IRS issued targeted rulings for a complex corporate spin-off
Apply this to your situation
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.
Plain-English summary
A publicly traded parent planned a multi-step separation of a business into a spun-off corporation, with internal transfers, preferred-stock sales, borrowing, cash distributions, retained stock, and possible stock-for-debt exchanges. The IRS issued 14 rulings on discrete legal issues rather than approving the transaction's overall tax treatment. Among other conclusions, the parent could retain stock for up to five years without creating a tax-avoidance plan, use untraced cash for qualifying distributions including a limited pension-plan payment, and count group employees' activities toward the active-business requirement. The IRS also ruled that planned preferred-stock sales prevented Section 351 control for two contributions, while other contributions and mergers were not disqualified by later steps or specified facts. The rulings were conditioned on the contribution and initial distribution otherwise qualifying under Sections 368(a)(1)(D) and 355.
Ruling snapshot
- Question: What federal tax consequences applied to specified parts of the proposed corporate separation and spin-off?
- Outcome: Approved, with 14 targeted rulings subject to stated conditions and representations.
- Key authorities: IRC §§ 267(f), 351, 355, 361, 368, and 1504; Treas. Reg. §§ 1.1502-13 and 1.1502-36.
Full text (IRS public release)
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 201818010 Third Party Communication: None
Release Date: 5/4/2018 Date of Communication: Not Applicable
Index Number: 355.00-00, 355.03-00,
355.05-00, 361.00-00, Person To Contact:
351.01-00 -------------------, ID No. ------------------
Telephone Number:
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-------------------------------------------------- Refer Reply To:
----------------- CC:CORP:BO4
------------------------- PLR-129446-16
---------------------------------- Date:
May 22, 2017
Legend:
Distributing = ----------------------------
SpinCo = ------------------------------------------------
HoldCo = -------------------------------------------------
Sub 1 = ---------------------------------------------------------------
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Sub 2 = ---------------------------------------------------------------
Sub 3 = --------------------------------------
Sub 4 = -----------------------------------------------------------------------
PLR-129446-16 2
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Sub 5 = ------------------------------------------------------------------------------
Sub 6 = ----------------------------------------------------------------------
Sub 7 = ---------------------------------------------------------------------
Sub 8 = -----------------------------------------------------------------
Sub 9 = ------------------------------------------------------------------------------
LLC 1 = ---------------------------------------------------
LLC 2 = ----------------------------------------------------------------
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LLC 3 = --------------------------------------------------------
LLC 4 = -------------------------------------------------
LLC 5 = ---------------------------------------------------
PLR-129446-16 3
New Sub 7 = ----------------------------------------
Preferred Buyer -----------------------------------------------------------------
Unit A1 = ----------------------------------------------------
Unit A2 = ----------------------------------------------------
Unit B2 = ---------------------------------------------------
Unit B3 = ----------------------------------------------------
FSub 1 = --------------------------------------------------------------------
FSub 2 = ------------------------------------------------------------------------------
New Sub 7 = -----------------------------------------------------------------------
Pension Plan = ---------------------------------------------------------------------------------
Amount ---------------------------------------------------------------------------------
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SpinCo = -----------------------------------------------------------------------------
Business ---------------------------------------------------------------------------------
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Disposed = ---------------------------------------------------------------------------------
Segment ---------------------------------------------------------------------------------
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Disposition = ---------------------------------------------------------------------------------
Transaction ---------------------------------------------------------------------------------
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Amount 1 = ---------------------------------------------------------------------------------
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Amount 2 = --------------------------------------------------------------------------------
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Amount 3 = -----------------------------------------------------
Internal Separation = ---------------------------------------------------------------------------------
Transactions ---------------------------------------------------------------------------------
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Item = -----------------------------------
State A Corporation = -------------------------------
Type A = -----------------
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Type B Documents = ---------------------------------------------------------------------------------
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Type C = ---------------------------------------------------------------
Type C Personnel = ----------------------------------------------------------------------------
Composition ---------------------------------------------------------------------------------
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Type C = ----------------------------------------------------------------------------
Evolution ---------------------------------------------------------------------------------
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Type D = --------------------
Type E = -------------------
Type F = ---------
Type G = -------
Type H Employees = ---------------------------------------------------------------------------------
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Agreement 1 = --------------------------------------------------------------------------------
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Agreement 2 = --------------------------------------
Agreement 2 = ------------------------------------------------------------------------
Payments ---------------------------------------------------------------------------------
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Agreement 3 = ---------------------------------------
Agreement 3 = -----------------------------------------------------------------------
Payments ---------------------------------------------------------------------------------
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Agreement 4 = ---------------------------------------------------------------------------------
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Agreement 4 = -------------------------------------------------------------------------
Payments --------------------------------------------------------------------------------
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Individual A = ----------------------
Event 1 = ---------------------------------------------------------------------------------
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Event 2 = ---------------------------------------------------------------------------------
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Manner 1 = -----------------------
Manner 2 = --------------------------------------------------------------
Date A = --------------------
Date B = -----------------------
Date C = ---------------------
Date D = ----------------------------
Date E = ------------------
PLR-129446-16 7
Date F = --------------------------
Date G = --------------------------
Date H = ---------------------------
Date I = --------------------------
Date J = --------------------
Date K = ----------------------------
Date L = --------------------
Year = -------
a = ------
b = ------
c = ----
d = ----
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PLR-129446-16 8
This letter responds to your letter dated September 20, 2016, requesting rulings
on certain federal income tax consequences of a series of transactions (the “Proposed
Transaction”). The information provided in that letter and in later correspondence is
summarized below.
The rulings contained in this letter are based on facts and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. This office has not verified any of the materials submitted in
support of the request for rulings. Verification of the information, representations, and
other data may be required as part of the audit process.
This letter is issued pursuant to § 6.03 of Rev. Proc. 2017-1, 2017-1 I.R.B. 1,
regarding one or more significant issues under §§ 332, 351, 355 or 368. 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
Except as otherwise provided below, the Summary of Facts reflects the facts
immediately before the first step of the Proposed Transaction. Distributing is a widely
held, publicly traded corporation that is the common parent of (i) a worldwide group of
corporations (the “Distributing Group”) and (ii) a group of affiliated corporations that join
in the filing of a consolidated Federal income tax return (the “Distributing Consolidated
Group”). Each of Sub 1, Sub 2, Sub 3, Sub4, Sub 5, Sub 6, Sub 7, and Sub 8 is a
member of the Distributing Consolidated Group. Unless otherwise stated, each entity
described below is a corporation for Federal income tax purposes.
Distributing owns all of the issued and outstanding stock, respectively the sole
class of stock, of each of Sub 1, Sub 2, Sub 3, Sub 4, Sub 5, Sub 6, and Sub 7. Prior to
the Proposed Transaction, Sub 2 owned all of the issued and outstanding Sub 8
common stock, which has no other class of stock outstanding. Prior to the FSub 1
Transfer (defined below), Sub 1 and Sub 2 respectively owned a percent and b percent
of FSub 1. Following the FSub 1 Transfer, Sub1 owned no interest in FSub 1 and Sub
2 owned c percent of FSub 1. Unrelated third parties, prior to and following the FSub 1
Transfer, have continued to own the remaining d percent of FSub1.
For Federal income tax purposes, (i) Sub 6, including its Unit A1 and Unit A2, is
treated as a single entity taxable as a corporation, and (ii) Sub 7, including its Unit B2
and Unit B3, is treated as a single entity taxable as a corporation.
PLR-129446-16 9
LLC 1, a limited liability company that is treated as a disregarded entity for
Federal income tax purposes (a “DRE”) of Distributing, owns all of the issued and
outstanding Type F interests in LLC 2, a limited liability company that Distributing has
treated as a partnership for Federal income tax purposes. Certain Distributing affiliates
possess Type G interests in LLC 2.
New Sub 7 Preferred Buyer is treated as a DRE of FSub 2, an indirect wholly
owned foreign subsidiary of Distributing.
During the five-year period ending on the date of the Initial External Distribution
(defined below, and such period, the “Five-Year Period”), Distributing will have carried
out with and through members of its separate affiliated group within the meaning of
§ 355(b)(3)(B) (“SAG”) the SpinCo Business, which will be relied upon by SpinCo for
purposes of the active trade or business requirement of § 355(b) (the “ATB
Requirement”). During the Five-Year Period, (i) the Type C activities of the SpinCo
Business will have been conducted at various times and levels by the Type C Personnel
Composition, (ii) the SpinCo Business will have utilized no fewer than e Type H
Employees of the Distributing SAG, (iii) the Distributing’s SAG’s Type H Employees will
have carried out, on a daily basis, significant operational and managerial activities with
respect to the SpinCo Business, and (iv) the SpinCo business underwent the Type C
Evolution.
Proposed Transaction
Distributing has undertaken or proposes to undertake the following steps (each a
“Step” and, collectively, the Proposed Transaction).
(1) At various times, Sub 1 sold real estate and interests in partnerships
owning real estate to Sub 2, other Distributing affiliates that will remain
in the Distributing Group, or unrelated third parties for cash.
(2)(a) Distributing (i) formed LLC 4 on Date A that elected to be treated as
a corporation for Federal income tax purposes to serve as a Type D
company, and (ii) purchased on Date B from a Sub 2 DRE, LLC 5, an
inactive limited liability company that is treated as a DRE to serve as a
Type E company.
(b) Sub 3 has and will continue to assign employees to LLC 4. LLC 4
will acquire other assets for use by the employees from various
Distributing entities.
(3) On Date C, Distributing formed SpinCo.
PLR-129446-16 10
(4) On Date D, LLC 1 distributed all of its interests in LLC 2 to
Distributing.
(5)(a) On Date E, Sub 1 transferred Sub 1’s interest in FSub 1 to Sub 2 in
a taxable transaction (the “FSub 1 Transfer”).
(b) On Date F, Sub 1 distributed to Distributing all of its membership
interests of LLC 3, a DRE of Sub 1, whose only asset was less than $f of
cash.
(6)(a) On Date G, Sub 2 distributed to Distributing all of the Sub 8 stock.
(b) Thereafter, Sub 8 distributed to Distributing a dividend in an
amount of cash in excess of the needs of Sub 8’s businesses.
(7) Sub 4 has entered into Agreement 1 with Unit B3 effective on Date H.
The payments in connection with Agreement 1 are intended to be for fair
market value.
(8)(a) On Date I, Sub 7 formed New Sub 7, a State A Corporation, with
minimum capital necessary for its organization, which conducted no
activities prior to the New Sub 7 Transactions (defined below).
(b) Distributing adopted resolutions approving the transactions
described in Step 8(b) through Step 8(g) (the “New Sub 7 Transactions”),
which were completed in Manner 1, and the relevant parties to each New
Sub 7 Transaction executed binding agreements to implement each such
transaction. The existing financing arrangements of Unit B2, Unit A1, and
Unit A2, and Sub 5 were canceled. In connection with this Step 8(b),
assets were transferred from Sub 5 to Distributing, which will treat such
transfer as a dividend for Federal income tax purposes.
(c) Pursuant to Event 1, New Sub 7 obtained its Item. Sub 7 entered
into a binding commitment to sell the non-voting preferred stock of New
Sub 7 (the “New Sub 7 Preferred Stock”) to New Sub 7 Preferred Buyer
authorized by the resolutions adopted in Step(8)(b).
(d) Sub 7 transferred Unit B2 to New Sub 7 in exchange for the voting
common stock of New Sub 7 (the “New Sub 7 Common Stock”) and New
Sub 7 Preferred Stock. Pursuant to Event 2, New Sub 7 converted Unit
B2 into a stand-alone Type A company (“Converted Unit B2”), which was
a wholly owned subsidiary of New Sub 7. Immediately thereafter,
Converted Unit B2 merged with and into New Sub 7.
PLR-129446-16 11
(e) Sub 7 sold all of the New Sub 7 Preferred Stock to the New Sub 7
Preferred Buyer in exchange for cash or other property (e.g., third-party
securities, such as Treasury bonds)(the “New Sub 7 Preferred Stock
Transfer”). Sub 7 then distributed the New Sub 7 Common Stock to
Distributing.
(f) Distributing contributed to Sub 1 all of the New Sub 7 Common Stock
and all of the stock of Sub 5 and Sub 6 (the “First Sub 1 Contribution”).
The contributions to Sub 1 of the Sub 5 and Sub 6 stock are respectively
referred to as the “Sub 5 Contribution” and the “Sub 6 Contribution”.
(g) Each of Sub 5, New Sub 7, and Sub 6 successively merged with and
into Sub 9, which was formed in connection with the Proposed
Transaction (collectively, the “Mergers”), with Sub 1 receiving additional
Sub 9 common stock (“Sub 9 Common Stock”) and New Sub 7 Preferred
Buyer receiving Sub 9 non-voting preferred stock (“Sub 9 Preferred
Stock”). Each of Event 1, Event 2, and the merger of New Sub 7 with and
into Sub 9 occurred in Manner 2 pursuant to Type B Documents. The
mergers of Sub 5 and Sub 6 with and into Sub 9 are respectively referred
to as the “Sub 5 Merger” and the “Sub 6 Merger”.
(h) In order to minimize the continuing relationships between (i) the
Distributing Group and (ii) SpinCo and its direct and indirect subsidiaries
at the time of the Initial External Distribution (the “SpinCo Group”)
following the Proposed Transaction, Distributing has executed and will
continue to execute the Internal Separation Transactions.
(i) Not later than g months following the date of the Initial External
Distribution, New Sub 7 Preferred Buyer will sell the Sub 9 Preferred
Stock that New Sub 7 Preferred Buyer will receive in Step (8)(g) to one or
more unrelated third parties in exchange for cash or other property (e.g.,
third party securities, such as Treasury bonds).
(9) On Date L, Distributing contributed all of the Sub 4 stock to Sub 1 (the
“Second Sub 1 Contribution”).
(10)(a) On Date K, Distributing formed HoldCo, a limited liability company,
with two authorized classes of membership interests, voting common
interests (the “HoldCo Common Stock”) and non-voting preferred interests
(the “HoldCo Preferred Stock”), that will elect to be treated as a
corporation for Federal income tax purposes (the “HoldCo CTB Election”)
as described below.
PLR-129446-16 12
(b) On Date L, prior to the effective date of the HoldCo CTB Election.
Distributing (i) contributed to HoldCo (w) all of its Sub 1 and Sub 8 stock,
(x) all of the membership interests in LLC 4 and LLC 5, (y) all of its LLC 2
interests, and potentially (z) other assets. Additionally, prior to the
effective date of the HoldCo CTB Election, HoldCo will have issued the
HoldCo Common Stock and the HoldCo Preferred Stock to Distributing,
and (ii) entered into a binding commitment to sell the HoldCo Preferred
Stock to one or more unrelated third parties (the purchaser(s) of such
stock, the “HoldCo Preferred Buyer(s),” and the Federal income tax
consequences associated with the HoldCo CTB Election, the “HoldCo
Contribution”).
(c) Distributing will sell all of the HoldCo Preferred Stock to the HoldCo
Preferred Buyer(s) in exchange for cash or other property (e.g., third-party
securities such as Treasury bonds) (such transaction, the “HoldCo
Preferred Stock Transfer”). Distributing expects to recognize a significant
loss with respect to the Sub 1 stock (the “Sub 1 Loss”) on the HoldCo
Contribution.
11(a) Distributing will contribute to SpinCo all of the HoldCo Common
Stock, and potentially other assets, in exchange for (i) the assumption by
SpinCo of certain disclosed Distributing liabilities, (ii) cash, which will
include proceeds from the SpinCo Borrowing (defined below), and (iii)
SpinCo stock (the “SpinCo Contribution”). Distributing will not set aside,
trace or otherwise segregate the actual cash consideration received from
SpinCo.
(b) In connection with the SpinCo Contribution, SpinCo will borrow from
unrelated third-party lenders (the “SpinCo Borrowing”).
(c) Banks or other parties unrelated to Distributing (the “Exchanging
Institutions”) may purchase Distributing indebtedness (such acquisition,
the “Third-Party Tender”, and such debt, the “Third-Party Tender Debt”).
(12) Distributing will distribute at least h percent of the SpinCo stock pro
rata to Distributing shareholders that are not subsidiaries of Distributing
(such distribution, the “Initial External Distribution”, Distributing
subsidiaries that receive SpinCo stock in connection with the Initial
External Distribution, the “Recipient Subsidiaries”, and the SpinCo stock
received by the Recipient Subsidiaries, the “Subsidiary Retained Stock”).
Distributing will directly retain some amount of the SpinCo stock following
the Initial External Distribution (the “Distributing Retained Stock” and
together with the Subsidiary Retained Stock, the “Retained Stock”).
PLR-129446-16 13
13(a) Following the SpinCo Contribution, and no later than i months
following the Initial External Distribution (the “Permitted Period”),
Distributing intends to transfer an amount of cash equal to the cash
distributed by SpinCo to Distributing pursuant to Step 11(a) (such amount,
the “Cash Amount”) in one or more, or all, of the following transfers to: (i)
shareholders; (ii) creditors, including to creditors in respect of any liabilities
incurred in the ordinary course of business; or (iii) Distributing’s qualified
defined benefit plan for which Distributing is the sponsor (the “Pension
Plan”). The amount to be transferred to the Pension Plan will not exceed
the Pension Plan Amount. The transfer of the Cash Amount to
shareholders may include the payment of (i) dividends, including regular
quarterly dividends, and/or (ii) redemptions, including pursuant to existing,
amended, or future stock repurchase programs, open market stock
repurchases, accelerated share repurchases, or block purchases. The
transfer of the Cash Amount to creditors may include the payment of
interest and associated fees, such as consent fees and premium in excess
of the face amount of an instrument, as well as principal and trade
payables that have or will have arisen in the ordinary course of business,
including potentially debt incurred in the ordinary course following the
Initial External Distribution. The transfers of the Cash Amount described
in this Step 13(a) are referred to herein collectively as the “Cash Amount
Purge”.
(b) Distributing may transfer the Distributing Retained Stock within the
Permitted Period to some combination of Distributing creditors in
satisfaction of Distributing debt, including Third-Party Tender Debt (the
Stock-For-Debt Exchanges”), and/or Distributing shareholders (i) as
dividends, including regular quarterly dividends, and/or (ii) in redemption
of outstanding Distributing common stock. The subsequent transfers of
the Distributing Retained Stock described in the preceding sentence are
referred to collectively as the “Subsequent Distributions”. Alternatively, or
in addition, Distributing may dispose of any Distributing Retained Stock,
including through taxable sales, at any time but no later than five years
following the Initial External Distribution, including the portion of such
period constituting the Permitted Period. The Recipient Subsidiaries will
dispose of the Subsidiary Retained Stock no later than five years following
the Initial External Distribution.
14(a) Distributing expects to enter into certain agreements in connection
with the Proposed Transaction which could include, among others,
Agreement 2, Agreement 3, and Agreement 4. To the extent required
pursuant to Agreements 2, 3, and 4, respectively, Agreement 2 Payments,
Agreement 3 Payments, and Agreement 4 Payments, respectively, may
PLR-129446-16 14
be made between SpinCo and Distributing (any such payment, an
“Agreement Payment” and collectively, the “Agreement Payments”).
(b) Distributing plans to transfer to its shareholders and/or creditors an
amount equal to any Agreement Payment it receives in a manner
consistent with the Cash Amount Purge, except that in all events any such
transfer will occur within g months of receipt by Distributing of any
Agreement Payment. The SpinCo Contribution, the Cash Amount Purge,
the Initial External Distribution, and any Subsequent Distributions are
referred to collectively as the “External Spin-Off”.
Stock-For-Debt Exchanges
With respect to any Stock-For-Debt Exchanges, the Exchanging
Institutions will purchase any Third-Party Tender Debt at least j days
before such debt may be tendered as part of such an exchange. In the
event Distributing directly tenders for Distributing debt during the same
period as the Third-Party Tender, Distributing and the Exchanging
Institutions each expect to provide information to the other regarding the
amount of such purchases throughout and until the consummation of such
tender offers. No sooner than k days after each such debt purchase,
Distributing and the Exchanging Institutions expect to enter into
agreements pursuant to which the parties will exchange an amount of the
Third-Party Tender Debt for all or a portion of the Distributing Retained
Stock as part of the Stock-For-Debt Exchanges (any such agreement, an
“Exchange Agreement”). Distributing anticipates that the Exchanging
Institutions will sell any Distributing Retained Stock received in the Stock-
For-Debt Exchanges shortly after receipt to third parties or to underwriters
(each, an “Underwriter” and collectively, “Underwriters”).
It is expected that the Exchanging Institutions (including their affiliates)
and/or Underwriters will solicit non-binding offers from third parties for the
purchase of the Distributing Retained Stock during (and perhaps before)
the period the Exchanging Institutions acquire the Third-Party Tender
Debt. Any such solicitations will not be binding prior to communication by
the Exchanging Institution or Underwriter confirming the terms of purchase
and sale to such third parties (each, a “Confirmation”, and collectively,
“Confirmations”). No Underwriting Agreement will be executed and no
Confirmations will be issued prior to the execution of the applicable
Exchange Agreement.
Representations
PLR-129446-16 15
(a) Immediately before Step 8(f), all of the stock of Sub 5, Sub 6, and
New Sub 7 could have been sold to an unrelated third party for more than
$l.
(b) Immediately after Step 8(f), all of the stock of Sub 9 could have been
sold to an unrelated third party for more than $m.
(c) Other than Individual A, no person who is a director or officer of
Distributing will serve as an officer or director of SpinCo. Individual A is
expected to serve as a non-officer director of SpinCo for a transitional
period following the Initial External Distribution and will resign from the
SpinCo board at the end of Year.
(d) Distributing will vote, or cause to be voted, the Retained Stock in
proportion to the votes cast by SpinCo’s other shareholders, and
Distributing may grant a proxy to SpinCo to effectuate such voting.
(e) The Sub 9 Preferred Stock constitutes equity in Sub 9 for Federal
income tax purposes.
(f) The separation of the SpinCo Business would be pursued by
Distributing regardless of whether the Sub 1 Loss would be recognized by
virtue of the Proposed Transaction.
(g) Subject to any limitations in Treas. Reg. §1.1502-36, Distributing
would be entitled to recognize the Sub 1 Loss upon a taxable sale of the
Sub 1 stock to an unrelated third party.
(h) Distributing and HoldCo will cease to be members of the same
controlled group (as defined in §267(f)(1)) upon the consummation of the
Initial External Distribution.
(i) The HoldCo Preferred Stock will constitute equity in HoldCo for
Federal income tax purposes.
(j) Distributing will sell the HoldCo Preferred Stock to the HoldCo
Preferred Buyer(s) for an amount intended to equal the fair market value
of such stock.
(k) Distributing would contribute all of the Sub 1 stock to a holding
company which itself would be contributed to SpinCo without regard to the
recognition of the Sub 1 Loss or the achievement of any other Federal
income tax benefit.
PLR-129446-16 16
(l) Distributing has not identified any non-cash assets that will be
contributed to the SpinCo Group that will not be owned by HoldCo. To the
extent any such assets are identified, Distributing expects such assets will
have a de minimis value.
Rulings
Based solely on the information submitted and the representations set
forth above, and provided that the SpinCo Contribution and the Initial
External Distribution otherwise qualify under §§368(a)(1)(D) and 355, we
rule as follows:
(1) Distributing’s direct and indirect continuing ownership of any
Retained 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
§355(a)(1)(D)(ii).
(2) The Subsequent Distributions and Cash Amount Purge will be
treated as being distributed pursuant to the plan of reorganization that
includes the SpinCo Contribution and the Initial External Distribution for
purposes of §361(b) and (c).
(3) For purposes of qualifying the Cash Amount Purge for
nonrecognition treatment under §361(b), (i) Distributing will not be
required to segregate or otherwise trace the cash received from SpinCo
as part of the SpinCo Contribution and, as such, may use cash from any
source, and (ii) transfers of the Cash Amount to the Pension Plan, if any,
will be treated as transfers to a creditor of Distributing to the extent of the
Pension Plan Amount.
(4) The involvement of the Exchanging Institutions in the Third-Party
Tender and the Stock-For-Debt Exchanges will not preclude the
application of §361(c)(3) to the Stock-For-Debt Exchanges.
(5) None of the Type C Personnel Composition, the Type C Evolution,
or the disposition of the Disposed Segment will preclude satisfaction of the
ATB Requirement.
(6) For purposes of satisfying the ATB Requirement with respect to the
SpinCo Business, SpinCo may take into account all operational and
managerial activities throughout the Five-Year Period performed by
PLR-129446-16 17
employees employed by any member of the Distributing SAG during such
period.
(7) The HoldCo Preferred Stock Transfer will preclude the satisfaction
of the §351 control requirement with respect to the HoldCo Contribution.
Rev. Rul. 70-522, 1970-2 C.B. 81; Rev. Rul. 79-70, 1979-1 C.B. 144.
(8) The sale by Sub 7 of the preferred stock received as partial
consideration for Sub 7’s transfer of Unit B2 will preclude the satisfaction
of the §351 control requirement with respect to such transfer of Unit B2.
Rev. Rul. 70-522, 1970-2 C.B. 81; Rev. Rul. 79-70, 1970-1 C.B. 144.
(9) The Sub 1 Loss will be taken into account immediately before the
Initial External Distribution, and will not be (i) redetermined to be
nondeductible or noncapital or (ii) otherwise disallowed or deferred under
§267(f) or Treas. Reg. §1.1502-13.
(10) Neither SpinCo nor any of its affiliates will be treated as a
“successor” to Distributing or any of its affiliates for purposes of
§1504(a)(3).
(11) The New Sub 7 Preferred Buyer’s ownership of the Sub 9 Preferred
Stock will not preclude the satisfaction of §355(a)(1)(D).
(12) Each of the Sub 5 Merger and the Sub 6 Merger will not be
disqualified as a § 368 reorganization by virtue of the existence of the
respective Amount 3 of Sub 5, Unit B2, and Sub 6, as applicable.
(13) None of the subsequent Steps of the Proposed Transaction will
preclude the Sub 5 Contribution or the Sub 6 Contribution from qualifying
under §351.
(14) None of the Agreement 2, Agreement 3, and Agreement 4 will
preclude the External Spin-Off from satisfying §355(a)(1)(D).
Caveats
No opinion is expressed or implied concerning the tax consequences of
any other aspect of any transaction or item discussed or referenced in this
letter. In particular, no opinion is given regarding any other issues related
to the Proposed Transaction, or the tax consequences or characterization
of the Proposed Transaction, including, except as otherwise provided
PLR-129446-16 18
herein, (i) the treatment of Agreement 2, Agreement 3, and Agreement 4
and (ii) the treatment of any Agreement Payments.
Procedural Statements
This ruling is directed only to the taxpayers who requested it. Section
6110(k)(3) provides that it may not be used or cited as precedent.
A copy of this ruling letter must be attached to any Federal income tax
return to which it is relevant. Alternatively, a taxpayer filing its return
electronically may satisfy this requirement by attaching a statement to its
Federal income tax return that sets forth the date and control number of
this ruling letter.
In accordance with a power of attorney on file in this office, a copy of this
letter is being sent to your authorized representative.
Sincerely,
Richard K. Passales
Senior Counsel, Branch 4
Office of Associate Chief Counsel
(Corporate)
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