Built-in-gain property leaving a § 721(c) partnership for a new foreign corporation is governed by § 367, with no separate § 721(c) gain

Plain-English summary

A U.S. corporate group set up a foreign partnership and contributed appreciated (built-in-gain) property to it. Because a U.S. member contributed that property to a partnership in which related foreign persons own most of the interests, the partnership is a "Section 721(c) partnership," and the normal tax-free treatment for contributing property to a partnership does not automatically apply. To keep from being taxed on the built-in gain right away, the group has been using the regulatory "gain deferral method" (special remedial allocations, consistent allocations, extra reporting, and an extended statute of limitations). Now the group wants to convert a disregarded subsidiary that holds most of that property into a corporation by making a check-the-box election. That election is treated as the partnership transferring the property to a new foreign corporation in a Section 351 exchange that is subject to Section 367. Under the Section 721(c) regulations (Treas. Reg. § 1.721(c)-5(e)), when a Section 721(c) partnership transfers its property to a foreign corporation in a Section 367 transaction, the property leaves the gain-deferral regime and the tax results are figured under Section 367 instead. The IRS ruled that, because the taxpayer represents the full built-in gain is captured by Section 367, the U.S. transferor recognizes no separate Section 721(c) income or gain from the transaction, the consequences are determined under Section 367, and the property is no longer subject to the gain-deferral method. The IRS reserved on many related points, including whether the exchange actually qualifies under Section 351, the amount of any Section 367 gain, and the possible application of Sections 91 and 482.

Ruling snapshot

• Question: When a § 721(c) partnership's built-in-gain property is deemed transferred to a new foreign corporation via a check-the-box election, does the U.S. transferor recognize separate § 721(c) gain, or is the transaction governed by § 367?
• Outcome: Approved (no separate § 721(c) gain; § 367 governs; gain-deferral method ends for that property)
• Key authorities: IRC § 721(c); Treas. Reg. §§ 1.721(c)-2 through -6, esp. 1.721(c)-5(e); IRC §§ 367, 351; Treas. Reg. § 301.7701-3(c), (g)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202047006 Third Party Communication: None
Release Date: 11/20/2020 Date of Communication: Not Applicable
Index Number: 721.03-00, 721.04-00
Person To Contact:
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--------------------------------------- ID No. -----------------
------------------------- Telephone Number:
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--------------------------- Refer Reply To:
CC:INTL:B04
PLR-111394-20
Date:
August 25, 2020

LEGEND:

Parent ---------------------------------------------------------------------------------------------
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Sub 1 ---------------------------------------------------------------------------------------------
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DSub ---------------------------------------------------------------------------------------------
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FSub ---------------------------------------------------------------------------------------------
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Corp 1 ---------------------------------------------------------------------------------------------
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DRE 1 ---------------------------------------------------------------------------------------------
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PLR-111394-20 2

PRS ---------------------------------------------------------------------------------------------
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State A ---------------------
Country A -------------------------------
Country B --------------------------
Date A ----------------------------

Dear --------------:

This letter responds to your authorized representative’s letter dated May 8, 2020,
requesting rulings under § 1.721(c)-5(e) of the Income Tax Regulations concerning the
proposed transaction described below (the “Proposed Transaction”). Supplemental
information was provided in letters dated July 15, 2020, and August 10, 2020.
The rulings contained in this letter are predicated upon information and representations
submitted by the taxpayer and accompanied by penalties of perjury statements
executed by an appropriate party. This office has not verified any of the material
submitted in support of the request for rulings. Verification of the factual information,
representations, and other data may be required as part of the audit process.

FACTS

Parent is a domestic corporation incorporated in State A and is the common parent of
an affiliated group of corporations that files a consolidated return for Federal income tax
purposes (the affiliated group, “the Parent Group”). Parent directly wholly owns Sub 1, a
domestic corporation incorporated in State A that is a member of the Parent Group,
which directly or indirectly wholly owns DSub, FSub, and the Original Foreign Partners
(all of which are described further below). DSub is a domestic corporation incorporated
in State A that is a member of the Parent Group.

DSub owns an interest in PRS, a foreign entity formed in Country A and treated as a
partnership for Federal income tax purposes. PRS, through its directly and indirectly
held subsidiaries, conducts and manages certain foreign business operations on behalf
of the Parent Group. Immediately before the Proposed Transaction, FSub, a foreign
entity formed in Country A and treated as a corporation for Federal income tax
purposes, will own the remaining interest in PRS.
PLR-111394-20 3

PRS became a partnership for Federal income tax purposes on Date A. On Date A and
several subsequent dates before the Proposed Transaction, DSub contributed property
(collectively, the “U.S.-Contributed Property”) to PRS in exchange for its interest in PRS.
The U.S.-Contributed Property mainly consists of (i) assets held directly by DSub and
interests in foreign entities treated as disregarded for Federal income tax purposes, and
(ii) interests in foreign entities taxable as corporations for Federal income tax purposes,
the value of which was de minimis compared to the aggregate value of the U.S.-
Contributed Property. Most of the non-stock U.S.-Contributed Property had a value that
exceeded its adjusted tax basis at the time of its contribution to PRS.

On Date A, four direct and indirect wholly-owned foreign subsidiaries of FSub, each of
which was treated as a corporation for Federal income tax purposes (collectively, the
“Original Foreign Partners”), also contributed property to PRS in exchange for interests
in PRS. On several dates after Date A but before the Proposed Transaction, one or
more of the Original Foreign Partners contributed additional property to PRS.

Before the Proposed Transaction, but after all contributions of property by the Original
Foreign Partners to PRS, the Original Foreign Partners will liquidate and transfer each
of their interests in PRS to FSub. Thus, at the time of the Proposed Transaction, FSub
will be the successor in interest to the entirety of the combined interests previously
owned by the Original Foreign Partners in PRS.

Immediately before the Proposed Transaction, the only assets that PRS will directly own
are interests in two wholly-owned subsidiaries: (i) DRE 1, a foreign entity formed in
Country A that is treated as a disregarded entity for Federal income tax purposes, which
directly and indirectly (through several other disregarded entities) holds most of the
property contributed to PRS from Date A until the Proposed Transaction; and (ii) Corp 1,
a foreign entity formed in Country B that is treated as a corporation for Federal income
tax purposes.

The fair market value of many of the assets that PRS directly holds or is deemed to hold
has decreased since those assets were contributed to PRS. As a result, immediately
before the Proposed Transaction, the net fair market value of DSub’s interest in PRS is
expected to exceed the aggregate net fair market value of the U.S.-Contributed
Property.1 Further, immediately before the Proposed Transaction, the net adjusted tax
basis of DSub’s interest in PRS is expected to exceed the aggregate net adjusted tax
basis of PRS in the U.S.-Contributed Property. Thus, immediately before the Proposed
Transaction, DSub’s built-in gain in its PRS interest (equal to the excess of the net fair
market value of DSub’s interest in PRS over the net adjusted tax basis of DSub’s
interest in PRS) is expected to exceed the built-in gain of the U.S.-Contributed Property
held by PRS (equal to the excess of the aggregate net fair market value of the U.S.-

1 Any reference in this letter to a “net” amount means an amount determined by taking into account any

associated liabilities.
PLR-111394-20 4

Contributed Property held by PRS over the aggregate net adjusted tax basis of the
U.S.-Contributed Property held by PRS).

PROPOSED TRANSACTION

DRE 1 will file an election under Treas. Reg. § 301.7701-3(c)(1)(i) to be classified as an
association taxable as a corporation for Federal income tax purposes (the resulting
foreign corporation, “New ForCo”).

REPRESENTATIONS

The taxpayer has made the following representations with respect to the Proposed
Transaction:

  a)     The Proposed Transaction will be documented and implemented in a
         manner that complies with applicable Federal, state, and foreign laws.

  b)     PRS is and has been properly classified as a partnership since Date A for
         Federal income tax purposes.

  c)     Since Date A, Parent has reported PRS as a Section 721(c) partnership
         within the meaning of Treas. Reg. § 1.721(c)-1(b)(14) on the Parent
         Group’s Federal income tax returns.

  d)     Since Date A, PRS has adopted and complied with the remedial allocation
         method set forth in Treas. Reg. § 1.704-3(d) for purposes of making
         allocations of items of income, gain, loss, and deduction attributable to all
         U.S.-Contributed property held by PRS.

  e)     Since Date A, PRS has complied with the consistent allocation method set
         forth in Treas. Reg. § 1.721(c)-3(c) with respect to all of its Section 721(c)
         property within the meaning of Treas. Reg. § 1.721(c)-1(b)(15).

  f)     DSub has complied with, and will continue to comply with, the procedural
         and reporting requirements set forth in Treas. Reg. § 1.721(c)-6(b) with
         respect to all Section 721(c) property contributed by DSub to PRS.

  g)     Since it became a partner in PRS through the initial contribution of the
         U.S.-Contributed Property, DSub has consented, and will continue to
         consent, to extending the statute of limitations on assessment of tax, as
         required by Treas. Reg. § 1.721(c)-6(b)(5), with respect to all Section
         721(c) property contributed by DSub.

PLR-111394-20 5

   h)     Since Date A, the allocations of items of income, gain, loss, and deduction
          of PRS had, and will have, economic effect under the alternate test for
          economic effect set forth in Treas. Reg. § 1.704-1(b)(2)(ii)(d) and such
          economic effect was, and will be, substantial under Treas. Reg. § 1.704-
          1(b)(2)(iii).

   i)     For Federal income tax purposes, the Proposed Transaction will qualify as
          an exchange described in Section 351 to which Section 367 applies.

   j)     The aggregate fair market value of the property to which Section 367
          applies as a result of the Proposed Transaction will at least be equal to the
          fair market value of DSub’s interest in PRS immediately before the
          Proposed Transaction, and the aggregate amount of built-in gain
          attributable to such property will at least be equal to the amount by which
          the fair market value of DSub’s interest in PRS exceeds the adjusted tax
          basis of DSub’s interest in PRS immediately before the Proposed
          Transaction.

   k)     There is no plan or intent that, after the Proposed Transaction, New
          ForCo, or any successor to New ForCo, will dispose of or transfer any of
          the property held by DRE 1 immediately before the Proposed Transaction
          to any person that is not a related person within the meaning of Sections
          267(b), (c), (f) or Section 707(b)(1).

   l)     There is no plan or intent that, after the Proposed Transaction, PRS, or
          any successor to PRS, will dispose of or transfer any interest in New
          ForCo or any successor to New ForCo to any person that is not a related
          person within the meaning of Sections 267(b), (c), (f) or Section 707(b)(1).

LAW AND ANALYSIS

Section 721(a) provides that no gain or loss shall be recognized to a partnership or to
any of its partners in the case of a contribution of property to the partnership in
exchange for an interest in the partnership.

Section 721(c) provides that the Secretary may provide by regulations that Section
721(a) shall not apply to gain realized on the transfer of property to a partnership if such
gain, when recognized, will be includible in the gross income of a person other than a
United States person.

Treas. Reg. § 1.721(c)-2(b) provides that, in general, except as provided in certain
provisions including Treas. Reg. § 1.721(c)-3, nonrecognition under Section 721(a) will
PLR-111394-20 6

not apply to gain realized by the contributing partner upon a contribution of Section
721(c) property to a Section 721(c) partnership.

Treas. Reg. § 1.721(c)-1(b)(14)(i) provides that, in general, a partnership (domestic or
foreign) is a Section 721(c) partnership if there is a contribution of Section 721(c)
property to the partnership and, after the contribution and all transactions related to the
contribution, (i) a related foreign person with respect to the U.S. transferor is a direct or
indirect partner in the partnership; and (ii) the U.S. transferor and related persons own
80 percent or more of the interests in partnership capital, profits, deductions, or losses.

Treas. Reg. § 1.721(c)-1(b)(18)(i) provides that a U.S. transferor is a United States
person within the meaning of Section 7701(a)(30), other than a domestic partnership.
Treas. Reg. § 1.721(c)-1(b)(12) provides that a related person is, with respect to a U.S.
transferor, a person that is related (within the meaning of Section 267(b) or 707(b)(1)) to
the U.S. transferor. Treas. Reg. § 1.721(c)-1(b)(11) provides that a related foreign
person is, with respect to a U.S. transferor, a related person (other than a partnership)
that is not a United States person.

Section 267(b)(3) provides that two persons are described within Section 267(b) if they
are corporations which are members of the same controlled group, as defined in
Section 267(f). Section 267(f) provides in part that “controlled group” generally has the
meaning given to that term by Section 1563(a) except that (i) “more than 50 percent”
shall be substituted for “at least 80 percent” in each place it appears in Section 1563(a).

Section 1563(a)(1) provides that a controlled group of corporations means any group of
one or more chains of corporations connected through stock ownership with a common
parent corporation if (i) stock possessing at least 80 percent of the total combined voting
power of all classes of stock entitled to vote or at least 80 percent of the total value of
shares of all classes of stock of each of the corporations, except the common parent
corporation, is owned by one or more of the other corporations; and (ii) the common
parent corporation owns stock possessing at least 80 percent of the total combined
voting power of all classes of stock entitled to vote or at least 80 percent of the total
value of shares of all classes of stock of at least one of the other corporations,
excluding, in computing such voting power or value, stock owned directly by such other
corporations.

Treas. Reg. § 1.721(c)-1(b)(15)(i) provides that, in general, Section 721(c) property is
property, other than excluded property, with built-in gain that is contributed to a
partnership by a U.S. transferor.

Treas. Reg. § 1.721(c)-1(b)(6) provides that excluded property is (i) a cash equivalent;
(ii) a security within the meaning of Section 475(c)(2), without regard to Section
475(c)(4); (iii) tangible property with a book value exceeding adjusted tax basis by no
more than $20,000 or with an adjusted tax basis in excess of book value; and (iv) an
PLR-111394-20 7

interest in a partnership in which 90 percent or more of the property (as measured by
value) held by the partnership (directly or indirectly through interests in one or more
partnerships that are not excluded property) consists of property described in
paragraphs (b)(6)(i) through (iii) of Treas. Reg. § 1.721(c)-1(b)(6).

Treas. Reg. § 1.721(c)-1(b)(2) provides that built-in gain is, with respect to property
contributed to a partnership, the excess of the book value of the property over the
partnership’s adjusted tax basis in the property upon the contribution, determined
without regard to the application of Treas. Reg. § 1.721(c)-2(b).

Treas. Reg. § 1.721(c)-3(b) provides that a contribution of Section 721(c) property to a
Section 721(c) partnership that would be subject to Treas. Reg. § 1.721(c)-2(b) will not
be subject to Treas. Reg. § 1.721(c)-2(b) if the conditions of the gain deferral method
identified in Treas. Reg. § 1.721(c)-3(b) are satisfied with respect to that property.
Treas. Reg. § 1.721(c)-3(b)(1)(i) provides that a Section 721(c) partnership adopts the
remedial allocation method described in Treas. Reg. § 1.704-3(d) with respect to the
Section 721(c) property and applies the consistent allocation method provided in Treas.
Reg. § 1.721(c)-3(c). Treas. Reg. § 1.721(c)-3(b)(2) provides that upon an acceleration
event, the U.S. transferor recognizes an amount of gain equal to the remaining built-in
gain with respect to the Section 721(c) property or an amount of gain required to be
recognized under Treas. Reg. § 1.721(c)-5(d) or (e), as applicable. Treas. Reg. §
1.721(c)-3(b)(3) provides that the procedural and reporting requirements provided in
Treas. Reg. § 1.721(c)-6(b) are satisfied. Treas. Reg. § 1.721(c)-3(b)(4) provides that
the U.S. transferor consents to extend the period of limitations on assessment of tax as
required by Treas. Reg. § 1.721(c)-6(b)(5).

Treas. Reg. § 1.721(c)-1(b)(13)(i) provides that remaining built-in gain is, with respect to
Section 721(c) property subject to the gain deferral method, the built-in gain reduced by
decreases in the difference between the property’s book value and adjusted tax basis,
but, for purposes of Treas. Reg. § 1.721(c)-1(b)(13)(i), without taking into account
increases or decreases to the property’s book value pursuant to Treas. Reg. § 1.704-
1(b)(2)(iv)(f) or (s).

Treas. Reg. § 1.721(c)-4(b) provides that, except as provided in certain provisions,
including Treas. Reg. § 1.721(c)-5, an acceleration event with respect to Section 721(c)
property is any event that either would reduce the amount of remaining built-in gain that
a U.S. transferor would recognize under the gain deferral method if the event had not
occurred or could defer the recognition of the remaining built-in gain. Treas. Reg. §
1.721(c)-4(b) applies on a property-by-property basis.

Treas. Reg. § 1.721(c)-5 identifies exceptions to acceleration events, which, like the
rules regarding acceleration events provided in Treas. Reg. § 1.721(c)-4(b), apply on a
property-by-property basis.
PLR-111394-20 8

Treas. Reg. § 1.721(c)-5(e) provides that if a Section 721(c) partnership transfers
Section 721(c) property to a foreign corporation in a transaction described in Section
367, the property will no longer be subject to the gain deferral method. Treas. Reg. §
1.721(c)-5(e) provides further that to the extent any U.S. transferor is treated as
transferring the Section 721(c) property to the foreign corporation for purposes of
Section 367, the tax consequences will be determined under Section 367. Treas. Reg. §
1.721(c)-5(e) provides, however, that for the remaining portion of the property (if any),
the U.S. transferor must recognize an amount of gain equal to the remaining built-in
gain that would have been allocated to the U.S. transferor if the Section 721(c)
partnership had sold that portion of the Section 721(c) property immediately before the
transfer for fair market value. Finally, Treas. Reg. § 1.721(c)-5(e) provides that the stock
in the transferee foreign corporation received will not be subject to the gain deferral
method.

Section 367(a) provides that if, in connection with any exchange described in certain
provisions, including Section 351, a United States person transfers property to a foreign
corporation, such foreign corporation shall not, for purposes of determining the extent to
which gain shall be recognized on such transfer, be considered to be a corporation.

Section 351(a) provides that no gain or loss shall be recognized if property is
transferred to a corporation by one or more persons solely in exchange for stock in such
corporation and immediately after the exchange such person or persons are in control
(as defined in Section 368(c)) of the corporation.

Section 368(c) provides that the term “control” means the ownership of stock
possessing at least 80 percent of the total combined voting power of all classes of stock
entitled to vote and at least 80 percent of the total number of shares of all other classes
of stock of the corporation.

Section 367(d)(1) provides that, except as provided in regulations prescribed by the
Secretary, if a United States person transfers any intangible property to a foreign
corporation in an exchange described in Section 351 or 361, (i) Section 367(a) shall not
apply to the transfer of such property, and (ii) the provisions of Section 367(d) shall
apply to such transfer.

Section 367(d)(2)(A) provides that, in general, if Section 367(d)(1) applies to any
transfer, the United States person transferring such property shall be treated as (i)
having sold such property in exchange for payments which are contingent upon the
productivity, use, or disposition of such property; and (ii) receiving amounts which
reasonably reflect the amounts which would have been received (I) annually in the form
of such payments over the useful life of such property; or (II) in the case of a disposition
following such transfer (whether direct or indirect), at the time of the disposition. The
amounts taken into account under Section 367(d)(2)(A)(ii) shall be commensurate with
the income attributable to the intangible.
PLR-111394-20 9

Treas. Reg. § 301.7701-3(c)(1)(i) provides that, in general, an eligible entity may elect
to be classified other than as provided under Treas. Reg. § 301.7701-3(b), or to change
its classification, by filing Form 8832, Entity Classification Election. Treas. Reg. §
301.7701-3(g)(1)(iv) provides that if an eligible entity that is disregarded as an entity
separate from its owner elects under Treas. Reg. § 301.7701-3(c)(1)(i) to be classified
as an association, the following is deemed to occur: The owner of the eligible entity
contributes all of the assets and liabilities of the entity to the association in exchange for
stock of the association. Treas. Reg. § 301.7701-3(g)(3)(i) provides that for this
purpose, an election is treated as occurring at the start of the day for which the election
is effective and that any transactions that are deemed to occur as a result of a change
in classification are treated as occurring immediately before the close of the day before
the election is effective.

Pursuant to Treas. Reg. § 1.721(c)-1(b)(18)(i), DSub is a U.S. transferor because it is a
United States person within the meaning of Section 7701(a)(30). Pursuant to Treas.
Reg. § 1.721(c)-1(b)(12), Section 267(b)(3), Section 267(f), and Section 1563(a)(1),
FSub and the Original Foreign Partners are related persons with respect to DSub
because DSub, FSub, and the Original Foreign Partners are all indirect wholly-owned
subsidiaries of Parent through Sub 1, and Parent directly wholly owns Sub 1. Pursuant
to Treas. Reg. § 1.721(c)-1(b)(11), FSub and the Original Foreign Partners are related
foreign persons with respect to DSub because they are related persons that are not
United States persons.

The taxpayer has represented that PRS is and has been properly classified as a
partnership since Date A for Federal income tax purposes. Pursuant to Treas. Reg. §
1.721(c)-1(b)(15)(i), any U.S.-Contributed Property, other than excluded property within
the meaning of Treas. Reg. § 1.721(c)-1(b)(6), with built-in gain within the meaning of
Treas. Reg. § 1.721(c)-1(b)(2), is Section 721(c) property because it was contributed to
PRS, a partnership, by DSub, a U.S. transferor.

Pursuant to Treas. Reg. § 1.721(c)-1(b)(14)(i), PRS is a Section 721(c) partnership
because there was a contribution of Section 721(c) property to PRS, as described in the
preceding paragraph, and after the contribution and all transactions related to the
contribution, (i) related foreign persons with respect to DSub (the Original Foreign
Partners and later FSub) were partners in the partnership; and (ii) DSub and related
persons with respect to DSub (the Original Foreign Partners and later FSub) owned all
of the interests in PRS.

The taxpayer has represented that since Date A, Parent has reported PRS as a Section
721(c) partnership within the meaning of Treas. Reg. § 1.721(c)-1(b)(14) on the Parent
Group’s Federal income tax returns. Taxpayer has made further representations that
certain requirements of the gain deferral method have been, and will continue to be,
met.
PLR-111394-20 10

In the Proposed Transaction, DRE 1, an entity that is disregarded as separate from its
owner for Federal income tax purposes, will elect under Treas. Reg. § 301.7701-
3(c)(1)(i) to be classified as an association. Pursuant to Treas. Reg. § 301.7701-
3(g)(1)(iv), PRS, the owner of DRE 1 and a Section 721(c) partnership, will be deemed
to contribute all of the assets and liabilities of DRE 1, including the Section 721(c)
property, to New ForCo, a foreign corporation, in exchange for stock of New ForCo in a
transaction that the taxpayer has represented is described in Sections 351 and 367.
The deemed transactions described in the previous sentence are treated as occurring
immediately before the close of the day before the election is effective.

The taxpayer has represented that the aggregate fair market value of the property to
which Section 367 applies as a result of the Proposed Transaction will at least be equal
to the fair market value of DSub’s interest in PRS immediately before the Proposed
Transaction, and the aggregate amount of built-in gain attributable to such property will
at least be equal to the amount by which the fair market value of DSub’s interest in PRS
exceeds the adjusted tax basis of DSub’s interest in PRS immediately before the
Proposed Transaction. Thus, pursuant to Treas. Reg. § 1.721(c)-5(e) and Treas. Reg. §
1.721(c)-3(b)(2), there is no remaining portion of Section 721(c) property that is not
subject to Section 367 and DSub, therefore, will not recognize any income or gain under
Section 721(c) as a result of the Proposed Transaction. Instead, pursuant to Treas.
Reg. § 1.721(c)-5(e), the tax consequences to DSub from the deemed transfer by PRS
of Section 721(c) property to New ForCo will be determined under Section 367. In
addition, pursuant to Treas. Reg. § 1.721(c)-5(e), the Section 721(c) property owned by
PRS immediately before the Proposed Transaction will no longer be subject to the gain
deferral method described in Treas. Reg. § 1.721(c)-3 after the Proposed Transaction.

CONCLUSION

Based solely on the information submitted and on the representations set forth above,
we hold as follows:

1) DSub will not recognize any income or gain under Section 721(c) as a result of the
Proposed Transaction.

2) The tax consequences to DSub from the deemed transfer by PRS of Section 721(c)
property to New ForCo will be determined under Section 367.

3) The Section 721(c) property owned by PRS immediately before the Proposed
Transaction will no longer be subject to the gain deferral method described in Treas.
Reg. § 1.721(c)-3 after the Proposed Transaction.

No opinion is expressed as to the tax treatment of the Proposed Transaction under
other provisions of the Code and regulations, and no opinion is expressed about the tax
PLR-111394-20 11

treatment of any conditions existing at the time of, or effects resulting from, the
Proposed Transaction that are not specifically covered by this ruling. In particular, no
opinion is expressed on the following:

1) Whether the Proposed Transaction meets the requirements of Section 351 or the
regulations promulgated thereunder.

2) Whether, in each taxable year since Date A, the allocations of items of income, gain,
loss, and deduction of PRS meet the requirements for the alternate test for
economic effect set forth in Treas. Reg. § 1.704-1(b)(2)(ii)(d) and the substantiality
test set forth in Treas. Reg. § 1.704-1(b)(2)(iii).

3) The potential application of Section 91 to the Proposed Transaction.

4) The amount of or manner of calculating the income or gain to be recognized in
applying Section 367 to the Proposed Transaction.

5) Any potential application of Section 482 to, or in connection with, the Proposed
Transaction.

6) The value, adjusted tax bases, statements of relative value, and other comparisons
of amounts described in this ruling.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) 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,

Kenneth A. Jeruchim
Senior Technical Reviewer, Branch 4
(International)