Private Letter Ruling
201805012
Released February 2, 2018
Approved
Later bankruptcy restructuring does not disqualify an earlier section 355 distribution and Type G reorganization
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This page covers one taxpayer's ruling from 2018, 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 corporate group previously received rulings concerning a bankruptcy reorganization that separated two businesses and distributed the stock of a controlled corporation. After that transaction, the distributing corporation and some subsidiaries remained in bankruptcy and planned a new restructuring that included a cash-funded merger into an acquiring group's subsidiary. The restructuring would cancel the old distributing shareholders' stock for no consideration and use the merger proceeds and other cash to pay creditor claims. In this second supplemental ruling, the IRS concluded that the later restructuring would not prevent the earlier reorganization from qualifying under section 368(a)(1)(G) or the earlier distribution from qualifying under section 355. The IRS also confirmed that the rulings in the initial and first supplemental letters remained valid, while expressing no opinion on other bankruptcy transactions.
Ruling snapshot
- Question: Will a later merger and creditor-payment restructuring in bankruptcy prevent an earlier Type G reorganization and related stock distribution from qualifying under sections 368 and 355?
- Outcome: approved
- Key authorities: IRC §§ 355 and 368(a)(1)(G); Rev. Proc. 2017-1
Full text (IRS public release)
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 201805012 Third Party Communication: None
Release Date: 2/2/2018 Date of Communication: Not Applicable
Index Number: 368.14-00, 355.00-00
Person To Contact:
------------------ ------------------, ID No. -----------------
------------------------------------------------------------- Telephone Number:
------------------------------------------------------------- --------------------
----------------------------------------------------------- Refer Reply To:
------------------ CC:CORP:B01
------------------------ PLR-122548-17
------------------------------- Date:
November 02, 2017
Legend
Distributing = ---------------------------------------
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Controlled = -----------------------------------------------------------------------------
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LLC2 = -------------------------------------------------------------------------
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LLC7 = -----------------------------------------------------------------------
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LLC8 = ---------------------------------------------------------------
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PS1 = --------------------------------------------------
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Acquiror = ---------------------
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PLR-122548-17
New HoldCo = -----------------------------------
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Intermediary LLC = -------------------------------------
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Merger Sub = --------------------------------------------
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Commission = ----------------------------------------------
Significant Creditor = ------------------------------------
Date 8 = ---------------------
Date 9 = ----------------------
Date 10 = ----------------------
Date 11 = -------------------------
Date 12 = --------------------------------
Date 13 = ---------------------
s = --
t = --
u = --
v = --
2
PLR-122548-17
w = ------------------
Dear ----------------:
This letter (the “Second Supplemental Ruling Letter”) responds to your letter, submitted
by your authorized representatives, requesting that we supplement the private letter
rulings dated July 28, 2016 (PLR-123917-14) (the “Initial Ruling Letter”) and July 26,
2017 (PLR-135405-16) (the “First Supplemental Ruling Letter”). The material
information submitted in your requests for the Initial Ruling Letter and the First
Supplemental Ruling Letter, and in this second supplemental ruling request is
summarized below. Capitalized or underlined terms not defined in this letter have the
meanings assigned to them in the Initial Ruling Letter and First Supplemental Ruling
Letter.
The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalties of perjury statement
executed by an appropriate party. This office has not verified any of the materials
submitted in support of the ruling request. Verification of the information,
representations, and other data may be required as part of the audit process.
This letter is issued pursuant to section 6.03 of Rev. Proc. 2017-1, 2017-1 I.R.B. 1
regarding one or more significant issues under sections 355 and 368. The ruling
contained in this letter only addresses one or more discrete legal issues associated with
the Proposed Transaction and the Distributing Restructuring (as defined below). This
Office expresses no opinion as to the overall tax consequences of the Proposed
Transaction and the Distributing Restructuring or as to any issue not specifically
addressed by the ruling below.
SUPPLEMENTAL FACTS
The Bankruptcy Plan of Reorganization (as defined in PLR-123917-14) contemplated
that Distributing could proceed with the Proposed Transaction, effecting the separation
of Distributing’s Business 1 and Business 2, without regard to the timing or precise
nature of any transactions that Distributing and LLC7 may undertake with respect to
their remaining assets and subsidiaries (including their indirect interest in PS1) and their
remaining outstanding debt. Thus, the Bankruptcy Plan of Reorganization severed the
restructurings of Businesses 1 and 2, specifically providing for the confirmation and
consummation as to LLC2, separate from, and independent of, any confirmation or
consummation of the Plan as to Distributing and LLC7.
3
PLR-122548-17
Consistent with this understanding, on Date 8, the Proposed Transaction was
consummated pursuant to the confirmed Bankruptcy Plan of Reorganization (as
subsequently amended). Following the Proposed Transaction, all of the stock of
Controlled was owned by the LLC2 First Lien Creditors, and all of the stock of
Distributing continued to be owned by the Distributing Shareholders. The Distributing
SAG continues to conduct Business 2, and the Controlled SAG continues to conduct
Business 1.
Distributing and LLC7 (and certain of Distributing’s other subsidiaries) have remained
under the jurisdiction of the Bankruptcy Court in the Bankruptcy Proceeding.
Distributing Restructuring
Throughout the more than s years since the filing of the bankruptcy petition on Date 3,
Distributing and its Business 2 (as conducted indirectly by LLC7 and LLC8, and directly
by PS1) has been the subject of significant interest by unrelated parties engaged in
Business 2 as well as other unrelated parties. This interest resulted in the execution of t
separate acquisition agreements, u of which failed to be consummated; in some of
these cases, the failure occurred after confirmation of the proposed transaction by the
Bankruptcy Court. In addition, at various points since the filing of the bankruptcy
petition on Date 3, Distributing and LLC7, in conjunction with various groups of
Distributing’s and LLC7’s creditors, have considered alternative plans of reorganization
to facilitate a path out of bankruptcy, including transactions pursuant to which creditors
of Distributing, LLC7, or both, would convert a significant portion of their claims into
equity of Distributing, alone or in combination with an infusion of funds for additional
equity of Distributing.
On Date 9, Distributing and Acquiror entered into an agreement (the “Merger
Agreement,” subsequently amended on Date 13), pursuant to which Merger Sub will
merge with and into Distributing with Distributing surviving as an indirect subsidiary of
Acquiror (the “Distributing Acquisition”). Distributing’s entrance into the Merger
Agreement was approved by the Bankruptcy Court by entry of an order on Date 11.
However, the Distributing Acquisition is subject to various conditions, including approval
by the Commission, which could take up to v months.
On Date 10, Distributing, on behalf of itself and its remaining debtor subsidiaries, filed
with the Bankruptcy Court, a joint plan of reorganization pursuant to Chapter 11 of the
United States Bankruptcy Code (the “Distributing Bankruptcy Plan of Reorganization”)
and a related disclosure statement, setting forth the terms of a proposed restructuring of
Distributing, LLC7, and its other debtor subsidiaries. The restructuring includes the
Distributing Acquisition. The Distributing Bankruptcy Plan of Reorganization was last
amended on Date 12, and may be further modified. Distributing, LLC7, and its
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PLR-122548-17
remaining debtor subsidiaries currently expect to seek Bankruptcy Court confirmation of
the Distributing Bankruptcy Plan of Reorganization after Commission approval is
obtained.
Distributing has proposed the following transaction (the “Distributing Restructuring”),
which will be effected pursuant to the Distributing Bankruptcy Plan of Reorganization
confirmed by the Bankruptcy Court. The steps of the Distributing Restructuring will
occur in the following order and, except as otherwise indicated, will occur on the
effective date for this portion of the restructuring in the Bankruptcy Proceeding (the
“Distributing Effective Date”).
(i) Prior to the Distributing Effective Date, Acquiror formed New HoldCo, a limited
liability company all of the membership interests of which are owned by Acquiror.
New HoldCo may either (a) elect to be treated as a corporation for federal
income tax purposes or (b) be treated as an entity disregarded as separate from
Acquiror (or a subsidiary of Acquiror) for federal income tax purposes.
(ii) Prior to the Distributing Effective Date, New HoldCo formed Intermediary LLC, a
limited liability company all of the membership interests of which are owned by
New HoldCo. Intermediary LLC may either (a) elect to be treated as a
corporation for federal income tax purposes or (b) be treated as an entity
disregarded as separate from New HoldCo for federal income tax purposes.
(iii) Prior to the Distributing Effective Date, Intermediary LLC formed Merger Sub, a
corporation, all of the stock of which is owned by Intermediary LLC.
(iv) On the Distributing Effective Date, Acquiror will make an equity contribution of
approximately $w (with potential adjustment for distributions from PS1 with
respect to specified periods of time as set forth in the Merger Agreement) to New
HoldCo (the “Acquiror Equity Contribution”) in exchange for additional
membership interests in New HoldCo. New HoldCo will contribute the cash
proceeds of the Acquiror Equity Contribution to Intermediary LLC, which will then
contribute such cash proceeds to Merger Sub, in each case, in exchange for
additional membership interests or stock, as applicable.
(v) On the Distributing Effective Date, Merger Sub will merge with and into
Distributing pursuant to applicable law, with Distributing surviving as a wholly
owned subsidiary of Intermediary LLC (the “Merger”). The Distributing stock
owned by the Distributing Shareholders will be cancelled for no consideration.
The merger consideration will consist of the cash proceeds of the Acquiror Equity
Contribution (the “Merger Consideration”). In addition, to the extent PS1 makes
a distribution after the Distributing Effective Date with respect to specified periods
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PLR-122548-17
of time, a portion of such distribution may be sent to a distribution account
established pursuant to the Distributing Plan of Reorganization for the benefit of
holders of claims, as set forth in the Merger Agreement.
(vi) On and/or after the Distributing Effective Date, depending on when claims
against Distributing, LLC7, and certain of Distributing’s other subsidiaries are
finally determined in accordance with the bankruptcy claims resolution process,
distributions will be made to holders of claims against Distributing, LLC7, and
Distributing’s other subsidiaries from a distribution account established pursuant
to the Distributing Plan of Reorganization, which account will be funded by a
combination of the Merger Consideration, cash that was on hand at Distributing
and LLC7 on the Distributing Effective Date, and any amounts with respect to
specified PS1 distributions.
SUPPLEMENTAL REPRESENTATION
(a) In connection with the request for this Second Supplemental Ruling Letter,
Distributing and Controlled reaffirm all of the material information submitted in
connection with, and all of the representations contained in, the Initial Ruling
Letter and the First Supplemental Ruling Letter.
SUPPLEMENTAL RULING
Based solely on the information and the representations submitted in connection with
the Initial Ruling Letter, the First Supplemental Ruling Letter, and this Second
Supplemental Ruling Letter, we rule as follows:
The transactions contemplated by the Distributing Restructuring will not prevent
the Reorganization from qualifying as a reorganization under section
368(a)(1)(G) or the Distribution from qualifying as a distribution under section
355.
The supplemental information submitted and the transactions contemplated by the
Distributing Restructuring will have no effect on the continued validity of the rulings
contained in the Initial Ruling Letter and the First Supplemental Ruling Letter, and all
such rulings will remain in full force and effect.
CAVEATS
No opinion is expressed or implied concerning the tax consequences of any aspect of
any transaction or item discussed or referenced in this letter, except as specifically
addressed by the ruling above. In particular, no opinion is expressed concerning any
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PLR-122548-17
aspect of any transaction or item occurring as part of the Bankruptcy Proceeding,
whether prior to or following the Proposed Transaction or the Distributing Restructuring,
or the effect of any such transaction or item on the ruling above.
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 representatives.
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,
_Frances L. Kelly_____
Frances L. Kelly
Senior Counsel, Branch 2
Office of Associate Chief Counsel
(Corporate)
cc:
7
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