A supplemental ruling that letting one company officer also sit on the spun-off company's board will not disturb an earlier tax-free spin-off ruling

Plain-English summary

A parent company (Distributing) had already received a private letter ruling in July 2021 blessing a tax-free spin-off, in which it would separate part of its business into a subsidiary (Controlled) and distribute that subsidiary to shareholders. To get the earlier ruling, Distributing had promised (in a formal representation) that none of its own directors or officers would serve as a director or officer of Controlled for as long as Distributing kept its leftover stake in Controlled (the "Remainder Stock"). After the fact, Distributing decided it wanted one of its officers to serve as a director of Controlled, so it asked the IRS for a supplemental ruling allowing it to modify that promise. The revised representation lets a single "Overlapping Director" sit on Controlled's board, provided that person is a minority of the board and is subject to normal reelection by Controlled's shareholders. The IRS ruled that this change does not adversely affect any of the rulings in the prior letter, which stay in full force. The point matters for corporate separations: the tax-free treatment of a spin-off depends on the representations the taxpayer makes, so a company that wants to adjust one, even a small governance detail, generally goes back to the IRS for a supplemental ruling rather than assuming the original ruling still covers it.

Ruling snapshot

• Question: Does modifying a representation to permit one officer of the parent to also serve as a minority director of the spun-off company adversely affect the prior tax-free spin-off ruling?
• Outcome: Approved (the supplemental facts do not adversely affect the prior rulings, which remain in full force and effect)
• Key authorities: IRC §§ 355, 361, 368 (as applied in the prior letter ruling PLR-108824-21)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202151004 Third Party Communication: None
Release Date: 12/23/2021 Date of Communication: Not Applicable
Index Numbers 355.01-00, 361.02-00,
368.04-00 Person To Contact:
--------------------, ID No. -----------------
-------------------------- Telephone Number:
--------------------------------- --------------------
---------------------------- Refer Reply To:
------------------- CC:CORP:B03
------------------------------------------ PLR-119064-21
------------------------------------- Date:
September 22, 2021

Distributing = -------------------
------------------------

Key Employee = --------------------

Year = -------

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

This letter responds to your letter dated September 10, 2021, submitted on behalf of
Distributing, its affiliates, and its shareholders, requesting a supplemental ruling to the
private letter ruling (PLR-108824-21) dated July 6, 2021, (the “Prior Letter Ruling”) on
certain federal income tax consequences of a series of transactions (the “Proposed
Transaction”). The material information submitted in that request is summarized below.
Capitalized terms not defined in this letter have the meanings assigned to them in the
Prior Letter Ruling.

The ruling contained in this letter is based on 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 a ruling. Verification of the information, representations, and other
data may be required on examination.

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 ruling below

                                          Supplemental Facts

The facts as described in the Prior Letter Ruling are unchanged, except as described
below.
PLR-119064-21 2

In consultation with its financial advisors, Distributing has determined that having Key
Employee, an officer of one Distributing’s subsidiaries, serve as a director of Controlled
after the Distribution will serve Controlled’s business needs.

Key Employee’s initial term as a director of Controlled would end no later than
Controlled’s annual stockholders’ meeting occurring in Year.

                                  Representation

In connection with its request for the Prior Letter Ruling, Distributing represented that

   None of Distributing’s directors or officers will serve as directors or officers
   of Controlled as long as Distributing retains the Remainder Stock”
   (“Representation (b)”). Distributing has modified Representation (b) to
   read as follows:

   None of Distributing’s directors or officers will serve as directors or officers
   of Controlled as long as Distributing retains the Remainder Stock, except
   that Distributing expects that one of its officers will serve as a director of
   Controlled (the “Overlapping Director”). The Overlapping Director will
   constitute a minority of Controlled’s board of directors. Under Controlled’s
   governing documents, the Overlapping Director will be subject to
   reelection as a director of Controlled by Controlled’s shareholders
   following the Distribution in a manner consistent with those of Controlled’s
   other directors.
                                       Ruling

Based solely on the information submitted and the representation set forth above, we
rule as follows:

The Supplemental Facts will not adversely affect any of the rulings in the Prior Letter
Ruling, and those rulings remain in full force and effect.

                                      Caveats

Except as expressly provided in this letter, no opinion is expressed or implied
concerning the tax treatment of the Proposed Transaction under any other provisions of
the Code or regulations or the tax treatment of any conditions existing at the time of, or
effects resulting from the Proposed Transaction that is not specifically covered by the
above ruling.
PLR-119064-21 3

                             Procedural Statements

This letter 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. 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 returns that provides the date and control number (PLR-
119064-21) of this letter ruling.

Pursuant to the Power of Attorney on file with this office, copies of this letter are being
sent to your authorized representatives.

                                       Sincerely,




                                       Mark J. Weiss
                                       Chief, Branch 2
                                       Office of Associate Chief Counsel (Corporate)

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