_compensation in the form of distributing common shares outstanding under each of the distributing deferred_compensation plans to the extent accrued as of immediately prior to the external spin- off existing deferred_compensation amounts will be converted as of immediately prior to the external spin-off into a right to receive deferred_compensation in the form of an equal number of distributing common shares and the number of shares of controlled common_stock that would have been received in the external spin-off with respect to such number of distributing common shares pursuant to the external spin-off all existing deferred_compensation amounts with respect to employees and directors of controlled will be assumed by controlled and each such employee or director will receive a substitute right under the applicable controlled deferred_compensation plan to receive the same number distributing common shares and controlled common shares as immediately prior to the external spin-off with the same terms and conditions as the original right to receive deferred_compensation under the applicable distributing deferred_compensation plan distributing and controlled intend to enter into an agreement providing for the issuance to participants in the distributing deferred_compensation plans of the shares of controlled common shares that become distributable with respect to existing deferred_compensation amounts under the distributing deferred_compensation plans and for the issuance to participants in the controlled deferred_compensation plans of the distributing common shares that become distributable with respect to existing deferred_compensation amounts under the controlled deferred_compensation plans representations with respect to the external spin-off the taxpayer has made the following representations the payment of cash in lieu of fractional shares of controlled will be solely for the purpose of avoiding the expense and inconvenience to distributing of distributing fractional shares and does not represent separately bargained-for consideration the total cash consideration to be paid in lieu of fractional controlled common shares will not exceed one percent of the total consideration that will be issued in the transaction to distributing shareholders the fractional share interests of each distributing shareholder will be aggregated and no distributing shareholder will receive cash in an amount equal to or greater than the value of one full controlled common share plr-158635-01 no part of the consideration to be distributed by distributing in the external spin-off will be received by a shareholder as an employee or in any capacity other than that of a shareholder of distributing immediately after the external spin-off at least percent of the fair_market_value of the gross assets of distributing will consist of the stock of s16 a controlled_corporation that is engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after the external spin-off the gross assets of the active business of s16 will have a fair_market_value that is at least five percent of the total fair_market_value of the gross assets of s16 the years of financial information submitted on behalf of s16 is representative of the business’s present operations and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted immediately after the external spin-off at least percent of the fair_market_value of the gross assets of controlled will consist of the stock of sec_1 sec_2 s10a and distributing each of which is a controlled_corporation engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after the external spin-off the gross assets of the active business of sec_2 will have a fair_market_value that is at least five percent of the total fair_market_value of the gross assets of sec_2 immediately after the external spin-off the gross assets of the active business of sec_1 will have a fair_market_value that is at least five percent of the total fair_market_value of the gross assets of sec_1 immediately after the external spin-off the gross assets of the active business of s10a will have a fair_market_value that is at least five percent of the total fair_market_value of the gross assets of s10a the years of financial information submitted on behalf of sec_1 sec_2 and s10a is representative of each corporation’s present operation and with regard to each such corporation there have been no substantial operational changes since the date of the last financial statements submitted following the external spin-off distributing through s16 and controlled through sec_1 sec_2 s10a and distributing will each continue the active_conduct of its business independently and with its separate employees the distribution of stock of controlled is carried out for the following corporate plr-158635-01 business purposes i to resolve the inherent conflicts associated with engaging in businesses a b and c and ii to facilitate a stock issuance by distributing 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 any individual shareholder of distributing or the specified shareholders who own sec_5 percent or more of the stock of distributing and the management of distributing to its best knowledge is not aware of any plan or intention on the part of any particular remaining shareholder or security holder of distributing to sell exchange transfer by gift or otherwise dispose_of any stock in or securities of either distributing or controlled after the external spin-off 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 external spin-off 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 distributing or controlled with any other corporation or to sell or otherwise dispose_of the assets of either distributing or controlled after the external spin-off except in the ordinary course of business the external spin-off is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power 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 either distributing or controlled the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing each 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 external spin-off 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 immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and currently in effect sec_1_1502-13 as published by t d further distributing 1’s excess_loss_account if any plr-158635-01 with respect to the controlled stock and any excess_loss_account with respect to the stock of controlled subsidiaries will be included in income immediately before the distribution sec_1_1502-19 payments made in connection with all continuing transactions between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length no two parties to the external spin-off are investment companies as defined in sec_368 and iv the exercise price of all current distributing options is at least equal to the fair_market_value of a distributing common share on the date the options were granted none of the current distributing options had a readily_ascertainable_fair_market_value within the meaning of sec_1_83-7 at the time such options were granted each outstanding current distributing option satisfies the requirements for qualified_performance-based_compensation as defined in sec_1_162-27 neither distributing nor controlled is a foreign_corporation neither distributing nor controlled will have been a united_states_real_property_holding_corporation usrphc as defined in sec_897 at any time during the 5-year period ending on the date of the external spin-off and neither will be a usrphc immediately after the external spin-off with respect to the internal spin-off the taxpayer has made the following representations the fair_market_value of the controlled stock to be received by distributing sec_4 and s14 will be approximately equal to the fair_market_value of the distributing common shares surrendered by distributing sec_4 and s14 in the exchange no part of the consideration to be distributed by distributing in the internal spin-off will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing immediately after the internal spin-off the gross assets of the active business of controlled will have a fair_market_value that is at least five percent of the total fair_market_value of the gross assets of controlled plr-158635-01 the years of financial information submitted on behalf of controlled is representative of the corporation’s present business c operations but does not include the expansion into business b and business a by f12 resulting from the date merger into f12 of mergedco and mergedco immediately after the internal spin-off at least percent of the fair_market_value of the gross assets of distributing will consist of the stock of f7 and f9 controlled corporations that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 immediately after the internal spin-off the gross assets of the active business of f7 will have a fair_market_value that is at least five percent of the total fair_market_value of the gross assets of f7 immediately after the internal spin-off the gross assets of the active business of f9 will have a fair_market_value that is at least five percent of the total fair_market_value of the gross assets of f9 the years of financial information submitted on behalf of f7 and f9 is representative of their present operations and there have been no substantial operational changes since the date of the last financial statements submitted following the internal spin-off distributing through f7 and f9 and controlled will each continue the active_conduct of its business independently and with its separate employees the business_purpose for the internal spin-off is to facilitate the external spin- off there is no plan or intention by distributing sec_4 or s14 to sell transfer by gift or otherwise dispose_of any stock in or securities of either distributing or controlled except as described in the facilitating transactions 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 internal spin-off there is no plan or intention to liquidate either distributing or controlled to merge either distributing or controlled with any other corporation or to sell or otherwise dispose_of the assets of either distributing or controlled after the internal spin-off except in the ordinary course of business or as described in the facilitating transactions the total adjusted_basis and the fair_market_value of the assets deemed transferred to controlled by distributing each equals or exceeds the sum of plr-158635-01 the liabilities deemed assumed by controlled plus any liabilities to which the transferred assets are subject the liabilities deemed assumed in the internal spin-off 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 neither accumulated its receivables nor made extraordinary payments of its payables in anticipation of the transaction 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 no two parties to the internal spin-off are investment companies as defined in sec_368 and iv the internal spin-off is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power 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 either distributing or controlled each of distributing controlled f1 f2 f3 f4 f5 f6 f7 f9 and f11 is a foreign_corporation within the meaning of sec_7701 of the code none of the foreign entities distributing controlled f1 f2 f3 f4 f5 f6 f7 f9 or f11 was a pfic as defined in sec_1297 immediately before or after the external spin-off distributing controlled f1 f2 f3 f4 f5 f6 f7 f9 and f11 were each a controlled_foreign_corporation as defined in sec_957 before and immediately after the internal spin-off f8 f10 and f12 are each treated for united_states federal_income_tax purposes as a disregarded_entity pursuant to an election made under sec_301_7701-3 rulings based solely on the information and representations set forth herein we rule as follows plr-158635-01 contribution a b c d e the contribution followed by the external spin-off will be a reorganization within the meaning of sec_368 distributing and controlled will each be a party to the reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on the transfer of the stock of the business c entities to controlled or on the assumption by controlled of liabilities of distributing sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the receipt of the stock of the business c entities from distributing sec_1032 controlled 1’s basis in the stock of each business c entity received from distributing will equal the basis of the stock of the respective business c entity in the hands of distributing immediately before the contribution of such stock to controlled sec_362 the holding_period of the stock of each respective business c entity transferred to controlled by distributing will include the period during which distributing held the respective stock sec_1223 external spin-off f g h i no gain_or_loss will be recognized by distributing or controlled on the distribution of all the controlled common shares held by distributing immediately prior to the external spin-off to the holders of distributing common shares sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of the holders of distributing common shares upon receipt of the controlled common shares sec_355 the aggregate tax basis of the distributing common shares and controlled common shares in the hands of the holders of distributing common shares will be the same as the aggregate tax basis of the distributing common shares held by such holders immediately before the external spin-off allocated in proportion to the fair_market_value of each sec_358 and b sec_1_358-2 assuming that the distributing common shares held by the distributing common shareholders are capital assets in the hands of such shareholders the holding_period of the controlled common shares received by the distributing shareholders will include their holding_period for the distributing common plr-158635-01 shares sec_1223 j k l m n if cash is received by a distributing shareholder in lieu of a fractional share interest in controlled such cash will be treated as if the fractional share of controlled were received by such distributing common shareholder and then redeemed by controlled such cash will be treated as having been received as a distribution in full payment for stock redeemed as provided in sec_302 as provided in sec_312 proper allocations of earnings_and_profits will be made pursuant to sec_1_312-10 and sec_1_1502-33 sec_312 no amount will be included in the gross_income of the specified shareholders upon the receipt of additional distributing common shares sec_305 the basis of the distributing common shares held by each specified shareholder immediately after the external spin-off will equal the basis of the distributing common shares held before the external spin-off allocated between the distributing common shares held before the external spin-off and the distributing common shares received in the external spin-off in proportion to the fair_market_value of each sec_307 sec_1_307-1 the holding_period of the distributing common shares received by each specified shareholder in the external spin-off will include the period during which such specified shareholder held the distributing common shares on which the distributing common shares will be distributed sec_1223 internal spin-off o p q for federal_income_tax purposes the circular flow of notes from distributing sec_4 and s14 first to controlled then to distributing and finally back to distributing sec_4 and s14 will be ignored the proposed transaction will be treated as if distributing had created controlled as a wholly-owned subsidiary transferred the contributed a assets to controlled in exchange for the stock of controlled then distributed stock of controlled to sec_4 and s14 in exchange for sec_4's and s14’s respective interests in distributing stock and finally distributed any remaining stock of controlled to distributing the transfer of the contributed a assets to controlled followed by the distribution of the stock of controlled will be a reorganization within the meaning of sec_368 distributing and controlled will each be a party to the reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on the transfer of the contributed a assets to controlled in exchange for controlled stock or the plr-158635-01 assumption by controlled of distributing 2’s liabilities sec_361 and sec_357 no gain_or_loss will be recognized to controlled on its receipt of the contributed a assets in exchange for shares of controlled stock sec_1032 controlled 2’s basis in the contributed a assets received from distributing will equal the basis of the contributed a assets in the hands of distributing immediately before the transfer of such contributed a assets to controlled sec_362 the holding_period of the contributed a assets transferred by distributing to controlled will include the period during which distributing held the contributed a assets sec_1223 no gain_or_loss will be recognized by distributing on the distribution of all of the controlled stock to distributing sec_4 and s14 sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of distributing sec_4 or s14 upon their receipt of controlled stock sec_355 the aggregate tax basis of the distributing stock and the controlled stock in the hands of distributing will be equal to the aggregate tax basis of the distributing stock held by distributing immediately before the internal spin- off allocated in proportion to the fair_market_value of each the tax basis of the controlled stock in the hands of sec_4 and s14 will be equal to the basis of the distributing stock surrendered in exchange therefor sec_358 and b sec_1_358-2 assuming that the distributing stock held by distributing sec_4 and s14 is a capital_asset in their hands the holding_period of the controlled stock received by distributing sec_4 and s14 will include their holding_period for the distributing stock sec_1223 as provided in sec_312 following distribution of the stock of controlled proper allocation of earnings_and_profits will be made between distributing and controlled in accordance with sec_1_312-10 r s t u v w x y treatment of stock_options and other stock-based employee_benefits z the holders of current distributing options will not realize any income upon the receipt of adjusted distributing options and controlled options pursuant to the external spin-off sec_83 plr-158635-01 aa amounts includible in the gross_income of an optionee upon the exercise of a nonqualified adjusted distributing option or a nonqualified controlled option or upon the disqualifying_disposition of stock acquired under an adjusted distributing iso or a controlled iso will be deductible by the corporation that is the optionee’s employer at the time of exercise or was the more recent employer in the case of an optionee whose employment terminated prior to such exercise assuming the optionee was employed by that corporation since the date the options were granted to the optionee no opinion is expressed concerning situations where the optionee was not employed by the same corporation since the date the options were granted to the optionee sec_83 bb distributing will not recognize any gain_or_loss upon the transfer of controlled common shares to an employee of distributing who exercises a controlled option and controlled will not recognize any gain_or_loss upon the transfer of distributing common shares to an employee of controlled who exercises an adjusted distributing option sec_83 and sec_1032 revrul_2002_1 2002_2_irb_268 cc neither the adjustment of current distributing options to constitute adjusted distributing options nor the substitution of controlled options for current distributing options pursuant to the external spin-off will cause any such options to fail to satisfy the performance_goal requirements of sec_162 and sec_1_162-27 sec_162 dd neither the adjustment of current distributing options intended to qualify as incentive stock_options to constitute adjusted distributing isos nor the substitution of controlled isos for current distributing options intended to qualify as incentive stock_options pursuant to the external spin-off will constitute a modification extension or renewal of these incentive stock_options within the meaning of sec_424 of the code and therefore will not constitute the grant of new options sec_424 ee amounts includible in the gross_income of a holder of outstanding distributing restricted_stock or controlled restricted_stock upon the vesting of such restricted_stock if an election under sec_83 was not timely made with respect to the grant of such restricted_stock will be deductible by the corporation that is the holder’s employer at such time or was the more recent employer in the case of a holder whose employment terminated prior to such time assuming the employee was employed by such corporation since the date the stock was granted no opinion is expressed concerning situations were the holder of option was not employed by the same corporation from the date of grant sec_83 ff the discount at which an employee purchased a distributing common share plr-158635-01 under plan o prior to the external spin-off will be allocated between such distributing common share and the number of controlled common shares received pursuant to the external spin-off with respect to such distributing common share in the same proportion as the basis of such distributing common share prior to the external spin-off is allocated between the distributing common share and the number of controlled common shares received pursuant to the external spin-off with respect to a distributing common share sec_423 gg amounts includible in the gross_income of an employee or former employee of distributing or controlled after the external spin-off upon the disqualifying_disposition of a distributing common share acquired under plan o prior to the external spin-off or a controlled common_stock received pursuant to the external spin-off with respect to a distributing common share acquired under plan o prior to the external spin-off will be deductible by the corporation that is the employer or former employee’s employer at the time of the disqualifying_disposition or was the most recent employer in the case of a holder whose employment terminated prior to such time assuming the employee was employed by such corporation since the date the stock was granted no opinion is expressed concerning situations were the holder of option was not employed by the same corporation from the date of the grant sec_421 and sec_423 hh distributing will not recognize any gain_or_loss upon the transfer of controlled common shares after the external spin-off to an employee of distributing who is entitled to receive such shares under a distributing deferred_compensation plan and controlled will not recognize any gain_or_loss upon the transfer of distributing common shares after the external spin-off to an employee of controlled who is entitled to receive such shares under a controlled deferred_compensation plan sec_83 and sec_1032 revrul_2002_1 2002_2_irb_268 ii amounts includible in the gross_income of an employee or former employee of distributing or controlled after the external spin-off upon the receipt of distributing common shares and or controlled common shares under a distributing deferred_compensation plan or a controlled deferred_compensation plan will be deductible by the corporation that is the employee’s employer in the taxable_year in which an amount attributable to such contribution is includible in income as compensation sec_83 except as specifically ruled above no opinion is expressed regarding the transaction under any other provision of the code specifically we express no opinion regarding the following i the tax consequences of the facilitating transactions plr-158635-01 ii iii the qualification of the incentive stock_options under sec_422 of the code the qualification of the employee_stock_purchase_plan under sec_423 of the code iv whether the controlled options issued to employees of distributing meet the requirements of sec_162 v vi no opinions have been requested and none are provided about the federal_income_tax consequences of taxpayer’s proposed foreign restructuring transactions in particular no opinion is expressed about the application of code sec_367 ie sec_1_367_b_-5 to the internal spin-off or the application of code sec_1248 no opinion is expressed about the effectiveness of the election by holdco or by any other foreign_entity under sec_301_7701-3 to be treated as a disregarded_entity vii whether any or all of the above-referenced foreign_corporations are passive foreign investment companies within the meaning of sec_1297 if it is determined that any or all of the above-described foreign_corporations are passive foreign investment companies no opinion is expressed with respect to the application of code sec_1291 through to the proposed transactions in particular in a transaction in which gain is not otherwise recognized regulations under sec_1291 may require gain recognition notwithstanding any other provision of the code viii the rulings contained in this letter are predicated upon the facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for a ruling verification of the information representations and other data may be required as part of the audit process see dollar_figure of revproc_2000_1 2000_1_irb_4 which discusses in greater detail the revocation or modification of ruling letters however when the criteria in dollar_figure of revproc_2000_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-158635-01 a copy of this letter must be attached to any income_tax return to which it is relevant sincerely lisa a fuller assistant to the chief cc corp


department of the treasury washington dc person to contact ---------------------------- id no -------------- --------------------------------------------------- telephone number ------------------- refer reply to cc psi b04 - plr-125542-18 date date internal_revenue_service number release date index number ---------------------------- ---------------------------- ----------------------------------- re --------------------------------------------- ------- legend date grantor father mother sibling sibling trustee power_of_appointment committee ------------------------------------------------------------------------------ ------------------ -------------------------------------------------- ------------------------------------------------------------- --------------------------------------------------- ------------------------------------------------ -------------------------------------------------------- ------------------------- lifetime beneficiaries ------------------------------------------------------------------------------ ------------------------------------------------------------------------- trust ------------------------------------------------- ---------------------------------------------------------------------------------------- state --------- ------------------------------------------------------------------------- dear ----------------- this letter responds to your authorized representative’s letter of date requesting rulings under sec_671 sec_2501 sec_2514 and sec_2041 of the internal_revenue_code the facts submitted and representations made are as follows on date grantor created trust an irrevocable_trust for the benefit of grantor father mother sibling and sibling lifetime beneficiaries grantor is the only donor of all property plr-125542-18 contributed to trust a corporate trustee trustee is the trustee of trust trust is sitused in and governed by the law of state article five section dollar_figure of trust provides that during grantor's lifetime trustee must retain all contributions to trust in a single trust for the benefit of the lifetime beneficiaries further pursuant to section dollar_figure of article five trustee must not make any distributions except as appointed by grantor or the power_of_appointment committee committee as follows during grantor’s lifetime grantor may appoint trust principal including the whole thereof outright or in trust to or for the benefit of any one or more of the lifetime beneficiaries as grantor deems advisable at any time and from time to time for the beneficiary’s health education maintenance or support grantor’s sole power grantor may not exercise this power to appoint any interest in trust to grantor grantor's estate grantor’s creditors or the creditors of grantor’s estate grantor holds this power in a non-fiduciary capacity sec_5 b provides that during grantor’s lifetime a majority of the committee members with grantor’s written consent may but are not required to appoint trust income or principal including the whole thereof outright or in trust to or for the benefit of grantor or the lifetime beneficiaries for any purpose at any time and from time to time grantor’s consent power sec_5 b provides that during grantor’s lifetime the committee members other than grantor by unanimous vote may but are not required to appoint trust income including the whole thereof to or for the benefit of any one or more of grantor or the lifetime beneficiaries for any purposes at any time and from time to time unanimous member power section dollar_figure provides that during grantor’s lifetime if at any time the committee ceases to exist trustee may but is not required to distribute income or principal to the lifetime beneficiaries other than grantor as follows a independent_trustee may distribute any portion of trust property outright or in trust to or for the benefit of any lifetime beneficiary as independent_trustee determines advisable for any purpose including distribution of all or part of the trust principal to fund a beneficiary’s business ventures investment ventures or charitable giving an interested trustee must not make distributions from trust independent_trustee is defined as any trustee who is not an interested trustee an interested trustee is defined as a trustee who is a transferor or beneficiary is related or subordinate to a transferor or beneficiary can be removed and replaced by a transferor with either the transferor or a party who is related or subordinate to the transferor or can be removed and replaced by a beneficiary with either the beneficiary or a party who is related or subordinate to the beneficiary plr-125542-18 sec_5 a also provides that any net_income not distributed must be accumulated and added to principal sec_5 d provides that under no circumstances may trustee make any distribution to any beneficiary in a manner that would discharge any of grantor’s legal obligations section dollar_figure provides that upon grantor's death grantor may appoint the balance of trust to any one or more persons or charities qualified under sec_2055 in equal or unequal proportions and on any terms or conditions grantor designates grantor may not exercise this power for the purpose of discharging grantor’s legal obligations or otherwise for grantor’s pecuniary benefit and may not exercise this power to appoint any interest in trust to grantor grantor’s estate grantor’s creditors or the creditors of grantor’s estate grantor’s testamentary_power_of_appointment further grantor may not exercise this power_of_appointment to create another power_of_appointment that under any applicable law can be validly exercised to postpone the vesting of any estate or interest in the property subject_to the power for a period ascertainable without reference to the first power_of_appointment article six section dollar_figure provides that in default of grantor’s exercise of grantor’s testamentary_power_of_appointment trustee must distribute ten percent of the remaining trust property in equal shares to each member of the committee other than grantor trustee shall administer the share for each beneficiary in a separate trust for the benefit of the beneficiary as provided in section in addition trustee must distribute ten percent of the remaining trust property to one or more charities supported by grantor during grantor’s lifetime trustee in trustee’s sole discretion may determine the charities amounts and charitable purposes of such distributions each charitable_organization must be a charity of a type described in sec_2055 finally trustee must allocate the balance of the remaining trust property among grantor’s descendants as provided in section trustee in trustee’s sole discretion may determine the beneficiaries amounts shares and interests of the allocations but must administer the allocation to a descendant as provided in section section dollar_figure of article five also provides that any member of the committee may resign as a member without prior approval of any court or the consent of any person however at all times there must be at least two members of the committee in addition to grantor if at any time there are fewer than two members serving on the committee then the committee automatically ceases to exist and all trust distributions are governed under sec_5 further pursuant to sec_5 b and as stated above the committee only has the authority to appoint under the grantor consent power and the committee unanimous member power only during grantor’s lifetime plr-125542-18 article five sec_5 b provides that the members of the committee include grantor father mother sibling and sibling committee will cease to exist upon grantor's death further committee members exercise their powers of appointment in a nonfiduciary capacity article one sec_1 a provides that no trustee may or any other person may make any discretionary distribution to grantor or any trust where grantor is a beneficiary or to any trust which is a grantor_trust as to grantor under sec_672 through you have requested the following rulings as long as the power_of_appointment committee is serving no portion of the items of income deductions and credits against tax of trust shall be included in computing under sec_671 the taxable_income deductions and credits of grantor or any other member of the committee the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax any distribution_of_property by the committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee any distribution_of_property by the committee from trust to any beneficiary of the trust other than grantor will not be a completed_gift by any member of the committee other than grantor no member of the committee upon his or her death will include in his or her estate any property held in trust because such member is deemed to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual plr-125542-18 sec_672 provides for purposes of subpart e that the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the power in sec_674 regardless of by whom held sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant to its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both plr-125542-18 sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof sec_679 provides that a united_states_person who directly or indirectly transfers property to a foreign_trust shall be treated as the owner for his taxable_year of the portion of such trust attributable to such property if for such year there is a united_states_beneficiary of any portion of the trust based solely on the facts submitted and representations made we conclude an examination of trust reveals none of the circumstances that would cause grantor to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 sec_677 or sec_679 as long as trust is a domestic_trust and the committee remains in existence and serving because none of the members of committee have a power exercisable by himself to vest trust income or corpus in himself none shall be treated as the owner of trust under sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of grantor under sec_675 thus the circumstances attendant on the operation of trust will determine whether grantor will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the gift_tax applies whether the transfer is in plr-125542-18 trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property a part thereof or interest therein of which the donor has so parted with dominion and control as to leave the donor no power to change its disposition whether for the donor's own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor's descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but had instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by the donor in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom a trustee as such is not a person having an adverse_interest in the disposition of the trust property or its income sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no plr-125542-18 power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer's gift was complete in when he relinquished his right to change the beneficiaries of the trust a’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantor retains the grantor's consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom under sec_25_2514-3 a taker in default has an adverse_interest however the committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power under sec_25_2514-3 a co-holder of a power is only considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in this case the committee members only have the authority to exercise their powers under the grantor’s consent power and unanimous member power during grantor’s lifetime accordingly the committee members do not have interests adverse to grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore grantor is considered as possessing the power to distribute income and principal to any beneficiary himself because he retained the grantor's consent power plr-125542-18 if the committee ceases to exist trust provides that an independent_trustee has the power to distribute income or principal to the lifetime beneficiaries however the independent trustee’s power is not a condition_precedent to grantor’s consent power grantor’s consent power over income and principal is presently exercisable and not subject_to a condition_precedent thus the independent trustee’s power to distribute income and principal does not cause the transfer of property to be complete with respect to the income or principal interest in trust for federal gift_tax purposes therefore grantor is considered as possessing the power to distribute income and or principal to any beneficiary himself because he retained the grantor’s consent power grantor also retains the grantor's sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard in this case the grantor's sole power gives grantor the power to change the interests of the beneficiaries even though grantor's power is limited by an ascertainable_standard ie health education maintenance and support grantor's power is not a fiduciary power accordingly the retention of the grantor’s consent power and the grantor's sole power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes further grantor retains grantor's testamentary power to appoint the property to any one or more persons or charities qualified under sec_2055 other than grantor's estate grantor's creditors or the creditors of grantor's estate under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder in trust for federal tax purposes finally the committee members possess the unanimous member power over income this power is not a condition_precedent to grantor's powers grantor's power over the income is presently exercisable and not subject_to a condition_precedent grantor retains dominion and control_over the income of trust until the committee members exercise their unanimous member power accordingly the retention of this power does not cause grantor’s transfer of property to trust to be complete for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax ruling sec_3 and plr-125542-18 sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor's estate the possessor's creditors or the creditors of the possessor's estate sec_25_2514-1 provides that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor's estate or the creditors of his estate or expressly not exercisable in favor of the possessor or his creditors or possessor’s estate or the creditors of his estate sec_2514 provides that in the case of a power_of_appointment created after october if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor's power sec_25_2514-3 provides in part that a co-holder of a power has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y plr-125542-18 sec_25_2514-1 provides that for purposes of sec_25_2514-1 through the term power_of_appointment does not include powers reserved by a donor to himself no provision of sec_2514 or of sec_25_2514-1 through is to be construed as in any way limiting the application of any other section of the code or of these regulations the power of the owner of a property interest already possessed by him to dispose_of his interest and nothing more is not a power_of_appointment and the interest is includible in the amount of his gifts to the extent it would be includible under sec_2511 or other provisions of the code sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides that in the case of a power_of_appointment created after date which is exercisable by the decedent only in conjunction with another person if the power is not exercisable by the decedent except in conjunction with the creator of the power such power shall not be deemed a general_power_of_appointment sec_2041 provides however that in the case of a power_of_appointment created after date if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent -- such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent's power sec_20_2041-3 of the estate_tax regulations provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a lifetime appointee under a power however a co-holder of a power is considered as having an adverse_interest where he plr-125542-18 may possess the power after the decedent's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_20_2041-1 provides that for purposes of sec_20_2041-1 through the term power_of_appointment does not include powers reserved by the decedent to himself within the concept of sec_2036 to see sec_20_2036-1 to no provision of sec_2041 or of sec_20_2041-1 to is to be construed as in any way limiting the application of any other section of the code or of these regulations the power of the owner of a property interest already possessed by him to dispose_of his interest and nothing more is not a power_of_appointment and the interest is includible in his gross_estate to the extent it would be includible under sec_2033 or some other provision of part iii of subchapter_a of chapter the powers held by the committee members under the grantor's consent power are powers that are exercisable only in conjunction with the creator grantor accordingly under sec_2514 and sec_2041 the committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the committee members under the unanimous member power are not general powers of appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and sec_20_2041-3 the committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than grantor pursuant to the exercise of these powers the grantor's consent power and the unanimous member powers are not gifts by the committee members instead such distributions are gifts by grantor further any distribution from trust to grantor is merely a return of grantor's property further any distributions pursuant to grantor’s sole power are gifts by grantor see sec_2511 and sec_25_2514-1 based on the facts submitted and representations made we conclude that any distribution_of_property by the committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee a distribution to grantor is merely a return_of_capital to grantor further we conclude that any distribution_of_property by the committee from trust to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee plr-125542-18 finally we conclude that the powers held by the committee are not general powers of appointment for purposes of sec_2041 and accordingly no member of the committee upon his or her death will include in his or her estate any property held in trust because such member is deemed to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust however upon grantor’s death the trust property will be includible in grantor’s gross_estate see sec_20_2041-1 and sec_20_2036-1 to except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on the trust provisions permitting trustee to distribute income or principal to trustees of other trusts decanting this ruling is directed only to the taxpayer who requested 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 we have sent a copy of this letter to your authorized representatives sincerely lorraine e gardner lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc


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 b06 plr-125322-12 date date ty -------------------------- ty -------------------------- legend ---------------------------------------------- parent ------------------------------------------------------------- subsidiary ---------------------------------------- ------------------------- ---------------- -------------------------- -------------------------- -------------------------- --------------------- ------------- --------------------- date date date date date fiscal_year end company officials -------------------------------------------------------------------------------------- ------------------------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------- ------------------------------------------- tax professional ---------------------------------------------------------------------- ---------------------------------------------------------------------------- -------------------------- dear ------------ this responds to your letter dated date and supplemental submissions of date and date requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election the extension is being requested for parent and the members of its plr-125322-12 affiliated_group to make an election to file a consolidated federal_income_tax return with parent as the common parent under sec_1_1502-75 of the income_tax regulations hereinafter referred to as the election for the short taxable_year ending date the material information submitted for consideration is summarized below parent is a corporation that was formed on date on date parent acquired all of the stock of subsidiary the date acquisition prior to the date acquisition subsidiary was the common parent of a consolidated_group with a fiscal_year ending fiscal_year end the date acquisition terminated the subsidiary consolidated_group the subsidiary consolidated_group will file a final consolidated_return for the short_period date through date parent intended to file a consolidated_return for its taxable_year ending date the election was due on the last day prescribed by law including extensions of time for filing parent’s return but for various reasons a valid election was not filed subsequently this request was submitted for an extension of time to file the election the period of limitations on assessment under sec_6501 for parent’s short taxable_year ending date and for any subsequent year will not expire prior to date parent and subsidiary have represented that they do not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the time they requested relief and the new position requires or permits a regulatory election for which relief is requested sec_1_1502-75 provides that a group which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for filing the common parent's return under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the plr-125322-12 commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_1502-75 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for the parent affiliated_group to file the election provided parent shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company officials and tax professional explain the circumstances that resulted in the failure to timely file the election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for parent to file the election by filing a consolidated_return with parent as the common parent and attaching a form_1122 for each subsidiary member for the taxable_year ending date parent must attach a copy of this letter to the return alternatively if such return is filed electronically the requirement of attaching a copy of this letter to the return may be satisfied by attaching a statement to the return that provides the date and control number of the letter_ruling the above extension of time is conditioned on the taxpayers’ parent's consolidated group's subsidiary's and its subsidiaries' tax_liability if any being not lower in the aggregate for all taxable years impacted by the election than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the director's office upon audit of the federal_income_tax returns involved we express no opinion with respect to whether parent subsidiary and its subsidiaries qualify substantively to file a consolidated_return in addition we express no opinion as to the tax effects or consequences of filing the return or the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling plr-125322-12 for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by parent company officials and tax professional however the director should verify all essential facts moreover notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any still apply 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 ruling is directed only to the taxpayer s who requested 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 is being sent to your authorized representatives sincerely _ken cohen_______________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division number release date date date contact person identification_number telephone number employer identification no uil supporting organizations uil unrelated v not unrelated_trade_or_business dear you request a ruling concerning certain consequences under sec_501 sec_509 and of the internal_revenue_code the code relating to the proposed transfer of assets described below facts you have been recognized as exempt under sec_501 and classified as a sec_509 supporting_organization your specified supported organizations have received rulings recognizing their tax exempt status under sec_501 and their non-private foundation classification under sec_509 each of your supported organizations operates a retirement community that provides housing health care and other services to serve the special needs of the aged within the meaning of sec_501 and rev ruls and of each supported_organization you are a non-stock corporation whose articles of incorporation identify each of the supported organizations by name you are authorized to appoint three directors to the board_of each supported_organization all of whom may also be directors on your board at least one director of each supported_organization will serve on your board you will be the sole member you function as a parent of the system of retirement communities providing oversight supervision management and strategic planning for the supported organizations you develop policies for standards of care and operation for the supported organizations you carry out various executive administrative financial policy setting planning and other functions of the supported organizations coordinate activities by or among them and supervise overall policy and planning as a supporting_organization of each of the supported organizations you represent that you perform functions for the benefit of each supported organization--functions that each supported_organization would otherwise be required to perform each of the supported organizations has transferred a pro_rata amount of funds to you to fund your start-up and initial working_capital requirements each of the supported organizations regularly makes contributions to support your on-going operations in addition to your initial start-up and on-going operational costs in the future there may be additional sharing of funds assets services and personnel throughout the system determined on a case by case basis and only as needed to support the exempt purposes of any supported_organization or the supporting_organization system as a whole this may be accomplished through formal execution of contracts or other less formal arrangements a combination of gratuitous transfers sales leases or charges for services all as the individual facts and circumstances warrant and to ensure that each entity is fully capable of fulfilling its respective exempt_purpose this would mean funds may be transferred to and from you and the supported organizations ruling requested transfers contributions or sharing of assets personnel facilities and services including the execution of contracts for the sharing of assets and services between you and the supported organizations shall to the extent related to the exempt purposes of these entities not give rise to any unrelated_business_income under sec_511 through to you law sec_501 of the code describes organizations that are organized and operated exclusively for charitable purposes sec_511 imposes a tax on unrelated_business_taxable_income of organizations exempt from federal_income_tax under sec_501 and sec_501 sec_512 defines unrelated business taxable income’ as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less allowable deductions and computed with modifications in sec_512 sec_513 defines the term unrelated_trade_or_business as any trade_or_business which is not substantially related aside from the need of such organization for income or funds or the use it makes of profits derived to the exercise or performance by such organization of the purposes or function constituting the basis for its exemption under sec_501 sec_1_501_c_3_-1 of the income_tax regulations the regulations provides that in order to be exempt as an organization described in section sec_501 the organization must be both organized and operated exclusively for one or more exempt purposes sec_1_513-1 states that the term trade_or_business has the same meaning as in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 provides that gross_income derives from unrelated_trade_or_business within the meaning of sec_513 if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question and the accomplishment of the organization's exempt purposes sec_1_513-1 states that to be substantially related to the exempt purposes of the organization the business activity must have a causal relationship to the achievement of exempt purposes and it must contribute importantly to the accomplishment of those purposes and it is substantially related for purposes of sec_513 only if the causal relationship is a substantial one thus for the conduct_of_a_trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of exempt purposes rev ruls 1972_1_cb_145 and 1979_1_cb_194 hold that providing housing for the elderly can be a charitable purpose within the meaning of sec_501 if is specially designed for the elderly provides for their health emotional social and recreational needs is built at the lowest feasible cost is priced within the financial reach of a significant segment of the community served and if the organization maintains residents who become unable to pay it revrul_77_72 1977_1_cb_157 holds that inter-organizational indebtedness between a parent and its wholly owned subsidiary is not acquisition_indebtedness within the meaning of sec_514 but merely a matter of accounting between related_organizations revrul_78_41 1978_1_cb_148 holds that when a_trust performs a function that the hospital could carry out itself in the performance of its exempt_purpose such as the payment of malpractice claims against the hospital the trust's performance of an integral part of the hospital's function was also exempt under sec_501 analysis you and supported organizations function to meet the housing health and financial needs of elderly persons which is considered a charitable purpose within the meaning of sec_501 rev ruls and the relationship among the several organizations advances their charitable purposes by providing overall policy and planning guidance coordinating activities between the communities and assuming various functions that the supported organizations would otherwise conduct you enhance the ability of each supported_organization to serve the special needs of the aged of its particular community revrul_78_41 you relieve each entity of administrative and other burdens and allow them to focus on providing housing health care and services for their residents you have represented that these activities are related to your tax-exempt purposes and those of your supported organizations because the transfers of cash assets and personnel and the sharing of personnel services facilities and expenses permit ail of the entities to more efficiently carry out their respective tax-exempt operations transfers that are related to your exempt_purpose will not result in unrelated business activity transfers between closely related exempt_organizations for their exempt purposes are regarded as matters of accounting revrul_77_72 furthermore such transfers are not generally regarded as trades_or_businesses regularly carried on for the production_of_income sec_1_513-1 thus the transfers will not give rise to unrelated_business_taxable_income under sec_511 through to you ruling based upon the information provided above we rule as follows transfers contributions or sharing of assets personnel facilities and services including the execution of contracts for the sharing of assets and services between you and the supported organizations shall to the extent related to the exempt purposes of these entities not give rise to any unrelated_business_income under section sec_511 through to you this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice with our proposed deletions you should follow the instructions in notice if you disagree this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts 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 because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records 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 representatives ronald shoemaker manager technical group enclosure notice sincerely