Private Letter Ruling
202345008
Released November 10, 2023
Approved
Multi-step corporate separation receives tax-free rulings
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This page covers one taxpayer's ruling from 2023, 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 proposed separating one business through four internal separations followed by an external separation of a newly formed controlled corporation. The plan included contributions and distributions through subsidiary tiers, possible borrowing and an initial public offering, cash transfers, debt repayments, debt-for-equity exchanges, shareholder distributions, and possible retention and later disposition of controlled-company shares. Based on extensive representations, the IRS ruled that each internal separation and the external separation would qualify as a section 368(a)(1)(D) reorganization to which section 355 applies. The ruling also addressed nonrecognition, asset basis and holding periods, shareholder treatment, fractional shares, earnings and profits, retained shares, consolidated-group eligibility, and later share repurchases. The IRS expressly did not determine the business-purpose, device, or section 355(e) acquisition-plan requirements beyond the listed rulings.
Ruling snapshot
- Question: Would the proposed internal and external separations qualify for nonrecognition treatment under sections 355 and 368?
- Outcome: Approved, subject to the submitted facts, representations, and stated caveats
- Key authorities: IRC §§ 355, 357, 358, 361, 362, 368; Treas. Reg. §§ 1.355-2, 1.355-7, 1.355-8; Rev. Proc. 2017-52; Rev. Proc. 2018-53
Full text (IRS public release)
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 202345008 Third Party Communication: None
Release Date: 11/10/2023 Date of Communication: Not Applicable
Index Number: 355.00-00, 355.01-00,
355.01-01, 368.00-00, Person To Contact:
368.04-00 -------------------------
ID No. -----------------
-------------------------- Telephone Number:
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------------------------------------------ Refer Reply To:
----------------------------------------- CC:CORP:BO2
---------------------------------------- PLR-108305-22
Date:
November 21, 2022
Legend
Distributing = -------------------------------
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Internal Distributing 1 = -----------------------------------------------------------------------
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Internal Distributing 2 = -----------------------------------------------
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Internal Distributing 3 = ---------------------------------
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Internal Distributing 4 = --------------------------------------------------
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Controlled = ----------------------
PLR-108305-22 2
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Internal Controlled 1 = ------------------------------------------------------
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Internal Controlled 2 = -----------------------------------
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State A = ----------------
State B = -------------
Distributing Business = -------------------------------------------------------------
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Controlled Business = -----------------------------------------------------------------------
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Business A = -----------------------------------------------------------------------
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Business B = -----------------------------------------------------------------------
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Business C = -----------------------------------------------------------------------
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Business D = -----------------------------------------------------------------------
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Preparatory Internal = -----------------------------------------------------------
Transactions ------------------------------------------------------------------------
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PLR-108305-22 3
Distributing Debt = -----------------------------------------------------------------------
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Long Term Debt = -----------------------------------------------------------------------
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Refinanced Debt = -----------------------------------------------------------------------
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Commercial Paper = -----------------------------------------------------------------------
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Ordinary Course Liabilities = -----------------------------------------------------------------
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Internal Payables Balance = -----------------------------------------------------------------------
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External Obligations = -----------------------------------------------------------------------
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PLR-108305-22 4
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Obligation = -----------------------------------------------------------------------
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Continuing Arrangements = -----------------------------------------------------------------
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Overlapping Directors = ----------------------------------------------------------------------
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a = ---
b = ---
c = --
d = ---
PLR-108305-22 5
e = ---
Dear -------------------:
This letter responds to your letter dated April 22, 2022, as supplemented on October 7,
2022 and October 21, 2022 on behalf of Distributing, its affiliates and its shareholders
requesting rulings on certain federal income tax consequences of a series of
transactions (the “Proposed Transaction”). 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” under section 355 and section 368 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 Transaction: (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 is a publicly-traded State A corporation and is the parent of a worldwide
group that includes both domestic and foreign entities. Distributing is also the common
parent of an affiliated group of corporations electing to file a consolidated US federal
income tax return. Distributing has a single class of voting common stock issued and
outstanding. Distributing, through its direct and indirect subsidiaries, conducts the
Distributing Business (which includes Business A, Business B and Business C) and the
Controlled Business (which includes Business D).
Distributing wholly owns Internal Distributing 4.
PLR-108305-22 6
Internal Distributing 4 wholly owns Internal Distributing 3.
Internal Distributing 3 wholly owns Internal Distributing 2.
Internal Distributing 2 wholly owns Internal Distributing 1.
For purposes of the active trade or business requirement of section 355(b), (i) with
respect to the First Internal Separation (as defined below) Internal Distributing 1 will rely
upon Business A and Business B and Internal Controlled 1 will rely upon Business D, as
conducted directly and/or by members of their respective “separate affiliated group” as
defined in section 355(b)(3)(B); (ii) with respect to the Second Internal Separation (as
defined below), Internal Distributing 2 will rely upon Business A, Business B, and
Business C and Internal Controlled 2 will rely upon Business D, as conducted directly
and/or by members of their respective “separate affiliated group” as defined in section
355(b)(3)(B); (iii) with respect to the Third Internal Separation (as defined below), the
Fourth Internal Separation (as defined below), and the External Separation (as defined
below), each of Internal Distributing 3, Internal Distributing 4, and Distributing will rely
upon Business A, Business B and Business C, as conducted directly and/or by
members of their respective “separate affiliated group” as defined in section
355(b)(3)(B); and each of Internal Controlled 2 and Controlled will rely upon Business D
conducted directly and/or by members of their respective “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 A, 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
In preparation for the Proposed Transaction, Distributing has undertaken the
Preparatory Internal Transactions. For what are represented to be valid business
reasons, Distributing proposes to engage in the following transactions, some of which
have been completed (the “Proposed Transaction”), to separate the Controlled
Business from the Distributing Business:
1. Internal Distributing 1 formed Internal Controlled 1, a new wholly owned
corporation, which will convert to a State B corporation after this Step 1. Internal
Distributing 1 will then contribute all of the Controlled Business entities and
assets it holds, including Business D, to Internal Controlled 1 (the “First Internal
Contribution”).
2. Internal Distributing 1 will distribute the stock of Internal Controlled 1 to Internal
Distributing 2 (the “First Internal Distribution,” and together with the First Internal
Contribution, the “First Internal Separation”).
PLR-108305-22 7
3. Internal Distributing 2 formed Internal Controlled 2, a new wholly owned State B
corporation. Internal Distributing 2 will contribute all of the Controlled Business
entities and assets it holds, including the stock of Internal Controlled 1 to Internal
Controlled 2 (the “Second Internal Contribution”).
4. Internal Distributing 2 will distribute the stock of Internal Controlled 2 to Internal
Distributing 3 (the “Second Internal Distribution,” and together with the Second
Internal Contribution, the “Second Internal Separation”).
5. Internal Distributing 3 will contribute all of the Controlled Business entities it holds
to Internal Controlled 2 (the “Third Internal Contribution”).
6. Internal Distributing 3 will distribute the stock of Internal Controlled 2 to Internal
Distributing 4 (the “Third Internal Distribution,” and together with the Third
Internal Contribution, the “Third Internal Separation”).
7. Internal Distributing 4 will contribute all of the Controlled Business entities it holds
to Internal Controlled 2 (the “Fourth Internal Contribution”).
8. Internal Distributing 4 will distribute the stock of Internal Controlled 2 to
Distributing (the “Fourth Internal Distribution,” and together with the Fourth
Internal Contribution, the “Fourth Internal Separation”).
9. Distributing formed Controlled and will contribute all of the Controlled Business
entities and assets it holds (including Internal Controlled 2) to Controlled in
exchange for Controlled stock and the Controlled Cash Distribution (as defined
below) (the “External Contribution”).
10. Controlled anticipates borrowing from one or more unrelated third-party lenders
(the “Controlled Borrowing”). The Controlled Borrowing may consist of a
combination of term loans, bonds, commercial paper and potentially revolving
credit agreements.
11. Controlled may engage in a primary initial public offering, pursuant to which
Controlled would sell newly issued shares of its stock (which may involve a new
class of stock) to the public (the “IPO,” and the date of the IPO, or if the IPO does
not occur, the date of the External Separation (as defined below), the “Separation
Date”). Depending on market conditions and other business considerations, the
IPO may be effectuated in connection with the Initial Debt-for-Equity Exchange
(defined below). The total amount of Controlled stock issued in the IPO and used
in the Debt-for-Equity Exchanges (as defined below) will represent less than a
percent of the total combined voting power of all Controlled stock.
PLR-108305-22 8
12. Controlled will transfer some or all of the proceeds from the Controlled Borrowing
and IPO, if any, (together the “Controlled Cash Distribution”) to Distributing. The
Controlled Cash Distribution will not be segregated in a separate bank account or
otherwise.
13. Within b months following the Separation Date, Distributing will use an aggregate
amount of cash equal to the Controlled Cash Distribution to: (a) satisfy Long
Term Debt, Refinanced Debt, Commercial Paper, Ordinary Course Liabilities and
the Obligation (such payments, “Debt Repayments”); and/or (b) make
distributions to its shareholders (which distributions could include regular
quarterly dividends); and/or (c) repurchase its outstanding common stock (which
repurchases could be made pursuant to its existing employee stock repurchase
authorization and/or any future authorizations) (such distributions and share
repurchases, “Shareholder Distributions”). The Debt Repayments and
Shareholder Distributions made pursuant to this Step 13 are referred to as the
“Boot Purge.”
14. If the IPO occurs, Distributing may transfer Controlled stock to one or more
financial institutions or such institutions’ affiliates (the “Banks”) as part of a debt-
for-equity exchange effected at the time of the IPO and prior to the External
Distribution (the “Initial Debt-for-Equity Exchange”). The Banks will make one or
more loans to Distributing (the “Initial New Debt”) for cash (the “Initial Debt-for-
Equity Proceeds”) based upon the anticipated value of Controlled stock to be
exchanged in the Initial Debt-for-Equity Exchange. The Initial Debt-for-Equity
Proceeds will not be segregated in a separate bank account or otherwise. At
least c days after issuance of the Initial New Debt, Distributing will enter into an
exchange agreement with the Banks pursuant to which Distributing will agree to
transfer Controlled stock to the Banks in exchange for (and in retirement of)
some or all of the Initial New Debt (the “Initial Debt-for-Equity Exchange
Agreement”). After Distributing and the Banks enter into the Initial Debt-for-Equity
Exchange Agreement, Distributing will deliver Controlled stock to the Banks in
satisfaction of the Initial New Debt.
15. Within b months following the IPO, Distributing will use an aggregate amount of
cash equal to the Initial Debt-for-Equity Proceeds to make Debt Repayments
and/or Shareholder Distributions (the “Initial Debt-for-Equity Payments”).
16. After the expiration of the lock-up period associated with the IPO (to the extent
applicable), Distributing will distribute at least d percent of the outstanding stock
of Controlled to its shareholders (the “External Distribution,” and together with the
External Contribution, the “External Separation”).
17. Depending upon market conditions, Distributing may retain Controlled stock after
the External Distribution (the “Retained Shares”). Distributing may effect one or
PLR-108305-22 9
more debt-for equity exchanges with the Banks for the Retained Shares within b
months of the External Distribution (the “Delayed Debt-for-Equity Exchange," and
together with the Initial Debt-for-Equity Equity Exchange (to the extent
applicable), the “Debt-for-Equity Exchanges”). The Banks will make one or more
loans to Distributing (the “Delayed New Debt,” and together with the Initial New
Debt, the “New Debt”) for cash (the “Delayed Debt-for-Equity Proceeds,” and
together with the Initial Debt-for-Equity Proceeds (to the extent applicable), the
“Debt-for-Equity Proceeds”) based upon the anticipated value of Controlled stock
to be exchanged in the Delayed Debt-for-Equity Exchange. The Delayed Debt-
for-Equity Proceeds will not be segregated in a separate bank account or
otherwise. At least c days after issuance of any Delayed New Debt, Distributing
will enter into an exchange agreement with the Banks pursuant to which
Distributing will agree to transfer Controlled stock to the Banks in exchange for
(and in retirement of) some or all of such Delayed New Debt (the “Delayed Debt-
for-Equity Exchange Agreement”). After Distributing and the Banks enter into any
Delayed Debt-for-Equity Exchange Agreement, Distributing will deliver the
Controlled stock to the Banks in satisfaction of such Delayed New Debt.
18. If the Delayed Debt-for-Equity Exchange occurs, and within b months following
the External Separation, Distributing will use an aggregate amount of cash equal
to the Delayed Debt-for-Equity Proceeds to make Debt Repayments and/or
Shareholder Distributions (the “Delayed Debt-for-Equity Payments,” and together
with the Initial Debt-for-Equity Payments (if applicable), the “Debt-for-Equity
Payments”).
19. Distributing may dispose of any Retained Shares not exchanged in a Delayed
Debt-for-Equity Exchange via (a) a distribution to its public shareholders no later
than b months after the External Distribution (a “Delayed Distribution”) or (b) one
or more public or private sales no later than e months after the External
Separation.
In connection with the Proposed Transaction, Distributing and Controlled (or their
respective affiliates, as applicable) will enter into Continuing Arrangements.
Following the External Separation certain individuals will serve as members or officers
of the board of Distributing and Controlled (the “Overlapping Directors”). The
Overlapping Directors will constitute a minority of Controlled’s board of directors. Under
Controlled’s governing documents, the Overlapping Directors will be subject to re-
election as directors of Controlled by Controlled’s shareholders following the External
Separation in a manner consistent with those of Controlled’s other directors.
In addition, Distributing and Controlled may engage in share repurchases following the
Proposed Transaction (the “Share Repurchases”). The Share Repurchases would be
PLR-108305-22 10
effected in the form of open-market transactions or pursuant to an accelerated share
repurchase program.
Representations
The following representations have been made with respect to the Proposed
Transaction:
First Internal Separation
Except as set forth below, Distributing has made all of the representations in section 3
of the Appendix to Rev. Proc. 2017-52 with respect to the First Internal Separation:
Distributing has made the following alternative representations: 3(a), 8(b), 11(a), 15(a),
22(b), 31(a), and 41(a).
Distributing has not made the following representations, which do not apply to the First
Internal Separation: 7, 24, 25, 35, and 40.
Distributing has made the following modified representations:
1. Representation 23: Other than potentially as a result of a Continuing
Arrangement, the First Internal Separation 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.
2. Representation 32: Except for debt potentially incurred under the Continuing
Arrangements or ordinary course payables and receivables, no intercorporate
debt will exist between Internal Distributing 1 and Internal Controlled 1 at the time
of, or subsequent to, the First Internal Distribution of Internal Controlled 1 stock.
3. Representation 33: Except as contemplated by the Continuing Arrangements,
payments made in connection with all continuing transactions, if any, between
Internal Distributing 1 and Internal Controlled 1 after the First Internal Distribution
will be for fair market value based on arm’s-length terms.
Second Internal Separation
Except as set forth below, Distributing has made all of the representations in section 3
of the Appendix to Rev. Proc. 2017-52 with respect to the Second Internal Separation:
PLR-108305-22 11
Distributing has made the following alternative representations: 3(a), 8(a), 11(a), 15(a),
22(a), 31(a), and 41(a).
Distributing has not made the following representations, which do not apply to the
Second Internal Separation: 7, 24, 25, 35, and 40.
Distributing has made the following modified representations:
1. Representation 23: Other than potentially as a result of a Continuing
Arrangement, the Second Internal Separation 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.
2. Representation 32: Except for debt potentially incurred under the Continuing
Arrangements or ordinary course payables and receivables, no intercorporate
debt will exist between Internal Distributing 2 and Internal Controlled 2 at the time
of, or subsequent to, the Second Internal Distribution of Internal Controlled 2
stock.
3. Representation 33: Except as contemplated by the Continuing Arrangements,
payments made in connection with all continuing transactions, if any, between
Internal Distributing 2 and Internal Controlled 2 after the Second Internal
Distribution will be for fair market value based on arm’s-length terms.
Third Internal Separation
Except as set forth below, Distributing has made all of the representations in section 3
of the Appendix to Rev. Proc. 2017-52 with respect to the Third Internal Separation:
Distributing has made the following alternative representations: 3(a), 8(a), 11(a), 15(a),
22(a), 31(a), and 41(a).
Distributing has not made the following representations, which do not apply to the Third
Internal Separation: 7, 24, 25, 35, and 40.
Distributing has made the following modified representations:
1. Representation 23: Other than potentially as a result of a Continuing
Arrangement, the Third Internal Separation 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
PLR-108305-22 12
owns Property but another party recognizes the income associated with such
Property.
2. Representation 32: Except for debt potentially incurred under the Continuing
Arrangements or ordinary course payables and receivables, no intercorporate
debt will exist between Internal Distributing 3 and Internal Controlled 2 at the time
of, or subsequent to, the Third Internal Distribution of Internal Controlled 2 stock.
3. Representation 33: Except as contemplated by the Continuing Arrangements,
payments made in connection with all continuing transactions, if any, between
Internal Distributing 3 and Internal Controlled 2 after the Third Internal
Distribution will be for fair market value based on arm’s-length terms.
Fourth Internal Separation
Except as set forth below, Distributing has made all of the representations in section 3
of the Appendix to Rev. Proc. 2017-52 with respect to the Fourth Internal Separation:
Distributing has made the following alternative representations: 3(a), 8(a), 11(a), 15(a),
22(a), 31(a), and 41(a).
Distributing has not made the following representations, which do not apply to the
Fourth Internal Separation: 7, 24, 25, 35, and 40.
Distributing has made the following modified representations:
1. Representation 23: Other than potentially as a result of a Continuing
Arrangement, the Fourth Internal Separation 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.
2. Representation 32: Except for debt potentially incurred under the Continuing
Arrangements or ordinary course payables and receivables, no intercorporate
debt will exist between Internal Distributing 4 and Internal Controlled 2 at the time
of, or subsequent to, the Fourth Internal Distribution of Internal Controlled 2
stock.
3. Representation 33: Except as contemplated by the Continuing Arrangements,
payments made in connection with all continuing transactions, if any, between
Internal Distributing 4 and Internal Controlled 2 after the Fourth Internal
Distribution will be for fair market value based on arm’s-length terms.
PLR-108305-22 13
External Separation
Except as set forth below, Distributing has made all of the representations in section 3
of the Appendix to Rev. Proc. 2017-52 with respect to the External Separation:
Distributing has made the following alternative representations: 3(a), 8(b), 11(a), 15(a),
22(a), 31(a), and 41(a).
Distributing has not made the following representations, which do not apply to the
External Separation: 24, 25, and 40.
Distributing has made the following modified representations:
1. Representation 2: In the External Distribution, Distributing will distribute Control
of Controlled; provided that, in the case that a split-off results in the exchange of
stock constituting less than Control of Controlled, Distributing will effect a pro rata
distribution of Controlled stock to ensure that Control is distributed as promptly as
practical after such split-off, taking into account applicable stock exchange and
clearing agency requirements.
2. Representation 5: To the extent the External Distribution is effected as a spin-off,
none of the Controlled stock, Controlled securities or Other Property to be
distributed in the External Distribution will be received in any capacity other than
that of a shareholder of Distributing.
3. Representation 6: To the extent the External Distribution is effected as a spin-off,
no shareholder of Distributing will surrender Distributing stock in the External
Distribution.
4. Representation 7: To the extent the External Distribution is effected as a split-off,
the fair market value of Controlled stock, Controlled securities or Other Property
to be received by each shareholder of Distributing that surrenders Distributing
stock will be approximately equal to the fair market value of Distributing stock
surrendered by the shareholder in the transaction.
5. Representation 8(b): Distributing has securities outstanding, but it will not
distribute Controlled stock, Controlled securities, or Other Property to any holder
of such securities in the External Distribution, in satisfaction thereof, other than
potentially pursuant to the Boot Purge and the Debt-for-Equity Exchanges.
6. Representation 23: Other than potentially as a result of a Continuing
Arrangement, the External Separation does not involve and will not result in a
PLR-108305-22 14
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.
7. Representation 32: Except for debt potentially incurred under the Continuing
Arrangements or ordinary course payables and receivables, no intercorporate
debt will exist between Distributing and Controlled at the time of, or subsequent
to, the External Distribution of Controlled stock.
8. Representation 33: Except as contemplated by the Continuing Arrangements,
payments made in connection with all continuing transactions, if any, between
Distributing and Controlled after the External Distribution will be for fair market
value based on arm’s-length terms.
9. Representation 45: Distributing will not dispose of any Controlled stock in
anticipation of the External Distribution, other than pursuant to the Initial Debt-for-
Equity Exchange.
10. Representation 46: Other than the IPO and potentially pursuant to the Controlled
Borrowing, Controlled will not issue stock or securities to a person other than
Distributing in anticipation of the External Distribution.
Except as set forth below, Distributing has made all of the representations in section
3.04 of Rev. Proc. 2018-53 with respect to the External Separation.
Distributing has made the following modified representations:
1. Representation 2: with respect to the Internal Payables Balances:
The holders of the Internal Payables Balances are Related Persons to
Distributing within the meaning set forth in Rev. Proc. 2018-53. Each holder of an
Internal Payables Balance will use an amount at least equal to the § 361
Consideration that such holder receives from Distributing to satisfy its External
Obligations, which are not held by Related Persons to Distributing.
2. Representation 3: with respect to the New Debt:
The holder(s) of the New Debt that will be satisfied will not hold the New Debt for
the benefit of Distributing, Controlled or any Related Person. None of
Distributing, Controlled or any Related Person will participate in any profit gained
by the Banks upon an exchange of § 361 Consideration; nor will any such profit
be limited by agreement or other arrangement. The value of the § 361
Consideration received by the Banks in satisfaction of the New Debt will be
determined pursuant to arm’s-length negotiations.
PLR-108305-22 15
With respect to the Internal Payables Balances:
The holders of the Internal Payables Balances are Related Persons to
Distributing within the meaning set forth in Rev. Proc. 2018-53. Each holder of an
Internal Payables Balance will use an amount at least equal to the § 361
Consideration that such holder receives from Distributing to satisfy its External
Obligations. The holders of the External Obligations do not hold the debt for the
benefit of Distributing, Controlled, or any Related Person.
3. Representation 4: Other than (w) the New Debt, (x) the Refinanced Debt, (y) the
Commercial Paper and (z) the Ordinary Course Liabilities, Distributing incurred
the Distributing Debt that will be satisfied (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 Treas.
Reg. § 1.355-7(h)(10)) of the Divisive Reorganization or a similar transaction, (ii)
the date of the entry by Distributing into a binding agreement to engage in the
Divisive Reorganization or a similar transaction, and (iii) the date of approval of
the Divisive Reorganization or a similar transaction by the board of directors of
Distributing.
4. Representation 6: There are one or more substantial business reasons for any
delay in satisfying Distributing Debt in connection with the Boot Purge and the
Debt-for-Equity Payments beyond 30 days after the date of the first distribution of
Controlled stock to Distributing’s shareholders. In the case of an IPO, all the
Distributing Debt that will be satisfied in the Boot Purge and the Initial Debt-for-
Equity Payments will be satisfied no later than b months after the IPO, and all the
Distributing Debt that will be satisfied with the Delayed-Debt-for-Equity Payments
will be satisfied no later than b months after the External Distribution. If the IPO
does not occur, all the Distributing Debt that will be satisfied in the Boot Purge
and all the Distributing Debt that will be satisfied in the Delayed Debt-for-Equity
Payments will be satisfied no later than b months after the External Distribution.
5. Representation 7: Distributing will not replace or cause to be replaced any
Distributing Debt or External Obligations that will be assumed or satisfied with
previously committed borrowing, other than borrowing in the ordinary course of
business pursuant to a revolving credit agreement or similar arrangement.
Distributing has made the following additional representations:
6. Distributing’s retention of any Retained Shares is for the business purpose of
facilitating the Delayed Debt-for-Equity Exchange and establishing an effective
and appropriate capital structure for both Distributing and Controlled.
PLR-108305-22 16
7. Except for the Overlapping Directors, none of Distributing’s directors or officers
will serve as officers of Controlled as long as Distributing retains the Retained
Shares.
8. Distributing will effect any Delayed Debt-for-Equity Exchanges no later than b
months after the External Distribution. If Distributing retains the Retained Shares
and does not use all of a portion of such Retained Shares in connection with a
Delayed Debt-for-Equity Exchange, Distributing will: (i) no later than b months
after the External Distribution, effect a Delayed Distribution; or (ii) sell the
remaining Retained Shares in one or more public or private sales as soon as
practicable, taking into account market and general economic conditions and
sound business judgment, and in no event later than e months after the date of
the External Distribution.
9. Distributing will vote, or cause to be voted, any Retained Shares in proportion to
the votes cast by Controlled’s other shareholders and Distributing may grant a
proxy to Controlled to effect such proportionate voting.
10. With respect to the Refinanced Debt, the initial debt instruments that were
refinanced were entered into (a) before the request for any relevant ruling is
submitted and (b) no later than e days before the earliest of the following dates:
(i) the date of the first public announcement (as defined in Treas. Reg. § 1.355-
7(h)(10)) of the Divisive Reorganization or a similar transaction, (ii) the date of
the entry by Distributing into a binding agreement to engage in the Divisive
Reorganization or a similar transaction and (iii) the date of approval of the
Divisive Reorganization or a similar transaction by the board of directors of
Distributing.
11. The Share Repurchases will be motivated by a business purpose, and the stock
that will be repurchased in the Share Repurchases will be widely held.
12. The Share Repurchases will not be motivated to any extent by a desire to
increase or decrease the ownership percentage of any particular shareholder or
group of shareholders.
13. Because the Share Repurchases will be made on the open market, the taxpayer
does not know the identity of any shareholder from which the taxpayer’s stock is
purchased.
Rulings
Based solely on the information and representations submitted, we rule as follows
regarding the Proposed Transaction:
PLR-108305-22 17
First Internal Separation
1. The First Internal Separation will be a “reorganization” under section 368(a)(1)(D)
to which section 355 applies. Internal Distributing 1 and Internal Controlled 1 will
each be “a party to a reorganization” within the meaning of section 368(b).
2. Internal Distributing 1 will recognize no gain or loss on the First Internal
Contribution. Section 361(a); section 357(a).
3. Internal Controlled 1 will recognize no gain or loss on the First Internal
Contribution. Section 1032(a).
4. Internal Controlled 1’s basis in each asset received from Internal Distributing 1 in
the First Internal Contribution will equal the basis of such asset in the hands of
Internal Distributing 1 immediately before the First Internal Contribution. Section
362(b).
5. Internal Controlled 1’s holding period in each asset received from Internal
Distributing 1 in the First Internal Contribution will include the holding period of
such asset held by Internal Distributing 1. Section 1223(2).
6. Internal Distributing 1 will recognize no gain or loss on the First Internal
Distribution. Section 361(c).
7. Internal 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 First
Internal Distribution. Section 355(a)(1).
8. Internal Distributing 2’s holding period in the Internal Controlled 1 stock received
in the First Internal Distribution will include the holding period of the Internal
Distributing 1 stock held by Internal Distributing 2 with respect to which the First
Internal Distribution is made, provided that such Internal Distributing 1 stock is
held as a capital asset on the date of the First Internal Distribution. Section
1223(1).
9. Earnings and profits will be allocated between Internal Distributing 1 and Internal
Controlled 1 in accordance with section 312(h) and Treas. Reg. §§ 1.312-10(a)
and 1.1502-33.
Second Internal Separation
10. The Second Internal Separation will be a “reorganization” under section
368(a)(1)(D) to which section 355 applies. Internal Distributing 2 and Internal
PLR-108305-22 18
Controlled 2 will each be “a party to a reorganization” within the meaning of
section 368(b).
11. Internal Distributing 2 will recognize no gain or loss on the Second Internal
Contribution. Section 361(a); section 357(a).
12. Internal Controlled 2 will recognize no gain or loss on the Second Internal
Contribution. Section 1032(a).
13. Internal Controlled 2’s basis in each asset received from Internal Distributing 2 in
the Second Internal Contribution will equal the basis of such asset in the hands
of Internal Distributing 2 immediately before the Second Internal Contribution.
Section 362(b).
14. Internal Controlled 2’s holding period in each asset received from Internal
Distributing 2 in the Second Internal Contribution will include the holding period of
such asset held by Internal Distributing 2. Section 1223(2).
15. Internal Distributing 2 will recognize no gain or loss on the Second Internal
Distribution. Section 361(c).
16. Internal 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
Second Internal Distribution. Section 355(a)(1).
17. Internal Distributing 3’s holding period in the Internal Controlled 2 stock received
in the Second Internal Distribution will include the holding period of the Internal
Distributing 2 stock held by Internal Distributing 3 with respect to which the
Second Internal Distribution is made, provided that such Internal Distributing 2
stock is held as a capital asset on the date of the Second Internal Distribution.
Section 1223(1).
18. Earnings and profits will be allocated between Internal Distributing 2 and Internal
Controlled 2 in accordance with section 312(h) and Treas. Reg. §§ 1.312-10(a)
and 1.1502-33.
Third Internal Separation
19. The Third Internal Separation will be a “reorganization” under section
368(a)(1)(D) to which section 355 applies. Internal Distributing 3 and Internal
Controlled 2 will each be “a party to a reorganization” within the meaning of
section 368(b).
20. Internal Distributing 3 will recognize no gain or loss on the Third Internal
Contribution. Section 361(a); section 357(a).
PLR-108305-22 19
21. Internal Controlled 2 will recognize no gain or loss on the Third Internal
Contribution. Section 1032(a).
22. Internal Controlled 2’s basis in each asset received from Internal Distributing 3 in
the Third Internal Contribution will equal the basis of such asset in the hands of
Internal Distributing 3 immediately before the Third Internal Contribution. Section
362(b).
23. Internal Controlled 2’s holding period in each asset received from Internal
Distributing 3 in the Third Internal Contribution will include the holding period of
such asset held by Internal Distributing 3. Section 1223(2).
24. Internal Distributing 3 will recognize no gain or loss on the Third Internal
Distribution. Section 361(c).
25. Internal Distributing 4 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 Third
Internal Distribution. Section 355(a)(1).
26. Internal Distributing 4’s holding period in the Internal Controlled 2 stock received
in the Third Internal Distribution will include the holding period of the Internal
Distributing 3 stock held by Internal Distributing 4 with respect to which the Third
Internal Distribution is made, provided that such Internal Distributing 3 stock is
held as a capital asset on the date of the Third Internal Distribution. Section
1223(1).
27. Earnings and profits will be allocated between Internal Distributing 3 and Internal
Controlled 2 in accordance with section 312(h) and Treas. Reg. §§ 1.312-10(a)
and 1.1502-33.
Fourth Internal Separation
28. The Fourth Internal Separation will be a “reorganization” under section
368(a)(1)(D) to which section 355 applies. Internal Distributing 4 and Internal
Controlled 2 will each be “a party to a reorganization” within the meaning of
section 368(b).
29. Internal Distributing 4 will recognize no gain or loss on the Fourth Internal
Contribution. Section 361(a); section 357(a).
PLR-108305-22 20
30. Internal Controlled 2 will recognize no gain or loss on the Fourth Internal
Contribution. Section 1032(a).
31. Internal Controlled 2’s basis in each asset received from Internal Distributing 4 in
the Fourth Internal Contribution will equal the basis of such asset in the hands of
Internal Distributing 4 immediately before the Fourth Internal Contribution.
Section 362(b).
32. Internal Controlled 2’s holding period in each asset received from Internal
Distributing 4 in the Fourth Internal Contribution will include the holding period of
such asset held by Internal Distributing 4. Section 1223(2).
33. Internal Distributing 4 will recognize no gain or loss on the Fourth Internal
Distribution. Section 361(c).
34. Distributing 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 Fourth Internal
Distribution. Section 355(a)(1).
35. Distributing’s holding period in the Internal Controlled 2 stock received in the
Fourth Internal Distribution will include the holding period of the Internal
Distributing 4 stock held by Distributing with respect to which the Fourth Internal
Distribution is made, provided that such Internal Distributing 4 stock is held as a
capital asset on the date of the Fourth Internal Distribution. Section 1223(1).
36. Earnings and profits will be allocated between Internal Distributing 4 and Internal
Controlled 2 in accordance with Section 312(h) and Treas. Reg. §§ 1.312-10(a)
and 1.1502-33.
External Separation
37. The External Contribution, together with the External Distribution (i.e., the
External Separation), will be a “reorganization” under section 368(a)(1)(D) to
which section 355 applies. Distributing and Controlled will each be “a party to a
reorganization” within the meaning of section 368(b).
38. Distributing will recognize no gain or loss on the External Contribution. Section
361(a) and (b); section 357(a).
39. Amounts paid as part of the Boot Purge will be treated as distributed pursuant to
the External Separation plan of reorganization. Section 361(b)(1) and (b)(3).
40. Distributing will recognize no gain or loss on the Debt-for-Equity Exchanges.
Section 361(c).
PLR-108305-22 21
41. Controlled will recognize no gain or loss on the External Contribution. Section
1032(a).
42. Controlled’s basis in each asset received from Distributing in the External
Contribution will equal the basis of such asset in the hands of Distributing
immediately before the External Contribution. Section 362(b).
43. Controlled’s holding period in each asset received from Distributing in the
External Contribution will include the holding period of such asset held by
Distributing. Section 1223(2).
44. Distributing will recognize no gain or loss on the External Distribution or any
Delayed Distribution. Section 361(c).
45. Distributing’s shareholders will recognize no gain or loss (and no amount will be
includible in their income) on the receipt of Controlled stock in the External
Distribution or any Delayed Distribution. Section 355(a)(1).
46. To the extent the External Distribution or any Delayed Distribution is effected as
a split-off, immediately after such External Distribution or Delayed Distribution,
the basis of the Controlled stock in the hands of a holder of Distributing stock
who exchanges Distributing stock for Controlled stock immediately after the
External Distribution or Delayed Distribution will be the same as the basis of the
Distributing common stock exchanged therefor. Section 358(a).
47. To the extent the External Distribution or any Delayed Distribution is effected as
a spin-off, the aggregate basis of the Controlled stock and the Distributing stock
in the hands of each Distributing shareholder immediately after the External
Distribution or any Delayed Distribution (including any fractional share interest in
Controlled stock to which the shareholder may be entitled) will equal the
aggregate basis of the Distributing stock held by such Distributing shareholder
immediately before the External Distribution or any Delayed Distribution,
allocated between the stock of Distributing and Controlled in proportion to the fair
market value of each immediately following the External Distribution or any
Delayed Distribution in accordance with Treas. Reg. § 1.358-2(a)(2)(iv). Section
358(b)(2) and (c).
48. If a holder of Distributing stock that purchased or acquired shares on different
dates or at different prices is not able to identify which particular share of
Controlled stock is received in exchange for, or as a distribution with respect to, a
particular share of Distributing stock, the holder may designate which particular
share of Controlled stock is received in exchange for, or as a distribution with
respect to, a particular share of Distributing stock, provided the designation is
PLR-108305-22 22
consistent with the terms of the External Distribution or any Delayed Distribution.
Treas. Reg. § 1.358- 2(a)(2)(vii).
49. Each Distributing shareholder’s holding period in the Controlled stock received in
the External Distribution or any Delayed Distribution will include the holding
period of the Distributing stock held by each Distributing shareholder with respect
to which the External Distribution or any Delayed Distribution is made, provided
that such Distributing stock is held as a capital asset on the date of the External
Distribution or Delayed Distribution. Section 1223(1).
50. The receipt by Distributing of cash in lieu of fractional shares of Controlled stock
will be treated for federal income tax purposes as if the fractional shares had
been distributed to Distributing shareholders as part of the External Distribution
or any Delayed 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 46
or 47), 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
stock was held as a capital asset on the date of the External Distribution
(determined using the holding period provided in ruling 49).
51. Earnings and profits will be allocated between Distributing and Controlled in
accordance with section 312(h) and Treas. Reg. §§ 1.312-10(a) and 1.1502-33.
52. Any payments or transfers made between any of Distributing and Controlled and
their respective affiliates under any of the Continuing Arrangements regarding
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 Separation. See Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
and Rev. Rul. 83- 73, 1983-1 C.B. 84.
53. Distributing's continued ownership of any Retained Shares until its disposition, in
no event later than e months after the Distribution, will not be in pursuance of a
plan having as one of its principal purposes the avoidance of U.S. federal income
tax for purposes of section 355(a)(1)(D)(ii).
54. Following the External Distribution, Controlled will not be a successor of
Distributing for purposes of section 1504(a)(3). Therefore, Controlled and its
direct and indirect subsidiaries that are “includible corporations” under section
PLR-108305-22 23
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 Controlled as the common parent.
55. To the extent the Share Repurchases are treated as part of a plan (or series of
related transactions) with the External Separation (or any other step of the
Proposed Transaction) for the purposes of section 355(e), such Share
Repurchases will be treated as being made from all public shareholders (defined
as a shareholder who is not a “controlling shareholder” or “ten-percent
shareholder” within the meaning of Treas. Reg. §§ 1.355-7(h)(3) and (14)) of
Distributing or Controlled, as applicable, on a pro rata basis for the purpose of
testing the effect of the Share Repurchases on the Proposed Transaction under
section 355(e) and Treas. Reg. § 1.355-7.
Caveats
No opinion is expressed about the federal income tax treatment of the Proposed
Transaction 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 Transaction that are not specifically covered by the above rulings.
Procedural Matters
This letter is director 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 the Associate Chief Counsel (Corporate)
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