PLR 1028006: The IRS ruled on stock treatment for ownership-change and consolidated-group purposes

Plain-English summary

The IRS ruled on the federal tax treatment of several preferred-stock issuances by the common parent of a consolidated group. For purposes of the applicable guidance under IRC §§ 56, 382, and 383, the IRS agreed to treat one series of shares as issued by an earlier date and to determine ownership by reference to specified regulations. The IRS also ruled that three other series of preferred shares qualified as section 1504(a)(4) stock. The ruling was based solely on the submitted facts and representations and did not express an opinion on other tax consequences.

Ruling snapshot

• Question: How should the stock issuances be treated under the requested ownership-change, loss-limitation, and affiliated-group rules?
• Outcome: approved
• Key authorities: IRC §§ 56, 382, 383, and 1504(a)(4); Treas. Reg. §§ 1.382-2T(f)(8) and (15), 1.1502-91, and 1.1502-94

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201028006 Third Party Communication: None
Release Date: 7/16/2010 Date of Communication: Not Applicable
Person To Contact:
----------------------, ID No. -----------------
Index Number: 56.00-00, 382.00-00, 383.00- Telephone Number:
00 --------------------
Refer Reply To:
--------------- CC:CORP:B03
---------------------------------------------- PLR-129530-09
---------------------------------------------- Date:

------------------- April 14, 2010

               TY: ---------------

Legend

Parent = ------------------------------------------------

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

Guidance A = --------------------------------------------

Guidance B = ----------------------------------------

Series 1 shares = -----------------------------------------------------------------------

Series 2 shares = -----------------------------------------------------------------------

Series 3 shares = -----------------------------------------------------------------------

Series 4 shares = -----------------------------------------------------------------------

PLR-129530-09 2

Program = -----------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

Entity A = -----------------------------------------------------------

Entity B = -----------------------------------------------------------------------

Person A = --------------------------------------------

Date 1 = ---------------------------

Date 2 = ------------------------

Date 3 = -------------------

Date 4 = ---------------------

Date 5 = ------------------

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

b = -----------

c = -------------

d = -------------------------

e = ------------

f = ------------

g = ----------------

Dear ---------------:
PLR-129530-09 3

  This letter responds to a request for rulings submitted on behalf of Parent on

June 16, 2009, regarding certain federal income tax consequences of certain stock
issuances by Parent. Additional information was submitted on July 7, August 4, August
13, August 17, August 26, August 27, December 18, 2009, March 5, March 8, and April
7, 2010. The material information submitted for consideration is summarized below.

   Parent is the common parent of an affiliated group of corporations that has

elected to file a consolidated federal income tax return (the Parent Group). The Parent
Group is engaged in Business A. The Parent Group is a loss group within the meaning
of §1.1502-91(c).

   Within the five year period ending on Date 1, Parent acquired at least two

subsidiaries (“Separately Tracked Affiliates”) that are not included in the Parent Group
for purposes of tracking their tax attributes or ownership change status under section

382. The Separately Tracked Affiliates are loss members within the meaning of
     §1.1502-94(a)(1)(i) or members of a loss subgroup within the meaning of §1.1502-
     91(d).

     On Date 1, Parent and Entity A entered into an agreement pursuant to which
     

     Parent would issue a Series 1 shares to Entity B (to be set up by Entity A) and, in
     exchange, Entity A would pay $b and arrange financing for Parent in an amount that
     would not exceed $c. The Series 1 shares to be issued to Entity B represented d% of
     the outstanding shares of Parent stock. The terms of the exchange were bargained for
     at arm’s length. On Date 1, Entity A paid $b and arranged the specified financing for
     Parent; also on Date 1, Parent borrowed $e under that financing arrangement.
     Although the agreement originally provided that Parent was to issue the Series 1 shares
     to Entity B no later than Date 2, the parties extended the issuance date because there
     were delays in Entity A’s establishment of Entity B and in obtaining certain
     administrative and regulatory approvals. However, at no time was it expected that such
     shares would not be issued. Finally, sufficient approvals in place, the Series 1 shares
     were issued to Entity B on Date 3. The Series 1 shares are described in Guidance A.

     Subsequently, in independent transactions, Parent issued the Series 2, Series 3,
     and Series 4 shares to Person A. The Series 2, Series 3, and Series 4 shares were all
     designated preferred shares and were all issued pursuant to Program. Parent issued the
     Series 2 shares to Person A in the month of Date 4, in exchange for $f. Parent later
     exchanged the Series 2 shares for the Series 3 shares. On Date 5, the same date that
     Parent exchanged the Series 2 shares for the Series 3 shares, Parent issued the Series
     4 shares to Person A and Person A agreed to a commitment to fund Parent up to $g.
     Because the Series 2, Series 3, and Series 4 shares were all designated preferred
     shares and were all issued pursuant to Program, they are all described in Guidance B.

Rulings
PLR-129530-09 4

   Based solely on the information submitted and described above, we hold as

follows:

1. For purposes of applying Guidance A and its application to sections 56, 382, and
   383 and the regulations thereunder, (i) the Series 1 shares shall be treated as
   outstanding and issued to Entity B no later than Date 1 and (ii) the determination of the
   direct and indirect owners (and the percentage of such ownership) of Parent and any
   Separately Tracked Affiliate is made by reference to §§1.382-2T(f)(8) and (15).

2. The Series 2, 3, and 4 shares constitute section 1504(a)(4) stock.

   Except as expressly provided herein, no opinion is expressed or implied
   concerning the tax consequences of any aspect of any transaction or item discussed or
   referenced in this letter.

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

    In accordance with the Power of Attorney on file with this office, a copy of this
   

   letter is being sent to your authorized representative.

   A copy of this letter must be attached to any income tax return to which it is
   relevant. Alternatively, taxpayers filing their returns electronically may satisfy this
   requirement by attaching a statement to their return that provides the date and control
   number of the letter ruling.

   The rulings contained in this letter are based upon information and
   representations submitted by the taxpayer and accompanied by a penalty of perjury
   statement executed by an appropriate party. This office has not verified any of the
   information, representations, or material submitted in support of the request for rulings;
   therefore, such items are subject to verification on examination.

                                  Sincerely,
   
                                  Theresa A. Abell
                                  Special Counsel to the Associate Chief Counsel
                                  (Corporate)
                                  Office of Associate Chief Counsel (Corporate)
   

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