PLR 200033031: bank holding company separates controlled businesses and liquidates three subsidiaries
Number
200033031
Outcome
Mixed outcome
Document type
Private Letter Ruling
IRS subject
Complete Liquidation of Subsidiaries; Distribution of Stock and Securities of a Controlled Corporation; Definitions Relating to Corporate Reorganizations; Transfer to Corporation Controlled by Transferor
Code sections
§ 332, § 334, § 337, § 351, § 355, § 358, § 361, § 362, § 368, § 381, § 382, § 383, § 1032, § 1223
Ruling dated
May 18, 2000
Publicly released
August 18, 2000
Source
Apply this to your situation
This page covers one taxpayer's ruling, issued in 2000, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, 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
Corp 1, a bank holding company, proposed a series of internal transfers and distributions involving D1, D2, Controlled 1, Controlled 2, and other domestic corporations. The transaction would distribute D2, Controlled 1, and Controlled 2 stock within Corp 1's group, transfer property to D2, Sub3, and Sub4, and liquidate Corps 11, 12, and 13 into Corp 10. The IRS ruled that specified contributions and distributions qualified under section 368(a)(1)(D) and section 355, and that other transfers qualified under section 351. It also ruled that the three complete liquidations qualified under sections 332 and 337, with specified basis, holding period, and tax attribute consequences. The letter gave no opinion on the tax consequences of step (v), the merger of Controlled 1 into Corp 16, so the relief is mixed.
Ruling snapshot
- Question: Do the proposed distributions, contributions, transfers, and liquidations receive the requested nonrecognition, basis, holding period, and tax attribute treatment?
- Outcome: Mixed. The letter grants specified rulings for the distributions, contributions, transfers, and liquidations, but gives no opinion on step (v), the merger of Controlled 1 into Corp 16.
- Key authorities: IRC §§ 332, 334(b)(1), 337, 351, 355, 358, 361, 362, 368(a)(1)(D), 381, 382, 383, 1032, and 1223; Treas. Reg. §§ 1.1502-13, 1.1502-14, 1.1502-19, 1.351-1, and 1.381(a)-1.
Full text (IRS public release)
Internal Revenue Service Department of the Treasury
Index Number: 0332.00-00, 0355.00-00, Washington, DC 20224
0368.00-00, 0351.00-00
Number: 200033031 Person to Contact:
Release Date: 8/18/2000 Telephone Number:
Refer Reply To:
CC:DOM:CORP:5 - PLR-119748-99
Date:
May 18, 2000
In re:
Corp 1 =
Corp 2 =
Corp 3 =
Corp 4 =
Corp 5 =
Corp 6 =
Corp 7 =
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Corp 8 =
Corp 9 =
Corp 10 =
Corp 11 =
Corp 12 =
Corp 13 =
Corp 14 =
Corp 15 =
Corp 16 =
D1 =
D2 =
Sub3 =
Sub4 =
Controlled 1 =
Controlled 2 =
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PLR-119748-99
P1 =
P2 =
P3 =
Date 1 =
Date 2 =
Date 3 =
Date 5 =
b =
c =
d =
e =
g =
Business A =
Business B =
T =
This is in reply to a letter dated December 14, 1999, in which rulings are
requested as to the federal income tax consequences of a propose transaction.
Additional information was submitted in letters dated March 21, March 24, March 31,
April 6, April 10, and April 13, 2000. The facts submitted for consideration are
substantially as set forth below.
Corp 1 is a bank holding company. Corp 1 wholly owns Corp 2, D1, and Sub3.
D1 wholly owns D2, Controlled 1 and Corp 9. D2 wholly owns Controlled 2, which
wholly owns Corp 7 and Corp 8. Corp 9 wholly owns Corp 10, which wholly owns Corp
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11, Corp 12, Corp 13, and Corp 14. Sub3 wholly owns Sub4, which wholly owns Corp
16. All of the foregoing corporations are domestic.
Prior to the proposed transaction, Corp 2 will be merged into a newly created
corporation named Corp 3.
On Date 1, Corp 1 acquired Corp 4 in a transaction in which no gain or loss was
recognized in whole or in part. Corp 4 owned all of the stock of Corp 15, and a b
percent partnership in interest in P1. Sub4 owned the remaining d percent partnership
interest. Pursuant to prior agreement, Corp 4’s ownership interest in P1 fell to e
percent as of Date 5, with Sub4 holding the remaining g percent. P1 owned c percent
of the member interests in P3. On Date 1, P1 acquired all of the member interests in
P2.
On Date 2, D1 acquired D2 in a transaction in which no gain or loss was
recognized in whole or in part. On Date 3, Corp 7 and Corp 8, previously subsidiaries
of D2, were transferred to Controlled 2.
D1 is engaged in Business A. D2 is a holding company whose subsidiaries are
engaged in Business A. Controlled 1 engages in business as a T. Controlled 2
operates Business B.
Financial information has been submitted which indicates that each of Controlled
1, Controlled 2, D1, D2’s subsidiaries, and Corp 16 has had gross receipts and
operating expenses representative of the active conduct of a trade or business for each
of the last 5 years.
According to statements submitted by the taxpayer, along with supporting
documentation, the distribution of D2 will accomplish the release of D2 from constraints
by regulatory supervision, licensing requirements and restrictions on rates and fees.
The distribution of Controlled 2 is necessary to allow it to remain a subsidiary of D1
after the D2 distribution, in order to ensure its retention of a status needed under the
law for its operations. The distribution of Controlled 1 will release it from certain
restrictions on the type of activities it may engage in. For these, and other reasons that
are represented to be valid business reasons, the following transactions are proposed:
(i) D2 contributed Corp 7 and Corp 8 to Controlled 2 on Date 3, and will
distribute all of the stock of Controlled 2 to D1.
(ii) D1 will distribute all of the stock of D2 to Corp 1.
(iii) Corp 1 will contribute the stock of Corp 3 to D2.
(iv) D1 will distribute all of the stock of Controlled 1 to Corp 1.
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(v) Controlled 1 will merge in a statutory merger under state law with and into
Corp 16.
(vi) Corp 1 will contribute all of the stock of Corp 16 received in step (v) to Sub3.
(vii) Sub3 will contribute all of the stock of Corp 16 received in step (vi) to Sub4.
(viii) Corp 11 will liquidate into Corp 10.
(ix) Corp 12 will liquidate into Corp 10.
(x) Corp 13 will liquidate into Corp 10.
In connection with the proposed transaction described in step (i), the taxpayer
represents as follows:
(a) Controlled 2, D2, and D1 will each pay their own expenses, if any,
incurred in connection with the transaction.
(b) Any indebtedness owed by Controlled 2 to D2 after the distribution of
Controlled 2 will not constitute stock or securities.
(c) No part of the Controlled 2 stock to be distributed by D2 will be received
by D1 as a creditor, employee, or in any capacity other than that of a
shareholder of D2.
(d) The total adjusted basis and the fair market value of the assets
transferred to Controlled 2 by D2 will each equal or exceed the sum of the
liabilities assumed by Controlled 2.
(e) Following the transaction, Controlled 2 and D2 (through its controlled
subsidiaries) will each continue its active business independently and with
its separate employees.
(f) No intercorporate debt will exist between D2 and Controlled 2 at the time
of, or subsequent to, the distribution of the Controlled 2 stock except, debt
arising in the ordinary course of business. Any debt will not constitute
stock or securities.
(g) No two parties to the transaction are investment companies as defined in
§ 368(a)(F)(iii) and (iv) of the Internal Revenue Code.
(h) The liabilities assumed in the transaction, if any, and the liabilities to which
the transferred assets are subject were incurred in the ordinary course of
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business and are associate with the assets being transferred.
(i) The 5 years of financial information submitted on behalf of Controlled 2
and D2 are representative of Controlled 2’s and D2’s present operations
and there have been no substantial operational changes since the date of
the last financial statements submitted.
(j) Immediately after the distribution, at least 90 percent of the fair market
value of the gross assets of D2 consist of the stock and securities of
controlled corporations that are engaged in the active conduct of a trade
or business as defined in § 355(b)(2).
(k) There is no plan or intention to liquidate either D2 or Controlled 2, or to
merge any of these corporations with and into any other corporation, or to
sell or dispose of the assets of these corporations after the transaction,
except in the ordinary course of business.
(l) There is no plan or intention by D1 to sell, exchange, transfer by gift, or
otherwise dispose of any of its stock in, or securities of either D2 or
Controlled 2, subsequent to the transaction except as specifically
described above .
(m) Payments made in connection with all continuing transactions, if any,
between D2 and Controlled 2 will be for fair market value based on terms
and conditions arrived at by the parties bargaining at arms length.
(n) The distribution of Controlled 2 is being carried out for the corporate
business purpose of “fit and focus.” The distribution of the Controlled 2
stock is being motivated, in whole or substantial part, by this corporate
business purpose.
(o) The distribution is not part of a plan or series of related transactions
(within the meaning of § 355(e)) pursuant to which one or more persons
will acquire directly or indirectly stock possessing 50 percent or more of
the total combined voting power of all classes of stock of either the
distributing or controlled corporation, or stock possessing 50 percent of
more of the total value of all classes of stock of either distributing or
controlled.
(p) There is no plan or intention by either D2 or Controlled 2, directly or
through any subsidiary corporation, to purchase any of its outstanding
stock after the distribution.
(q) Immediately before the distribution, items of income, gain loss, deduction
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PLR-119748-99
and credit will be taken into account as required by the applicable inter-
company transaction regulations (See § 1.1502-13 and § 1.1502-14 as in
effect before the publication of T.D. 8597, 1995-2 C.B. 147, and as
currently in effect; § 1.1502-13 as published by T.D. 8597). Further, D2's
excess loss account, if any, with respect to the Controlled 2 stock will be
included in income immediately before the distribution (See § 1.1502-19).
(r) Immediately after the distribution, no person will hold disqualified stock
(within the meaning of § 355(d)) in D2 or Controlled 2 possessing 50
percent or more of the total combined voting power of all classes of stock
of either D2 or Controlled 2, or stock possessing 50 percent or more of the
total value of all classes of stock of either D2 or Controlled 2.
In connection with the proposed transaction described in step (ii), the taxpayer
represents as follows:
(a) Any indebtedness owed by D2 to D1 after the distribution of D2 will not
constitute stock or securities.
(b) No part of the consideration begin distributed by D1 is being received by
Corp 1 as a creditor, employee, or in any capacity other than that of a
shareholder.
(c) Immediately after the distribution, at least 90 percent of the fair market
value of the gross assets of D2 consists of the stock and securities of
controlled corporations that are engaged in the active conduct of a trade
or business as defined in § 355(b)(2).
(d) Following the transaction, D2 (through its controlled subsidiaries) and D1
will each continue the active conduct of its business independently and
with its separate employees.
(e) No intercorporate debt will exist between D1 and D2 at the time of, or
subsequent to, the distribution of the D2 stock, except debt arising in the
ordinary course of business. Any debt will not constitute stock or
securities.
(f) The 5 years of financial information submitted on behalf of D2 and D1 is
representative of D2's and D1's present operations, and there have been
no substantial operational changes since the date of the last financial
statements submitted.
(g) There is no plan or intention to liquidate either D2 or D1 or to merge any
of these corporations with and into any other corporation, or to sell or
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PLR-119748-99
dispose of the assets of these corporations except in the ordinary course
of business.
(h) There is no plan or intention by Corp 1 to sell, exchange, transfer by gift,
or otherwise dispose of any of its stock in, or securities of D2 or D1
subsequent to the transaction.
(i) Payments made in connection with all continuing transactions between D1
and D2, if any, will be for fair market value based on terms and conditions
arrived at by the parties bargaining at arms length.
(j) There is no plan or intention by either D1 or D2, directly or through any
subsidiary corporation, to purchase any of its outstanding stock after the
transaction, other than through stock purchases meeting the requirements
of §4.05(1) of Rev. Proc. 96-30.
(k) Immediately before the distribution, items of income, gain loss, deduction
and credit will be taken into account as required by the applicable inter-
company transaction regulations (See § 1.1502-13 and § 1.1502-14 as in
effect before the publication of T.D. 8597, 1995-2 C.B. 147, and as
currently in effect; § 1.1502-13 as published by T.D. 8597). Further, D1's
excess loss account, if any, with respect to the D2 stock will be included in
income immediately before the distribution (See § 1.1502-19).
(l) The distribution of D2 is being carried out for the corporate business
purpose of “fit and focus.” The distribution of stock is being motivated, in
whole or substantial part, by this corporate business purpose.
(m) The distribution is not part of a plan or series of related transactions
(withing the meaning of § 355(e)) pursuant to which one or more persons
will acquire directly or indirectly stock possessing 50 percent or more of
the total combined voting power of all classes of stock of either distributing
or controlled, or stock possessing 50 percent or more of the total value of
all classes of stock of either distributing or controlled.
(n) Immediately after the distribution, no person will hold disqualified stock
(within the meaning of § 355(d)) in D1 or D2 possessing 50 percent or
more of the total combined voting power of all classes of stock of either
D1 or D2, or stock possessing 50 percent or more of the total value of all
classes of stock of D1 or D2.
In connection with the proposed transaction described in step (iv), the taxpayer
represents as follows:
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PLR-119748-99
(a) Any indebtedness owed by Controlled 1 to D1 will not constitute stock or
securities.
(b) No part of the Controlled 1 stock being distributed by D1 will be received
by Corp 1 as a creditor, employee, or in any capacity other than that of a
shareholder of D1.
(c) Following the transaction, Controlled 1 and D1 will each continue the
active conduct of its business independently and with its separate
employees.
(d) No intercorporate debt will exist between D1 and Controlled 1 at the time
of, or subsequent to, the distribution of the Controlled 1 stock, except debt
arising in the ordinary course of business.
(e) The 5 years of financial information submitted on behalf of Controlled 1
and D1 is representative of Controlled 1’s and D1’s present operations,
and there have been no substantial operational changes since the date of
the last financial statements submitted.
(f) There is no plan or intention to liquidate either Controlled 1 or D1 or to
merge any of these corporations with and into any other corporation, or to
sell or dispose of the assets of these corporations, except in the ordinary
course of business or as specifically described above.
(g) There is no plan or intention by Corp 1 to sell, exchange, transfer by gift,
or otherwise dispose of any of its stock in, or securities of Controlled 1 or
D1 subsequent to the transaction except as specifically described above.
(h) Payments made in connection with all continuing transactions between D1
and Controlled 1, if any, will be for fair market value based on terms and
conditions arrived at by the parties bargaining at arms length.
(i) The distribution of Controlled 1 is being carried out for the corporate
business purpose of “fit and focus.” The distribution of stock is being
motivated, in whole or substantial part, by this corporate business
purpose.
(j) The distribution is not part of a plan or series of related transactions
(within the meaning of § 355(e)) pursuant to which one or more person
will acquire directly or indirectly stock possessing 50 percent or more of
the total combined voting power of all classes of stock of either distributing
or controlled, or stock possessing 50 percent or more of the total value of
all classes of stock of either distributing or controlled.
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PLR-119748-99
(k) There is no plan or intention by either D1 or Controlled 1, directly or
through any subsidiary corporation, to purchase any of its outstanding
stock after the transaction, other than through stock purchases meeting
the requirements of section 4.05(1) of Rev. Proc. 96-30.
(l) Immediately before the distribution, items of income, gain loss, deduction
and credit will be taken into account as required by the applicable inter-
company transaction regulations (See § 1.1502-13 and § 1.1502-14 as in
effect before the publication of T.D. 8597, 1995-2 C.B. 147, and as
currently in effect; § 1.1502-13 as published by T.D. 8597). Further, D1's
excess loss account, if any, with respect to the Controlled 1 stock will be
included in income immediately before the distribution (See § 1.1502-19).
(m) Immediately after the distribution, no person will hold disqualified stock
(within the meaning of § 355(d)) in D1 or Controlled 1 possessing 50
percent or more of the total combined voting power of all classes of stock
of either D1 or Controlled 1, or stock possessing 50 percent or more of the
total value of all classes of stock of D1 or Controlled 1.
In connection with the proposed transaction described in step (iii), the taxpayer
represents as follows:
(a) No stock will be issued for services rendered to or for the benefit of D2 in
connection with the transfer, and no stock will be issued for indebtedness
of D2 that is not evidenced by a security or for interest on indebtedness of
D2 which accrued on or after the beginning of the holding period of Corp 1
for the debt.
(b) The transfer is not the result of the solicitation by a promoter, broker, or
investment house.
(c) Corp 1 will not retain any rights in the property transferred to D2.
(d) The transfers and exchanges will occur under a plan agreed upon before
the transaction in which the rights of the parties are defined.
(e) All exchanges will occur on approximately the same date.
(f) There is no plan or intention on the part of D2 to redeem or otherwise
reacquire any stock from Corp 1 in connection with the transaction.
(g) Taking into account any issuance of additional shares of D2 stock; any
issuance of stock for services; the exercise of any D2 stock rights,
warrants, or subscriptions; a public offering of D2 stock; and the sale,
exchange, transfer by gift, or other disposition of any of the stock of D2 to
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PLR-119748-99
be received in the exchange, Corp 1 will be in “control” of D2 immediately
after the transfer within the meaning of § 368(c).
(h) Corp 1 (the sole shareholder of D2) will constructively receive stock
approximately equal to the fair market value of the property transferred to
the transferee.
(i) D2 will remain in existence and retain and use the property transferred to
it in a trade or business.
(j) There no plan or intention by D2 dispose of the transferred property other
than in the normal course of business operations.
(k) Each of the parties to the transaction will pay its own expenses, if any,
incurred in connection with the proposed transaction.
(l) D2 will not be an investment company within the meaning of § 351(e)(1)
and § 1.351-1(c)(1)(ii) of the Income Tax Regulations.
(m) Corp 1 is not under the jurisdiction of a court in a title 11 or similar case
(within the meaning of § 368(a)(A)) and the stock received in the
exchange will not be used to satisfy the indebtedness of such debtor.
(n) D2 will not be a “personal service corporation” within the meaning of
§ 269A.
(o) No liabilities will be assumed in the transfer.
In connection with the proposed transaction described in step (vi) the taxpayer
represents as follows:
(a) No stock will be issued for service rendered to or for the benefit of Sub3 in
connection with the proposed transaction, and (ii) no stock will be issued
for indebtedness of Sub3 that is not evidenced by a security or for interest
on indebtedness of Sub3 which accrued on or after the beginning of the
holding period of Corp 1 for the debt.
(b) The transfer is not the result of the solicitation by a promoter, broker, or
investment house.
(c) Corp 1 will not retain any rights in the property transferred to Sub3.
(d) The transfers and exchanges will occur under a plan agreed upon before
the transaction in which the rights of the parties are defined.
(e) All exchanges will occur on approximately the same date.
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(f) There is no plan or intention on the part of Sub3 to redeem or otherwise
reacquire the stock to be issued in the proposed transaction.
(g) Taking into account any issuance of additional shares of Sub3 stock; any
issuance of stock for services; the exercise of any Sub3 stock rights,
warrants, or subscriptions; a public offering of Sub3 stock; and the sale,
exchange, transfer by gift, or other disposition of any of the stock of Sub3
to be received in the exchange, Corp 1 will be in “control” of Sub3 after
the transfer within the meaning of § 368(c).
(h) Corp 1 will constructively receive stock approximately equal to the fair
market value of the property transferred to the transferee.
(i) Sub3 will remain in existence and retain and use the property transferred
to it in a trade or business, except as described above under step (vii).
(j) There is no plan or intention by Sub3 to dispose of the transferred
property other than in the normal course of business operations, except
as described above under step (vii).
(k) Each of the parties to the transaction will pay it own expenses, if any,
incurred in connection with the proposed transaction.
(l) Sub3 will not be an investment company within the meaning of § 351(e)(1)
and § 1.351-1(c)(1)(ii).
(m) Corp 1 is not under the jurisdiction of a court in a title 11 or similar case
(within the meaning of § 368(a)(3)(A)) and the stock or securities received
in the exchange will not be used to satisfy the indebtedness of such
debtor.
(n) Sub3 will not be a “personal service corporation” within the meaning of
§ 269A.
(o) No liabilities will be assumed in the transaction.
In connection with the proposed transaction described in step (vii), the taxpayer
represents as follows:
(a) No stock will be issued for services rendered to or for the benefit of Sub4
in connection with the transfers, and no stock will be issued for
indebtedness of Sub4 that is not evidenced by a security or for interest on
indebtedness of Sub4 which accrued on or after the beginning of the
holding period of Sub3 for the debt.
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(b) The transfer is not the result of the solicitation by a promoter, broker, or
investment house.
(c) Sub3 will not retain any rights in the property transferred to Sub4.
(d) The value of the stock received in exchange for accounts receivable, if
any, will be equal to the net value of the accounts transferred, i.e., the
face amount of the accounts receivable previously included in income less
the amount of the reserve for bad debts.
(e) The adjusted basis and the fair market value of the assets to be
transferred by Sub3 to Sub4 will, in each instance, be equal to or exceed
the sum of the liabilities to be assumed by the transferee.
(f) There is no indebtedness between Sub4 and Sub3 and there will be no
indebtedness created in favor of Sub3 as a result of the transaction.
(g) The transfers and exchanges will occur under a plan agreed upon before
the transaction in which the rights of the parties are defined.
(h) All exchanges will occur on approximately the same date.
(i) There is no plan or intention on the part of Sub4 to redeem or otherwise
reacquire any stock to be issued in the proposed transaction.
(j) Taking into account any issuance of additional shares of Sub4 stock; any
issuance of stock for services; the exercise of any Sub4 stock rights,
warrants, or subscriptions; a public offering of Sub4 stock; and the sale,
exchange, transfer by gift, or other disposition of any of the stock of Sub4
to be received in the exchange, Sub3 will be in “control” of Sub4
immediately after the transfers within the meaning of § 368(c).
(k) Sub3 will constructively receive stock approximately equal to the fair
market value of the property transferred to Sub4.
(l) Sub4 will remain in existence and retain and use the property transferred
to it in a trade or business.
(m) There is no plan or intention by Sub4 to dispose of the transferred
property other than in the normal course of business operations, except
as specifically described above.
(n) Each of the parties to the transaction will pay its own expenses, if any,
incurred in connection with the transfers.
(o) Sub4 will not be an investment company within the meaning of
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§ 351(e)(1) and §1.351-1(c)(1)(ii).
(p) Sub3 is not under the jurisdiction of a court in a title 11 or similar case
(withing the meaning of § 368(a)(3)(A)) and the stock or securities
received in the exchange will not be used to satisfy the indebtedness of
such debtor.
(q) Sub4 will not be a “personal service corporation” within the meaning of
§ 269A.
In connection with the proposed transaction described in step (viii) the taxpayer
represents as follows:
(a) Corp 10, on the date of adoption of the plan of liquidation, and at all times
until the final liquidating distribution is completed, will be the owner of at
least 80 percent of the single outstanding class of Corp 11 stock.
(b) No shares of Corp 11 stock will have been redeemed during the 3 years
preceding the adoption of the plan of complete liquidation of Corp 11.
(c) As soon as the first liquidating distribution has been made, Corp 11 will
cease to be a going concern and its activities will be limited to winding up
its affairs, paying its debts, and distributing its remaining assets to its
shareholders.
(d) Corp 11 will not have acquired assets in any nontaxable transaction at any
time, except for acquisitions occurring more than 3 years prior to the date
of adoption of the plan of liquidation.
(e) No assets of Corp 11 have been, or will be, disposed of by either Corp 11
or Corp 10 except for dispositions in the ordinary course of business and
dispositions occurring more than 3 years prior to the date of adoption of
the plan of liquidation.
(f) The liquidation of Corp 11 will not be preceded or followed by the
reincorporation in, or transfer or sale to, a recipient corporation
(“Recipient”) of any of the businesses or assets of Corp 11, if persons
holding directly or indirectly, more than 20 percent in value of the Corp 11
stock also hold, directly or indirectly, more than 20 percent of the stock in
Recipient. For purposes of this representation, ownership will be
determined by application of constructive ownership rules of § 318(a) as
modified by § 304(c)(3).
(g) Corp 11 will report all earned income represented by assets that will be
distributed to its shareholders such as receivables being reported on a
cash basis, unfinished construction contracts, commissions due, etc.
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(h) The fair market value of the assets of Corp 11 will exceed its liabilities
both at the date of the adoption of the plan of complete liquidation and
immediately prior to the time the first liquidating distribution is made.
(i) There is no inter-corporate debt existing between Corp 10 and Corp 11
and none has been canceled, forgiven, or discounted, except for
transactions that occurred more than 3 years prior to the date of adoption
of the liquidation plan (or, alternatively, if such date is later) and for
transactions occurring prior to the date Corp 10 initially acquired Corp 11
stock.
(j) Corp 10 is not an organization that is exempt from federal income tax
under § 501 or any other provision of the Code.
(k) All distribution from Corp 11 to Corp 10 pursuant to the plan of complete
liquidation will be made within a single taxable year of Corp 11.
In connection with the proposed transaction described in step (ix), the taxpayer
represents as follows:
(a) Corp 10, on the date of adoption of the plan of liquidation, and at all times
until the final liquidating distribution is completed, will be the owner of at
least 80 percent of the single outstanding class of Corp 12 stock.
(b) No shares of Corp 12 stock will have been redeemed during the 3 years
preceding the adoption of the plan of complete liquidation of Corp 12.
(c) All distributions from Corp 12 to Corp 10 pursuant to the plan of complete
liquidation will be made within a single taxable year of Corp 12.
(d) As soon as the first liquidating distribution has been made, Corp 12 will
cease to be a going concern and its activities will be limited to winding up
its affairs, paying its debts, and distributing its remaining assets to its
shareholders.
(e) Corp 12 will retain no assets following the final liquidating distribution.
(f) Corp 12 will not have acquired assets in any nontaxable transaction at any
time, except for acquisitions occurring more than 3 years prior to the date
of adoption of the plan of liquidation.
(g) No assets of Corp 12 have been, or will be, disposed of by either Corp 12
or Corp 10 except for dispositions in the ordinary course of business and
dispositions in the ordinary course of business and dispositions occurring
more than 3 years prior to the date of adoption of the plan of liquidation.
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(h) The liquidation of Corp 12 will not be preceded or followed by the
reincorporation in, or transfer or sale to, a recipient corporation
(“Recipient”) of any of the businesses or assets of Corp 12, if persons
holding directly or indirectly, more than 20 percent in value of the Corp 12
stock also hold, directly or indirectly, more than 20 percent of the stock in
Recipient. For purposes of this representation, ownership will be
determined by application of constructive ownership rules of § 318(a) as
modified by § 304(c)(3).
(i) Corp 12 will report all earned income represented by assets that will be
distributed to its shareholders such as receivables being reported on a
cash basis, unfinished construction contracts, commissions due, etc.
(j) The fair market value of the assets of Corp 12 will exceed its liabilities
both at the date of the adoption of the plan of complete liquidation and
immediately prior to the time the first liquidating distribution is made.
(k) There is no intercorporate debt existing between Corp 10 and Corp 12
and none has been canceled, forgiven, or discounted, except for
transactions that occurred more than 3 years prior to the date of adoption
of the liquidation plan (or, alternatively, if such date is later) except for
transactions occurring prior to the date Corp 10 initially acquired Corp 12
stock.
(l) Corp 10 is not an organization that is exempt from federal income tax
under § 501 of any other provisions of the Code.
In connection with the proposed transaction described in step (x), the taxpayer
represents as follows:
(a) Corp 10, on the date of adoption of the plan of liquidation, and at all times
until the final liquidating distribution is completed, will be the owner of at
least 80 percent of the single outstanding class of Corp 13 stock.
(b) No shares of Corp 13 stock will have been redeemed during the 3 years
preceding the adoption of the plan of complete liquidation of Corp 13.
(c) All distributions from Corp 13 to Corp 10 pursuant to the plan of complete
liquidation will be made within a single taxable year of Corp 13.
(d) As soon as the first liquidation distribution has been made, Corp 13 will
cease to be a going concern and its activities will be limited to winding up
it affairs, paying its debts, and distributing its remaining assets to its
shareholders.
(e) Corp 13 will retain no assets following the final liquidating distribution.
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(f) Corp 13 will not have acquired assets in any nontaxable transaction at any
time, except for acquisitions occurring more than 3 years prior to the date
of the date of adoption of the plan of liquidation.
(g) No assets of Corp 13 have been, or will be, disposed of by either Corp 13
or Corp 10 except for dispositions in the ordinary course of business and
dispositions occurring more than 3 years prior to the date of adoption of
the plan of liquidation.
(h) The liquidation of Corp 13 will not be preceded or followed by the
reincorporation in, or transfer or sale to, a recipient corporation
(“Recipient”) of any of the business or assets of Corp 13, if persons
holding directly or indirectly, more than 20 percent in value of the Corp 13
stock also hold, directly or indirectly, more than 20 percent of the stock in
Recipient. For purposes of this representation, ownership will be
determine by application of constructive ownership rules of § 318(a) as
modified by § 304(c)(3).
(i) Corp 13 will report all earned income represented by assets that will be
distributed to it shareholders such as receivables being report on a cash
basis, unfinished construction contracts, commissions due, etc.
(j) The fair market value of the assets of Corp 13 will exceed its liabilities
both at the date of the adoption of the plan of complete liquidation and
immediately prior to the time the first liquidating distribution is made.
(k) There is no intercorporate debt exiting between Corp 10 and Corp 13 and
none has been canceled, forgiven, or discounted, except for transactions
that occurred more than 3 years prior to the date of adoption of the
liquidation plan (or, alternatively, if such date is later) except for
transactions occurring prior to the date Corp 10 initially acquired Corp 13
stock.
(l) Corp 10 is not an organization that is exempt from federal income tax
under § 501 or any other provisions of the Code.
Based solely on the information submitted and on the representations set forth
above, we rule as follows with respect to step (i) of the proposed transaction:
(1) The transfer by D2 to Controlled 2 of property, described above, solely in
exchange for a constructive issuance of Controlled 2 stock, followed by
the distribution of all of the Controlled 2 stock, will be a reorganization
within the meaning of § 368(a)(1)(D). D2 and Controlled 2 will each be “a
party to a reorganization” within the meaning of § 368(b).
(2) No gain or loss will be recognized by D2 upon the transfer of the property
to Controlled 2 in exchange for a constructive issuance of Controlled 2
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stock (§ 361(a)).
(3) No gain or loss will be recognized by Controlled 2 on the receipt of the
property in exchange for a constructive issuance of Controlled 2 stock
(§ 1032(a)).
(4) No gain or loss will be recognized by D2 upon the distribution of all of its
stock in Controlled 2 (§ 361(c)).
(5) No gain or loss will be recognized by (and no amount shall be included in
the income of) D1 upon the receipt of Controlled 2 stock (§ 355(a)(1)).
(6) The aggregate basis of the stock of Controlled 2 and D2 in the hands of
D1 after the distribution will be the same as the basis of the D2 stock held
immediately before the distribution, allocated in proportion to the fair
market value of each in accordance with § 1.358-2(a)(2)
(§ 358(b)(2)).
(7) The holding period of the Controlled 2 stock received by D1 will include
the holding period of the D2 stock on which the distributions will be made,
provided such stock is held as a capital asset on the date of the
distribution (§ 1223(1)).
(8) As provided in § 312(h), proper allocation of earnings and profits between
D2 and Controlled 2 will be made under §1.312-10(a).
Based solely on the information submitted and on the representations set forth
above, we rule as follows with respect to step (ii) of the proposed transaction:
(9) No gain or loss will be recognized by D1 upon the distribution of all of its
stock in D2 (§ 355(c)).
(10) No gain or loss will be recognized by (and no amount shall be included in
the income of) Corp 1 upon the receipt of the D2 stock (§ 355(a)(1)).
(11) The aggregate basis of the stock of D1 and D2 in the hands of Corp 1
after the distribution will be the same as the basis of the D1 stock held
immediately before the distribution, allocated in proportion to the fair
market value of each in accordance with § 1.358-2(a)(2)
(§ 358(b)(2)).
(12) The holding period of the D2 stock received by Corp 1 will include the
holding period of D1 stock on which the distribution will be made, provided
such stock is held as a capital asset on the date of the distribution (§
1223(1)).
(13) As provided in § 312(h), proper allocation of earnings and profits between
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PLR-119748-99
D1 and D2 will be made under §1.312-10(b).
Based solely on the information submitted and on the representations set forth
above, we rule as follows with the respect to step (iv) of the proposed transaction:
(14) No gain or loss will be recognized by D1 upon the distribution of all of its
stock in Controlled 1 (§ 355(c)).
(15) No gain or loss will be recognized by (and no amount shall be included in
the income of) Corp 1 upon the receipt of the Controlled 1 stock
(§ 355(a)(1)).
(16) The aggregate basis of the stock of D1 and Controlled 1 stock in the
hands of Corp 1 after the distribution will be the same as the basis of the
D1 stock held immediately before the distribution, allocated in proportion
to the fair market value of each in accordance with § 1.358-2(a)(2)
(§ 358(b)(2)).
(17) The holding period of the Controlled 1 stock received by Corp 1 will
include the holding period of D1 stock on which the distributions will be
made, provided such stock is held as a capital asset on the date of the
distribution (§ 1223(1)).
(18) As provided in §312 (h), proper allocation of earnings and profits between
D1 and Controlled 1 will be made under §1.312-10(b).
Based solely on the information submitted and on the representations set forth
above, we rule as follows with respect to step (iii) of the proposed transaction:
(19) No gain or loss will be recognized by Corp 1 upon the transfer of property
to D2 solely in exchange for a constructive issuance of D2 stock
(§ 351(a)).
(20) No gain or loss will be recognized by D2 upon the receipt of property from
Corp 1 solely in exchange for a constructive issuance of D2 stock
(§ 1032(a)).
(21) The basis in the property received by D2 will be the same as it was in the
hands of Corp 1 immediately before the transfer (§ 362(a)).
(22) The basis in the D2 stock constructively received in the exchange by Corp
1 will be the same as its basis in the property transferred immediately
before the transfer (§ 358(a)).
(23) The holding period of the property transferred in the hands of D2 will
include the holding period of Corp 1 in the property transferred
immediately before the transfer (§ 1223(2)).
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PLR-119748-99
(24) The holding period of the D2 stock held by Corp 1 will include the holding
period of Corp 1 in the property transferred immediately before the
transfer to the extent that the property was held as a capital asset on the
date of the exchange (§ 1223(1)).
Based solely on the information submitted and on the representations set forth
above, we rule as follows with the respect to step (vi) of the proposed transaction:
(25) No gain or loss will be recognized by Corp 1 upon the transfer of its Corp
16 stock received in step (v) to Sub3 solely in exchange for a constructive
issuance of Sub3 stock (§ 351(a)).
(26) No gain or loss will be recognized by Sub3 upon receipt of the Corp 16
stock from Corp 1 solely in exchange for a constructive issuance of Sub3
stock (§ 1032(a)).
(27) The basis in the Corp 16 stock received by Sub3 will be the same as it
was in the hands of Corp 1 immediately before the transaction (§ 362(a)).
(28) The basis in the Sub3 stock received by Corp 1 will be the same as its
basis in the Corp 16 stock immediately before the transfer (§ 358(a)).
(29) The holding period of the Corp 16 stock in the hands of Sub3 will include
the holding period of the Corp 16 stock in the hands of Corp 1
immediately before the transfer (§ 1223(2)).
(30) The holding period of the Sub3 stock held by Corp 1 will include the
holding period of Corp 16 stock held by Corp 1 immediately before the
transfer to the extent that the property was held as a capital asset on the
date of the exchange (§ 1223(1)).
Based solely on the information submitted and on the representations set forth
above, we rule as follows with respect to step (vii) of the proposed transaction:
(31) No gain or loss will be recognized by Sub3 upon the transfer of its Corp
16 stock received in step (vi) to Sub4 solely in exchange for a constructive
issuance of Sub4 stock (§ 351(a)).
(32) No gain or loss will be recognized by Sub4 upon the receipt of the Corp
16 stock from Sub3 solely in exchange for a constructive issuance of
Sub4 stock (§ 1032(a)).
(33) The basis in the Corp 16 stock received by Sub4 will be the same as it
was in the hands of Sub3 immediately before the transfer (§ 362(a)).
(34) The basis in the Sub4 stock received by Sub3 will be the same as its
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PLR-119748-99
basis in the Corp 16 stock immediately before the transfer (§ 358(a)).
(35) The holding period of the Corp 16 stock in the hands of Sub4 will include
the holding period of the Corp 16 stock in hands of Sub3 immediately
before the transfer (§ 1223(2)).
(36) The holding period of the Sub4 stock held by Sub3 will include the holding
period of the Corp 16 stock held by Sub3 immediately before the transfer
to the extent that the property was held as a capital asset on the date of
the exchange (§ 1223(1)).
Based solely on the information submitted and on the representations set forth
above, we rule as follows with respect to step (viii) of the proposed transaction:
(37) No gain or loss will be recognized by Corp 10 on its receipt of the assets
of Corp 11 (§ 332(a)).
(38) No gain or loss will be recognized by Corp 11 on the distribution of its
assets to Corp 10 in complete liquidation (§ 337(a)).
(39) The basis of the assets of Corp 11 in the hands of Corp 10 will be the
same as the basis of those assets in the hands of Corp 11 immediately
prior to the liquidation (§ 334(b)(1)).
(40) The holding period of the assets of Corp 11 in the hands of Corp 10 will
include the period during which such assets were held by Corp 11
(§ 1223(2)).
(41) Pursuant to § 381(a) and §1.381(a)-1, Corp 10 will succeed to and take
into account the items of Corp 11 described in § 381(c), subject to the
conditions and limitations specified in §§ 381(b) and (c), 382 and 383.
(42) As provided in § 381(c)(2) and § 1.381(c) (2)-1, Corp 10 will succeed to
and take into account the earnings and profits or deficit in earnings and
profits of Corp 11 as of the date of the transfer. Any deficit in earnings
and profits of Corp 10 or Corp 11 will be used only to offset earnings and
profits accumulated after the date of the transfer.
Based solely on the information submitted and on the representations set forth
above, we rule as follows with respect to step (ix) of the proposed transaction:
(43) No gain or loss will be recognized to Corp 10 on its receipt of the assets of
Corp 12 (§ 332(a)).
(44) No gain or loss will be recognized by Corp 12 on the distribution of its
assets to Corp 10 in complete liquidation (§ 337(a)).
(45) The basis of assets of Corp 12 in the hands of Corp 10 will be the same
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PLR-119748-99
as the basis of those assets in the hands of Corp 12 immediately prior to
the liquidation (§ 334(b)(1)).
(46) The holding period of the assets of Corp 12 in the hands of Corp 10 will
include the period during which such assets were held by Corp 12
(§ 1223(2)).
(47) Pursuant to § 381(a) and §1.381(a)-1, Corp 10 will succeed to and take
into account the items of Corp 12 described in §381(c), subject to the
conditions and limitations specified in §§ 381(b) and (c), 382 and 383.
(48) As provided in § 381(c)(2) and § 1.381(c)(2)-1, Corp 10 will succeed to
and take into account the earnings and profits or deficit in earnings and
profits of Corp 12 as of the date of the transfer. Any deficit in earnings
and profits of Corp 10 or Corp 12 will be used only to offset earnings and
profits accumulated after the date of the transfer.
Based solely on the information submitted and on the representations set forth
above, we rule as follows with respect to step (x) of the proposed transaction:
(49) No gain or loss will be recognized to Corp 10 on its receipt of the assets of
Corp 13 (§ 332(a)).
(50) No gain or loss will be recognized by Corp 13 on the distribution of its
assets to Corp 10 in complete liquidation § 337(a)).
(51) The basis of the assets of Corp 13 in the hands of Corp 10 will be the
same as the basis of those assets in the hands of Corp 13 immediately
prior to the liquidation (§ 334(b)(1).
(52) The holding period of the assets of Corp 13 in the hands of Corp 10 will
include the period during which such assets were held by Corp 13
(§ 1223(2)).
(53) Pursuant to § 381(a) and § 1.381(a)-1, Corp 10 will succeed to and take
into account the items of Corp 13 described in § 381(c), subject to the
conditions and limitations specified in §§ 381(b) and (c), 382 and 383.
(54) As provided in § 381(c)(2) and § 1.381(c)(2)-1, Corp 10 will succeed to
and take into account the earnings and profits of deficit in earnings and
profits of Corp 13 as of the date of the transfer. Any deficit in earnings
and profits of Corp 10 or Corp 13 will be used only to offset earnings and
profits accumulated after the date of the transfer.
We express no opinion about the tax treatment of the transaction under other
provisions of the Code and regulations or about the tax treatment of any conditions
existing at the time of, or effects resulting from, the transaction that are not specifically
covered by the above rulings. In particular, no opinion is expressed as to the tax
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consequences of step (v).
This letter is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.
A copy of this letter should be attached to the federal income tax return of the
taxpayers involved for the taxable year in which the transaction covered by this letter is
consummated.
Pursuant to a power of attorney on file in this office, we have sent a copy of this
letter to the taxpayer and an authorized representative.
Sincerely yours,
Assistant Chief Counsel (Corporate)
By: _ ________
Chief, Branch 5
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