internal_revenue_service number release date index number ------------------------------ --------------------------- ------------------------------------------ -------------------------------- --------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact -------------------------- id no ---------------- ----------------- telephone number --------------------- refer reply to cc corp b02 plr-124690-10 date date legend oldco ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------- distributing ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------- distributing ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------- sub sub llc lp ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ---------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------- ------------------------------------------------------------------------------------------- --------------------------- ------------------------------------------------------------------------------------------- --------------------------- plr-124690-10 merger sub ------------------------------------------------------------------------------------------- --------------------------- shareholder ------------------------------------------------------------------------------------------- ----------------------- shareholder ------------------------------------------------------------------------------------------- ----------------------- shareholder ------------------------------------------------------------------------------------------- ----------------------- business a ------------------------------ business b --------------------------------------- business c ---------------------------------------- business d ---------------------------------------- business e -------------------------------------- customer -------------- bond sec_1 bond sec_2 date date date date date ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------- ------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- ------------------- -------------------------- ------------------------- ------------------- -------------------------- state x ------------- plr-124690-10 state y ---------- year year year year ------- ------- ------- ------- a b c d e f g h i j k l m n o p q ------------------- ------------------- ------------------- --------------- ---- --------------- ---- --------------- ---- --------------- ---- ------------------- ----------------- ------------------- ------------------- ----------------- --------------- plr-124690-10 r s t ------------------- ---- ---- dear ------------------ this letter responds to your date letter requesting rulings on certain federal_income_tax consequences of proposed transactions the information provided in that letter and in later correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination moreover this office has not reviewed any information pertaining to and has made no determination regarding whether the proposed transactions described below i satisfy the business_purpose requirement of sec_1_355-2 ii are used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii are part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 facts oldco is a state x corporation and the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return the oldco group oldco has outstanding one class of common_stock which is widely held and publicly traded based on public filings with the securities_and_exchange_commission oldco believes that as of date shareholder shareholder and shareholder each owns directly five percent or more of the voting power or the fair_market_value of the outstanding_stock of oldco and that no other shareholders own five percent or more of such voting power or fair_market_value neither shareholder shareholder nor shareholder actively participates in the management of oldco oldco has in the past from time to time depending on market conditions repurchased its stock in the open market and through accelerated share repurchase agreements with banks under a share repurchase program authorized by oldco’s board_of directors on date oldco was authorized to repurchase up to dollar_figurea of its common_stock on date oldco’s board_of directors increased the share repurchase authorization by dollar_figureb on plr-124690-10 date oldco’s board_of directors authorized a new program collectively with the earlier programs the repurchase program to repurchase up to dollar_figurec of its common_stock the repurchase program does not have an expiration date pursuant to the repurchase program oldco repurchased approximately d shares e percent of its common_stock during year f shares g percent during year h shares i percent during year and j shares k percent in year through date as of date the unexercised authorization was approximately dollar_figurel oldco owns all the stock of sub a state y corporation and sub a state x corporation sub and the members of the separate_affiliated_group as defined in sec_355 sag of which sub is the common parent the sub sag conduct business a sub and the members of its sag the sub sag conduct business b business c business d and business e the retained businesses financial information has been received indicating that business a and business b each has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years oldco also owns other assets and is a party to various contracts oldco is also the plaintiff or defendant in various pending lawsuits arising out of the oldco group’s businesses oldco has outstanding notes the oldco notes with aggregate face_amount of dollar_figurem the oldco notes are widely held and publicly traded under the terms of the indenture governing the oldco notes if oldco transfers its properties and assets substantially as an entirety to another corporation a partnership a_trust or a limited_liability_company the transferee will be required to assume oldco’s obligations under the oldco notes and oldco will be relieved of its liability sub has outstanding notes the sub notes with aggregate face_amount of approximately dollar_figuren the sub notes are widely held and publicly traded oldco guarantees the sub notes the sub notes guarantees under the terms of the sub notes guarantees if oldco transfers all or substantially_all of its assets or transfers all of its assets substantially as an entirety to another corporation a partnership or a_trust the transferee will be required to assume oldco’s obligations under the sub notes guarantees and oldco will be relieved of its obligations under the sub notes guarantees sub performs internal cash management functions for the oldco group pursuant to this arrangement other members of the oldco group transfer their excess cash in daily sweeps to sub primarily as a result of this arrangement sub owes approximately dollar_figureo of open_account_debt to sub and its subsidiaries the intercompany debt sub has outstanding loans supporting dollar_figurep principal_amount of debt related to bond sec_1 oldco guarantees sub 1’s obligations under the debt related to bond sec_1 the bond sec_1 plr-124690-10 guarantee the bond sec_1 guarantee requires oldco to remain in existence as a corporation and provides no mechanism for oldco to transfer its obligations except by operation of law in a merger it is anticipated that sub will make a tender offer for the bond sec_1 prior to the proposed transactions using cash from partial repayment of the intercompany debt and that most but likely not all of the holders of the bond sec_1 will accept such tender offer sub also has outstanding loans supporting dollar_figureq principal_amount of debt related to bond sec_2 sub guarantees sub 1’s obligations under the debt related to bond sec_2 the bond sec_2 guarantee the bond sec_2 guarantee provide no mechanism for sub to transfer this obligation sub and the members of the sub sag have a number of business a contracts with customer the customer contracts oldco has guaranteed sub 1’s performance of some of the customer contracts the customer guarantees there is no provision for oldco to transfer its obligations pursuant to the customer guarantees to another entity except by operation of law in a merger after the proposed transactions however neither oldco nor distributing will have the facilities or personnel to perform the customer contracts in preparation for the proposed transactions oldco formed two new state x corporations distributing and distributing oldco owns all the stock of distributing and distributing owns all the stock of distributing in preparation for the proposed transactions oldco will form llc a state x limited_liability_company lp a state x limited_partnership and merger sub a state x corporation distributing will own the sole membership interest in llc distributing and llc will own all the partnership interests in lp and lp will own all the stock of merger sub llc and lp each will be classified as an entity disregarded as separate from its owner distributing in each case for federal tax purposes under sec_301_7701-3 business a differs in profit margin capital requirements and customer focus from the retained businesses the proposed transactions are intended to separate business a from the retained businesses following the proposed transactions distributing and distributing each will be a separate publicly-traded corporation distributing will own all the stock of sub which will conduct business a through the sub sag and distributing will own all of the stock of sub which will conduct the retained businesses through the sub sag the purposes of the proposed transactions are i to eliminate competition for capital between business a and the retained businesses ii to enhance customer focus iii to enhance management focus and iv to increase the aggregate value of the stock of distributing and distributing above the value the oldco stock would have if it had plr-124690-10 continued to own both business a and the retained businesses the corporate business purposes proposed transactions to achieve the corporate business purposes oldco has proposed the following transactions i ii iii iv sub will distribute the intercompany debt receivable to oldco the intercompany debt distribution merger sub will merge into oldco with oldco as the survivor the merger in the merger the oldco shareholders will exchange their oldco stock for all the outstanding_stock of distributing immediately after the merger oldco will be a wholly-owned subsidiary of lp and all the members of the sub sag and the sub sag as well as distributing and distributing will be members of the sag of which distributing is the parent the distributing sag distributing will transfer its sole membership interest in llc and its partnership_interest in lp to its wholly-owned subsidiary distributing the llc and lp contribution oldco will distribute all of its assets consisting principally of the stock of sub and sub and the intercompany debt receivable from sub to lp and lp will assume all of oldco’s liabilities and other obligations except oldco’s obligations under the customer guarantees and the bond sec_1 guarantee pursuant to the applicable debt and or guarantee documents lp will replace oldco as the obligor on the oldco notes and as the guarantor under the sub notes guarantees distributing will enter into performance and indemnity agreements with oldco the p i agreements whereby distributing will have primary responsibility for oldco’s obligations under the customer guarantees and under the bond sec_1 guarantee collectively these transactions are referred to as the oldco distribution wherever possible oldco will transfer its assets other than the stock of sub and sub and assign its rights and obligations under any contracts other than its obligations under the oldco notes the customer guarantees and the bond sec_1 guarantees and under any pending lawsuits in each case to the appropriate affiliate sub sub or one of their subsidiaries before the oldco distribution with respect to some contracts and lawsuits however it may not be feasible to eliminate oldco’s legal role in such instances prior to the oldco distribution the appropriate affiliates will enter into agreements with oldco similar in effect to the p i agreements and pursuant thereto such affiliates will receive the benefits and assume the burdens attributable to such contracts and lawsuits also due to consent requirements or other legal impediments the transfer of some of oldco’s plr-124690-10 assets rights and obligations the delayed transfer items may not be completed until after the oldco distribution oldco will transfer any such delayed transfer items to the appropriate affiliates as soon as practicable after oldco obtains such consents or removes such impediments at all times subsequent to the oldco distribution however by agreement the relevant affiliates will have the right to receive or the obligation to assume all of the delayed transfer items v lp will distribute to llc and distributing in accordance with their interests in lp all the stock of sub and oldco llc will then distribute to distributing the portion of the stock of oldco and sub it received from lp collectively these transactions are referred to as the lp distribution vi distributing will borrow funds from an unrelated lender or group of lenders the new debt vii distributing will contribute to sub the intercompany debt receivable and all or part of the cash proceeds of the new debt up to dollar_figurer of that amount the transferred debt proceeds as follows a distributing will contribute to llc a portion of the transferred debt proceeds equal to llc’s proportionate interest in lp b llc will contribute to lp all of the transferred debt proceeds contributed to llc by distributing c distributing will contribute the remaining transferred debt proceeds to lp and d lp will contribute the intercompany debt receivable and transferred debt proceeds to sub collectively these transfers are referred to as the contribution viii distributing will distribute its membership interest in llc and its partnership_interest in lp to distributing assuming llc and lp are disregarded as entities separate from the owner distributing will be deemed a to receive a distribution of all the assets of lp principally the stock of sub the internal spin and b to assume liability for the oldco notes and the obligations under the sub notes guarantees the deemed distributing assumption collectively the internal spin and the deemed distributing assumption are referred to as the distributing distribution ix distributing will distribute the stock of distributing to its shareholders pro_rata the external spin no fractional shares of distributing stock will be distributed instead distributing will aggregate the shares that otherwise would be distributed as fractional shares sell such shares and distribute the cash proceeds to the shareholders who otherwise would have received such fractional shares x llc will distribute its partnership_interest in lp to distributing lp will be dissolved and will distribute all of its assets to its sole owner distributing which will also assume lp’s liability for the oldco notes and lp’s guarantor obligations plr-124690-10 under the sub notes guarantees then llc will be dissolved collectively these transactions are referred to as the lp and llc dissolutions distributing and distributing will enter into a separation and distribution agreement and other agreements relating to various separation matters including tax sharing employee compensation and transitional services such as information_technology payroll tax_accounting and legal services the ancillary agreements after the transactions it is anticipated that distributing will purchase its own stock in amounts at least consistent with oldco’s prior practice depending on market conditions distributing may repurchase up to s percent of its outstanding shares determined as of the time of the external spin within two years after the external spin in addition during such period distributing or its subsidiaries may engage in certain types of transactions that make cash available not in the ordinary course of business in such case distributing may use some or all of such cash to purchase additional shares of distributing stock depending on market conditions distributing may purchase up to t percent of its outstanding shares determined as of the time of the external spin within two years after the external spin it is anticipated that such stock purchases will be through open market purchases block purchases accelerated share repurchase transactions dutch auction or modified dutch auction tender offers or some combination thereof neither distributing nor distributing has any plan or intention to make a block purchase of stock during such period from any shareholder who owns five percent or more of the stock in or the securities of distributing or distributing as the case may be at the time of the purchase representations the merger the following representations have been made regarding the merger a b distributing will acquire oldco stock solely in exchange for distributing stock no oldco stock will be redeemed for cash or other_property except in market repurchases unrelated to the transaction no distributing stock will be issued for services rendered to or for the benefit of distributing in connection with the transaction for indebtedness of distributing or for interest on indebtedness of distributing which accrued on or after the beginning of the holding_period of the transferor s for the debt plr-124690-10 c d e f g h i j k l m none of the oldco stock to be transferred will be sec_306 stock within the meaning of sec_306 the transfer is not the result of the solicitation by a promoter broker or investment house the oldco shareholders will not retain any rights in the property transferred to distributing the stock of oldco transferred to distributing will not be subject_to any liabilities nor are any liabilities of the oldco shareholders being assumed by distributing accordingly the adjusted_basis and the fair_market_value of the stock of oldco to be transferred by the oldco shareholders to distributing will in each instance be equal to or exceed the sum of the liabilities to be assumed by distributing plus any liabilities to which the stock of oldco is subject see sec_357 there is no indebtedness between distributing and oldco shareholders and there will be no indebtedness created in favor of the transferors as a result of the transaction the transfers and exchanges will occur under a plan agreed upon before the transaction in which the rights of the parties are defined see sec_1_351-1 all exchanges will occur on approximately the same date distributing has no plan or intention to redeem or otherwise reacquire any of its stock issued in the transaction except that distributing will continue oldco’s practice of repurchasing stock from time to time as described above taking into account any issuance of additional shares of distributing stock any issuance of stock for services the exercise of any distributing stock_rights warrants or subscriptions a public offering of distributing stock and the sale exchange transfer by gift or other_disposition of any of the stock of distributing to be received in the exchange the former oldco shareholders will be in control of distributing within the meaning of sec_368 see revrul_59_259 1959_2_cb_115 and sec_1_351-1 distributing has no plan or intention to issue additional shares of its stock that would result in the oldco shareholders losing control of distributing within the meaning of sec_368 each oldco shareholder will receive stock of distributing approximately equal to the fair_market_value of the stock of oldco transferred to distributing plr-124690-10 n o p q r s distributing will remain in existence and except for the external spin will retain and use the property transferred to it in a trade_or_business except for the oldco distribution there is no plan or intention by distributing to dispose_of the transferred oldco stock other than in the normal course of business operations oldco may pay or reimburse expenses and costs incurred by it or its subsidiaries and affiliates including distributing and distributing related solely and directly to the proposed transactions but will not pay or reimburse any costs or expenses_incurred by oldco shareholders distributing will not be an investment_company within the meaning of sec_351 and sec_1_351-1 oldco is not aware of any oldco shareholders being under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 or of any of the stock received in the transaction being used to satisfy the indebtedness of such debtor distributing will not be a personal services corporation within the meaning of sec_269a the llc and lp contribution and the oldco distribution the following representations have been made regarding the llc and lp contribution and the oldco distribution t u v immediately before the oldco distribution the fair_market_value of the assets of oldco will exceed the sum of its liabilities plus the liabilities if any to which the assets are subject immediately following consummation of the transaction distributing will own all of the outstanding distributing stock and will own such stock solely by reason of its deemed ownership of oldco stock immediately prior to the transaction immediately following consummation of the transaction distributing through llc and lp will possess the same assets and liabilities as those possessed by oldco immediately prior to the transaction assets used to pay expenses_incurred in connection with the transaction and all redemptions and distributions except for regular normal dividends made by oldco immediately preceding the transaction will in the aggregate constitute less than one percent of the net assets of oldco plr-124690-10 w x y z following consummation of the oldco distribution oldco will not conduct any business activities oldco will not own any assets have any liabilities or other obligations or be a party to any contracts other than i the delayed transfer items and ii in accordance with the bond sec_1 guarantee the customer guarantees the p i agreements and other agreements or arrangements pursuant to which oldco will have transferred the economic benefits and burdens of its assets rights and obligations to distributing distributing or their respective affiliates the adjusted_basis and the fair_market_value of the assets transferred by oldco in the oldco distribution will in each instance be equal to or greater than the amount of oldco liabilities assumed by distributing other than oldco options and benefit plans for employees and directors oldco will not have outstanding any warrants options convertible securities or any other type of right pursuant to which any person could acquire stock in oldco the liabilities of oldco assumed by distributing in the oldco distribution plus the liabilities if any to which the transferred assets are subject were incurred by oldco in the ordinary course of its business and are associated with the assets being transferred aa distributing will pay its own expenses if any incurred in connection with the transaction bb oldco is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of a a cc dd ee ff distributing does not own directly or indirectly nor has it owned during the past five years directly or indirectly any stock of oldco no two parties to the transactions are investment companies as defined in sec_368 and iv except for the contribution the distributing distribution and the other proposed transactions distributing has no plan to liquidate distributing as the successor to oldco merge distributing into another corporation or cause distributing to sell or otherwise dispose_of any distributing assets other than in the ordinary course of business or to sell any distributing stock except for transfers described in sec_368 after the transactions distributing will not sell or otherwise dispose_of any oldco stock except that oldco may be dissolved or merged into distributing or another member of the distributing group distributing will not claim a worthless_stock deduction with respect to the oldco stock plr-124690-10 gg there will be no change in payment expectations within the meaning of sec_1_1001-3 and no significant alteration within the meaning of sec_1_1001-3 with respect to the oldco notes or the sub notes as a result of the merger or the oldco distribution the internal spin the following representations have been made regarding the internal spin hh no indebtedness owed by sub to distributing or any successors to distributing after the internal spin will constitute stock_or_securities of sub ii jj kk ll no part of the consideration to be distributed by distributing in the internal spin will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing the five years of financial information submitted on behalf of the business conducted by distributing and the members of its separate_affiliated_group as defined in sec_355 the distributing sag is representative of its present operation and with regard to it there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of the business conducted by the sub sag is representative of its present operation and with regard to it there have been no substantial operational changes since the date of the last financial statements submitted except for services to be provided pursuant to the ancillary agreements following the internal spin the distributing sag and the sub sag will each continue the active_conduct of its business independently and with its separate employees mm the internal spin will be carried out for the corporate business_purpose of facilitating the external spin which will be carried out for the stated corporate business purposes the distribution of stock of sub in the internal spin is motivated in whole or substantial part by this corporate business_purpose nn oo the internal spin is not used principally as a device for the distribution of the earnings_and_profits of sub or distributing or both for purposes of sec_355 immediately after the internal spin no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in plr-124690-10 pp qq rr ss tt uu vv sec_355 and during the five-year period determined after applying sec_355 ending on the date of the internal spin for purposes of sec_355 immediately after the internal spin no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of sub stock entitled to vote or percent or more of the total value of shares of all classes of sub stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the internal spin or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the internal spin distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the internal spin except in connection with the continuing transactions under the ancillary agreements and the bond sec_2 guarantee no intercorporate debt will exist between sub or its subsidiaries and distributing or its subsidiaries at the time of or subsequent to the internal spin at the time of the internal spin distributing will not have an excess_loss_account in the stock of sub neither business a conducted by sub and its subsidiaries nor control of any entity conducting this business will have been acquired during the five-year period ending on the date of the internal spin in a transaction in which gain_or_loss was recognized or treated as recognized under prop sec_1 in whole or in part neither business b conducted by sub and its subsidiaries nor control of any entity conducting this business will have been acquired during the five-year period ending on the date of the internal spin in a transaction in which gain_or_loss was recognized or treated as recognized under prop sec_1 in whole or in part payments made in connection with continuing transactions if any between distributing and sub will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length except for certain transactions and arrangements under the ancillary agreements which may be based on cost or cost-plus arrangements ww no two parties to the internal spin are investment companies as defined in sec_368 and iv plr-124690-10 xx yy zz the internal spin is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a or greater interest within the meaning of sec_355 in distributing or sub including any predecessor or successor of any such corporation all repurchases of stock by oldco prior to the date of the internal spin were not or to the extent they have not yet occurred will not be related to the proposed transactions and the amount and timing of such repurchases would have been the same regardless of the proposed transactions immediately after the internal spin as defined in sec_355 neither distributing nor distributing will be a disqualified_investment_corporation within the meaning of sec_355 aaa there is no regulatory legal contractual or economic compulsion or requirement that the deemed distributing assumption be made as a condition of the internal spin for purposes of this representation the fact that the internal spin and the deemed distributing assumption will take the form of a distribution of interests in disregarded llc and disregarded lp which is the only entity liable for the obligations that are deemed to be assumed does not by itself constitute or result in such regulatory legal contractual or economic compulsion or requirement the fact that the value of distributing will decrease as a result of the internal spin was not a consideration in the deemed distributing assumption the internal spin is not contingent on a contribution to distributing including through the deemed distributing assumption of assets having a specified or roughly specified value the deemed distributing assumption the following representation has been made regarding the deemed distributing assumption bbb there will be no change in payment expectations within the meaning of sec_1_1001-3 and no significant alteration within the meaning of sec_1_1001-3 with respect to the oldco notes or the sub notes as a result of the deemed distributing assumption the external spin the following representations have been made regarding the external spin ccc no indebtedness owed by distributing to distributing or any successors to distributing after the external spin will constitute stock_or_securities plr-124690-10 ddd no part of the consideration to be distributed by distributing in the external spin will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing eee the five years of financial information submitted on behalf of the business conducted by the sub sag is representative of its present operation and with regard to it there have been no substantial operational changes since the date of the last financial statements submitted fff the five years of financial information submitted on behalf of the business conducted by the distributing sag is representative of its present operation and with regard to it there have been no substantial operational changes since the date of the last financial statements submitted ggg except for services to be provided pursuant to the ancillary agreements following the external spin the distributing sag and the distributing sag will each continue the active_conduct of its business independently and with its separate employees hhh the external spin will be carried out for the following corporate business purposes i to eliminate competition for capital ii to enhance customer focus iii to enhance management focus and iv to increase stock value the distribution of stock in distributing in the external spin is motivated in whole or substantial part by one or more of these corporate business purposes iii jjj the external spin is not used principally as a device for the distribution of the earnings_and_profits of distributing distributing or both for purposes of sec_355 immediately after the external spin no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the external spin kkk for purposes of sec_355 immediately after the external spin no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the external spin or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five- plr-124690-10 year period determined after applying sec_355 ending on the date of the external spin lll distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the external spin mmm except in connection with the continuing transactions under the ancillary agreements and the bond sec_2 guarantee no intercorporate debt will exist between distributing or its subsidiaries and distributing or its subsidiaries at the time of or subsequent to the external spin nnn immediately before the external spin items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published in t d further any excess_loss_account that distributing has in the distributing stock will be included in income immediately before the external spin see sec_1_1502-19 ooo neither business b conducted by sub and its subsidiaries nor control of any entity conducting this business will have been acquired during the five-year period ending on the date of the external spin in a transaction in which gain_or_loss was recognized or treated as recognized under prop sec_1 in whole or in part ppp neither business a conducted by sub and its subsidiaries nor control of any entity conducting this business will have been acquired during the five-year period ending on the date of the external spin in a transaction in which gain_or_loss was recognized or treated as recognized under prop sec_1 in whole or in part qqq payments made in connection with continuing transactions if any between distributing and distributing will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length except for certain transactions and arrangements under the ancillary agreements which may be based on cost or cost-plus arrangements rrr no two parties to the external spin are investment companies as defined in sec_368 and iv sss the external spin is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or distributing including any predecessor or successor of any such corporation plr-124690-10 ttt all repurchases of stock by oldco or distributing prior to the date of the external spin were not or to the extent they have not yet occurred will not be related to the proposed transactions and the amount and timing of such repurchases would have been the same regardless of the proposed transactions uuu immediately after the external spin as defined in sec_355 neither distributing nor distributing will be a disqualified_investment_corporation within the meaning of sec_355 vvv the payment of cash in lieu of fractional shares of distributing stock is solely for the purpose of avoiding the expense and inconvenience of distributing fractional shares and does not represent separately bargained-for-consideration it is intended that no distributing shareholder will receive cash in an amount equal to or greater than the value of one full share of distributing stock www the deemed transfer by the oldco shareholders of their oldco stock to distributing in the merger is not intended to be part of an exchange that includes any part of the external spin xxx the payment of cash in lieu of fractional shares of distributing stock is solely for the purpose of avoiding the expense and inconvenience of distributing fractional shares and does not represent separately bargained-for-consideration it is intended that no distributing shareholder will receive cash in an amount equal to or greater than the value of one full share of distributing stock the lp and llc dissolutions the following representation has been made regarding the lp and llc dissolutions yyy there will be no change in payment expectations within the meaning of sec_1_1001-3 and no significant alteration within the meaning of sec_1_1001-3 with respect to the oldco notes or the sub notes as a result of the lp and llc dissolutions the oldco notes and sub notes the following additional representations have been made regarding the oldco notes and the sub notes zzz the oldco notes are full recourse obligations of oldco will be full recourse obligations of lp after the oldco distribution and will be full recourse obligations of distributing after the lp and llc dissolutions and after the proposed transactions plr-124690-10 aaaa the sub notes are full recourse obligations of sub and they will continue to be full recourse obligations of sub during and after the proposed transactions bbbb had all the proposed transactions affecting the oldco notes and the sub notes been done as a single change there would have been no change in payment expectations within the meaning of sec_1_1001-3 and no significant alteration within the meaning of sec_1 e i e with respect to the oldco notes or the sub notes rulings the intercompany debt distribution based solely on the information and representations submitted we rule as follows on the intercompany debt distribution immediately before the intercompany debt distribution the intercompany debt will be deemed satisfied by sub for cash in an amount equal to its fair_market_value and then reissued as a new obligation with a new holding_period but otherwise identical terms for the same amount of cash sec_1 g ii the intercompany debt distribution will constitute an intercompany distribution sec_1_1502-13 oldco’s basis in the stock of sub will be subject_to a negative adjustment equal to the fair_market_value of the intercompany debt sec_1 b iv the merger based solely on the information and representations submitted we rule as follows on the merger for federal_income_tax purposes the merger will be deemed to constitute a transfer by the oldco shareholders of their oldco stock to distributing solely in exchange for distributing stock no gain_or_loss will be recognized to the oldco shareholders upon the deemed transfer of their oldco stock to distributing solely in exchange for all the stock of distributing sec_351 no gain_or_loss will be recognized to distributing upon its deemed receipt of stock of oldco solely in exchange for distributing stock sec_1032 plr-124690-10 the basis of the distributing stock received by each oldco shareholder will be the same as the basis of the oldco stock surrendered in the exchange sec_358 the holding_period of the distributing stock received by each oldco shareholder will include the period during which the shareholder held the oldco stock provided that such oldco stock was held as a capital_asset on the date of the exchange sec_1223 the holding_period of the oldco stock received by distributing will include the period during which such oldco stock was held by each transferring oldco shareholder sec_1223 the llc and lp contribution and the oldco distribution based solely on the information and representations submitted we rule as follows on the llc and lp contribution and the oldco distribution for federal_income_tax purposes the llc and lp contribution and the oldco distribution will be deemed to constitute a a transfer by oldco of all of its assets to distributing in exchange for i all the stock of distributing and ii an assumption by distributing of all of the liabilities and obligations of oldco and b a distribution in liquidation by oldco to distributing of such distributing stock the deemed transfer by oldco of all of its assets to distributing in exchange for distributing stock and the assumption by distributing of oldco’s liabilities and other obligations together with the deemed_distribution by oldco of such distributing stock to distributing will qualify as a reorganization under sec_368 oldco and distributing each will be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized to oldco upon the deemed transfer of all of its assets to distributing in exchange for all the stock of distributing and the assumption by distributing of oldco’s liabilities and other obligations sec_361 no gain_or_loss will be recognized to oldco upon the deemed_distribution of such distributing stock to distributing sec_361 no gain_or_loss will be recognized to distributing upon its deemed receipt of all the assets of oldco in exchange for shares of distributing stock and the assumption by distributing of oldco’s liabilities and other obligations sec_1032 plr-124690-10 no gain_or_loss will be recognized to distributing upon its deemed receipt of the stock of distributing in deemed exchange for the stock of oldco sec_354 the basis of each asset of oldco in the hands of distributing will be the same as the basis of that asset in the hands of oldco immediately before its transfer sec_362 the holding_period of each asset of oldco in the hands of distributing will include the period during which the asset was held by oldco sec_1223 the lp distribution based solely on the information and representations submitted we rule as follows on the lp distribution because llc and lp are disregarded entities the lp distribution will be disregarded the contribution and the internal spin based solely on the information and representations submitted we rule as follows on the contribution and the internal spin the contribution and the internal spin will constitute a divisive_reorganization within the meaning of sec_368 and sec_355 distributing and sub will each be a_party_to_a_reorganization within the meaning of sec_368 because llc and lp are disregarded entities the contribution will be treated for federal_income_tax purposes as a contribution by distributing of the transferred debt proceeds and the intercompany debt receivable to sub no gain_or_loss will be recognized to and no amount will be included in the income of sub upon its receipt in the contribution of the transferred debt proceeds and the intercompany debt receivable sec_1032 no gain_or_loss will be recognized to distributing upon its deemed receipt in the contribution of shares of sub stock in exchange for the transferred debt proceeds and the intercompany debt receivable sec_361 because llc and lp are disregarded entities the internal spin will be treated for federal_income_tax purposes as a distribution by distributing of all the stock of sub to distributing no gain_or_loss will be recognized to distributing on the deemed_distribution of the stock of sub to distributing in the internal spin sec_355 plr-124690-10 no gain_or_loss will be recognized to and no amount will be included in the income of distributing on the deemed receipt of the stock of sub in the internal spin sec_355 the aggregate basis of the distributing and sub stock in the hands of distributing immediately after the internal spin will be the same as the aggregate basis of the distributing stock in the hands of distributing immediately before the internal spin allocated between the distributing stock and the sub stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 b and c because the distributing stock held by distributing immediately before the transaction may have different bases eg shares of stock were acquired at different times and at different prices the bases of the distributing blocks of shares will be allocated between distributing blocks and sub blocks block by block allocation the holding_period of the sub stock deemed received by distributing will include the holding_period of the distributing stock with respect to which the stock is received provided that distributing holds such distributing stock as a capital_asset on the date of the internal spin sec_1223 the earnings_and_profits of distributing will be allocated between distributing and sub in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 the deemed distributing assumption based solely on the information and representations submitted we rule as follows on the deemed distributing assumption because llc and lp are disregarded entities the deemed distributing assumption will be treated for federal_income_tax purposes as an assumption by distributing of distributing 1’s liability for the oldco notes and distributing 1’s guarantor obligations under the sub notes guarantees the external spin based solely on the information and representations submitted we rule as follows on the external spin no gain_or_loss will be recognized to distributing on the distribution of its stock in distributing to the distributing shareholders in the external spin sec_355 plr-124690-10 except for cash payments in lieu of fractional shares of distributing no gain_or_loss will be recognized to and no amount will be included in the income of the distributing shareholders in the external spin sec_355 the aggregate basis of the distributing and distributing stock in the hands of the distributing shareholders immediately after the external spin will be the same as the aggregate basis of the distributing stock in the hands of the distributing shareholders immediately before the external spin allocated between the distributing stock and the distributing stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 b and c because the distributing stock held by the distributing shareholders immediately before the transaction may have different bases eg shares of stock were acquired at different times and at different prices the bases of the distributing blocks of shares will be allocated between the distributing blocks and distributing blocks block by block allocation the holding_period of the distributing stock in the hands of the distributing shareholders will include the holding_period of the distributing as successor to oldco shares with respect to which the shares are received provided the distributing shares are held as capital assets by the distributing shareholders on the date of the external spin sec_1223 a distributing shareholder who receives cash in lieu of a fractional share of distributing stock in the external spin will recognize gain_or_loss measured by the difference between the basis of the fractional share received as determined above in ruling and the amount of cash received sec_1001 any such gain_or_loss will be treated as capital_gain or loss provided the fractional share was held as a capital_asset on the date of the external spin sec_1221 and sec_1222 as a result of the external spin the earnings_and_profits of distributing will be allocated between distributing and distributing in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 except for purposes of sec_355 payments made between any of distributing and distributing and their respective affiliates under the distribution and separation agreement or any of the ancillary agreements or other obligations that i have arisen or will arise for a taxable_period ending on or before the external spin or for a taxable_period beginning before and ending after the external spin and ii will not become fixed and ascertainable until after the external spin will be treated as occurring before the external spin cf 344_us_6 73_sct_71 97_led_6 1952_2_cb_136 tax character of later transaction will derive from earlier related transaction revrul_83_73 c b plr-124690-10 the lp and llc dissolutions based solely on the information and representations submitted we rule as follows on the lp and llc dissolutions because llc and lp are disregarded entities the lp and llc dissolutions will be disregarded the oldco notes and the sub notes based solely on the information and representations submitted we rule as follows on the effect of the proposed transactions on the oldco notes and the sub notes the proposed transactions will not result in a significant modification to the oldco notes sec_1_1001-3 the proposed transactions will not result in a significant modification to the sub notes sec_1_1001-3 sec_1_1001-3 caveats 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 in particular no opinion is expressed regarding i whether llc and lp are disregarded entities under sec_301_7701-3 ii whether the internal spin or the external spin satisfies the business_purpose requirement of sec_1 b iii whether the proposed transactions are used principally as a device for the distribution of the earnings_and_profits of distributing distributing or sub see sec_355 and sec_1_355-2 or iv whether the internal spin or the external spin and an acquisition or acquisitions are parts of a plan or series of related transactions under sec_355 in addition no opinion is expressed regarding whether the transactions discussed above in fact result in a change in payment expectations under sec_1_1001-3 or a significant alteration under sec_1_1001-3 or regarding the tax effect that the proposed transactions may have on any debt other than the oldco notes and the sub notes procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code 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 representative plr-124690-10 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely gerald b fleming senior technician reviewer branch office of associate chief_counsel corporate


t c memo united_states tax_court june h ginalski petitioner v commissioner of internal revenue respondent docket no 12522-03l filed date june h ginalski pro_se rachael j zepeda for respondent memorandum findings_of_fact and opinion gerber judge this matter arises under sec_6320 out of respondent’s filing of a notice_of_federal_tax_lien with respect to petitioner’s and income_tax liabilities the sole issue presented for our consideration is whether section references are to the internal_revenue_code in effect for the periods under consideration petitioner is entitled to question the underlying merits of her and income_tax liabilities findings of fact1 june h ginalski petitioner resided in phoenix arizona at the time her petition was filed upon notification that respondent had filed a notice_of_federal_tax_lien with respect to petitioner’s and income_tax liabilities petitioner timely requested a hearing before an appeals officer at the hearing petitioner sought to question the underlying merits of her and tax_liabilities which to some extent involved whether amounts received by petitioner in connection with a divorce were income to her petitioner did not wish to discuss collection alternatives or other collection-related matters the appeals officer refused to discuss the merits of the underlying liabilities because petitioner had received a notice_of_deficiency for her and tax years and had filed a petition with this court after a trial on the merits of her and income_tax it was held in a tax_court summary opinion that the amounts petitioner received during and from her divorce proceeding were taxable to petitioner for those years pursuant to this court’s decision respondent assessed at trial the parties stipulated facts and exhibits and presented oral argument the and income_tax liabilities which are the liabilities for which notice of lien has been filed respondent issued a notice_of_determination concerning collection action s under sec_6320 and or and petitioner filed a timely petition with this court opinion sec_6330 provides that upon request and in the circumstances described therein a taxpayer has a right to a fair hearing sec_6330 a fair hearing consists of the following elements an impartial officer will conduct the hearing the conducting officer will receive verification from the secretary that the requirements of applicable law and administrative procedure have been met certain issues may be heard such as spousal defenses and offers-in-compromise and a challenge to the underlying liability may be raised if the taxpayer did not receive a statutory_notice_of_deficiency or otherwise receive an opportunity to dispute such liability sec_6330 in that regard sec_6330 provides that a taxpayer may raise issues concerning the underlying tax_liability in a proceeding under sec_6330 where the taxpayer did not receive a notice_of_deficiency or otherwise have an opportunity to dispute the tax_liability see 114_tc_604 114_tc_176 because petitioner received a notice_of_deficiency petitioned this court for relief and a final_decision was entered she was not entitled to contest the merits of the underlying liability at her sec_6330 hearing petitioner contends that the summary opinion issued to her states on its face that it is not appealable and that it is not precedent for any other case in particular summary opinions of this court contain the caveat the case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time that the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority petitioner has mistakenly interpreted that caveat to mean that the outcome of her tax_court proceeding involving the same taxable years and is not binding with respect to her proceeding under sec_6320 and sec_6330 although this court’s decision for petitioner’s and tax years is not precedential for any other case it is final and determinative as it relates to petitioner’s liability for those years it appears that petitioner believes that the limitation on citing summary opinions as precedent deprives them of the effect of res_judicata in any event the fact that petitioner had an opportunity to contest the merits of the and liabilities triggers the limitation on raising such matters again before appeals or in this proceeding in our court see sec_6330 sego v commissioner supra goza v commissioner supra petitioner does not contend that there was an abuse_of_discretion on any matter other than respondent’s refusal to consider the underlying merits of the and tax_liabilities petitioner believes that if given the opportunity she could show that respondent’s position and this court’s prior holding with respect to the underlying merits of the tax_liability are in error accordingly the sole question we consider is whether in these circumstances respondent has abused his discretion in refusing to consider the underlying merits of petitioner’s tax_liability for the years and sec_6320 and sec_6330 provide for a hearing in connection with certain collection activity by respondent in this instance the filing of a notice_of_federal_tax_lien under sec_6330 a taxpayer may raise the merits of the underlying liability if the taxpayer did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability it is clear in this case that petitioner received a statutory_notice_of_deficiency and did have an opportunity to dispute such tax_liability under the statute it does not matter whether petitioner may now be able to show that the outcome or holding resulting from that opportunity may have been in error to reflect the foregoing decision will be entered for respondent


t c summary opinion united_states tax_court kent e keeter petitioner v commissioner of internal revenue respondent docket no 8403-15s filed date james t knight for petitioner edwin b cleverdon for respondent summary opinion pugh judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax continued pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case on date respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for the issue for decision is whether petitioner’s disability retirement income is taxable background some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner resided in mississippi at the time his petition was filed petitioner began service with the u s army on date upon enlistment he was sent to boot camp while in training he sustained a head injury that required a two- to three-month hospital stay and led to a seizure disorder petitioner was placed on the temporary disability retired list on date with a disability rating of approximately one year later he was reevaluated at a military base and placed on permanent disability he was permanently retired at his then-current grade on date with an honorable discharge about that time petitioner met with representatives of the department of veterans affair sec_1 continued court rules_of_practice and procedure va as well petitioner understood then that he would qualify for disability benefits from the va but did not apply after his discharge from the u s army petitioner resumed the college education that he had begun before enlistment graduating with a degree in computer science he has worked in that field ever since in petitioner received disability retirement income of dollar_figure from the u s army that he did not report as income he has filed petitions for redetermination on two prior occasions challenging respondent’s inclusion of his disability retirement income for prior years the court entered stipulated decisions in petitioner’s favor in both of those cases discussion i burden_of_proof the commissioner’s determinations in a notice_of_deficiency are generally presumed correct and the taxpayer has the burden of proving that the determinations are in error rule a 290_us_111 under sec_7491 in certain circumstances the burden_of_proof may petitioner questions why respondent continues to challenge the same issue but we do not read petitioner to be arguing that respondent is estopped from challenging petitioner’s tax treatment merely because respondent agreed that the court enter stipulated decisions for those prior years it is well settled that each tax_year stands on its own see 113_tc_158 shift from the taxpayer to the commissioner petitioner has not claimed or shown that he meets the requirements of sec_7491 to shift the burden_of_proof to respondent as to any relevant factual issue ii treatment of military disability payments pensions and retirement income are included in gross_income unless excluded by law sec_61 sec_1_61-11 income_tax regs military retirement pay falls under the definition of retirement income 127_tc_200 ndollar_figure aff’d 521_f3d_1289 10th cir military retirement payments may be excluded from gross_income however if they constitute amounts received as a pension annuity or similar allowance for personal injuries or sickness resulting from active_service in the armed_forces sec_104 four further limitations are imposed by sec_104 only one of which is at issue here in particular under sec_104 if we determine that on application therefor petitioner would be entitled to receive disability compensation from the veterans’ administration petitioner is entitled to exclude the military disability retirement income he received in while the military and the va apply the same rating standard--the veterans affairs schedule for rating disabilities vasrd which is set forth pincite c f_r pt --each approaches the question of disability ratings from a different perspective see 92_fedclaims_776 whereas the military uses the vasrd to determine what compensation the service member is due for the interruption of his military career the va is more holistically examining the individual’s ability to engage in civilian employment the parties dispute whether petitioner would have qualified under the va’s application of the vasrd petitioner directs us to his testimony that he understood after meeting with a va representative at the time of his honorable discharge that he would qualify for benefits respondent would have us examine the va standard and apply it to petitioner with the hindsight of knowing that petitioner had a career in computers after he was honorably discharged we will decline respondent’s invitation to put ourselves in the shoes of the va today and instead base our holding on the information petitioner had at the time which was that he would qualify for va benefits we therefore hold that petitioner’s military disability retirement income of dollar_figure is excludible from his gross_income finally in his posttrial brief petitioner asked for an award of reasonable_litigation_costs under sec_7430 rules to set out procedures for making a claim for reasonable_litigation_costs under sec_7430 under those rules petitioner’s claim is premature to reflect the foregoing decision will be entered for petitioner in another t c summary opinion we declined to accept testimony from a taxpayer that he was certain that he was entitled to va benefits in the absence of objective evidence regarding his physical condition sana v commissioner t c summary opinion aside from the fact that a summary opinion is not precedent sec_7463 we find the facts of sana distinguishable here petitioner did meet with va representatives and credibly testified as to his understanding that he would qualify we find that testimony sufficient to establish that the va would have awarded him disability compensation at the time of his discharge while the parties did not produce evidence of the specific ratings for seizure disorders we believe that should not bar petitioner from excluding any of his disability pay from gross_income