PLR 1033005: IRS approved a multi-step corporate spin-off and reorganization

View official IRS release (PDF)

Plain-English summary

A parent corporation proposed separating two businesses from a third through subsidiary conversions, asset contributions, internal distributions, mergers, and a final distribution of a new controlled company's stock to the parent's shareholders. The IRS ruled that the conversions would qualify as Type C reorganizations, the internal contribution and distribution as a Type D reorganization, the two mergers as Type A reorganizations, and the final contribution and distribution as another Type D reorganization. It also ruled on nonrecognition, carryover basis, holding periods, tax attributes, earnings and profits, and cash paid for fractional shares. The ruling was subject to numerous factual representations and left business-purpose, device, qualification, and other issues outside its scope.

Ruling snapshot

• Question: Would the proposed corporate conversions, contributions, mergers, and spin-offs receive the requested nonrecognition and carryover tax treatment?
• Outcome: Approved
• Key authorities: IRC §§ 332, 351, 354, 355, 357, 358, 361, 362, 368, 381, 382, 383, and 384; Treas. Reg. §§ 1.355-2, 1.355-7, 1.358-2, and 1.381-1.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201033005 Third Party Communication: None
Release Date: 8/20/2010 Date of Communication: Not Applicable
Index Number: 355.01-00, 368.01-00,
368.03-00, 368.04-00 Person To Contact:
------------------------, ID No. -------------
---------------------------- Telephone Number:
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--------------------------------------------------------- Refer Reply To:
----------------------------- CC:CORP:BR4
----------------------------------------------- PLR-107089-10
Date:
May 11, 2010

Legend

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PLR-107089-10 2

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Distributing = --------------------------------------------------------------------------------------------
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Controlled = --------------------------------------------------------------------------------------------
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Controlled 2 = --------------------------------------------------------------------------------------------
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Business A = ----------------------------------------------------------------

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

a = ----

b = ------

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

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

   This letter responds to your February 5, 2010 request for rulings as to the federal

income tax consequences of a proposed transaction (the “Proposed Transaction”). The
information received in that request and in subsequent correspondence is summarized
below.

    The rulings contained in this letter are based on facts and representations

PLR-107089-10 3

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 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. In particular, this office has not
reviewed any information pertaining to, and has made no determination regarding
whether either Distribution 1 or Distribution 4 (as defined below): (i) satisfies the
business purpose requirement of § 1.355-2(b) of the Income Tax Regulations; (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 § 355(a)(1)(B) of the
Internal Revenue Code (the “Code”) and § 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 (see § 355(e) and § 1.355-7).

                               Summary of Facts

   Parent is the common parent of an affiliated group of corporations that files a

consolidated federal income tax return. Parent is engaged, through direct and indirect
subsidiaries, in Business A and Business B. Parent wholly owns each of Sub 1, Sub 2,
and Controlled 2, all of which are domestic corporations. Parent also wholly owns Sub
3, a disregarded entity for U.S. federal tax purposes. Sub 1 wholly owns Sub 6, a
domestic corporation. Sub 3 wholly owns each of Sub 4 and Sub 5, both of which are
disregarded entities for U.S. federal tax purposes. Sub 4 and Sub 5 own a percent and
b percent, respectively, of the issued and outstanding equity interests of Distributing, a
domestic corporation. Distributing wholly owns each of Sub 7 and Sub 8, both of which
are domestic corporations. Distributing also wholly owns Sub 9, a disregarded entity for
U.S. federal tax purposes. Sub 8 wholly owns Sub 10, a disregarded entity for U.S.
federal tax purposes.

  Each of Controlled 2, Sub 1, Sub 6, Sub 7, and Sub 8, directly or indirectly, hold

assets used in Business B. Financial information has been submitted indicating that
Business A and Business B each had gross receipts and operating expenses
representing the active conduct of a trade or business for each of the past five years.

  Distribution 4 (as defined below) will be undertaken for the following corporate

business purposes: (i) to enhance Controlled 2's ability to retain and attract key
personnel, and (ii) to enhance Controlled 2's ability to raise capital by independently
accessing the capital markets. The remaining portion of the Proposed Transaction will
be undertaken for the corporate business purpose of facilitating Distribution 4.

   Following the Proposed Transaction, Parent and Controlled 2 will enter into

agreements for transitional services (the “Transition Services Agreement”), ongoing
business services, sublease of certain real property (the “Sublease Agreements”), and
certain employee matters. In addition, Parent will agree to guarantee an obligation of

PLR-107089-10 4

Sub 6.

                          The Proposed Transaction

     Taxpayer has proposed the following Proposed Transaction:

(i) Sub 7 will convert from a Delaware corporation to a Delaware limited liability
company (the “Sub 7 Conversion”).

(ii) Sub 8 will convert from a Delaware corporation to a Delaware limited liability
company (the “Sub 8 Conversion”).

(iii) Sub 7 and Sub 8 will distribute the assets and transfer the employees of Business
B to Distributing (the “Sub 7 Distribution” and the “Sub 8 Distribution,”
respectively).

(iv) Distributing will form Controlled, and transfer 100 percent of the issued and
outstanding shares of each of Sub 9 and Sub 10 and the assets and employees of
Business B to Controlled (“Contribution 1”).

(v) Distributing will distribute all of the issued and outstanding shares of Controlled to
Sub 4 and Sub 5 (“Distribution 1”).

(vi) Each of Sub 4 and Sub 5 will distribute a percent and b percent, respectively, of
the issued and outstanding shares of Controlled to Sub 3 (“Distribution 2”).

(vii) Sub 3 will distribute all of the issued and outstanding shares of Controlled to
Parent (“Distribution 3”).

(viii) Sub 1 will merge into Controlled 2 pursuant to applicable state law (the
“Sub 1 Merger”).

(ix) Controlled will merge into Controlled 2 pursuant to applicable state law (the
“Controlled Merger”).

(x) Parent will contribute approximately $c in cash to Controlled 2 solely in exchange
for additional Controlled 2 stock (“Contribution 2”).

(xi) Parent will distribute all of the issued and outstanding shares of Controlled 2 to
Parent's shareholders (“Distribution 4”).

                               Representations

                             The Sub 7 Conversion

PLR-107089-10 5

   The following representations have been made regarding the Sub 7 Conversion:

(a) The fair market value of the Distributing voting stock deemed received by
Distributing in the Sub 7 Conversion will be approximately equal to the fair market
value of the Sub 7 stock deemed surrendered in the exchange.

(b) No property, other than the deemed shares of Distributing voting stock, will be
issued by Distributing to Sub 7 as consideration with respect to the Sub 7
Conversion.

(c) In cancellation of its Sub 7 stock, Distributing will acquire a direct interest in the
Sub 7 business enterprise for U.S. federal tax purposes.

(d) For federal tax purposes, Distributing will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market value of
the gross assets held by Sub 7 immediately prior to the Sub 7 Conversion. For
purposes of this representation, amounts paid by Sub 7 to dissenters, amounts
used by Sub 7 to pay its reorganization expenses, amounts paid by Sub 7 to
shareholders who receive cash or other property, and all redemptions and
distributions (except for regular, normal dividends) made by Sub 7 immediately
preceding the transfer will be included as assets of Sub 7 held immediately prior to
the transaction.

(e) Except as set forth in the Proposed Transaction, Distributing has no plan or
intention to sell or otherwise dispose of any of the assets of Sub 7 acquired in the
Sub 7 Conversion, except for dispositions made in the ordinary course of business
or transfers described in § 368(a)(2)(C).

(f) The liabilities of Sub 7 deemed to be assumed (as determined under § 357(d)) by
Distributing were incurred by Sub 7 in the ordinary course of its business.

(g) Following the Sub 7 Conversion, Distributing either directly or through one or more
members of Distributing's qualified group (within the meaning of § 1.368-1(d)(4)(ii))
will continue the historic business of Sub 7 or use a significant portion of Sub 7's
historic business assets in a business.

(h) Distributing and Sub 7 will pay their respective expenses, if any, incurred in
connection with the Sub 7 Conversion.

(i) Other than obligations arising in the ordinary course of business, there will be no
intercorporate indebtedness existing between Distributing and Sub 7 that was
issued, acquired, or will be settled at a discount.

(j) No party to the Sub 7 Conversion will be an investment company as defined in
§ 368(a)(2)(F)(iii) and (iv).

PLR-107089-10 6

(k) The fair market value of the assets of Sub 7 deemed transferred to Distributing will
equal or exceed the sum of the liabilities deemed assumed by Distributing, plus the
amount of liabilities, if any, to which the transferred assets are subject.

(l) Sub 7 is not under the jurisdiction of a court in a Title 11 or similar case within the
meaning of § 368(a)(3)(A).

(m) In connection with the Sub 7 Conversion, items of income, gain, loss, deduction,
and credit will be taken into account as required by the applicable intercompany
transaction regulations (See §§ 1.1502-13 and 1.1502-14 as in effect before the
publication of T.D. 8597, 1995-32 I.R.B. 6, and as currently in effect; § 1.1502-13
as published by T.D. 8597).

                               The Sub 8 Conversion

   The following representations have been made regarding the Sub 7 Conversion:

(n) The fair market value of the Distributing voting stock deemed received by
Distributing in the Sub 8 Conversion will be approximately equal to the fair market
value of the Sub 8 stock deemed surrendered in the exchange.

(o) No property, other than the deemed shares of Distributing voting stock, will be
issued by Distributing to Sub 8 as consideration with respect to the Sub 8
Conversion.

(p) In cancellation of its Sub 8 stock, Distributing will acquire a direct interest in the
Sub 8 business enterprise for U.S. federal tax purposes.

(q) For federal tax purposes, Distributing will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market value of
the gross assets held by Sub 8 immediately prior to the transaction. For purposes
of this representation, amounts paid by Sub 8 to dissenters, amounts used by Sub
8 to pay its reorganization expenses, amounts paid by Sub 8 to shareholders who
receive cash or other property, and all redemptions and distributions (except for
regular, normal dividends) made by Sub 8 immediately preceding the transfer will
be included as assets of Sub 8 held immediately prior to the Sub 8 Conversion.

(r) Except as set forth in the Proposed Transaction, Distributing has no plan or
intention to sell or otherwise dispose of any of the assets of Sub 8 deemed
acquired in the Sub 8 Conversion, except for dispositions made in the ordinary
course of business or transfers described in § 368(a)(2)(C).

(s) The liabilities of Sub 8 deemed assumed (as determined under § 357(d)) by
Distributing were incurred by Sub 8 in the ordinary course of its business.

(t) Following the Sub 8 Conversion, Distributing either directly or through one or more

PLR-107089-10 7

  members of Distributing's qualified group (within the meaning of § 1.368-1(d)(4)(ii))
  will continue the historic business of Sub 8 or use a significant portion of Sub 8's
  historic business assets in a business.

(u) Distributing and Sub 8 will pay their respective expenses, if any, incurred in
connection with the Sub 8 Conversion.

(v) Other than obligations arising in the ordinary course of business, there will be no
intercorporate indebtedness existing between Distributing and Sub 8 that was
issued, acquired, or will be settled at a discount.

(w) No party to the Sub 8 Conversion will be an investment company as defined in
§ 368(a)(2)(F)(iii) and (iv).

(x) The fair market value of the assets of Sub 8 deemed transferred to Distributing will
equal or exceed the sum of the liabilities deemed assumed by Distributing, plus the
amount of liabilities, if any, to which the transferred assets are subject.

(y) Sub 8 is not under the jurisdiction of a court in a Title 11 or similar case within the
meaning of § 368(a)(3)(A).

(z) In connection with the Sub 8 Conversion, items of income, gain, loss, deduction,
and credit will be taken into account as required by the applicable intercompany
transaction regulations (See §§ 1.1502-13 and 1.1502-14 as in effect before the
publication of T.D. 8597, 1995-32 I.R.B. 6, and as currently in effect; § 1.1502-13
as published by T.D. 8597).

                         Contribution 1 and Distribution 1

   The following representations have been made regarding Contribution 1 and

Distribution 1:

(aa) The indebtedness, if any, owed by Controlled to Distributing after Distribution 1 will
not constitute stock or securities.

(bb) No part of the consideration to be distributed by Distributing in Distribution 1 will be
received by Parent as a creditor, employee, or in any capacity other than that of a
shareholder of Distributing.

(cc) The five years of financial information submitted for the Business A operations
conducted directly by Distributing is representative of the present operations and
there have been no substantial operational changes since the date of the last
financial statements submitted.

(dd) The five years of financial information submitted for Business B is representative of
the present operations and there have been no substantial operational changes

PLR-107089-10 8

   since the date of the last financial statements submitted.

(ee) Following Distribution 1, no person will hold a greater than 50 percent interest in
either Distributing or Controlled (within the meaning of § 355(g)) who did not hold
such an interest immediately before Distribution 1.

(ff) Following Distribution 1, Distributing, through its separate affiliated group, will
continue the active conduct of Business A, independently and with its separate
employees.

(gg) Following Distribution 1, Controlled, through its separate affiliated group, will
continue the active conduct of Business B, independently and with its separate
employees.

(hh) Contribution 1 and Distribution 1 are being carried out for the corporate business
purpose of facilitating Distribution 4. The distribution of the stock, or stock and
securities, of the controlled corporation is motivated, in whole or substantial part,
by this corporate business purpose.

(ii) Distribution 1 is not used principally as a device for distributing the earnings and
profits of Distributing or Controlled or both.

(jj) For purposes of § 355(d), immediately after Distribution 1, no person (determined
after applying the aggregation rules of § 355(d)(7)) will hold stock possessing 50
percent or more of the total combined voting power of all classes of Distributing
stock entitled to vote or 50 percent or more of the total value of shares of all
classes of Distributing stock that was acquired by purchase (as defined in
§ 355(d)(5) and (8)) during the five year period (determined after applying
§ 355(d)(6)) ending on the date of Distribution 1.

(kk) For purposes of § 355(d), immediately after Distribution 1, no person (determined
after applying the aggregation rules of § 355(d)(7)) will hold stock possessing 50
percent or more of the total combined voting power of all classes of Controlled
stock entitled to vote or 50 percent or more of the total value of shares of all
classes of Controlled stock that was acquired by purchase (as defined in
§ 355(d)(5) and (8)) during the five year period (determined after applying
§ 355(d)(6)) ending on the date of Distribution 1.

(ll) No intercorporate debt will exist between Distributing and Controlled at the time of,
or subsequent to, Distribution 1.

(mm)Except as set forth in the Transition Services Agreement and the Sublease
Agreements, payments made in connection with all continuing transactions
between Distributing and Controlled will be for fair market value based on terms
and conditions arrived at by the parties bargaining at arm's length.

PLR-107089-10 9

(nn) No party to Distribution 1 will be an investment company as defined in
§ 368(a)(2)(F)(iii) and (iv).

(oo) Distributing and Controlled each will pay its or their own expenses, if any, incurred
in connection with Contribution 1 and Distribution 1.

(pp) The Contribution and Distribution 1 are being undertaken pursuant to a plan of
reorganization.

(qq) Distribution 1 is not part of a plan or series of related transactions (within the
meaning of § 1.355-7) pursuant to which one or more persons will acquire directly
or indirectly stock representing a 50-percent or greater interest (within the meaning
of § 355(d)(4)) in Distributing or Controlled (including any predecessor or
successor to any such corporation).

(rr) Neither Business A nor control of an entity conducting this business will have been
acquired during the five-year period ending on the date of Distribution 1 in a
transaction in which gain or loss was recognized (or treated as recognized under
proposed § 1.355-3) in whole or in part. Throughout the five-year period ending on
the date of Distribution 1, the Distributing SAG will have been the principal owner
of the goodwill and significant assets of Business A and will continue to be the
principal owner following Distribution 1.

(ss) Neither Business B nor control of an entity conducting this business will have been
acquired during the five-year period ending on the date of Distribution 1 in a
transaction in which gain or loss was recognized (or treated as recognized under
proposed § 1.355-3) in whole or in part. Throughout the five-year period ending on
the date of Distribution 1, the Distributing SAG will have been the principal owner
of the goodwill and significant assets of Business B. Following Distribution 1, the
Controlled SAG will be the principal owner of the goodwill and significant assets of
Business B.

(tt) Immediately before Distribution 1, items of income, gain, loss, deduction, and
credit will be taken into account as required by the applicable intercompany
transaction regulations (See §§ 1.1502-13 and 1.1502-14 as in effect before the
publication of T.D. 8597, 1995-32 I.R.B. 6, and as currently in effect; § 1.1502-13
as published by T.D. 8597). Further, Distributing's excess loss account, if any,
with respect to Controlled will be included in income immediately before
Distribution 1 (See § 1.1502-19).

(uu) The total adjusted basis and the fair market value of the assets to be transferred to
Controlled by Distributing will equal or exceed the sum of the liabilities assumed
(as determined under § 357(d)) by Controlled plus any liabilities to which the
transferred assets are subject. The liabilities assumed, if any, (as determined
under § 357(d)) by Controlled were incurred in the ordinary course of business and

PLR-107089-10 10

 were associated with the assets transferred.

                                 The Sub 1 Merger

   The following representations have been made regarding the Sub 1 Merger:

(vv) The Sub 1 Merger will be effected pursuant to state law, under which, as a result of
the operation of such laws, the following events will occur simultaneously at the
effective time of the Sub 1 Merger: (i) all of the assets and liabilities (except to the
extent satisfied or discharged in the transaction) of Sub 1 will become the assets
and liabilities of Controlled 2; and (ii) Sub 1 will cease its separate legal existence
for all purposes.

(ww) All of the proprietary interest in Sub 1 will be preserved (within the meaning of
§ 1.368-1(e)).

(xx) Except as set forth in the Proposed Transaction, Controlled 2 has no plan or
intention to sell or otherwise dispose of any of the assets of Sub 1 acquired in the
Sub 1 Merger, except for dispositions made in the ordinary course of business or
transfers described in § 368(a)(2)(C) or § 1.368-2(k).

(yy) The liabilities of Sub 1 assumed by Controlled 2 and the liabilities to which the
transferred assets of Sub 1 were subject, were incurred by Sub 1 in the ordinary
course of its business.

(zz) Following the Sub 1 Merger, Controlled 2 will continue the historic business of Sub
1, or use a significant portion of such historic business assets in an active trade or
business.

(aaa)Controlled 2 and Sub 1 will pay their respective expenses, if any, incurred in
connection with the Sub 1 Merger.

(bbb)There is no intercorporate indebtedness existing between Sub 1 and Controlled 2
that was issued, acquired, or will be settled at a discount.

(ccc) No party to the Sub 1 Merger will be an investment company as defined in
§ 368(a)(2)(F)(iii) and (iv).

(ddd)Sub 1 is not under the jurisdiction of a court in a Title 11 or similar case within the
meaning of § 368(a)(3)(A).

(eee)The fair market value of the assets of Sub 1 transferred to Controlled 2 will equal
or equal or exceed the sum of the liabilities assumed by Controlled 2, plus the
amount of liabilities, if any, to which the transferred assets are subject.

(fff) The fair market value of Controlled 2's assets will exceed the amount of the

PLR-107089-10 11

    liabilities of Controlled 2 immediately after the transaction.

                                 The Controlled Merger

     The following representations have been made regarding the Controlled Merger:

(ggg)The Controlled Merger will be effected pursuant to state law, under which, as a
result of the operation of such laws, the following events will occur simultaneously
at the effective time of the Controlled Merger: (i) all of the assets and liabilities
(except to the extent satisfied or discharged in the transaction) of Controlled will
become the assets and liabilities of Controlled 2; and (ii) Controlled will cease its
separate legal existence for all purposes.

(hhh)All of the proprietary interest in Controlled will be preserved (within the meaning of
§ 1.368-1(e)).

(iii) Except as set forth in the Proposed Transaction, Controlled 2 has no plan or
intention to sell or otherwise dispose of any of the assets of Controlled acquired in
the Controlled Merger, except for dispositions made in the ordinary course of
business or transfers described in § 368(a)(2)(C) or § 1.368-2(k).

(jjj) The liabilities of Controlled assumed by Controlled 2 and the liabilities to which the
transferred assets of Controlled were subject, were incurred by Controlled in the
ordinary course of its business.

(kkk) Following the Controlled Merger, Controlled 2 will continue the historic business of
Controlled, or use a significant portion of such historic business assets in an active
trade or business.

(lll) Controlled 2 and Controlled will pay their respective expenses, if any, incurred in
connection with the Controlled Merger.

(mmm) There is no intercorporate indebtedness existing between Controlled and
Controlled 2 that was issued, acquired, or will be settled at a discount.

(nnn)No party to the Controlled Merger will be an investment company as defined in
§ 368(a)(2)(F)(iii) and (iv).

(ooo)Controlled is not under the jurisdiction of a court in a Title 11 or similar case within
the meaning of § 368(a)(3)(A).

(ppp)The fair market value of the assets of Controlled transferred to Controlled 2 will
equal or equal or exceed the sum of the liabilities assumed by Controlled 2, plus
the amount of liabilities, if any, to which the transferred assets are subject.

(qqq)The fair market value of Controlled 2's assets will exceed the amount of the

PLR-107089-10 12

 liabilities of Controlled 2 immediately after the transaction.

                         Contribution 2 and Distribution 4

   The following representations have been made regarding Contribution 2 and

Distribution 4:

(rrr) The indebtedness, if any, owed by Controlled 2 to Parent after Distribution 4 will
not constitute stock or securities.

(sss) No part of the consideration to be distributed by Parent in Distribution 4 will be
received by the Parent shareholders as creditors, employees, or in any capacity
other than that of shareholders of Parent.

(ttt) The five years of financial information submitted for the Business A operations
conducted by Parent, through its direct and indirect subsidiaries, is representative
of the present operations and there have been no substantial operational changes
since the date of the last financial statements submitted.

(uuu)The five years of financial information submitted for Business B is representative of
the present operations and there have been no substantial operational changes
since the date of the last financial statements submitted.

(vvv) Following Distribution 4, no person will hold a greater than 50 percent interest in
either Parent or Controlled 2 (within the meaning of § 355(g)) who did not hold
such an interest immediately before Distribution 4.

(www) Following Distribution 4, Parent, through its separate affiliated group, will
continue the active conduct of Business A, independently and with its separate
employees.

(xxx) Following Distribution 4, Controlled 2, through its separate affiliated group, will
continue the active conduct of Business B, independently and with its separate
employees.

(yyy) Distribution 4 will be carried out for the following corporate business purposes: (i)
to enhance Controlled 2's ability to retain and attract key personnel and (ii) to
enhance Controlled 2's ability to raise capital by independently accessing the
capital markets. The distribution of the stock, or stock and securities, of the
controlled corporation is motivated, in whole or substantial part, by one or more of
these corporate business purposes.

(zzz) Distribution 4 is not used principally as a device for distributing the earnings and
profits of Parent or Controlled 2 or both.

(aaaa) For purposes of § 355(d), immediately after Distribution 4, no person (determined

PLR-107089-10 13

 after applying the aggregation rules of § 355(d)(7)) will hold stock possessing 50
 percent or more of the total combined voting power of all classes of Parent stock
 entitled to vote or 50 percent or more of the total value of shares of all classes of
 Parent stock that was acquired by purchase (as defined in § 355(d)(5) and (8))
 during the five year period (determined after applying § 355(d)(6)) ending on the
 date of Distribution 4.

(bbbb) For purposes of § 355(d), immediately after Distribution 4, no person (determined
after applying the aggregation rules of § 355(d)(7)) will hold stock possessing 50
percent or more of the total combined voting power of all classes of Controlled 2
stock entitled to vote or 50 percent or more of the total value of shares of all
classes of Controlled 2 stock that was acquired by purchase (as defined in
§ 355(d)(5) and (8)) during the five year period (determined after applying
§ 355(d)(6)) ending on the date of Distribution 4.

(cccc) No intercorporate debt will exist between Parent and Controlled 2 at the time of,
or subsequent to, Distribution 4.

(dddd) Except as set forth in the Transition Services Agreement and the Sublease
Agreements, payments made in connection with all continuing transactions
between Parent and Controlled 2 will be for fair market value based on terms and
conditions arrived at by the parties bargaining at arm's length.

(eeee) Neither Parent nor Controlled 2 is an investment company as defined in
§ 368(a)(2)(F)(iii) and (iv).

(ffff) Parent and Controlled 2 each will pay its or their own expenses, if any, incurred in
connection with Contribution 2 and Distribution 4.

(gggg) Distribution 4 is not part of a plan or series of related transactions (within the
meaning of § 1.355-7) pursuant to which one or more persons will acquire directly
or indirectly stock representing a 50-percent or greater interest (within the meaning
of § 355(d)(4)) in Parent or Controlled 2 (including any predecessor or successor
to any such corporation).

(hhhh) Neither Business A nor control of an entity conducting this business will have
been acquired during the five-year period ending on the date of Distribution 4 in a
transaction in which gain or loss was recognized (or treated as recognized under
proposed § 1.355-3) in whole or in part. Throughout the five-year period ending on
the date of Distribution 4, the Parent SAG will have been the principal owner of the
goodwill and significant assets of Business A and will continue to be the principal
owner following Distribution 4.

(iiii) Neither Business B nor control of an entity conducting this business will have been
acquired during the five-year period ending on the date of Distribution 4 in a

PLR-107089-10 14

  transaction in which gain or loss was recognized (or treated as recognized under
  proposed § 1.355-3) in whole or in part. Throughout the five-year period ending on
  the date of Distribution 4, the Parent SAG will have been the principal owner of the
  goodwill and significant assets of Business B. Following Distribution 4, the
  Controlled 2 SAG will be the principal owner of the goodwill and significant assets
  of Business B.

(jjjj) Immediately before Distribution 4, items of income, gain, loss, deduction, and
credit will be taken into account as required by the applicable intercompany
transaction regulations (See §§ 1.1502-13 and 1.1502-14 as in effect before the
publication of T.D. 8597, 1995-32 I.R.B. 6, and as currently in effect; § 1.1502-13
as published by T.D. 8597). Further, Parent's excess loss account, if any, with
respect to Controlled 2 will be included in income immediately before Distribution 4
(See § 1.1502-19).

(kkkk) The total adjusted basis and the fair market value of the assets to be transferred
to Controlled 2 by Parent will equal or exceed the sum of the liabilities assumed
(as determined under § 357(d)) by Controlled 2 plus any liabilities to which the
transferred assets are subject. The liabilities assumed, if any, (as determined
under § 357(d)) by Controlled 2 were incurred in the ordinary course of business
and were associated with the assets transferred.

                                      Rulings

    Based solely on the information provided and the representations made, we rule

as follows with respect to the Proposed Transaction:

                              The Sub 7 Conversion

(1) The deemed transfer by Sub 7 of substantially all of its assets to Distributing solely
in exchange for Distributing voting stock and the assumption of the liabilities of Sub
7, followed by the distribution by Sub 7 of the Distributing voting stock to
Distributing in complete liquidation, will qualify as a reorganization under
§ 368(a)(1)(C). Sub 7 and Distributing will each be a “party to a reorganization”
within the meaning of § 368(b).

(2) No gain or loss will be recognized by Sub 7 on the deemed transfer of substantially
all of its assets to Distributing solely in exchange for shares of Distributing voting
stock and the deemed assumption by Distributing of the liabilities of Sub 7
(§§ 361(a) and 357(a)).

(3) No gain or loss will be recognized by Sub 7 on the deemed distribution of
Distributing voting stock to Distributing (§ 361(c)).

(4) No gain or loss will be recognized by Distributing upon the deemed receipt of the

PLR-107089-10 15

  assets of Sub 7 solely in exchange for Distributing voting stock (§ 1032(a)).

(5) The basis of the assets of Sub 7 in the hands of Distributing will be the same as
the basis of those assets in the hands of Sub 7 immediately prior to the Sub 7
Conversion (§ 362(b)).

(6) The holding period of the assets of Sub 7 in the hands of Distributing will include
the period during which those assets were held by Sub 7 (§ 1223(2)).

(7) No gain or loss will be recognized by Distributing upon the deemed receipt of
Distributing voting stock solely in exchange for Sub 7 stock under (§ 354 (a)(1)).

(8) Under § 381(a) and § 1.381-1, the taxable year of Sub 7 will end on the effective
date of the closing of the Sub 7 Conversion, and Distributing will succeed to and
take into account the items of Sub 7 described in § 381(c), subject to the
provisions and limitations specified in §§ 381, 382, 383, and 384, and the
regulations thereunder.

                              The Sub 8 Conversion

(9) The deemed transfer by Sub 8 of substantially all of its assets to Distributing in the
Sub 8 Conversion solely in exchange for Distributing voting stock and the
assumption of the liabilities of Sub 8, followed by the distribution by Sub 8 of the
Distributing voting stock to Distributing in complete liquidation, will qualify as a
reorganization under § 368(a)(1)(C). Sub 8 and Distributing will each be a “party to
a reorganization” within the meaning of § 368(b).

(10) No gain or loss will be recognized by Sub 8 on the deemed transfer of substantially
all of its assets to Distributing solely in exchange for shares of Distributing voting
stock and the deemed assumption by Distributing of the liabilities of Sub 8
(§§ 361(a) and 357(a)).

(11) No gain or loss will be recognized by Sub 8 on the deemed distribution of
Distributing voting stock to Distributing under (§ 361(c)).

(12) No gain or loss will be recognized by Distributing upon the deemed receipt of the
assets of Sub 8 solely in exchange for Distributing voting stock (§ 1032(a)).

(13) The basis of the assets of Sub 8 in the hands of Distributing will be the same as
the basis of those assets in the hands of Sub 8 immediately prior to the Sub 8
Conversion (§ 362(b)).

(14) The holding period of the assets of Sub 8 in the hands of Distributing will include
the period during which those assets were held by Sub 8 (§ 1223(2)).

PLR-107089-10 16

(15) No gain or loss will be recognized by Distributing upon the deemed receipt of
Distributing voting stock solely in exchange for Sub 8 stock (§ 354(a)(1)).

(16) Under § 381(a) and § 1.381-1, the taxable year of Sub 8 will end on the effective
date of the closing of the Sub 8 Conversion, and Distributing will succeed to and
take into account the items of Sub 8 described in § 381(c), subject to the
provisions and limitations specified in §§ 381, 382, 383, and 384, and the
regulations thereunder.

                         Contribution 1 and Distribution 1

(17) Contribution 1 together with Distribution 1 will qualify as a reorganization within the
meaning of § 368(a)(1)(D). Distributing and Controlled each will be “a party to a
reorganization” within the meaning of § 368(b).

(18) Distributing will not recognize any gain or loss upon the transfer of assets to
Controlled pursuant to Contribution 1 (§ 361(a)).

(19) Controlled will not recognize any gain or loss upon the receipt of assets from
Distributing pursuant to Contribution 1 (§ 1032(a)).

(20) Controlled's basis in each asset received from Distributing pursuant to Contribution
1 will be the same as the basis of that asset in the hands of Distributing
immediately before its transfer (§ 362(b)).

(21) Controlled's holding period in each asset received from Distributing pursuant to
Contribution 1 will include the period during which Distributing held that asset
(§ 1223(2)).

(22) Distributing will not recognize any gain or loss upon the distribution of Controlled
stock in Distribution 1 (§ 361(c)).

(23) Parent will not recognize any gain or loss (and will not otherwise include any
amount in income) on the receipt of shares of Controlled stock in Distribution 1
(§ 355(a)(1)).

(24) The aggregate basis of the Distributing stock and the Controlled stock in the hands
of Parent immediately after Distribution 1 will be the same as Parent's aggregate
basis in the Distributing stock held immediately before Distribution 1, allocated in
the manner described in § 1.358-2, in accordance with § 358(a) through (c).

(25) The holding period of the Controlled stock received by Parent in Distribution 1 will
include the holding period of the Distributing stock with respect to which
Distribution 1 was made, provided that the Distributing stock is held as a capital
asset on the date of Distribution 1 (§ 1223(1)).

PLR-107089-10 17

(26) Earnings and profits of Distributing, if any, will be allocated between Distributing
and Controlled in accordance with § 1.312-10.

                                The Sub 1 Merger

(27) As a result of the Sub 1 Merger, Controlled 2's deemed acquisition of substantially
all of Sub 1's assets in exchange solely for Controlled 2 stock will be treated as a
reorganization within the meaning of § 368(a)(1)(A). Controlled 2 and Sub 1 will
each be a “party to a reorganization” within the meaning of § 368(b).

(28) No gain or loss will be recognized by Sub 1 upon the deemed transfer of all its
assets to Controlled 2 in exchange for Controlled 2 stock and the assumption by
Controlled 2 of Sub 1's liabilities (§§ 361(a), 357(a) and § 1.1502-80).

(29) No gain or loss will be recognized by Controlled 2 upon its receipt of Sub 1's
assets (§ 1032(a)).

(30) The basis of each asset of Sub 1 in the hands of Controlled 2 will be the same as
the basis of that asset in the hands of Sub 1 immediately prior to its transfer
(§ 362(b)).

(31) The holding period of each asset of Sub 1 in the hands of Controlled 2 will be the
same as the holding period of that asset in the hands of Sub 1 (§ 1223(2)).

(32) No gain or loss will be recognized on the deemed distribution of Controlled 2 stock
to Parent (§ 361(c)(1)).

(33) No gain or loss will be recognized by Parent upon its deemed exchange of Sub 1
stock for Controlled 2 stock (§ 354(a)(1)).

(34) The basis of the Controlled 2 stock deemed received by Parent will be the same as
the basis of the Sub 1 stock exchanged by Parent (§ 358(a)).

                                Controlled Merger

(35) As a result of the Controlled Merger, Controlled 2's deemed acquisition of
substantially all of Controlled's assets in exchange solely for Controlled 2 stock will
be treated as a reorganization within the meaning of § 368(a)(1)(A). Controlled 2
and Controlled will each be a “party to a reorganization” within the meaning of
§ 368(b).

(36) No gain or loss will be recognized by Controlled upon the deemed transfer of all its
assets to Controlled 2 in exchange for Controlled 2 stock and the assumption by
Controlled 2 of Controlled's liabilities (§§ 361(a), 357(a) and § 1.1502-80).

PLR-107089-10 18

(37) No gain or loss will be recognized by Controlled 2 upon its receipt of Controlled's
assets (§ 1032(a)).

(38) The basis of each asset of Controlled in the hands of Controlled 2 will be the same
as the basis of that asset in the hands of Controlled immediately prior to its transfer
(§ 362(b)).

(39) The holding period of each asset of Controlled in the hands of Controlled 2 will be
the same as the holding period of that asset in the hands of Controlled (§ 1223(2)).

(40) No gain or loss will be recognized on the deemed distribution of the Controlled 2
stock to Parent (§ 361(c)(1)).

(41) No gain or loss will be recognized by Parent upon its deemed exchange of
Controlled stock for Controlled 2 stock (§ 354(a)(1)).

(42) The basis of the Controlled 2 stock deemed received by Parent will be the same as
the basis of the Controlled stock exchanged by Parent (§ 358(a)).

                         Contribution 2 and Distribution 4

(43) Contribution 2 together with Distribution 4 will qualify as a reorganization within the
meaning of § 368(a)(1)(D). Parent and Controlled 2 each will be “a party to a
reorganization” within the meaning of § 368(b).

(44) Parent will not recognize any gain or loss upon the transfer of assets to Controlled
2 pursuant to Contribution 2 (§ 361(a)).

(45) Controlled 2 will not recognize any gain or loss upon the receipt of assets from
Parent pursuant to Contribution 2 (§ 1032(a)).

(46) Controlled 2's basis in each asset received from Parent pursuant to Contribution 2
will be the same as the basis of that asset in the hands of Parent immediately
before its transfer (§ 362(b)).

(47) Controlled 2's holding period in each asset received from Parent pursuant to
Contribution 2 will include the period during which Parent held that asset
(§ 1223(2)).

(48) Parent will not recognize any gain or loss upon the distribution of Controlled 2
stock in Distribution 4 (§ 361(c)).

(49) The shareholders of Parent will not recognize any gain or loss (and will not
otherwise include any amount in income) on the receipt of shares of Controlled 2
stock in Distribution 4 (§ 355(a)(1)).

PLR-107089-10 19

(50) The aggregate basis of the Parent stock and the Controlled 2 stock in the hands of
the Parent shareholders immediately after Distribution 4 will be the same as the
Parent shareholders' aggregate basis in the Parent stock held immediately before
Distribution 4, allocated in the manner described in § 1.358-2, in accordance with
§ 358(a) through (c).

(51) The holding period of the Controlled 2 stock received by the Parent shareholders in
Distribution 4 will include the holding period of the Parent stock with respect to
which Distribution 4 was made, provided that the Parent stock is held as a capital
asset on the date of Distribution 4 (§ 1223(1)).

(52) Earnings and profits of Parent, if any, will be allocated between Parent and
Controlled 2 in accordance with § 1.312-10.

(53) The payment of cash in lieu of any fractional shares of Parent, if any, will be
treated for U.S. federal income tax purposes as if the fractional shares were
distributed as part of Distribution 4 and then sold by the Parent shareholders. The
cash payments will be treated as having been received in exchange for the
fractional Parent shares sold. Any gain or loss will be treated as capital gain or
loss, provided that such fractional shares are held as capital assets on the date of
Distribution 4.

                                     Caveats

    We express no opinion about the tax treatment of the Proposed Transaction

under other provisions of the Code and regulations or the 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. In particular, we express no
opinion regarding: (i) whether either of Distribution 1 or Distribution 4 satisfies the
business purpose requirement of § 1.355-2(b); (ii) whether either of Distribution 1 or
Distribution 4 is being used principally as a device for the distribution of the earnings
and profits of Distributing or Controlled or both (see § 355(a)(1)(B) and § 1.355-2(d));
(iii) whether either of Distribution 1 or Distribution 4 and an acquisition or acquisitions
are part of a plan (or series of related transactions) under § 355(e)(2)(A)(ii); and,
whether any transactions between Distributing and Controlled or Controlled 2 are not for
fair market value under the Transition Services Agreement or the Sublease
Agreements.

PLR-107089-10 20

                                Procedural Matters

     This ruling letter is directed only to the taxpayers who requested it. See

§ 6110(k)(3), which provides that it may not be used or cited as precedent. A copy of
this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling. In accordance with the power of attorney on file in this office, a copy of this
letter is being sent to your authorized representative.

                                   Sincerely,


                                   _____________________________
                                   Richard K. Passales
                                   Senior Counsel, Branch 4
                                   Office of Associate Chief Counsel
                                   (Corporate)