Private Letter Ruling
201612012
Released March 18, 2016
Approved
Complex business separation receives discrete spin-off rulings
Apply this to your situation
This page covers one taxpayer's ruling from 2016, which can't be cited as precedent. Ezel answers your situation under the current Code and IRS guidance, with citations.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)
Plain-English summary
A publicly traded corporate group planned to separate one business through many domestic and foreign restructurings, contributions, distributions, debt exchanges, and later dispositions of retained stock. The IRS issued 22 discrete rulings, conditioned on the relevant transactions otherwise qualifying under sections 355 and 368(a)(1)(D). Among other results, the IRS approved the requested treatment of cash and stock transferred to creditors, treated the controlled-company instruments as securities, and concluded that financial institutions' participation would not prevent section 361(c)(3) treatment. It also related specified delayed transfers back to the relevant contributions, disregarded circular consideration flows, and recast several foreign steps as in-substance contributions followed by distributions. The IRS further ruled that affiliate activities could support the active-business requirement and that the separated company and its affiliates would not be successors to the distributing group for section 1504(a)(3).
Ruling snapshot
- Question: How would 22 discrete issues in a multi-tier business separation be treated under the corporate reorganization and spin-off rules?
- Outcome: Approved on the stated representations, provided the relevant transactions otherwise qualify under IRC §§ 355 and 368(a)(1)(D).
- Key authorities: IRC §§ 332, 355, 361, 368, and 1504; Treas. Reg. § 1.368-2(g)
Full text (IRS public release)
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 201612012 Third Party Communication: None
Release Date: 3/18/2016 Date of Communication: Not Applicable
Index Number: 355.00-00, 355.01-00,
368.04-00 Person To Contact:
--------------------------, ID No. ----------------
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--------------------------------------- Telephone Number:
--------------------------------- ----------------------
---------------------------- Refer Reply To:
---------------------------- CC:CORP:B01
PLR-141196-14
Date:
April 01, 2015
LEGEND
Distributing Parent = ----------------------------------------
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Distributing 1 = ---------------------------------------------------
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Distributing 2 = -------------------------------------------------
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Distributing 3 = -------------------------------------------
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Distributing 4 = ------------------------------------------------
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SpinCo = ------------------------------------
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Controlled 1 = ------------------------------------------
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PLR-141196-14 2
Controlled 2 = ------------------------------
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Controlled 3 = --------------------------------------------
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FDistributing 1 = -----------------------------------------------
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FDistributing 2 = ----------------------------------------------
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FDistributing 3 = --------------------------
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FDistributing 4 = --------------------------------------------
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FDistributing 5 = ---------------------------------
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FDistributing 6 = -------------------------------------------
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FDistributing 7 = -----------------------------------------------------
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FDistributing 8 = ----------------------------------
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FDistributing 9 = ---------------------------------------------------
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PLR-141196-14 3
FDistributing 10 = --------------------------------------------
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FDistributing 11 = -----------------------
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FDistributing 12 = --------------------------------------
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FDistributing 13 = ----------------------
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FDistributing 14 = -------------------------------------------
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FDistributing 15 = -----------------------
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FDistributing 16 = ---------------------------------------
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FDistributing 17 = ------------------------
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FDistributing 18 = -----------------------------------------
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FDistributing 19 = -----------------------------------------------------
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FDistributing 20 = -------------------------------------------------------
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PLR-141196-14 4
FControlled 1 = ------------------------------------------
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FControlled 2 = -----------------------------------
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FControlled 3 = -------------------------------
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FControlled 4 = ------------------------------------------
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FControlled 5 = ----------------------------------------------
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FControlled 6 = -----------------------------------------------
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FControlled 7 = --------------------------------------------
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FControlled 8 = ------------------------------------
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FControlled 9 = -----------------------------------------------------
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FControlled 10 = ---------------------------------------------
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FControlled 11 = --------------------------------------------------------
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PLR-141196-14 5
FControlled 12 = ---------------------------------------
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FControlled 13 = ---------------------------------
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FControlled 14 = ---------------------------------
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FControlled 15 = ------------------------------------------
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FControlled 16 = ---------------------------
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FControlled 17 = ---------------------------------
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FControlled 18 = ------------------------------------------
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Sub 1 = ----------------------------------------------------
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Sub 2 = ----------------------------------------
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FSub 1 = ---------------------------------------------------
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FSub 2 = ----------------------------------
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PLR-141196-14 6
FSub 3 = ----------------------------------------------------
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FSub 4 = ------------------------------------
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FSub 5 = -------------------------------------
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LLC 1 = -----------------------------------
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LLC 2 = -------------------------------------
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LLC 3 = --------------------------------------------------
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LLC 4 = -----------------------------------------------------
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LP = ---------------------------------------------------
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DRE 1 = -------------------------------------------
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DRE 2 = -----------------------------------------
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DRE 3 = -----------------------------------------------------------------
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PLR-141196-14 7
DRE 4 = ----------------------------------------------
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DRE 5 = --------------------------------------------------
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DRE 6 = --------------------------------------------------
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Business A =-------------------------------------------------------------------------------
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Business B = ------------------------------------------------------------------------
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State A = --------------
PLR-141196-14 8
State B = -------------------
State C = -----------
Country A = ------
Country B = ---------
Country C = ------------
Country D = -------------------
Country E = ---------------
Country F = -------------
Country G = ------------------------
Country H = -----------------------
Country I = -----------------
Country J = ----------
Country K = ---------
Country L = ----------
Country M = ------------
Country N = -------------
Country O = -----------
Country P = -----------------
Facility = ---------------------------------------------------------
Type 1 = ---------
Cash Distributions = ------------------------------------------------------------------------
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PLR-141196-14 9
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Stock = ------------------------------------------------------------------------
Distributions ------------------------------------------------------------------------
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Pension Plan = ------------------------------------------------------------------------
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Pension Plan Amount = ------------------------------------------------------------------------
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DP Indebtedness = ------------------------------------------------------------------------
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Remaining SpinCo = ------------------------------------------------------------------------
Instruments ------------------------------------------------------------------------
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PLR-141196-14 10
Historic Distributing = ------------------------------------------------------------------------
Parent Long-Term ------------------------------------------------------------------------
Debt ----------
Lower-Tier =--------------------------------------------------------------------
Affiliate ---------------------------------------------------------------------------------
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Lower-Tier = ------------------------------------------------------------------------
Business ---------------------------------------------------------------------------------
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Separation and =-------------------------------------------------------------------------------
Distribution Agreement ------------------------------------------------------------------------
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Lower-Tier =-------------------------------------------------------------------------------
Distributing --------------------------
Lower-Tier = ------------------------------------------------------------------------
Controlled --------------------------
Lower-Tier = ------------------------------------------------------------------------
Contribution ------------------------------------------------------------------------
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PLR-141196-14 11
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PLR-141196-14 12
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Dear -------------------:
This letter responds to your authorized representatives' letter dated November 3, 2014,
requesting rulings on certain Federal income tax consequences of a proposed
transaction (the "Proposed Transaction"). The information provided in that request and
in subsequent correspondence is summarized below.
The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.
This letter is issued pursuant to section 6.03 of Rev. Proc. 2015-1, 2015-1 I.R.B.
19, regarding one or more significant issues under sections 332, 351, 355, 368, or
1036. The rulings contained in this letter only address one or more discrete legal
issues involved in the transaction. This Office expresses no opinion as to the
overall tax consequences of the transactions described in this letter or as to any
issue not specifically addressed by the rulings below.
SUMMARY OF FACTS
Distributing Parent is a State A corporation that is publicly-traded and widely held, and
is the common parent of an affiliated group the includible corporations of which join in
the filing a consolidated Federal income tax return (the “Distributing Parent Group”).
Each of Distributing Parent, Distributing 1, Distributing 2, Distributing 3, Distributing 4,
Sub 1, and Sub 2 is a member of the Distributing Parent Group. Unless otherwise
stated, each entity described below is treated as a corporation for Federal income tax
purposes.
Distributing Parent owns all of the stock of Distributing 1 and Distributing 2. Distributing
2 owns all of the interests in LLC 1, a State A limited liability company that is treated as
a disregarded entity for Federal income tax purposes (a “DRE”), and a% of LP, a State
B limited partnership that is treated as a DRE. LLC 1 owns the remaining b% of LP.
Distributing 2 owns all of the voting preferred stock of Sub 1,and also owns interests in
certain entities that are exclusively Business A entities and other entities that are
exclusively Business B entities.
PLR-141196-14 13
Distributing 1 owns all of the common stock of Sub 1; and all the equity of (i) Sub 2; (ii)
FDistributing 1, a Country A entity; (iii) Distributing 3, a State C corporation; (iv) FSub 1,
a Country B entity; (v) FDistributing 5, a Country C entity; (vi) FDistributing 6, a Country
D entity; and (vii) FDistributing 7, a Country E entity.
Sub 2 owns all but c unit of equity of FDistributing 4, a Country F entity; Distributing 3
owns the remaining c unit of equity of FDistributing 4.
FSub 1 owns all of the equity of FSub 2, a Country B entity.
Prior to the Proposed Transaction, FDistributing 1 owned d% of the equity of each of
FDistributing 2, a Country A entity, and FDistributing 3, a Country A entity. Distributing
3 owned the remaining e% of the equity of each of FDistributing 2 and FDistributing 3.
FDistributing 2 owns all of the equity of FControlled 2, a Country A entity.
Sub 1 owns all of the stock of Distributing 4. Distributing 4 owns all of the equity of
FDistributing 8, a Country G entity. FDistributing 8 owns all of the equity of FSub 3, a
County H entity; FDistributing 9, a Country G entity; FDistributing 15, a Country G entity;
and FDistributing 19, a Country I entity.
FSub 3 owns all of the equity of FDistributing 14, a Country H entity. FDistributing 14
has a branch registered in Country J (the “FD14 Branch”). FDistributing 19 owns all of
the equity of FDistributing 16, a Country I entity. FDistributing 16 owns all of the equity
of FControlled 16, a Country I entity treated as a DRE; all but a portion of c share of
FDistributing 17, a Country K entity; and all of the membership interests of LLC 2, a
State A limited liability company treated as a DRE. LLC 2 owns the remaining portion of
c share of FDistributing 17.
FControlled 16 owns all of the equity of DRE 1, a Country L entity treated as a DRE.
DRE 1 owns all of the equity of FDistributing 18, a Country L entity, and FSub 4, a
Country L entity.
FDistributing 9 owns f% of the equity of FDistributing 11, a Country M entity; h% of the
equity of FDistributing 20, a Country N entity; and all of the equity of FDistributing 13, a
Country O entity. Sub 1 owns the remaining g% of FDistributing 11. Distributing 1
owns the remaining i% of FDistributing 20.
FDistributing 11 owns j% of the equity of FDistributing 12, a Country M entity;
FDistributing 15 owns the the remaining k% of FDistributing 11.
FDistributing 20 owns all of the equity of FDistributing 10, a Country N entity, all of the
equity of FSub 5, a Country N entity, and all of the equity of DRE 4, a Country N entity.
PLR-141196-14 14
PROPOSED TRANSACTION
Distributing Parent is entering into the Proposed Transaction in order to distribute
Business A to its public shareholders. The relevant steps of the Proposed Transaction
are set forth below:
Country O Restructuring
(i) FDistributing 9 purchased from a third party a new Country O shelf company,
FCcontrolled 13, that at no time prior to this Step (i): (i) held assets other than
minimum capitalization, or (ii) had previous operations.
(ii) FDistributing 13 will transfer its Country O Business A to FControlled 13, with
FDistributing 9 receiving additional FControlled 13 shares as consideration,
and FControlled 13 will elect under Treas. Reg. § 301.7701-3 to ensure it is
treated as a corporation for Federal income tax purposes with an effective
date on or prior to the date of such transfer (this Step (ii), together with Step
(i), the “Country O Restructuring”).
Country M (FDistributing 12) Restructuring
(iii) FDistributing 11 and FDistributing 15 formed a new Country M entity,
FControlled 12, in proportion to their ownership of FDistributing 12, and
FControlled 12 elected under Treas. Reg. § 301.7701-3 to ensure it was
treated as a corporation for Federal income tax purposes effective upon its
formation.
(iv) FDistributing 12 will transfer its Country M Business A to FControlled 12, with
FDistributing 11 and FDistributing 15 receiving FControlled shares in
proportion to their ownership of FDistributing 12 (this Step (iv), together with
Step (iii), the “Country M (FDistributing 12) Restructuring”).
Country M (FDistributing 11) Restructuring
(v) Sub 1 and FDistributing 9 formed a new Country M entity, FControlled 11,
which is treated as a corporation for Federal income tax purposes, in
proportion to their ownership of FDistributing 11.
(vi) FDistributing 11 will transfer its Country M Business A to FControlled 11,
including all of the FControlled 12 shares received in Step (iv), with Sub 1 and
FDistributing 9 receiving FControlled 11 shares in proportion to their
ownership of FDistributing 11 (this Step (vi), together with Step (v), the
“Country M (FDistributing 11) Restructuring”).
PLR-141196-14 15
Country N Restructuring
(vii)
(a) Distributing 1 established, with minimum required capital, a new Country
G entity, DRE 2, which elected under Treas. Reg. § 301.7701-3 to ensure
it was treated as a DRE of Distributing 1 effective upon its formation.
(b) FDistributing 9 established, with minimum required capital, a new Country
G entity, DRE 3, which elected under Treas. Reg. § 301.7701-3 to ensure
it was treated as a DRE of FDistributing 9 effective upon its formation.
(c) FDistributing 20 formed, with minimum capital, a new entity under the laws
of Country N, FControlled 10, and FControlled 10 elected under Treas.
Reg. § 301.7701-3 to ensure it was treated as a corporation for Federal
income tax purposes effective upon its formation.
(d) FDistributing 20 will contribute a portion of its interests in DRE 4 to
FSub 5.
(viii)
(a) DRE 2 will buy shares in FDistributing 10 from FDistributing 20 with a fair
market value expected to equal l percent of the fair market value of the
Country N Business A (the “Returned DRE 2 FDistributing 10 Shares”) in
exchange for a note (the “DRE 2 Note”).
(b) DRE 3 will buy shares in FDistributing 10 from FDistributing 20 with a fair
market value expected to equal m percent of the fair market value of the
Country N Business A (the “Returned DRE 3 FDistributing 10 Shares,”
and together with the Returned DRE 2 FDistributing 10 Shares, the
“Returned FDistributing 10 Shares”) in exchange for a note (the “DRE 3
Note”).
(c) Before FControlled 10 has assets other than those relating to minimum
capitalization, FDistributing 20 will transfer shares of FControlled 10 to
DRE 2 and DRE 3 for nominal consideration, which will be included in the
DRE 2 Note and the DRE 3 Note, respectively.
(ix) Under Country N reorganization law, FDistributing 10 will transfer the Country
N Business A to FControlled 10.
(x)
(a) DRE 2 will transfer the Returned DRE 2 FDistributing 10 Shares to
FDistributing 20 in exchange for shares in FControlled 10.
PLR-141196-14 16
(b) DRE 3 will transfer the Returned DRE 3 FDistributing 10 Shares to
FDistributing 20 in exchange for shares in FControlled 10.
(xi) FDistributing 20 will distribute the DRE 2 Note and the DRE 3 Note to
Distributing 1 and FDistributing 9, respectively.
(xii)
(a) Distributing 1 will contribute the DRE 2 Note to DRE 2 in cancellation of
the DRE 2 Note.
(b) FDistributing 9 will contribute the DRE 3 Note to DRE 3 in cancellation of
the DRE 3 Note (this Step (xii), together with Steps (viii) and (xi), the
“Country N Circular Note Flow,” and this Step (xii), together with Steps (vii)
through (xi), the “Country N Restructuring”).
(xiii) As soon as practicable following the Initial External Distribution (defined
below) (i) Distributing 1 will transfer DRE 2 to Controlled 1 and (ii)
FDistributing 9 will transfer DRE 3 to FControlled 9, in each case for no
consideration (the “Delayed FControlled 10 Transfers”).
FControlled 9 Spin-Off
(xiv) FDistributing 9 formed a new Country G entity, FControlled 9.
(xv) Pursuant to a Country G business merger, FDistributing 9 will contribute
Business A assets, including the shares of FControlled 13 and FControlled
11, received in Steps (ii) and (vi), respectively, to FControlled 9 in exchange
for FControlled 9 shares, and FControlled 9 will elect under Treas. Reg. §
301.7701-3 to ensure it is treated as a corporation for Federal income tax
purposes with an effective date on or prior to the date of the distribution
described below in Step (xvi) (such contribution, the “FControlled 9
Contribution”).
(xvi) FDistributing 9 will distribute all of the FControlled 9 shares to FDistributing 8
(this Step (xvi), together with Step (xv), the “FControlled 9 Spin-Off”).
Country L Restructuring
(xvii)
(a) FDistributing 16 purchased from a third party a new Country L shelf
company, DRE 5, that at no time prior to this Step (xvii)(a): (i) held assets
other than minimum capitalization or (ii) had previous operations. DRE 5
PLR-141196-14 17
will elect under Treas. Reg. § 301.7701-3 to ensure it is treated as a DRE
of FDistributing 16.
(b) FDistributing 16 will transfer all of the interests in DRE 5 to FControlled 16.
(c) DRE 1 purchased from a third party a new Country L shelf company,
FControlled 18, that at no time prior to this Step (xvii)(c): (i) has held
assets other than minimum capitalization or (ii) had previous operations.
(xviii)
(a) FDistributing 18 will transfer its Business A to FControlled 18, and
FControlled 18 will elect under Treas. Reg. § 301.7701-3 to ensure it is
treated as a corporation for Federal income tax purposes with an effective
date on or prior to the date of such transfer (this Step (xviii), together with
Step (xvii), the “Country L Restructuring”).
(b) DRE 1 will effect a partial demerger, transferring the interests in
FDistributing 18 to DRE 5.
(c) FControlled 16 will transfer all of the interests in DRE 5 to FDistributing 16
for no consideration.
Country K Restructuring
(xix) FDistributing 16 and LLC 2 formed a new entity under the laws of Country K,
FControlled 17, in proportion to their ownership of FDistributing 17.
(xx) FDistributing 17 will effect a partial demerger, pursuant to which FDistributing
17 will transfer its Business A to FControlled 17, and FControlled 17 will elect
under Treas. Reg. § 301.7701-3 to ensure it is treated as a corporation for
Federal income tax purposes with an effective date on or prior to the date of
such transfer (this Step (xx), together with Step (xix), the “Country K
Restructuring”).
First and Second FControlled 16 Spin-Offs
(xxi)
(a) Prior to Step (xxi)(b), LLC 2 will transfer its portion of c share in
FControlled 17 to FDistributing 16.
(b) FDistributing 16 will contribute to FControlled 16 its Business A not
otherwise already held, directly or indirectly, by FControlled 16, including
(i) certain operational assets and liabilities, (ii) FDistributing 16’s stock in
FControlled 17, and (iii) interests in various Business A entities.
PLR-141196-14 18
(c) FControlled 16 will elect under Treas. Reg. § 301.7701-3 to be treated as
a corporation for Federal income tax purposes with an effective date on or
prior to the date of the distribution described below in Step (xxii), but in all
events after the date(s) of the transactions described above in Steps (xvii)
and (xviii) (the “FControlled 16 Contribution”).
(xxii) FDistributing 16 will distribute all of the shares of FControlled 16 to
FDistributing 19 (the “FControlled 16 Distribution,” and together with the
FControlled 16 Contribution, the “First FControlled 16 Spin-Off”).
(xxiii) FDistributing 19 will distribute all of the shares of FControlled 16 to
FDistributing 8 (the “Second FControlled 16 Spin-Off”).
Country G Restructuring
(xxiv) FDistributing 8 formed a new Country G entity, FControlled 15.
(xxv) FDistributing 15 will effect a partial demerger, transferring to FControlled 15
all of its Business A, including the Country G Business A distributor assets
and liabilities and its minority interest in FControlled 12, with FDistributing 8
receiving additional FControlled 15 shares as consideration, and FControlled
15 will elect under Treas. Reg. § 301.7701-3 to ensure it is treated as a
corporation for Federal income tax purposes with an effective date on or prior
to the date of such transfer (this Step (xxv), together with Step (xxiv), the
“Country G Restructuring”).
Country H Restructuring
(xxvi) FDistributing 8 established a new Country H entity, FControlled 14.
FControlled 14 registered a new Country J branch (“FC14 Branch”).
(xxvii) FSub 3 will dissolve pursuant to a process that could take up to n-to-o
months, resulting in the distribution of the shares of FDistributing 14 to
FDistributing 8 (the “FSub 3 Dissolution”).
(xxviii) If the FSub 3 Dissolution is not complete prior to Step (xxx), FSub 3 will elect
under Treas. Reg. § 301.7701-3 to be treated as a DRE of FDistributing 8
with an effective date on or prior to the date of Step (xxix) (“FSub 3 DRE” and
such election, the “FSub 3 CTB Election”). The FSub 3 Dissolution, standing
alone, or together with any FSub 3 CTB Election, is hereinafter referred to as
the “FSub 3 Liquidation.”
PLR-141196-14 19
(xxix) In the event of the FSub CTB Election, and prior to Step (xxx)(a), FSub 3
DRE will distribute the stock of FDistributing 14 to FDistributing 8.
(xxx)
(a) FDistributing 14 will transfer its Country H Business A to FControlled 14,
and FD14 Branch will transfer its Country J Business A to FC14 Branch,
with FDistributing 14 receiving an FControlled 14 note (the “FControlled 14
Note”) as consideration. FControlled 14 will elect under Treas. Reg. §
301.7701-3 to ensure it is treated as a corporation for Federal income tax
purposes with an effective date on or prior to the date of the first of such
transfers.
(b) FDistributing 14 will distribute the FControlled 14 Note to FDistributing 8.
(c) FDistributing 8 will contribute the FControlled 14 Note to FControlled 14,
thus extinguishing the FControlled 14 Note (this Step (xxx), the “Country H
Circular Note Flow” and together with Step (xxvi), the “Country H
Restructuring”).
(xxxi) FDistributing 8 established a new Country H entity, DRE 6, that elected under
Treas. Reg. § 301.7701-3 to be treated as a DRE of FDistributing 8 effective
upon its formation.
(xxxii) FDistributing 8 will transfer all of the issued and outstanding ordinary shares
in FControlled 14 to DRE 6.
FControlled 8 Spin-Off
(xxxiii) Pursuant to a Country G business merger, FDistributing 8 will contribute to a
newly formed Country G entity, FControlled 8, all of its Business A, including
the stock of FControlled 9, FControlled 16, FControlled 15, and the interests
in DRE 6, in exchange for shares of FControlled 8 stock and the assumption
by FControlled 8 of certain liabilities, and FControlled 8 will elect under Treas.
Reg. § 301.7701-3 to ensure it is treated as a corporation for Federal income
tax purposes with an effective date on or prior to the date of the distribution
described below in Step (xxxiv) (the “FControlled 8 Contribution”).
(xxxiv) FDistributing 8 will distribute all of the stock of FControlled 8 to Distributing 4
(the “First FControlled 8 Spin-Off”).
(xxxv) Sub 2 will liquidate (the “Sub 2 Liquidation,” and together with the FSub 3
Liquidation, the “Liquidations”).
Country F Restructuring
PLR-141196-14 20
(xxxvi)
(a) Distributing 1 formed a new entity under the laws of Country F,
FControlled 4.
(b) Prior to Step (xxxvii), Distributing 3 and Distributing 1 will contribute to
FControlled 4 nominal amounts of cash in exchange for c share and
additional shares of FControlled 4 respectively, to replicate the existing
ownership structure of FDistributing 4.
(xxxvii) FDistributing 4 will transfer the Country F Business A to FControlled 4 for no
consideration, and FControlled will elect under Treas. Reg. § 301.7701-3 to
ensure it is treated as a corporation for Federal income tax purposes with an
effective date on or prior to the date of such transfer (this Step (xxxvii),
together with Step (xxxvi), the “Country F Restructuring”).
(xxxviii) Following the Country F Restructuring, Distributing 3 will distribute its c share
of FControlled 4 stock to Distributing 1.
FDistributing 6 Spin-Off
(xxxix) FDistributing 6 will contribute the Country D Business A to a new entity
established under the laws of Country D, FControlled 6, which will be treated
as a corporation for Federal income tax purposes, in exchange for all of the
shares of FControlled 6 and the assumption of certain liabilities by
FControlled 6 (the “FControlled 6 Contribution”).
(xl) FDistributing 6 will distribute all of the stock of FControlled 6 to Distributing 1
(the “FControlled 6 Distribution,” and together with the FControlled 6
Contribution, the “FControlled 6 Spin-Off”).
Country A (FDistributing 3) Restructuring/Country A (FDistributing 1)
Restructuring
(xli) FDistributing 3 and FDistributing 2 each redeemed from Distributing 3 the e-
percent minority interest that Distributing 3 held with respect to FDistributing 3
and FDistributing 2.
(xlii) Distributing 1 formed a new entity under the laws of Country A, FControlled 1.
(xliii) FDistributing 1 formed a new entity under the laws of Country A, FControlled
3.
(xliv)
PLR-141196-14 21
(a) FDistributing 2 will effect a partial demerger, transferring its Country A
Business B (including the Business B Facility) to FControlled 2, in
exchange for additional shares of FControlled 2.
(b) In connection with the partial demerger, FDistributing 2 will distribute all of
the stock of FControlled 2 to FDistributing 1 (the “FControlled 2 Spin-Off”).
(xlv) FDistributing 3 will effect a partial demerger, transferring its Country A
Business A to FControlled 3, and FControlled 3 will elect under Treas. Reg. §
301.7701-3 to ensure it is treated as a corporation for Federal income tax
purposes with an effective date on or prior to the date of such transfer (this
Step (xlv), together with Step (xliii), the “Country A (FDistributing 3)
Restructuring”).
(xlvi) After Steps (xliv)(b) and (xlv), FDistributing 1 will effect a partial demerger,
transferring all of the stock of FDistributing 2 and FControlled 3 to FControlled
1, and FControlled 1 will elect under Treas. Reg. § 301.7701-3 to ensure it is
treated as a corporation for Federal income tax purposes with an effective
date on or prior to the date of such transfer (this Step (xlvi), together with Step
(xlii), the “Country A (FDistributing 1) Restructuring”).
Country E Restructuring
(xlvii)
(a) Distributing 1 formed a new State A limited liability company, LLC 3, that is
treated as a DRE of Distributing 1.
(b) In exchange for interests in LLC 3, Distributing 1 will transfer cash in an
amount equal to the fair market value of FDistributing 7’s Business A (the
“Country E Cash”) directly to a segregated account in the name of LLC 3.
(xlviii)
(a) LLC 3 formed a new entity under the laws of Country E, FControlled 7.
(b) In exchange for FControlled 7 shares, LLC 3 will transfer the Country E
Cash from the segregated account of LLC 3 directly to a segregated
account in the name of FControlled 7.
(xlix) FDistributing 7 will transfer its Country E Business A to FControlled 7 in
exchange for the Country E Cash that is transferred from the segregated
account of FControlled 7 directly to a segregated account in the name of
FDistributing 7, and FControlled 7 will elect under Treas. Reg. § 301.7701-3
to ensure it is treated as a corporation for Federal income tax purposes with
an effective on or prior to the date of such transfer.
PLR-141196-14 22
(l) FDistributing 7 will distribute to Distributing 1 the Country E Cash from the
segregated account of FDistributing 7 (the transfers of the Country E Cash
pursuant Step (xlvii)(b), Step (xlviii)(b), Step (xlix), and this Step (l), the
“Country E Circular Cash Flow,” and this Step (l), together with Steps (xlvii)
through (xlix), the “Country E Restructuring”). The Country E Circular Cash
Flow, together with the Country H Circular Note Flow, are referred to herein
collectively as the “Returned Consideration Transactions.” The Country E
Restructuring, together with the Country F Restructuring, the Country L
Restructuring, the Country M (FDistributing 12) Restructuring, the Country M
(FDistributing 11) Restructuring, the Country O Restructuring, the Country A
(FDistributing 3) Restructuring, the Country A (FDistributing 1) Restructuring,
the Country G Restructuring, the Country K Restructuring, and the Country H
Restructuring are referred to herein collectively as the “In-Substance Spin-
Offs,” and each individually as an “In-Substance Spin-Off.”
Correspondingly, each of (i) (A) FDistributing 4 (with respect to the Country F
Restructuring), (B) FDistributing 18 (with respect to the Country L
Restructuring), (C) FDistributing 12 (with respect to the Country M
(FDistributing 12) Restructuring), (D) FDistributing 13 (with respect to the
Country O Restructuring), (E) FDistributing 11 (with respect to the Country M
(FDistributing 11) Restructuring), (F) FDistributing 3 (with respect to the
Country A (FDistributing 3) Restructuring), (G) FDistributing 1 (with respect to
the Country A (FDistributing 1) Restructuring), (H) FDistributing 15 (with
respect to the Country G Restructuring), (I) FDistributing 17 (with respect to
the Country K Restructuring), (J) FDistributing 7 (with respect to the Country
E Restructuring), and (K) FDistributing 14 (with respect to the Country H
Restructuring) is an “In-Substance Transferor”; and each of (ii) (A)
FControlled 4 (with respect to the Country F Restructuring), (B) FControlled
18 (with respect to the Country L Restructuring), (C) FControlled 12 (with
respect to the Country M (FDistributing 12) Restructuring), (D) FControlled 13
(with respect to the Country O Restructuring), (E) FControlled 11 (with
respect to the Country M (FDistributing 11) Restructuring), (F) FControlled 3
(with respect to the Country A (FDistributing 3) Restructuring), (G)
FControlled 1 (with respect to the Country A (FDistributing 1) Restructuring),
(H) FControlled 15 (with respect to the Country G Restructuring), (I)
FControlled 17 (with respect to the Country K Restructuring), (J) FControlled
7 (with respect to the Country E Restructuring), and (K) FControlled 14 (with
respect to the Country H Restructuring) is an “In-Substance Transferee.”
U.S. (Distributing 3)
(li) Distributing 3 will contribute the Type 1 assets of its Business A and any other
Business A assets to a new State A corporation, Controlled 3, in actual or
PLR-141196-14 23
constructive exchange for Controlled 3 stock and the assumption by
Controlled 3 of certain liabilities.
(lii) Distributing 3 will distribute all of its Controlled 3 stock to Distributing 1 (the
“Controlled 3 Spin-Off”).
U.S. (Sub 1)
(liii)
(a) Distributing 1 formed a new State A limited liability company, LLC 4, which
is treated as a DRE of Distributing 1.
(b) Sub 1 will merge into LLC 4, with Distributing 2 receiving a new class of
Distributing 1 common stock that does not participate in the Controlled 1
Spin-Off (defined below in Step (lxiv)) (the “Sub 1 Merger”).
(c) LLC 4 may contribute its Country P Business B to a new State A
corporation, which will register a branch in Country P.
Country C Restructuring
(liv) Distributing 1 formed a new State A limited liability company, Controlled 1,
which is treated as a DRE of Distributing 1.
(lv) Controlled 1 formed FControlled 5 under the laws of Country C.
(lvi) Distributing 1 will subscribe for ordinary member interests in Controlled 1 in
consideration for a promissory note (the “Distributing 1 Note”).
(lvii) FDistributing 5 will amend its articles of incorporation to authorize the
issuance of new shares of common stock (the “New FDistributing 5 Common
Shares”) and shares of preferred stock (the “FDistributing 5 Preferred
Shares”) having a redemption price equal to the fair market value of
FDistributing 5’s shares multiplied by the ratio of the fair market value of all of
FDistributing 5’s Business A assets to the fair market value of all of
FDistributing 5’s assets, and Distributing 1 will exchange its existing shares of
FDistributing 5 common stock for the New FDistributing 5 Common Shares
and the FDistributing 5 Preferred Shares.
(lviii) Distributing 1 will transfer the FDistributing 5 Preferred Shares to FControlled
5, FControlled 5 will issue shares of its common stock to Controlled 1, and
Controlled 1 will issue its membership interests to Distributing 1.
PLR-141196-14 24
(lix) FDistributing 5 will transfer its Business A assets to FControlled 5 in
consideration for shares of preferred stock of FControlled 5 (the “FControlled
5 Preferred Shares”) and the assumption by FControlled 5 of certain of
FDistributing 5’s liabilities.
(lx) FDistributing 5 will purchase the FDistributing 5 Preferred Shares from
FControlled 5 for a promissory note (the “FDistributing 5 Note”), FControlled 5
will purchase the FControlled 5 Preferred Shares from FDistributing 5 for a
promissory note (the “FControlled 5 Note”), and the FDistributing 5 Note and
the FControlled 5 Note will be set off (whether or not the notes are equal in
principal amount).
(lxi) After Step (lix), but prior to the time that Controlled 1 is treated as a
corporation pursuant to the election described in Step (lxiii), Controlled 1 will
distribute the Distributing 1 Note to Distributing 1 (Steps (lv) through (lxi)
collectively, the “Country C Restructuring”).
U.S. (Distributing 1)
(lxii) Distributing 4 will distribute all of the stock of FControlled 8 received in Step
(xxxiv) to LLC 4 (the “Second FControlled 8 Spin-Off”). LLC 4, in turn, will
distribute to Distributing 1 all of the stock of FControlled 8 and its minority
interest in FControlled 11 received as a result of Steps (vi) and (liii)(b)
“Disregarded Distribution”).
(lxiii)
(a) Distributing 1 will contribute all of its Business A (including its stock or
interests of FControlled 8, FControlled 4, FControlled 6, FControlled 1,
LLC 3, Controlled 3, and its minority interest in FControlled 11 received in
Step (liii)(b)) to Controlled 1, and Controlled 1 will elect under Treas. Reg.
§ 301.7701-3 to be treated as a corporation for Federal income tax
purposes on or prior to the date of the distribution described below in Step
(lxiv) (the “Controlled 1 Contribution”).
(lxiv) Distributing 1 will distribute all of its Controlled 1 membership interests to
Distributing Parent (the “Controlled 1 Spin-Off”).
U.S. (Distributing 2)
(lxv) Distributing 2 will contribute (i) all of its interests in LLC 1 and LP and (ii) all of
its other Business A to a new State A corporation, Controlled 2, in actual or
constructive exchange for Controlled 2 stock and the assumption by
Controlled 2 of certain liabilities of Distributing 2, excluding any portion of the
debt owed by Distributing 2 to Distributing Parent (the “Distributing 2 Debt”).
PLR-141196-14 25
(lxvi)
(a) Distributing 2 will transfer no more than p percent of the Controlled 2 stock
to Distributing Parent in repayment of a portion of the Distributing 2 Debt,
none of which will have been incurred in connection with the Proposed
Transaction, in a value-for-value exchange (the “Controlled 2 Stock
Exchange”).
(b) Distributing 2 will distribute its remaining outstanding Controlled 2 stock to
Distributing Parent (the “Controlled 2 Spin-Off” and together with the In-
Substance Spin-Offs, the Country C Restructuring, the Country N
Restructuring, the FControlled 9 Spin-Off, the First FControlled 16 Spin-
Off, the Second FControlled 16 Spin-Off, the First FControlled 8 Spin-Off,
the Second FControlled 8 Spin-Off, the FControlled 7 Spin-Off, the
Controlled 3 Spin-Off, and the Controlled 1 Spin-Off, collectively, the
“Lower-Tier Distributions”).
U.S. (Distributing Parent)
(lxvii)
(a) Pursuant to the Separation and Distribution Agreement, and possibly in
two or more transactions, Distributing Parent will contribute its Business A
assets, including its stock and interests in Controlled 1 and Controlled 2,
to SpinCo, a newly formed State A corporation, in exchange for cash (an
amount of cash equal to the cash received, the “Cash Amount”), SpinCo
debt, the assumption by SpinCo of certain liabilities of Distributing Parent,
and actual or constructive SpinCo stock (the first such contribution, the
“Initial SpinCo Contribution” and any subsequent contributions,
collectively, the “Subsequent SpinCo Contributions,” together with the
Initial SpinCo Contribution, the “SpinCo Contributions,” and together with
the FControlled 8 Contribution and the Controlled 1 Contribution, the
“Reincorporation Contributions”). The consideration received by
Distributing Parent from SpinCo pursuant to the SpinCo Contributions may
be transferred by SpinCo to Distributing Parent at various times beginning
on the date of the Initial SpinCo Contribution. SpinCo may borrow all or a
portion of the Cash Amount from third party lenders in connection with the
Initial SpinCo Contribution. Distributing Parent will not segregate or
otherwise trace the cash received from SpinCo as part of the SpinCo
Contributions and, as such, may use cash from any source and without
the need to identify or distribute any earnings attributable to the Cash
Amount.
The SpinCo debt to be issued to Distributing Parent in partial
consideration for the SpinCo Contributions would consist of two general
PLR-141196-14 26
categories, and each such category of debt would be exchanged by
Distributing Parent for DP Indebtedness (the “Debt Exchange”). The first
category would consist of SpinCo debt with a term to maturity of at least q
years and r months (the “Long-Term SpinCo Instruments”). The second
category would consist of the Remaining SpinCo Instruments that would
be exchanged in the Debt Exchange for the Historic Distributing Parent
Long-Term Debt. The Long-Term SpinCo Instruments and the Remaining
SpinCo Instruments are collectively referred to herein as the “SpinCo
Instruments.”
(b) Following the Initial SpinCo Contribution, Distributing Parent may (i) tender
for certain DP Indebtedness to be exchanged for SpinCo Instruments (the
“Direct Exchange”), and (ii) effectuate the Debt Exchange, prior to the
Initial External Distribution, through the exchange of all or a portion of the
SpinCo Instruments with certain financial institutions (the “Financial
Institutions”) that will have purchased DP Indebtedness (such acquisition,
the “Third Party Tender” and such debt, the “Third Party Tender Debt”).
(c) Distributing Parent intends to tender for cash certain other DP
Indebtedness (the “Distributing Parent Tender”), and Distributing Parent
intends to exercise its call right to acquire certain DP Indebtedness that is
callable pursuant to its terms (the “Make-Whole Call”).
(d) Distributing Parent will distribute at least s percent of the SpinCo common
stock pro rata to the Distributing Parent shareholders (the “Initial External
Distribution” and any SpinCo common stock not distributed in the Initial
External Distribution, the “Remainder Stock”).
(e) Following the Initial SpinCo Contribution, and in all events within t months
following the date of the Initial External Distribution (the “t-Month Period”),
Distributing Parent will transfer the Cash Amount to (i) its shareholders
through Cash Distributions and/or (ii) its creditors in full or partial
satisfaction of DP Indebtedness. These creditors may include members of
Distributing Parent’s affiliated group within the meaning of Section
1504(a), without regard to Section 1504(b) (the “Intercompany Creditors”
which term includes Distributing Parent with respect to the Controlled 2
Stock Exchange described in Step (lxvi)(a)), and creditors who participate
in the Distributing Parent Tender and the Make-Whole Call. In the case of
any Cash Amount transferred to Intercompany Creditors, the
Intercompany Creditors will distribute such Cash Amount to third-party
creditors within the t-Month Period. In addition, Distributing Parent may
transfer a portion of the Cash Amount to the Pension Plan. The transfers
of the Cash Amount described in this Step (lxvii)(e), are referred to
collectively as the “Cash Amount Purge.”
PLR-141196-14 27
(f) Taking into account market conditions and sound business judgment,
Distributing Parent intends to transfer within the t-Month Period the
Remainder Stock as follows: (i) to creditors to retire outstanding DP
Indebtedness, including (A) Third Party Tender Debt and (B) debt held by
Intercompany Creditors, and (ii) to the Pension Plan (all such exchanges
under (i) and (ii), the “Stock-for-Debt Exchanges”), and (iii) to the extent
not transferred in Stock-for-Debt Exchanges, to shareholders of
Distributing Parent through Stock Distributions. In the case of any
Remainder Stock transferred to Intercompany Creditors, the Intercompany
Creditors will distribute such Remainder Stock to third-party creditors
within the t-Month Period. The transfers of the Remainder Stock
described in this Step (lxvii)(f) are collectively referred to as the
“Subsequent Distributions.” The SpinCo Contributions, the Cash Amount
Purge, the Debt Exchange, the Initial External Distribution, and the
Subsequent Distributions, are collectively referred to as the “External
Spin-Off.”
(g) In the event that Distributing Parent determines that market conditions and
sound business judgment do not support the disposition of any portion or
all of the Remainder Stock during the t-Month Period as described in Step
(lxvii)(f), Distributing Parent will thereafter dispose of any remaining shares
of the Remainder Stock (collectively, the “Remaining Dispositions”). All
Remaining Dispositions will occur as soon as practicable, taking into
account market conditions and sound business judgment, but in no event
later than five years after the Initial External Distribution.
Debt Exchange and Stock-for-Debt Exchanges
The Financial Institutions will purchase the Third Party Tender Debt at least u
days before the Debt Exchange and each of the Stock-for-Debt Exchanges. No sooner
than v days after each such Third Party Tender Debt purchase, Distributing Parent and
the Financial Institutions expect to enter into agreements regarding the Debt Exchange
pursuant to which the parties will exchange an amount of the Third Party Tender Debt
for (i) SpinCo Instruments and/or (ii) a portion or all of the Remainder Stock as part of
the Stock-for-Debt Exchanges (collectively, the “Exchange Agreements”).
It is expected that the Financial Institutions (including their affiliates) will solicit
non-binding offers from third parties for the purchase of the SpinCo Instruments and the
Remainder Stock to be acquired pursuant to the Debt Exchange and the Stock-for-Debt
Exchanges. Such solicitations would be expected to occur during (and perhaps before)
the period the Financial Institutions acquire the Third Party Tender Debt. Distributing
Parent anticipates that, shortly following the Debt Exchange or the Stock-for-Debt
PLR-141196-14 28
Exchanges, the Financial Institutions would sell any SpinCo Instruments and Remainder
Stock received by them pursuant to such non-binding offers.
Delayed Asset Transfers
In connection with the Proposed Transaction, Distributing Parent and its affiliates,
on the one hand, and SpinCo and its affiliates, on the other hand, will enter into
agreements which will provide that any Business A assets or liabilities, which have not
been transferred: (i) by Distributing Parent to SpinCo (or certain Business B assets or
liabilities which will not have been transferred by SpinCo to Distributing Parent) prior to
the Initial External Distribution or (ii) by a Lower-Tier Distributing to a Lower-Tier
Controlled (or certain Business B assets or liabilities which will not have been
transferred by a Lower-Tier Controlled to the corresponding Lower-Tier Distributing)
prior to the relevant Lower-Tier Distribution because of regulatory, contractual
restrictions, or other business considerations, will be transferred at a subsequent time
(such transfers, other than the Delayed FControlled 10 Transfers, the “Delayed Asset
Transfers”). Such agreements (i) may include operating agreements with respect to
such assets prior to their transfer and (ii) also will address the Delayed FControlled 10
Transfers described in step (xiii).
REPRESENTATIONS
(a) Distributing Parent’s plan to transfer less than all of the SpinCo stock to its
shareholders is motivated by its desire to establish an efficient and nontaxable, cost
effective manner an appropriate capital structure for each of Distributing Parent and
SpinCo. In particular, the dedication of the Remainder Stock to reduce, directly or
indirectly, the Distributing Parent indebtedness during the t-Month Period will
meaningfully address Distributing Parent’s liquidity management considerations.
(b) None of Distributing Parent’s officers will serve as an officer of SpinCo as
long as Distributing Parent retains the Remainder Stock. Distributing Parent expects
certain individuals to serve as directors of each of Distributing Parent and SpinCo. Any
such individual will be subject to an election for director of SpinCo by the SpinCo
shareholders within w months following the External Spin-Off. These individuals will
constitute a minority of each board of directors and are intended to (i) facilitate the
complete separation of Distributing Parent and SpinCo by efficiently addressing issues
created by the continuing arrangements between the corporations that necessarily will
extend for some period after the External Spin-Off, (ii) reduce recruiting needs for new
directors and to the extent directors will be replaced, allow for efficient recruiting of
replacement directors, (iii) provide Distributing Parent and SpinCo access to the
experience of the shared directors, and (iv) benefit separately each of Distributing
Parent and SpinCo by maintaining relationships between management and the board of
directors that were developed over the years. The overlap of directors is not
inconsistent with any of the corporate business purposes motivating the External Spin-
PLR-141196-14 29
Off.
(c) Distributing Parent will effect any Subsequent Distributions within the t-
Month Period; should Distributing Parent continue to own any Remainder Stock after
such time, Distributing Parent will complete the Remaining Dispositions with respect to
any Remainder Stock as soon as practicable, taking into account market conditions and
sound business judgment, following the t-Month Period, but in no event later than five
years after the Initial External Distribution.
(d) Distributing Parent will vote, or cause to be voted, the Remainder Stock in
proportion to the votes cast by SpinCo’s other shareholders and Distributing Parent may
grant a proxy to SpinCo to effectuate such voting.
(e) There is no plan for the early redemption, directly or indirectly, of any
portion of the Long-Term SpinCo Instruments.
(f) SpinCo has no plan or intention to enter into a transaction that might result
in the Long-Term SpinCo Instruments potentially becoming due prior to their maturity
date.
(g) The Distributing 2 Debt is indebtedness for Federal income tax purposes.
RULINGS
Based solely on the information submitted and the representations set forth above, and
provided that the relevant transaction otherwise qualifies under sections 368(a)(1)(D)
and 355, we rule as follows:
(1) Distributing Parent’s continuing ownership of the Remainder Stock until its
disposition within five years of the Initial External Distribution will not be in pursuance of
a plan having as one of its principal purposes the avoidance of Federal income tax for
purposes of section 355(a)(1)(D)(ii).
(2) The Cash Amount Purge will be treated as being distributed pursuant to the
External Spin-Off plan of reorganization for purposes of sections 361(b)(1)(A) and
361(b)(3).
(3) The Subsequent Distributions will be treated as being distributed pursuant to
the External Spin-off plan of reorganization for purposes of sections 361(c)(1) and
361(c)(3).
(4) The Pension Plan will be treated as a creditor of Distributing Parent to the
extent of the Pension Plan Amount for purposes of sections 361(b)(3) and 361(c)(3).
PLR-141196-14 30
(5) Transfers of the Cash Amount to the Intercompany Creditors will be treated
as transfers to a creditor of Distributing Parent for purposes of sections 361(b)(3).
(6) The adjusted bases of all the property contributed by Distributing Parent to
SpinCo in each of the Initial SpinCo Contribution and the Subsequent SpinCo
Contributions will be taken into account for purposes of determining the basis limitation
applicable with respect to all of the transfers of money and other property by Distributing
Parent to its creditors under section 361(b)(3) and for purposes of determining
Distributing Parent’s basis in its SpinCo stock.
(7) Transfers of the Remainder Stock to the Intercompany Creditors pursuant to
the Stock-for-Debt Exchanges will be treated as transfers to creditors for purposes of
section 361(c)(3).
(8) The SpinCo Instruments will constitute “securities” for purposes of sections
355 and 361.
(9) The involvement of the Financial Institutions in the Third Party Tender, the
Debt Exchange and the Stock-for-Debt Exchanges will not preclude the application of
section 361(c)(3) to the Debt Exchange or the Stock-for-Debt Exchanges.
(10) Any payments made from Distributing Parent to SpinCo, or vice-versa,
that are made following the Initial External Distribution pursuant to the Separation and
Distribution Agreements regarding liabilities, indemnities, or other obligations that (i)
have arisen or will arise for a taxable period ending on or before the date of the Initial
External Distribution or for a taxable period beginning on or before but ending after the
date of the Initial External Distribution and (ii) will not have become fixed and
ascertainable until after the Initial External Distribution, will be treated as occurring
immediately before the date of the Initial External Distribution. See Arrowsmith v.
Commissioner, 344 U.S. 6 (1952); Rev. Rul. 83-73, 1983-1 C.B. 84.
(11) The Delayed Asset Transfers (i) between Distributing Parent and SpinCo
will be treated as occurring on the same date as the SpinCo Contributions, and (ii)
between a Lower-Tier Distributing and a Lower-Tier Controlled will be treated as
occurring on the same date as the relevant Lower-Tier Contribution. Section 1.368-
2(g). See Rev. Rul. 83-73, 1983-1 C.B. 84.
(12) Each of the Sub 1 Merger, the Second FControlled 8 Spin-Off, and the
Disregarded Distribution will be treated as occurring at the time each such transaction
occurs as a matter of applicable local law.
(13) The transfer of the not more than p percent of Controlled 2 stock to
Distributing Parent in the Controlled 2 Stock Exchange will be treated as a transfer to a
creditor of Distributing 2 for purposes of section 361(c)(3).
PLR-141196-14 31
(14) None of the Reincorporation Contributions will preclude any of the
Liquidations from qualifying as a complete liquidation within the meaning of section 332.
(15) The Returned Consideration Transactions are circular and therefore will
be disregarded for Federal income tax purposes. See Rev. Rul. 83-142, 1983-2 C.B.
68; Rev. Rul. 78-397, 1978-2 C.B. 150.
(16) Each In-Substance Spin-Off will be treated as if the In-Substance
Transferor had (i) contributed its Business A assets to a controlled corporation newly
formed by the In-Substance Transferor (i.e., the In-Substance Transferee) in exchange
for all of the In-Substance Transferee stock and the assumption by the In-Substance
Transferee of certain liabilities of the In-Substance Transferor and (ii) distributed all of
the stock of the In-Substance Transferee pro rata to its shareholder(s). See Rev. Rul.
77-191, 1977-1 C.B. 94; Rev. Rul. 57-311, 1957-2 C.B. 243.
(17) The Country N Restructuring will be treated as if (i) FDistributing 10 had
(A) contributed its Business A to FControlled 10, a corporation newly formed by
FDistributing 10, in exchange for all of the FControlled 10 stock and the assumption by
FControlled 10 of certain liabilities of FDistributing 10 and thereafter (B) distributed all of
the FControlled 10 stock to FDistributing 20; and thereafter (ii) FDistributing 20
distributed all of the FControlled 10 stock pro rata (by value) to FDistributing 9 and
Distributing 1. See Rev. Rul. 83-142, 1983-2 C.B. 68; Rev. Rul. 77-191, 1977-1 C.B.
94; Rev. Rul. 57-311, 1957-2 C.B. 243.
(18) Distributing 1’s transfer of DRE 2 to Controlled 1 for no consideration shall
be treated as occurring on the same date as the Controlled 1 Contribution; and
FDistributing 9’s transfer of its interest in DRE 3 to FControlled 9 shall be treated as
occurring on the same date as the FControlled 9 Contribution. See Arrowsmith v.
Commissioner, 344 U.S. 6 (1952); Rev. Rul. 2002-1, 2002-1 C.B. 268; Rev. Rul. 83-73,
1983-1 C.B. 84.
(19) The Country C Restructuring will be treated as if (i) FDistributing 5 had
contributed its Business A to FControlled 5, a corporation newly formed by FDistributing
5, in exchange for all of the FControlled 5 stock and the assumption by FControlled 5 of
certain liabilities of FDistributing 5, and (ii) thereafter FDistributing 5 distributed all of the
FControlled 5 stock to Distributing 1. See Rev. Rul. 83-142, 1983-2 C.B. 68; Rev. Rul.
77-191, 1977-1 C.B. 94; Rev. Rul. 57-311, 1957-2 C.B. 243.
(20) The relative fair market value of the gross assets of a Lower-Tier Business
conducted by a Lower-Tier Affiliate as compared to the fair market value of the gross
assets of any relevant distributing corporation or controlled corporation will not prevent
the Lower-Tier Business from qualifying as an active trade or business for purposes of
section 355(b).
PLR-141196-14 32
(21) With respect to any Lower-Tier Distribution, a corporation may take into
account all operational and management activities performed by employees of an
affiliate (as defined in section 1504(a) without regard to section 1504(b), except the term
“stock” includes nonvoting stock described in section 1504(a)(4)), regardless of whether
such affiliate is a member of such corporation’s separate affiliated group. See, Rev.
Rul. 79-394, 1979-2 C.B. 141, amplified by Rev. Rul. 80-181, 1980-2 C.B. 121.
(22) Neither SpinCo, nor any of its affiliates will be treated as a “successor” to
Distributing Parent or any of its affiliates for purposes of section 1504(a)(3).
CAVEATS
Except as expressly provided herein, no opinion is expressed or implied concerning the
tax treatment of the proposed transaction under any provision of the Code (including
section 4975) and regulations or the tax treatment of any condition existing at the time
of, or effects resulting from the proposed transaction that is not specifically covered by
the above rulings.
PROCEDURAL STATEMENTS
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) 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.
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,
Mark J. Weiss
Branch Chief, Branch 2
Office of Associate Chief Counsel (Corporate)
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