IRS blesses a multi-step Section 355 spin-off, including an internal restructuring and a leveraged external spin-off with cash distribution

Plain-English summary

A publicly traded parent company that runs two lines of business asked the IRS to confirm the tax treatment of a series of transactions that separate one business (Business A) from the rest of the group. The plan has two parts. First, a chain of internal spin-offs (the Distributing 1, 2, and 3 Spin-Offs) moves the Business A entities up through the corporate structure using tax-free reorganizations. Second, the parent drops Business A into a new subsidiary (External Controlled), which borrows money from outside lenders, and then distributes at least a set percentage of that subsidiary's stock to the parent's public shareholders (the External Spin-Off), keeping some shares to sell later. The parent will use the cash it receives from the borrowing to pay down debt, buy back stock, fund its pension plan, or pay dividends. The IRS ruled that each step qualifies as a tax-free reorganization under Section 368(a)(1)(D) to which Section 355 applies, so the distributing corporations, the controlled corporations, and the shareholders generally recognize no gain or loss, subject to the usual basis, holding-period, and earnings-and-profits rules. The IRS did not rule on the business-purpose, device, or plan (anti-Morris Trust) questions.

Ruling snapshot

• Question: Do the internal spin-offs and the leveraged external spin-off qualify as tax-free reorganizations under Sections 368(a)(1)(D) and 355, with no gain or loss to the distributing corporations, controlled corporations, and shareholders?
• Outcome: Approved (40 rulings granted; no opinion on business purpose, device, or the Section 355(e) plan question)
• Key authorities: IRC § 368(a)(1)(D); IRC § 355; IRC §§ 361, 357, 1032, 362, 1223, 358, 312, 1001, 1504; Treas. Reg. §§ 1.358-2, 1.312-10, 1.1502-33; Rev. Proc. 2017-52; Rev. Proc. 2018-53; Arrowsmith v. Commissioner, 344 U.S. 6 (1952); Rev. Rul. 83-73

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202145027 Third Party Communication: None
Release Date: 11/12/2021 Date of Communication: Not Applicable
Index Number: 355.01-00, 368.04-00
Person To Contact:
---------------------- -------------------, ID No. -----------------
-------------------------- Telephone Number:
--------------------------------------- ---------------------
--------------------------- Refer Reply To:
------------------------------ CC:CORP:B05
PLR-103814-21
Date:
August 20, 2021

Legend

Distributing Parent = ---------------------------------------
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Distributing 3 = ---------------------------------------------------------------
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Distributing 2 = ---------------------------------------
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Distributing 1 = ---------------------------------------------------------------
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Internal Controlled 1 = ------------------------------
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Internal Controlled 2 = ------------------------------
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External Controlled = ------------------------------
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FDRE 1 = ---------------------------------------------------------------
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State A = -------------

State B = -------------

Country A = ------------------

Country B = -----------------

Retained Business = --------------------------------------------------------------
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Business A = ---------------------------------------

Business B = ---------------------------------------------------------------

Business C = --------------------------------------------------------------
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Business D = -----------------------------------------------

a = -------------

b = -------

c = ---

d = ---

Commercial Arrangements = --------------------------------------------------------------

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Commercial Paper = --------------------------------------------------------------

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Continuing Arrangements = -------------------------------------------------
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Intellectual Property Agreements = -----------------------------------------------------
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Pension Plan = -----------------------------------------------------
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Pension Plan Amount = ------------------------------------------------
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Dear ---------------------:

This letter responds to your letter dated February 16, 2021, as supplemented on April
12, 2021, July 9, 2021, and July 29, 2021 on behalf of Distributing Parent, its affiliates
and its shareholders requesting rulings on certain Federal income tax consequences of
a series of transactions (the “Proposed Transactions”). The material information
submitted in that request and subsequent correspondence is summarized below.

This letter is issued pursuant to Rev. Proc. 2017-52, 2017-41 I.R.B. 283, as amplified
and modified by Rev. Proc. 2018-53, 2018-43 I.R.B. 667, regarding one or more
“Covered Transactions” and pursuant to section 6.03(2) of Rev. Proc. 2021-1, 2021-1
I.R.B. 1, regarding one or more significant issues under Section 355 of the Internal
Revenue Code (the “Code”). This Office expresses no opinion as to any issue not
specifically addressed by the rulings below.

The rulings contained in this letter are based upon facts 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 request for rulings. Verification of the information, representations, and other data
may be required as part of the audit process.

This office has made no determination regarding whether each of the distributions in the
Proposed Transactions: (i) satisfies the business purpose requirement of Treas. Reg.
§1.355-2(b); (ii) is used principally as a device for the distribution of the earnings and
profits of the distributing corporation or the controlled corporation or both (see Section
355(a)(1)(B) and Treas. Reg. §1.355-2(d)); or (iii) is part of a plan (or series of related
transactions) pursuant to which one or more persons will acquire directly or indirectly
stock representing a 50-percent or greater interest in the distributing corporation or the
controlled corporation, or any predecessor or successor of the distributing corporation
or the controlled corporation, within the meaning of Treas. Reg. § 1.355-8 (see Section
355(e)(2)(A)(ii) and Treas. Reg. §1.355-7).

                                Summary of Facts

Distributing Parent is a publicly traded State A corporation and is the parent of a
worldwide group that includes both domestic and foreign entities. Distributing Parent is
also the common parent of an affiliated group of corporations electing to file a
consolidated US federal income tax return on a calendar year basis (the “Distributing
Parent Consolidated Group”). Distributing Parent is an operating company which
directly conducts both Business A and the Retained Business in Country A and
indirectly conducts both Business A and the Retained Business outside of Country A.

Distributing Parent wholly owns Distributing 3, a State B corporation and a member of
the Distributing Parent Consolidated Group.

Distributing 3 wholly owns Distributing 2, a State B corporation and a member of the
Distributing Parent Consolidated Group.

Distributing 2 wholly owns FDRE 1, a Country B entity that is disregarded as separate
from Distributing 2 for US federal income tax purposes (a “disregarded entity”).

FDRE 1 owns Distributing 1, a Country B entity that is classified as a corporation for US
federal income tax purposes.

Distributing 1 owns directly and indirectly disregarded entities and entities classified as
corporations for US federal income tax purposes that conduct Business A and the
Retained Business outside of Country A.

For purposes of satisfying the active trade or business requirement of Section 355(b), (i)
with respect to the Distributing 1 Spin-Off, Distributing 2 Spin-Off, and the Distributing 3
Spin-Off, respectively (each defined below), each of Distributing 1, Distributing 2, and

Distributing 3 will rely upon Business B conducted by members of its “separate affiliated
group” as defined in Section 355(b)(3)(B); (ii) with respect to the External Spin-Off
(defined below), Distributing Parent will rely upon Business C conducted by members of
its “separate affiliated group” as defined in Section 355(b)(3)(B); and (iii) with respect to
each of Distributing 1 Spin-Off, Distributing 2 Spin-Off, the Distributing 3 Spin-Off, and
the External Spin-Off, each controlled corporation will rely upon Business D conducted
by members of its “separate affiliated group” as defined in Section 355(b)(3)(B).
Financial information has been submitted in accordance with Rev. Proc. 2017-52
indicating that each of Business B, Business C, and Business D has had gross receipts
and operating expenses representing the active conduct of a trade or business for each
of the past five years.

                              Proposed Transaction

For what are represented to be valid business reasons, Distributing Parent proposes to
undertake the following Proposed Transactions, following the execution of a series of
internal restructuring transactions:

1. Distributing 1 formed Internal Controlled 1, a State B limited liability company that
   is a disregarded entity. Distributing 1 will contribute 100 percent of its interests in
   entities conducting Business A outside Country A to Internal Controlled 1.
   Internal Controlled 1 will elect to be classified as a corporation for US federal
   income tax purposes (the “Internal Controlled 1 Contribution”).

2. Distributing 1 will distribute 100 percent of the outstanding equity interests in
   Internal Controlled 1 to FDRE 1 (the “Internal Controlled 1 Distribution” and
   together with the Internal Controlled 1 Contribution, the “Distributing 1 Spin-Off”).

3. In a transaction disregarded for US federal income tax purposes, FDRE 1 will
   distribute 100 percent of the outstanding equity interests in Internal Controlled 1
   to Distributing 2.

4. Distributing 2 formed Internal Controlled 2, a State B corporation. Distributing 2
   will contribute 100 percent of the outstanding equity interests in Internal
   Controlled 1 to Internal Controlled 2 in exchange for Internal Controlled 2 stock
   (the “Internal Controlled 2 Contribution”).

5. Distributing 2 will distribute 100 percent of the outstanding stock of Internal
   Controlled 2 to Distributing 3 (the “Internal Controlled 2 Distribution” and together
   with the Internal Controlled 2 Contribution, the “Distributing 2 Spin-Off”).

6. Distributing 3 will distribute 100 percent of the outstanding stock of Internal
   Controlled 2 to Distributing Parent (the “Distributing 3 Spin-Off”).

7. Distributing Parent will contribute to Internal Controlled 2 certain intellectual
   property rights related to Business A, subject to the Intellectual Property
   Agreements.

8. Distributing Parent formed External Controlled, a State B corporation. External
   Controlled will borrow approximately $a from one or more unrelated third-party
   lenders (the “External Controlled Borrowing”). The External Controlled Borrowing
   may consist of a combination of term loan(s), high yield notes, and a revolving
   credit agreement. Distributing Parent will contribute to External Controlled: (i) the
   stock of Internal Controlled 2, (ii) interests in entities conducting Business A in
   Country A, and (iii) certain intellectual property rights related to Business A,
   subject to the Intellectual Property Agreements, in exchange for (i) External
   Controlled stock, (ii) the assumption of liabilities associated with Business A,
   including ordinary course trade payables, and (iii) some amount of the External
   Controlled Borrowing proceeds (the “External Controlled Cash Distribution”)
   (together, the “External Contribution”).

9. Distributing Parent will distribute at least b percent of the outstanding stock of
   External Controlled to its public shareholders pro rata (the “External Distribution”,
   and together with the External Contribution, the “External Spin-Off”). Distributing
   Parent will dispose of the shares of External Controlled that are not distributed in
   the External Distribution (the “Retained Shares”) as soon as commercially
   practicable, but not later than c months after the External Spin-Off.

10. Within d months following the External Distribution, Distributing Parent will use an
    aggregate amount of cash equal to the External Controlled Cash Distribution to
    (a) make distributions to its shareholders (which distributions could include
    regular quarterly dividends to its shareholders); (b) repurchase its outstanding
    common stock (which repurchases could be made pursuant to its existing stock
    repurchase plans); (c) repay principal, interest, or premium on tax-exempt bonds,
    taxable bonds, or Commercial Paper owed by Distributing Parent; (d) satisfy
    outstanding short-term liabilities whenever incurred; (e) make contributions to the
    Pension Plan in amounts not exceeding the Pension Plan Amount; or (f) a
    combination of (a)–(e). Distributing Parent does not intend to set aside or
    otherwise segregate the External Controlled Cash Distribution. Distributing
    Parent anticipates that, pending the distribution of an amount of cash equal to the
    External Controlled Cash Distribution to shareholders and/or creditors, an
    amount of cash equal to the External Controlled Cash Distribution will be
    invested and/or otherwise used.

In connection with the Proposed Transactions, Distributing Parent and External
Controlled (or their respective affiliates, as applicable) will enter into Continuing
Arrangements and Commercial Arrangements.

                                 Representations

The following representations have been made with respect to the Proposed
Transactions:

The Distributing 1 Spin-Off

Except as set forth below, Distributing Parent has made all of the representations in
section 3 of the Appendix to Rev. Proc. 2017-52 with respect to the Distributing 1 Spin-
Off.

  1. Distributing Parent has made the following alternative representations: 3(a),
  8(b), 11(a), 15(b), 22(a), 31(a), and 41(a).

  2. Distributing Parent has not made the following representations, which do not
  apply to the Distributing 1 Spin-Off: 7, 17, 18, 19, 20, 24, 25, 35, 39, 40, and 43.

The Distributing 2 Spin-Off

Except as set forth below, Distributing Parent has made all of the representations in
section 3 of the Appendix to Rev. Proc. 2017-52 with respect to the Distributing 2 Spin-
Off.

  1. Distributing Parent has made the following alternative representations: 3(a),
  8(a), 11(a), 15(b), 22(a), 31(a), and 41(a).

  2. Distributing Parent has not made the following representations, which do not
  apply to the Distributing 2 Spin-Off: 7, 17, 18, 19, 20, 24, 25, 35, 39, and 40.

The Distributing 3 Spin-Off

Except as set forth below, Distributing Parent has made all of the representations in
section 3 of the Appendix to Rev. Proc. 2017-52 with respect to the Distributing 3 Spin-
Off.

  1. Distributing Parent has made the following alternative representations:
  Representations 3(a), 8(a), 11(a), 15(b), 31(a), and 41(a).

  2. Distributing Parent has not made the following representations, which do not
  apply to the Distributing 3 Spin-Off: 7, 17, 18, 19, 20, 22, 24, 25, 26, 35, and 39.

The External Spin-Off

Except as set forth below, Distributing Parent has made all of the representations in
section 3 of the Appendix to Rev. Proc. 2017-52 with respect to the External Spin-Off.

  1. Distributing Parent has made the following alternative representations: 3(a),
  8(b), 11(a), 15(b), 22(b), 31(a), and 41(a).


  2. Distributing Parent has not made the following representations, which do not
  apply to the External Spin-Off: 7, 20, 24, 25, 39, and 40.

  3. Distributing Parent has made the following modified representations:

  Representation 23: Other than with respect to third-party receivables arising in
  the ordinary course of business, the External Spin-Off does not involve and will
  not result in a situation in which one party recognizes income but another party
  recognizes the deductions associated with such income or a situation in which
  one party owns Property but another party recognizes the income associated
  with such Property.

  Representation 32: No intercorporate debt will exist between Distributing Parent
  and External Controlled at the time of, or subsequent to, the External Distribution,
  except for amounts payable under the Continuing Arrangements or liabilities
  arising in the ordinary course of business.

  Representation 33: Payments made in connection with all continuing
  transactions, if any, between Distributing Parent and External Controlled will be
  for fair market value based on arm’s-length terms, except as contemplated by the
  Continuing Arrangements.

  Representation 46: External Controlled will not issue stock or securities to a
  person other than Distributing Parent in anticipation of the External Distribution,
  other than potentially pursuant to the External Controlled Borrowing.

Except as set forth below, Distributing Parent has made all of the representations in
section 3.04 of Rev. Proc. 2018-53 with respect to the External Spin-Off.

  4. Distributing Parent has made the following modified representations:

  Representation 4: Except for ordinary course liabilities and Commercial Paper,
  Distributing Parent incurred the Distributing Parent debt that will be assumed or
  satisfied pursuant to the External Spin-Off (a) before the request for any relevant
  ruling is submitted and (b) no later than 60 days before the earliest of the
  following dates: (i) the date of the first public announcement (as defined in
  §1.355-7(h)(10)) of the External Spin-Off or a similar transaction, (ii) the date of
  the entry by Distributing Parent into a binding agreement to engage in the
  External Spin-Off or a similar transaction, and (iii) the date of approval of the
  External Spin-Off or a similar transaction by the board of directors of Distributing
  Parent.

  Representation 6: There are one or more substantial business reasons for any
  delay in satisfying Distributing Parent debt with the External Controlled Cash
  Distribution beyond 30 days after the External Distribution. All of the Distributing

  Parent debt that will be satisfied with the External Controlled Cash Distribution
  will be satisfied within d months after the External Distribution.

Distributing Parent has made the following additional representations:

  5. Distributing Parent will hold the Retained Shares following the External
  Distribution to improve its liquidity, strengthen its balance sheet, and achieve its
  desired leverage target, as well as increase equity research coverage with
  respect to External Controlled.

  6. None of Distributing Parent’s directors or officers will serve as directors or
  officers of External Controlled as long as Distributing Parent retains the Retained
  Shares.

  7. Any Retained Shares will be sold as soon as commercially practicable
  consistent with the business purpose for the retention, but in any event, not later
  than c months after the External Distribution.

  8. Distributing Parent will vote the Retained Shares in proportion to the votes cast
  by External Controlled's other shareholders and will grant External Controlled a
  proxy for the Retained Shares requiring this manner of voting.

                                         Rulings

Based solely on the information and representations submitted, we rule as follows
regarding the Proposed Transactions:

The Distributing 1 Spin-Off

1. The Internal Controlled 1 Contribution, together with the Internal Controlled 1
   Distribution (i.e., the Distributing 1 Spin-Off), will be a “reorganization” under
   Section 368(a)(1)(D) to which Section 355 applies. Distributing 1 and Internal
   Controlled 1 will each be “a party to a reorganization” within the meaning of
   Section 368(b).

2. Distributing 1 will recognize no gain or loss on the transfer of assets in the
   Internal Controlled 1 Contribution. Sections 361(a) and 357(a).

3. Internal Controlled 1 will recognize no gain or loss on the receipt of assets in the
   Internal Controlled 1 Contribution. Section 1032(a).

4. Internal Controlled 1’s basis in each asset received from Distributing 1 in the
   Internal Controlled 1 Contribution will equal the basis of such asset in the hands
   of Distributing 1 immediately before the Internal Controlled 1 Contribution.
   Section 362(b).

5. Internal Controlled 1’s holding period in each asset received from Distributing 1 in
   the Internal Controlled 1 Contribution will include the holding period of such asset
   held by Distributing 1. Section 1223(2).

6. Distributing 1 will recognize no gain or loss on the distribution of all of the Internal
   Controlled 1 stock to Distributing 2 (through FDRE 1) in the Internal Controlled 1
   Distribution. Section 361(c).

7. Distributing 2 will recognize no gain or loss (and no amount will be includible in
   its income) on the receipt of Internal Controlled 1 stock in the Internal Controlled
   1 Distribution. Section 355(a)(1).

8. The aggregate basis of the Internal Controlled 1 stock and the Distributing 1
   stock in the hands of Distributing 2 immediately after the Internal Controlled 1
   Distribution will equal the aggregate basis of the Distributing 1 stock held by
   Distributing 2 immediately before the Internal Controlled 1 Distribution, allocated
   between the stock of Distributing 1 and Internal Controlled 1 in proportion to the
   fair market value of each immediately following the Internal Controlled 1
   Distribution in accordance with Reg. §1.358-2(a)(2)(iv). Section 358(b)(2) and (c).

9. Distributing 2’s holding period in the Internal Controlled 1 stock received in the
   Internal Controlled 1 Distribution will include the holding period of the Distributing
   1 stock held by Distributing 2 with respect to which the Internal Controlled 1
   Distribution is made, provided that such Distributing 1 stock is held as a capital
   asset on the date of the Internal Controlled 1 Distribution. Section 1223(1).

10. Earnings and profits will be allocated between Distributing 1 and Internal
    Controlled 1 in accordance with Section 312(h) and Reg. §1.312-10(a).

The Distributing 2 Spin-Off

11. The Internal Controlled 2 Contribution, together with the Internal Controlled 2
    Distribution (i.e., the Distributing 2 Spin-Off), will be a “reorganization” under
    Section 368(a)(1)(D) to which Section 355 applies. Distributing 2 and Internal
    Controlled 2 will each be “a party to a reorganization” within the meaning of
    Section 368(b).

12. Distributing 2 will recognize no gain or loss on the transfer of the Internal
    Controlled 1 stock to Internal Controlled 2 in the Internal Controlled 2
    Contribution. Section 361(a).

13. Internal Controlled 2 will recognize no gain or loss on the receipt of the Internal
    Controlled 1 stock in the Internal Controlled 2 Contribution. Section 1032(a).

14. Internal Controlled 2’s basis in the Internal Controlled 1 stock received from
    Distributing 2 in the Internal Controlled 2 Contribution will equal the basis of the

    Internal Controlled 1 stock in the hands of Distributing 2 immediately before the
    Internal Controlled 2 Contribution. Section 362(b).

15. Internal Controlled 2’s holding period in the Internal Controlled 1 stock received
    from Distributing 2 in the Internal Controlled 2 Contribution will include the
    holding period of such stock held by Distributing 2. Section 1223(2).

16. Distributing 2 will recognize no gain or loss on the distribution of all of the Internal
    Controlled 2 stock to Distributing 3 in the Internal Controlled 2 Distribution.
    Section 361(c).

17. Distributing 3 will recognize no gain or loss (and no amount will be includible in
    its income) on the receipt of Internal Controlled 2 stock in the Internal Controlled
    2 Distribution. Section 355(a)(1).

18. The aggregate basis of the Internal Controlled 2 stock and the Distributing 2
    stock in the hands of Distributing 3 immediately after the Internal Controlled 2
    Distribution will equal the aggregate basis of the Distributing 2 stock held by
    Distributing 3 immediately before the Internal Controlled 2 Distribution, allocated
    between the stock of Distributing 2 and Internal Controlled 2 in proportion to the
    fair market value of each immediately following the Internal Controlled 2
    Distribution in accordance with Reg. §1.358-2(a)(2)(iv). Section 358(b)(2) and (c).

19. Distributing 3’s holding period in the Internal Controlled 2 stock received in the
    Internal Controlled 2 Distribution will include the holding period of the Distributing
    2 stock held by Distributing 3 with respect to which the Internal Controlled 2
    Distribution is made, provided that such Distributing 2 stock is held as a capital
    asset on the date of the Internal Controlled 2 Distribution. Section 1223(1).

20. Earnings and profits will be allocated between Distributing 2 and Internal
    Controlled 2 in accordance with Section 312(h), and Reg. §§1.312-10(a) and
    1.1502-33.

The Distributing 3 Spin-Off

21. Distributing 3 will recognize no gain or loss on the distribution of all of the Internal
    Controlled 2 stock to Distributing Parent in the Distributing 3 Spin-Off. Section
    355(c).

22. Distributing Parent will recognize no gain or loss (and no amount will be
    includible in its income) on the receipt of Internal Controlled 2 stock in the
    Distributing 3 Spin-Off. Section 355(a)(1).

23. The aggregate basis of the Internal Controlled 2 stock and the Distributing 3
    stock in the hands of Distributing Parent immediately after the Distributing 3 Spin-
    Off will equal the aggregate basis of the Distributing 3 stock held by Distributing

    Parent immediately before the Distributing 3 Spin-Off, allocated between the
    stock of Distributing 3 and Internal Controlled 2 in proportion to the fair market
    value of each immediately following the Distributing 3 Spin-Off in accordance
    with Reg. §1.358-2(a)(2)(iv). Section 358(b)(2) and (c).

24. Distributing Parent’s holding period in the Internal Controlled 2 stock received in
    the Distributing 3 Spin-Off will include the holding period of the Distributing 3
    stock held by Distributing Parent with respect to which the Distributing 3 Spin-Off
    is made, provided that such Distributing 3 stock is held as a capital asset on the
    date of the Internal Controlled 2 Distribution. Section 1223(1).

25. Earnings and profits of Distributing 3 and Internal Controlled 2 will be adjusted in
    accordance with Section 312(h), and Reg. §§1.312-10(b) and 1.1502-33.

The External Spin-Off

26. The External Contribution, together with the External Distribution (i.e., the
    External Spin-Off), will be a “reorganization” under Section 368(a)(1)(D) to which
    Section 355 applies. Distributing Parent and External Controlled will each be “a
    party to a reorganization” within the meaning of Section 368(b).

27. Distributing Parent will recognize no gain or loss on the transfer of assets to
    External Controlled in exchange for External Controlled stock, the assumption of
    liabilities, and the External Controlled Cash Distribution in the External
    Contribution. Sections 361(b) and 357(a).

28. External Controlled will recognize no gain or loss on the receipt of the assets in
    the External Contribution. Section 1032(a).

29. External Controlled’s basis in each asset received from Distributing Parent in the
    External Contribution will equal the basis of such asset in the hands of
    Distributing Parent immediately before the External Contribution. Section 362(b).

30. External Controlled’s holding period in each asset received from Distributing
    Parent in the External Contribution will include the holding period of such asset
    held by Distributing Parent. Section 1223(2).

31. Distributing Parent will recognize no gain or loss on the distribution of External
    Controlled stock in the External Distribution. Section 361(c).

32. Distributing Parent’s shareholders will recognize no gain or loss (and no amount
    will be includible in their income) on the receipt of External Controlled stock in the
    External Distribution. Section 355(a)(1).

33. The aggregate basis of the Distributing Parent stock and the External Controlled
    stock in the hands of each Distributing Parent shareholder immediately after the

    External Distribution (including any fractional share interest in External Controlled
    Stock to which the shareholder may be entitled) will equal the aggregate basis of
    the Distributing Parent stock held by such Distributing Parent shareholder
    immediately before the External Distribution, allocated between the stock of
    External Controlled and Distributing Parent in proportion to the fair market value
    of each immediately following the External Distribution in accordance with Reg.
    §1.358-2(a)(2)(iv). Section 358(b)(2) and (c).

34. The holding period of the External Controlled stock received by each Distributing
    Parent shareholder in the External Distribution (including any fractional share
    interest in Controlled Stock to which the shareholder may be entitled) will include
    the holding period of the Distributing Parent stock held by such shareholder,
    provided that such Distributing Parent stock was held as a capital asset on the
    date of the External Distribution. Section 1223(1).

35. Earnings and profits will be allocated between External Controlled and
    Distributing Parent in accordance with Section 312(h), and Reg. §§1.312-10(a)
    and 1.1502-33(e)(3).

36. The receipt by Distributing Parent shareholders of cash in lieu of fractional
    shares of External Controlled stock will be treated for federal income tax
    purposes as if the fractional shares had been distributed to the Distributing
    Parent shareholders as part of the External Distribution and then had been
    disposed of by such shareholders for the amount of such cash in a sale or
    exchange. The gain (or loss) recognized, if any (determined using the bases
    allocated to the fractional shares in ruling 33), will be treated as capital gain (or
    loss), provided the stock was held as a capital asset by the selling shareholder.
    Section 1001. Such gain (or loss) will be short-term or long-term capital gain (or
    loss), provided that such Distributing Parent stock was held as a capital asset on
    the date of the External Distribution (determined using the holding period
    provided in ruling 34).

37. Following the External Spin-Off, External Controlled will not be a successor of
    Distributing Parent for purposes of Section 1504(a)(3). Therefore, External
    Controlled and its direct and indirect subsidiaries that are “includible
    corporations” under Section 1504(b) and satisfy the ownership requirements of
    Section 1504(a)(2) will be members of an affiliated group of corporations entitled
    to file a consolidated federal income tax return with External Controlled as the
    common parent.

38. The retention of the Retained Shares is not in pursuance of a plan having as one
    of its principal purposes the avoidance of US federal income tax within the
    meaning of Section 355(a)(1)(D)(ii).

39. The Pension Plan will be treated as a creditor of Distributing Parent to the extent
    of the Pension Plan Amount for purposes of Section 361(b)(3).

    40. Any payments or transfers made between any of Distributing Parent and External
        Controlled and their respective affiliates under any of the Continuing
        Arrangements regarding subsequent property transfers, or payment of liabilities,
        indemnities, or other obligations that (i) have arisen or will arise for a taxable
        period ending on or before the External Distribution or for taxable year beginning
        before and ending after the External Distribution and (ii) will not become fixed
        and ascertainable until after the External Distribution will be characterized in a
        manner consistent with the proper treatment if such payments or transfers had
        occurred immediately before the External Distribution pursuant to the External
        Spin-Off. See Arrowsmith v. Commissioner, 344 U.S. 6 (1952) and Rev. Rul. 83-
        73, 1983-1 C.B. 84.

                                          Caveats
        

No opinion is expressed about the federal income tax treatment of the Proposed
Transactions under other provisions of the Code or regulations or the federal income tax
treatment of any conditions existing at the time of, or effects resulting from, the
Proposed Transactions that are not specifically covered by the above rulings.

                                    Procedural Matters

This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) of the
Code provides that this letter may not be used or cited as precedent.
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 this
ruling letter.

Pursuant to the power of attorney on file in this matter, a copy of this letter is being sent
to your authorized representatives.

                                       Sincerely,

                                       _Mark Weiss___________________
                                       Mark Weiss
                                       Chief, Branch 2
                                       Office of Associate Chief Counsel (Corporate)

cc: