Private Letter Ruling
201921002
Released May 24, 2019
Approved
Later liquidation steps did not disrupt earlier spin-offs
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This page covers one taxpayer's ruling from 2019, 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 public company carried out a multi-step domestic and international restructuring that included several section 355 spin-offs and section 368 reorganizations. More than a year later, a subsidiary planned to convert into a disregarded entity in a section 332 liquidation, distribute most subsidiary interests, reincorporate while retaining one interest, and move certain assets through a taxable transfer. The transferred and retained assets represented less than 30 percent of the relevant subsidiary’s gross fair market value. The IRS ruled that the later conversion would not prevent the earlier spin-offs from qualifying under section 355. It also ruled that the asset transfer and later contribution would not prevent the conversion from qualifying under sections 332 and 337 or cause the conversion to be disregarded.
Ruling snapshot
- Question: Would the later liquidation, asset transfer, and reincorporation steps undermine the tax treatment of the earlier spin-offs or the section 332 conversion?
- Outcome: approved on the three discrete issues presented
- Key authorities: IRC §§ 332, 337, 351, 355, 368, 1001; Treas. Reg. § 301.7701-3; Rev. Proc. 2018-1
Full text (IRS public release)
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 201921002 Third Party Communication: None
Release Date: 5/24/2019 Date of Communication: Not Applicable
Index Number: 332.00-00, 337.07-00,
337.10-00, 355.00-00, Person To Contact:
368.04-00 ---------------------------, ID No. ---------------
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Date:
February 21, 2019
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Dear ----------------------:
This letter responds to your authorized representative’s letter dated June 22, 2018,
requesting rulings on certain federal income tax consequences of a proposed
transaction (the “Proposed Transaction”). Additional information was received in
correspondence dated February 7, 2019. The material information provided 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 and the rulings contained therein are issued pursuant to section 6.03(2)(a) of
Rev. Proc. 2018-1, 2018-1 I.R.B. 1, regarding one or more significant issues under
sections 332, 351, 355, and 368, and 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 Proposed Transaction or any completed transaction described in
this letter or as to any issue not specifically addressed by the rulings below.
Summary of Facts
Parent, a State A corporation, is a widely held public company that is the common
parent of a consolidated group (the “Parent Group”). Each of Sub 1, Sub 2, Sub 4,
Sub 5, Sub 6, Sub 7, Sub 8, and Sub 9 is a member of the Parent Group. Unless
otherwise stated, each entity described below is a domestic entity treated as a
corporation for federal income tax purposes. Prior to the start of the Proposed
Transaction:
PLR-121627-18 7
Parent owned all of the issued and outstanding shares of Sub 1;
Sub 1 owned a percent of the issued and outstanding equity interests of Sub 2,
approximately b (less than 80) percent of the issued and outstanding equity interests of
Sub 3, and all of the issued and outstanding equity interests of Sub 4, Sub 5, Sub 6,
Sub 7, and DE 1, an entity disregarded for federal income tax purposes (a “disregarded
entity”);
DE 1 owned the remaining c percent of the issued and outstanding equity interests of
Sub 2;
an unrelated investor owned the remaining approximately d percent of the issued and
outstanding equity interests of Sub 3;
Sub 2 owned all the issued and outstanding equity interests of DE 2, a disregarded
entity;
Sub 4 owned all the issued and outstanding equity interests of Sub 8;
Sub 6 owned all the issued and outstanding equity interests of Sub 9;
DE 2 owned all the issued and outstanding equity interests of FSub 1, a foreign entity;
FSub 1 owned all the issued and outstanding equity interests of DE 3, a disregarded
entity, and e percent of the issued and outstanding equity interests of FSub 2, a foreign
entity;
DE 3 owned the remaining f percent of the issued and outstanding equity interests of
FSub 2;
FSub 2 owned all the issued and outstanding equity interests of FSub 3 and FSub 4,
each a foreign entity, and all the issued and outstanding equity interests of DE 4, DE 5,
DE 6, DE 7, DE 8, DE 9, DE 10, DE 11, DE 12, and DE 13, each a disregarded entity;
FSub 4 owned all the issued and outstanding equity interests of DE 14, a disregarded
entity;
DE 6 owned g of the issued and outstanding equity interests of FSub 5, a foreign entity,
the remaining h percent of which was owned by Sub 4;
DE 7 owned g of the issued and outstanding equity interests of FSub 6, a foreign entity,
the remaining h percent of which was owned by Sub 9;
DE 8 owned g of the issued and outstanding equity interests of FSub 7, a foreign entity,
the remaining h percent of which was owned by Sub 6;
PLR-121627-18 8
DE 9 owned g of the issued and outstanding equity interests of FSub 8, a foreign entity,
the remaining h percent of which was owned by Sub 9;
DE 10 owned g of the issued and outstanding equity interests of FSub 9, a foreign
entity, the remaining h percent of which was owned by Sub 9;
DE 11 owned g of the issued and outstanding equity interests of FSub 10, a foreign
entity, the remaining h percent of which was owned by Sub 9;
DE 12 owned g of the issued and outstanding equity interests of FSub 11, a foreign
entity, the remaining h percent of which was owned by Sub 9; and
DE 14 owned all the issued and outstanding equity interests of FSub 12, a foreign
entity.
Proposed Transaction
Pursuant to an overall restructuring announced on Date 1, Parent and its subsidiaries
undertook, and will undertake, the following transactions, Step 1 through Step 22 of
which have been completed:
1. On Date 2, FSub 2 formed FSub 13, an entity organized under the laws of
Country A and classified as a corporation for federal income tax purposes.
2. On Date 2, Sub 1 formed Sub 10, a State A corporation that became a member
of the Parent Group, and contributed minimum capital as required by State A law.
3. On Date 3, FSub 2 contributed all the equity interests of FSub 3, FSub 4, DE 6,
DE 7, DE 8, DE 9, DE 10, DE 11, DE 12, and DE 13 to FSub 13.
4. On Date 3 and after Step 3, FSub 2 distributed the shares of FSub 13 pro rata to
FSub 1 and DE 3 in a transaction, together with Step 3, intended to qualify under
sections 355 and 368(a)(1)(D).
5. On Date 3, DE 3 distributed the shares of FSub 13 received in Step 4 to FSub 1
in a transaction intended to be disregarded for federal income tax purposes.
6. On Date 3 and after Step 5, FSub 1 distributed the shares of FSub 13 to DE 2 in
a distribution intended to qualify under section 355.
7. On Date 3, DE 2 distributed the shares of FSub 13 received in Step 6 to Sub 2 in
a transaction intended to be disregarded for federal income tax purposes.
8. On Date 3, Sub 2 distributed the shares of FSub 13 pro rata to DE 1 and Sub 1 in
a distribution intended to qualify under section 355 (together with Steps 3, 4, and
6, the “Spin-Off Transactions”).
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9. On Date 3, DE 1 distributed the shares of FSub 13 received in Step 8 to Sub 1 in
a distribution intended to be disregarded for federal income tax purposes.
10. On Date 3, Sub 1 contributed the shares of FSub 13 to Sub 10.
11. On Date 4, FSub 13 filed an election under § 301.7701-3, effective as of the
same date, to be classified as a disregarded entity for federal tax purposes
(thereafter, “DE 15”); together with Steps 2 and 10, such transaction was
intended to qualify as a reorganization under section 368(a)(1)(F).
12. On Date 4 and after Step 11, DE 15 distributed the equity interests in FSub 3,
FSub 4, DE 6, DE 7, DE 8, DE 9, DE 10, DE 11, DE 12, and DE 13 to Sub 10 in
a transaction intended to be disregarded for federal income tax purposes.
13. Beginning on Date 4, DE 15 liquidated under the laws of Country A.
14. On Date 4, Sub 1 contributed its equity interests in Sub 3, Sub 4, Sub 5, Sub 6,
and Sub 7 to Sub 10 in a transaction intended to qualify under section 351.
15. On Date 4 and after Step 12, Sub 10 contributed its equity interests in FSub 3 to
Sub 3, in DE 6 to Sub 4, in Sub 5, DE 7, DE 8, DE 9, DE 10, DE 11, and DE 12
to Sub 6, and in FSub 4 to Sub 7 in transactions intended to qualify under section
351.
16. On Date 4, Sub 4 contributed its equity interest in DE 6 to Sub 8 in a transaction
intended to qualify under section 351.
17. On Date 4, Sub 6 contributed its equity interests in Sub 5, DE 7, DE 8, DE 9,
DE 10, DE 11, and DE 12 to Sub 9 in a transaction intended to qualify under
section 351.
18. On Date 4, Sub 9 contributed its equity interests in DE 7 to Sub 5 in a transaction
intended to qualify under section 351.
19. On Date 5, Parent formed Sub 11, a State A corporation, and contributed
minimum capital as required by State A law.
20. On Date 6, Parent contributed Sub 1 to Sub 11.
21. On Date 6 and after Step 20, Sub 1 converted to a State A LLC (thereafter,
“DE 16”) in a transaction, together with Steps 19 and 20, intended to qualify
under section 368(a)(1)(F).
22. On Date 7, DE 16 distributed its shares of Sub 10 to Sub 11 in a transaction
intended to be disregarded for federal income tax purposes.
PLR-121627-18 10
23. On Date 8, FSub 7 transferred the Transferred Assets to DE 16, which held
similar assets, in exchange for a note in a transaction intended to be a taxable
exchange under section 1001 (the “Asset Transfer”).
24. On Date 9, a date more than one year after the Spin-Off Transactions, Sub 10
will convert to a State A LLC (thereafter, “DE 17”) in a transaction intended to
qualify under section 332 (the “Sub 10 Conversion”).
25. One day after Step 24, DE 17 will distribute its equity interests of Sub 3, Sub 4,
Sub 5, Sub 6, and Sub 7 to Sub 11 in a transaction intended to be disregarded
for federal income tax purposes and will retain its shares of DE 13.
26. One day after Step 25, DE 17 will continue as a State B corporation (thereafter,
“Sub 12”) in a transaction intended to qualify under section 351 (the “Sub 12
Contribution”).
27. One day after Step 26, Sub 11 will contribute the stock of Sub 12 to DE 16 in a
transaction intended to be disregarded for federal income tax purposes.
Representation
Taxpayer represents that the Transferred Assets and the assets in the Sub 12
Contribution will constitute less than 30% of the gross fair market value of Sub 10.
Rulings
Base solely on the information provided and representation made, we rule as follows:
1. The Sub 10 Conversion will not preclude the Spin-Off Transactions from each
qualifying under section 355.
2. The Sub 12 Contribution, together with the Asset Transfer, will not preclude the
Sub 10 Conversion from qualifying under sections 332 and 337.
3. The Sub 12 Contribution will not cause the Sub 10 Conversion to be disregarded
for federal income tax purposes.
Caveats
Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.
Procedural Statements
PLR-121627-18 11
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,
Austin Diamond-Jones
Austin Diamond-Jones
Assistant to the Branch Chief, Branch 1
Office of Associate Chief Counsel (Corporate)
cc:
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