PLR 1037026: IRS approved tax treatment for a multi-step spin-off and reorganization plan

View official IRS release (PDF)

Plain-English summary

The IRS ruled on a proposed series of contributions, distributions, mergers, and reorganizations involving four distributing corporations, controlled corporations, and numerous domestic and foreign subsidiaries. The ruling treats specified contributions and distributions as reorganizations and provides nonrecognition of gain or loss for several transactions. It also addresses stock basis, asset basis, holding periods, earnings-and-profits allocation, and section 367 consequences for cross-border steps. The IRS did not rule on business purpose, device, or section 355(e) acquisition-plan questions identified in its caveats. The conclusions are based on the taxpayer's submitted facts and representations, which the IRS said it had not independently verified.

Ruling snapshot

• Question: What are the federal income tax consequences of the proposed contributions, distributions, mergers, and reorganizations?
• Outcome: Approved
• Key authorities: IRC §§ 355, 357, 358, 361, 362, 367, 368, 1032, 1223, 1248, and 1502

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201037026 Third Party Communication: None
Release Date: 9/17/2010 Date of Communication: Not Applicable
Index Number: 355.01-00
Person To Contact:
------------------ --------------------------, ID No. -------------
------------------------------------- Telephone Number:
---------------------------- ---------------------
--------------------------- Refer Reply To:
CC:CORP:6
PLR-155842-09
Date:
June 11, 2010

Legend

Distributing 1 = ---------------------------------------------------

Distributing 2 = -----------------

Distributing 3 = -----------------------------

Distributing 4 = --------------------------------------

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Controlled 1 = ------------------------------

Controlled 2 = -----------------------------------
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Controlled 3 = -------------------------------------

Controlled 4 = ---------------------------------------

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Sub 1 = ----------------------------------------------

PLR-155842-09 2

Sub 2 = --------------------------------

Sub 3 = ---------------------------------------
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Sub 4 = ---------------------------------------------------
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Sub 5 = -------------------------------------------------

Sub 6 = ------------------------------

Sub 7 = ------------------------

Sub 8 = -------------------------------
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Sub 9 = -------------------------------------------------

Sub 10 = ------------------------

Sub 13 = ---------------------------------

Sub 24 = ----------------------------------------------

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Sub 26 = ----------------------------

Sub 27 = ---------------------------------------

PLR-155842-09 3

Sub 32 = ----------------------------------
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Sub 39 = ---------------------------------------------

Sub 40 = --------------------------------------------------------------------------

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Sub 41 = ----------------------------------------------------------

Sub 43 = ---------------------------------------

Sub 44 = -----------------------------------

Sub 45 = ----------------------------

Sub 46 = -----------------

Merger Sub = ----------------------------------------------

State Z = -------------

Country A = -------

Country B = --------

Country C = ----------------------

Country D = ----------------------

Country E = ---------- -

Country J = --------

Country M = -----------
PLR-155842-09 4

Country Q = --------------

Country R = ---------

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

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

Executive M = -------------------------

aa = ----

bb = ----

cc = ------

yy = ----

zz = --

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

This letter responds to your December 23, 2009 request for rulings on certain federal
income tax consequences of the Proposed Transactions (defined below). The
information provided in that request and in later correspondence is summarized below.

The rulings contained in this letter are based on facts 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 material 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
Distribution 1, Distribution 2, Distribution 3, and Distribution 4 (each defined below):
(i) satisfy the business purpose requirement of § 1.355-2(b) of the Income Tax
Regulations; (ii) are being used principally as a device for the distribution of the
earnings and profits of either Distributing 1, Distributing 2, Distributing 3, Distributing 4,
Controlled 1, Controlled 2, Controlled 3, or Controlled 4, or any combination thereof
(see § 355(a)(1)(B) of the Internal Revenue Code and § 1.355-2(d)); or (iii) are part of a
PLR-155842-09 5

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
Distributing 1, Distributing 2, Distributing 3, Distributing 4, Controlled 1, Controlled 2,
Controlled 3, or Controlled 4 (see § 355(e) and § 1.355-7).

                                 Summary of Facts

Distributing 4 is a State Z corporation whose stock is publicly traded. Distributing 4 has
two classes of stock issued and outstanding that have identical economic rights on a
per-share basis, Class A Stock and Class B Stock. Class B Stock carries yy votes per
share, while Class A Stock carries zz votes per share. Executive M directly or indirectly
owns stock representing an approximately aa% economic interest in Distributing 4.
Executive M directly or indirectly controls the voting power of substantially all of
Distributing 4’s Class B Stock, giving Executive M approximately bb% of the total voting
power of Distributing 4. Distributing 4 is engaged in Business B, and acts as the
common parent of and files a consolidated tax return for an affiliated group of
companies that are engaged in Business A or Business B. Distributing 4 is also the
direct or indirect owner of numerous foreign subsidiaries that are engaged in Business
A or Business B.

Before the Proposed Transactions (defined below), the Distributing 4 group was
structured as follows. Distributing 4 directly wholly owned, among other subsidiaries,
Sub 1 (a State Z corporation), Sub 2 (a Country B corporation), Sub 45 (a Country B
corporation that is substantially dormant), and Distributing 3 (a Country A corporation).
Distributing 4 indirectly wholly owned Sub 39 (a Country Q corporation).

Sub 1 directly wholly owned, among other subsidiaries, Sub 13 (a State Z corporation).

Distributing 3 directly wholly owned, among other subsidiaries, Distributing 1 (a Country
A corporation), Sub 3 (a Country D corporation that is dormant and that has elected to
be disregarded for U.S. federal income tax purposes), Sub 4 (a Country D corporation),
Sub 5 (a Country A corporation), and Distributing 2 (a Country A corporation).
Distributing 3 directly owned approximately cc% of Sub 6 (a Country E corporation).
The remainder of Sub 6’s shares were owned directly by other members of the
Distributing 4 group, such that Distributing 4 indirectly wholly owned Sub 6.

Distributing 1 directly wholly owned Controlled 1 (a Country C corporation).

Controlled 1 directly wholly owned Sub 24 (a Country A corporation).

Sub 24 directly wholly owned Sub 26 (a Country A corporation), and Sub 27 (a Country
A corporation).
PLR-155842-09 6

Distributing 2 directly wholly owned Controlled 2 (a Country D corporation). Distributing
2 purchased 100% of the stock of Controlled 2 on Date 1, which date was during the
five year period ending on the date Distributing 2 will be deemed to distribute the stock
of Controlled 2. At Date 1, Controlled 2 (through Sub 32, its wholly owned subsidiary)
carried on a business that currently forms part of Business A.

Sub 6 wholly owned, among other subsidiaries, Sub 7 (a Country E corporation), Sub 8
(a Country D corporation), and Sub 46 (a Country R corporation).

Sub 8 wholly owned Sub 9 (a Country E corporation), and Sub 10 (a Country M
corporation).

Sub 39 wholly owned Sub 40 (a Country J corporation).

Distributing 4 conducts Business A primarily through Sub 1, Sub 2, Sub 3, Sub 4, Sub 5,
Sub 7, Sub 9, Sub 10, Sub 40, Controlled 1, Controlled 2, and each of their domestic
and foreign subsidiaries. Distributing 2, Distributing 3, and Distributing 4 hold a limited
amount of Business A assets. Business B is conducted through Distributing 4 and its
domestic and foreign subsidiaries other than those conducting Business A. Distributing
4 has submitted financial information indicating that Business A and Business B each
has had gross receipts and operating expenses representing the active conduct of a
trade or business for each of the past five years.

Distributing 4 has decided to separate Business A from Business B for what it
represents to be valid business purposes.

Distributing 4 has outstanding unsecured notes that are exchangeable for shares of
Class A Stock of Distributing 4. Under the terms of these notes, as a consequence of
Distribution 4 (defined below), the notes will be split into notes of Distributing 4 and
Controlled 4. Aside from an adjustment in the exchange ratio and certain related
parameters, the terms of the new notes will be the same as the terms of the original
notes, with the Controlled 4 notes being exchangeable for shares of Controlled 4
Common Stock.

                             Proposed Transactions

For what are represented to be valid business reasons, Distributing 4 has proposed,
and partially completed, the following series of transactions (collectively, the “Proposed
Transactions”):

(i) Distributing 4 will form Controlled 4, a State Z corporation. Controlled 4 will form
Merger Sub.
PLR-155842-09 7

(ii) Distributing 4 will contribute cash, intercompany receivables, all of the outstanding
Sub 2 and Sub 45 stock, and certain Business A assets to Controlled 4. Merger Sub
will merge with and into Sub 1. Immediately after these steps, Sub 1, Sub 2, and Sub
45 will be wholly-owned by Controlled 4 (the contributions and the merger, “Contribution
4A”). Distributing 4 will own 100% of Controlled 4 both before and after these
transactions.

(iii) Distributing 2 will transfer certain Business A assets to Sub 5 in exchange for cash
equal to the fair market value of the transferred assets.

(iv) Sub 5 will transfer certain Business B assets to Distributing 3 in exchange for cash
equal to the fair market value of the transferred assets pursuant to a separate sale
agreement (the transfer of cash from Distributing 3 to Sub 5, “Contribution 1D”).

(v) Distributing 3 will transfer Business A assets to Sub 5 and Sub 24 in exchange for
cash equal to the fair market value of the transferred assets. Immediately after these
cash sales, Distributing 3 will contribute the cash proceeds from the sale to Sub 5 back
to Sub 5. The group is seeking rulings that the circular flow of cash from Sub 5 to
Distributing 3 and back to Sub 5 be disregarded, and that the transfer of assets from
Distributing 3 to Sub 5 be treated as a contribution of property to a controlled subsidiary
(“Contribution 1C”).

(vi) Distributing 1 will contribute a receivable to Controlled 1 (“Contribution 1A”).
Distributing 1 will transfer all of the outstanding Controlled 1 stock to Sub 5 in a
transaction intended to qualify as a reorganization under the laws of Country A. No
payment will be made for the Controlled 1 stock. The group is seeking rulings that this
transfer be treated for U.S. federal income tax purposes as if Distributing 1 distributed
Controlled 1 to Distributing 3 (“Distribution 1”), and then Distributing 3 contributed
Controlled 1 to Sub 5 (“Contribution 1B”).

(vii) Distributing 2 will transfer all of the outstanding Controlled 2 stock to Sub 5 in a
transaction intended to qualify as a reorganization under the laws of Country A. No
payment will be made for the Controlled 2 stock. The group is seeking rulings that this
transfer be treated for U.S. federal income tax purposes as if Distributing 2 distributed
Controlled 2 to Distributing 3 (“Distribution 2”), and then Distributing 3 contributed
Controlled 2 to Sub 5 (“Contribution 2”).

(viii) Distributing 4 will form Controlled 3.

(ix) Distributing 3 will transfer all of the assets of Sub 3, Sub 4 stock, and Sub 5 stock,
as well as certain land assets, to Controlled 3 in a transaction intended to qualify as a
reorganization under the laws of Country A. No payment will be made for the stock and
assets transferred. The group is seeking rulings that this transfer be treated for U.S.
federal income tax purposes as if Distributing 3 formed Controlled 3 and transferred the
PLR-155842-09 8

assets of Sub 3, Sub 4 stock, Sub 5 stock, and land assets to Controlled 3
(“Contribution 3”), and then Distributing 3 distributed Controlled 3 to Distributing 4
(“Distribution 3”).

(x) Distributing 4 will contribute all of the outstanding Controlled 3 stock to Controlled 4
(“Contribution 4B”).

(xi) Sub 40 will make a cash distribution to Sub 39.

(xii) Controlled 4 will form and contribute cash to Sub 44, a State Z corporation. Sub 6
will purchase Sub 43, a Country E corporation, as a shelf company from a service
provider for a nominal amount. Sub 44 will purchase Sub 43 from Sub 6 for the same
amount. Sub 44 will contribute cash to Sub 43. Sub 43 will purchase all the
outstanding stock of Sub 7 from Sub 6 for an amount equal to the fair market value of
the transferred stock. Sub 43 will also purchase for cash a non-compete asset held by
Sub 6 related to Sub 7’s business.

(xiii) Distributing 4 will purchase all the outstanding stock of Sub 10 from Sub 8 for an
amount equal to the fair market value of the transferred stock. Distributing 4 will then
contribute all of the outstanding Sub 10 stock to Controlled 4 (the contribution of the
stock of Sub 10, “Contribution 4C”).

(xiv) Sub 13 will form and contribute cash to Sub 41, a Country Q corporation. Sub 41
will purchase all the outstanding stock of Sub 40 from Sub 39 for an amount equal to
the fair market value of the transferred stock. Prior to the purchase, Sub 40 will have
elected to be disregarded for U.S. federal income tax purposes (the sale and election,
the “Sub 40 Reorganization”).

(xv) Sub 9 will make a loan to Sub 43. Sub 43 will purchase all the outstanding stock of
Sub 9 from Sub 8 for an amount equal to the fair market value of the transferred stock,
which will include the value of the loan receivable from Sub 43. Prior to the purchase,
Sub 9 will have elected to be disregarded for U.S. federal income tax purposes (the sale
and election, the “Sub 9 Reorganization”).

(xvi) Sub 1 will acquire for cash equal to the fair market value of the transferred asset a
Business A asset from Sub 46. Sub 43 will acquire for cash equal to the fair market
value of the transferred asset a Business A asset from Sub 46.

(xvii) Distributing 4 will distribute all of the outstanding Controlled 4 stock to Distributing
4’s shareholders on a pro rata basis (“Distribution 4”).

After Distribution 4, in order to achieve business efficiencies and subject to evaluation of
non-U.S. federal income tax and legal issues, the intention is to merge Sub 26 and Sub
27 upstream into Sub 24.
PLR-155842-09 9

                                 Representations

The following representations are made with regard to the named transaction (or
transactions):

A. Contribution 1A and Distribution 1

(a) The total adjusted basis and the fair market value of the assets transferred to
Controlled 1 in Contribution 1A will equal or exceed the sum of the liabilities, if any,
assumed (as determined under § 357(d)) by Controlled 1.

(b) The total fair market value of the assets that Distributing 1 will transfer to Controlled
1 in Contribution 1A will exceed the sum of (i) the amount of liabilities, if any, assumed
(within the meaning of § 357(d)) by Controlled 1 in connection with the exchange, (ii) the
amount of any liabilities owed to Controlled 1 by Distributing 1 that are discharged or
extinguished in connection with the exchange, and (iii) the amount of any cash and the
fair market value of any other property (other than stock and securities permitted to be
received under § 361(a) without the recognition of gain) received by Distributing 1 in
connection with the exchange. The total fair market value of the assets of Controlled 1
will exceed the total amount of its liabilities immediately after the deemed exchange.

(c) The liabilities, if any, to be assumed (as determined under § 357(d)) by Controlled 1
in Contribution 1A were incurred in the ordinary course of business and are associated
with the assets being deemed transferred.

(d) No intercorporate debt will exist between Distributing 1 and its subsidiaries, on the
one hand, and Controlled 1 and its subsidiaries, on the other hand, at the time of, or
subsequent to, deemed Distribution 1.

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

(f) The 5 years of financial information submitted on behalf of Distributing 1 is
representative of the corporation’s present operation, and with regard to such
corporation, there have been no substantial operational changes since the date of the
last financial statements submitted.

(g) The 5 years of financial information submitted on behalf of Sub 24 (a wholly-owned
subsidiary of Controlled 1) is representative of Sub 24’s present operation, and with
regard to such corporation, there have been no substantial operational changes since
the date of the last financial statements submitted.
PLR-155842-09 10

(h) Following deemed Distribution 1, Distributing 1 and Controlled 1 (through the
business of Sub 24) will each continue the active conduct of its business, independently
and with its separate employees.

(i) Deemed Distribution 1 is being carried out for the following corporate business
purpose: to facilitate Distribution 4. The deemed distribution of the stock of Controlled
1 is motivated, in whole or substantial part, by this corporate business purpose.

(j) Deemed Distribution 1 is not being used principally as a device for the distribution of
the earnings and profits of Distributing 1, Controlled 1, or both.

(k) Deemed 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 (determined after
applying § 355(d)(7)) will acquire directly or indirectly stock representing a 50 percent or
greater interest (within the meaning of § 355(d)(4)) in Distributing 1 or Controlled 1
(including a predecessor or successor of any such corporation).

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

(m) For purposes of § 355(d), immediately after deemed Distribution 1, no person
(determined after applying § 355(d)(7)) will hold stock possessing 50 percent or more of
the total combined voting power of all classes of Controlled 1 stock entitled to vote, or
50 percent or more of the total value of shares of all classes of Controlled 1 stock, that
was either (1) acquired by purchase (as defined in §§ 355(d)(5) and (8)) during the 5-
year period (determined after applying § 355(d)(6)) ending on the date of deemed
Distribution 1 or (2) attributable to distributions on stock of Distributing 1 that was
acquired by purchase (as defined in §§ 355(d)(5) and (8)) during the 5-year period
(determined after applying § 355(d)(6)) ending on the date of deemed Distribution 1.

(n) Distributing 1 neither accumulated its receivables nor made extraordinary payment
of its payables in anticipation of the transaction.

(o) Payments made in connection with all continuing transactions, if any, between
Distributing 1 and Controlled 1, will be for fair market value based on terms and
conditions arrived at by the parties bargaining at arm’s length.

(p) No two parties to the transaction are investment companies as defined in
§§ 368(a)(2)(F)(iii) and (iv).
PLR-155842-09 11

(q) Immediately after Distribution 1, neither Distributing 1 nor Controlled 1 will be a
disqualified investment corporation (within the meaning of § 355(g)(2)).

(r) Distributing 1 and Controlled 1 will be controlled foreign corporations, within the
meaning of § 957(a), immediately before and after deemed Distribution 1.

(s) Distributing 4 will be a § 1248 shareholder, within the meaning of § 1.367(b)-2(b),
with respect to each of Controlled 1 and Distributing 1 immediately before and after
deemed Distribution 1.

(t) Distributing 1 and Controlled 1 will not be passive foreign investment companies
within the meaning of § 1297(a) immediately before or after deemed Distribution 1.

(u) Controlled 1 will not hold any United States real property interests, as defined in
§ 897(c)(1), immediately before or after deemed Distribution 1.

(v) Neither Distributing 1 nor Controlled 1 (i) was or will be a United States real property
holding corporation (as defined in § 897(c)(2)) at any time during the 5-year period
ending on the date of deemed Distribution 1 or (ii) will be a United States real property
holding corporation immediately after deemed Distribution 1.

(w) The notice requirements of §§ 1.367(b)-1(c) will be satisfied for deemed Distribution
1.

(x) Deemed Distribution 1 will not include the transfer of stock in any corporation that
has been a U.S. transferor, the transferee foreign corporation, or the transferred
corporation with respect to any unexpired gain recognition agreement within the
meaning of §§ 1.367(a)-3, 1.367(a)-8, and 1.367(a)-8T.

B. Distribution 2

(y) No intercorporate debt will exist between Distributing 2 and its subsidiaries, on the
one hand, and Controlled 2 and its subsidiaries, on the other hand, at the time of, or
subsequent to, deemed Distribution 2.

(z) No part of the consideration to be deemed distributed by Distributing 2 will be
received by a shareholder as a creditor, employee, or in any capacity other than that of
a shareholder of Distributing 2.

(aa) The 5 years of financial information submitted on behalf of Distributing 2 is
representative of the corporation’s present operation, and with regard to such
corporation, there have been no substantial operational changes since the date of the
last financial statements submitted.
PLR-155842-09 12

(bb) The 5 years of financial information submitted on behalf of Sub 32 (a wholly-owned
subsidiary of Controlled 2) is representative of Sub 32’s present operation, and with
regard to such corporation, there have been no substantial operational changes since
the date of the last financial statements submitted.

(cc) Following deemed Distribution 2, Distributing 2 and Controlled 2 (through the
business of Sub 32) will each continue the active conduct of its business, independently
and with its separate employees.

(dd) Deemed Distribution 2 is being carried out for the following corporate business
purpose: to facilitate Distribution 4. The deemed distribution of the stock of Controlled
2 is motivated, in whole or substantial part, by this corporate business purpose.

(ee) Deemed Distribution 2 is not being used principally as a device for the distribution
of the earnings and profits of Distributing 2, Controlled 2, or both.

(ff) Deemed Distribution 2 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 (determined after
applying § 355(d)(7)) will acquire directly or indirectly stock representing a 50 percent or
greater interest (within the meaning of § 355(d)(4)) in Distributing 2 or Controlled 2
(including a predecessor or successor of any such corporation).

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

(hh) For purposes of § 355(d), immediately after deemed Distribution 2, no person
(determined after applying § 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 either (1) acquired by purchase (as defined in §§ 355(d)(5) and (8)) during the 5-
year period (determined after applying § 355(d)(6)) ending on the date of deemed
Distribution 2 or (2) attributable to distributions on stock of Distributing 2 that was
acquired by purchase (as defined in §§ 355(d)(5) and (8)) during the 5-year period
(determined after applying § 355(d)(6)) ending on the date of deemed Distribution 2.

(ii) Distributing 2 neither accumulated its receivables nor made extraordinary payment
of its payables in anticipation of the transaction.
PLR-155842-09 13

(jj) Payments made in connection with all continuing transactions, if any, between
Distributing 2 and Controlled 2, will be for fair market value based on terms and
conditions arrived at by the parties bargaining at arm’s length.

(kk) No two parties to the transaction are investment companies as defined in
§§ 368(a)(2)(F)(iii) and (iv).

(ll) Immediately after Distribution 2, neither Distributing 2 nor Controlled 2 will be a
disqualified investment corporation (within the meaning of § 355(g)(2)).

(mm) Distributing 2 and Controlled 2 will be controlled foreign corporations, within the
meaning of § 957(a), immediately before and after deemed Distribution 2.

(nn) Distributing 4 will be a § 1248 shareholder, within the meaning of § 1.367(b)-2(b),
with respect to each of Controlled 2 and Distributing 2 immediately before and after
deemed Distribution 2.

(oo) Distributing 2 and Controlled 2 will not be passive foreign investment companies
within the meaning of § 1297(a) immediately before or after deemed Distribution 2.

(pp) Controlled 2 will not hold any United States real property interests, as defined in
§ 897(c)(1), immediately before or after deemed Distribution 2.

(qq) Neither Distributing 2 nor Controlled 2 (i) was or will be a United States real
property holding corporation (as defined in § 897(c)(2)) at any time during the 5-year
period ending on the date of deemed Distribution 2 or (ii) will be a United States real
property holding corporation immediately after deemed Distribution 2.

(rr) The notice requirements of §§ 1.367(b)-1(c) will be satisfied for deemed Distribution
2.

(ss) Deemed Distribution 2 will not include the transfer of stock in any corporation that
has been a U.S. transferor, the transferee foreign corporation, or the transferred
corporation with respect to any unexpired gain recognition agreement within the
meaning of §§ 1.367(a)-3, 1.367(a)-8, and 1.367(a)-8T.

C. Contribution 1B, Contribution 1C, Contribution 1D, and Contribution 2

(tt) No stock or securities will be deemed issued for services rendered to or for the
benefit of Sub 5 in connection with deemed Contribution 1B, deemed Contribution 1C,
Contribution 1D, and deemed Contribution 2, and no stock or securities will be deemed
issued for indebtedness of Sub 5 that is not evidenced by a security or for interest on
indebtedness of Sub 5 which accrued on or after the beginning of the holding period of
Distributing 3 for the debt.
PLR-155842-09 14

(uu) None of the stock to be deemed transferred is ‘§ 306 stock’ within the meaning of
§ 306(c).

(vv) None of deemed Contribution 1B, deemed Contribution 1C, Contribution 1D, or
deemed Contribution 2 is the result of solicitation by a promoter, broker, or investment
house.

(ww) Distributing 3 will not retain any rights in the Controlled 1 and Controlled 2 stock
deemed transferred.

(xx) Distributing 3’s deemed adjusted basis in, and the fair market value of, the assets
deemed transferred will, in each instance, be equal to or exceed the sum of any
liabilities to be assumed by Sub 5 plus any liabilities to which such stock is subject.

(yy) Any liabilities to be deemed assumed by Sub 5 were incurred in the ordinary
course of business and are associated with the assets to be transferred.

(zz) Immediately before deemed Contribution 1B, deemed Contribution 1C,
Contribution 1D and deemed Contribution 2, there will be no indebtedness between
Distributing 3 and its subsidiaries, on the one hand, and Sub 5 and its subsidiaries, on
the other hand. There will be no indebtedness created in favor of Distributing 3 as a
result of the transaction.

(aaa) The deemed transfers and exchanges will occur under a plan agreed upon before
the transaction in which the rights of the parties are defined.

(bbb) All deemed exchanges will occur on approximately the same date.

(ccc) There is no plan or intention on the part of Sub 5 to redeem or otherwise
reacquire any stock.

(ddd) There is no plan or intention by Sub 5 to dispose of the assets deemed
transferred to it other than in the normal course of its business operations.

(eee) Sub 5 will not be an investment company within the meaning of § 351(e)(1) and
§ 1.351-1(c)(1)(ii).

(fff) Each of the parties to the transaction will pay its own expenses, if any, incurred in
connection with the transaction.

(ggg) Distributing 3 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 Distributing 3.
PLR-155842-09 15

(hhh) Sub 5 will not be a personal service corporation within the meaning of § 269A.

(iii) Following deemed Contribution 1B, deemed Contribution 1C, Contribution 1D, and
deemed Contribution 2, Distributing 3 will transfer 100 percent of the stock of Sub 5 to
Controlled 3 in connection with deemed Contribution 3. As a result of deemed
Contribution 3, Controlled 3 will own 100 percent of the stock of Sub 5. Controlled 3
has no plan or intent to dispose of the stock of Sub 5.

(jjj) Distributing 4 will treat Sub 5’s transfer of Business B assets to Distributing 3
described in step (iv) as integrated with deemed Contribution 1B, deemed Contribution
1C, Contribution 1D, and deemed Contribution 2, such that a pro rata portion of the
Business B assets will be treated as exchanged for the assets transferred from
Distributing 3 to Sub 5 based upon the relative fair market value of each asset
transferred (the “Integrated Transaction”).

D. Contribution 3 and Distribution 3

(kkk) The total adjusted basis and the fair market value of the assets deemed
transferred to Controlled 3 in deemed Contribution 3 will equal or exceed the sum of the
liabilities, if any, deemed assumed (as determined under § 357(d)) by Controlled 3.

(lll) The total fair market value of the assets that Distributing 3 will be deemed to
transfer to Controlled 3 in Contribution 3 will exceed the sum of (i) the amount of
liabilities, if any, assumed (within the meaning of § 357(d)) by Controlled 3 in connection
with the deemed exchange, (ii) the amount of any liabilities owed to Controlled 3 by
Distributing 3 that are discharged or extinguished in connection with the deemed
exchange, and (iii) the amount of any cash and the fair market value of any other
property (other than stock and securities permitted to be received under § 361(a)
without the recognition of gain) deemed received by Distributing 3 in connection with the
exchange. The total fair market value of the assets of Controlled 3 will exceed the total
amount of its liabilities immediately after the deemed exchange.

(mmm) The liabilities, if any, to be assumed (as determined under § 357(d)) by
Controlled 3 in deemed Contribution 3 were incurred in the ordinary course of business
and are associated with the assets being deemed transferred.

(nnn) No intercorporate debt will exist between Distributing 3 and its subsidiaries, on
the one hand, and Controlled 3 and its subsidiaries, on the other hand, at the time of, or
subsequent to, deemed Distribution 3.

(ooo) No part of the consideration to be deemed distributed by Distributing 3 will be
received by a shareholder as a creditor, employee, or in any capacity other than that of
a shareholder of Distributing 3.
PLR-155842-09 16

(ppp) The 5 years of financial information submitted on behalf of Distributing 3 is
representative of the corporation’s present operation, and with regard to such
corporation, there have been no substantial operational changes since the date of the
last financial statements submitted.

(qqq) The 5 years of financial information submitted on behalf of Sub 24 (immediately
before the deemed distribution, an indirect wholly-owned subsidiary of Controlled 3) is
representative of Sub 24’s present operation, and with regard to such corporation, there
have been no substantial operational changes since the date of the last financial
statements submitted.

(rrr) Following deemed Distribution 3, Distributing 3 and Controlled 3 (through the
business of Sub 24) will each continue the active conduct of its business, independently
and with its separate employees.

(sss) Deemed Distribution 3 is being carried out for the following corporate business
purpose: to facilitate Distribution 4. The deemed distribution of the stock of Controlled
3 is motivated, in whole or substantial part, by this corporate business purpose.

(ttt) Deemed Distribution 3 is not being used principally as a device for the distribution
of the earnings and profits of Distributing 3, Controlled 3, or both.

(uuu) Deemed Distribution 3 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 (determined after
applying § 355(d)(7)) will acquire directly or indirectly stock representing a 50 percent or
greater interest (within the meaning of § 355(d)(4)) in Distributing 3 or Controlled 3
(including a predecessor or successor of any such corporation).

(vvv) For purposes of § 355(d), immediately after deemed Distribution 3, no person
(determined after applying § 355(d)(7)) will hold stock possessing 50 percent or more of
the total combined voting power of all classes of Distributing 3 stock entitled to vote, or
50 percent or more of the total value of shares of all classes of Distributing 3 stock, that
was acquired by purchase (as defined in §§ 355(d)(5) and (8)) during the 5-year period
(determined after applying § 355(d)(6)) ending on the date of deemed Distribution 3.

(www) For purposes of § 355(d), immediately after deemed Distribution 3, no person
(determined after applying § 355(d)(7)) will hold stock possessing 50 percent or more of
the total combined voting power of all classes of Controlled 3 stock entitled to vote, or
50 percent or more of the total value of shares of all classes of Controlled 3 stock, that
was either (1) acquired by purchase (as defined in §§ 355(d)(5) and (8)) during the 5-
year period (determined after applying § 355(d)(6)) ending on the date of deemed
Distribution 3 or (2) attributable to distributions on stock of Distributing 3 that was
PLR-155842-09 17

acquired by purchase (as defined in §§ 355(d)(5) and (8)) during the 5-year period
(determined after applying § 355(d)(6)) ending on the date of deemed Distribution 3.

(xxx) Distributing 3 neither accumulated its receivables nor made extraordinary
payment of its payables in anticipation of the transaction.

(yyy) Payments made in connection with all continuing transactions, if any, between
Distributing 3 and Controlled 3, will be for fair market value based on terms and
conditions arrived at by the parties bargaining at arm’s length.

(zzz) No two parties to the transaction are investment companies as defined in
§§ 368(a)(2)(F)(iii) and (iv).

(aaaa) Immediately after Distribution 3, neither Distributing 3 nor Controlled 3 will be a
disqualified investment corporation (within the meaning of § 355(g)(2)).

(bbbb) Distributing 3 and Controlled 3 will be controlled foreign corporations, within the
meaning of § 957(a), immediately before and after deemed Distribution 3.

(cccc) Distributing 4 will be a § 1248 shareholder, within the meaning of
§ 1.367(b)-2(b), with respect to each of Controlled 3 and Distributing 3 immediately
before and after deemed Distribution 3.

(dddd) Distributing 3 and Controlled 3 will not be passive foreign investment companies
within the meaning of § 1297(a) immediately before or after deemed Distribution 3.

(eeee) Controlled 3 will not hold any United States real property interests, as defined in
§ 897(c)(1), immediately before or after deemed Distribution 3.

(ffff) Neither Distributing 3 nor Controlled 3 (i) was or will be a United States real
property holding corporation (as defined in § 897(c)(2)) at any time during the 5-year
period ending on the date of Distribution 3 or (ii) will be a United States real property
holding corporation immediately after deemed Distribution 3.

(gggg) The notice requirements of §§ 1.367(b)-1(c) will be satisfied for deemed
Distribution 3.

(hhhh) Contribution 3 and Distribution 3 will not include the transfer of stock in any
corporation that has been a U.S. transferor, the transferee foreign corporation, or the
transferred corporation with respect to any unexpired gain recognition agreement within
the meaning of §§ 1.367(a)-3, 1.367(a)-8, and 1.367(a)-8T.
PLR-155842-09 18

(iiii) Distributing 3’s deemed contribution of stock to Controlled 3 in deemed
Contribution 3 is not an exchange described in §§ 1.367(b)-4(b)(1)(i), 1.367(b)-4(b)(2)(i)
or 1.367(b)-4(b)(3).

E. The Sub 40 Reorganization

(jjjj) The fair market value of the cash and other consideration deemed received by Sub
39 will be approximately equal to the fair market value of the Sub 40 stock deemed
surrendered in the exchange.

(kkkk) Other than as provided by operation of § 1.368-2(l) with respect to the nominal
share deemed issued, there is no plan or intention by Sub 39 to sell, exchange, or
otherwise dispose of shares of Sub 41 stock deemed received in the transaction.

(llll) There is no plan or intent for Sub 13 to sell, exchange, or otherwise dispose of any
shares of Sub 41 stock.

(mmmm) Sub 41 will be deemed to 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 40 immediately prior to the Sub 40 Reorganization. For purposes of this
representation, amounts used by Sub 40 to pay its reorganization expenses, if any, and
all redemptions and distributions (except for regular, normal dividends) made by Sub 40
immediately preceding the Sub 40 Reorganization will be included as assets of Sub 40
held immediately prior to the Sub 40 Reorganization.

(nnnn) After the Sub 40 Reorganization, Sub 39 will be in control of Sub 41 within the
meaning of § 368(a)(2)(H).

(oooo) Sub 41 has no plan or intention to sell or otherwise dispose of any of the assets
of Sub 40 deemed acquired in the Sub 40 Reorganization, except for dispositions made
in the ordinary course of business.

(pppp) Following the Sub 40 Reorganization, Sub 41 will continue the historic business
of Sub 40 or use a significant portion of Sub 40’s historic business assets in a business.

(qqqq) At the time of the Sub 40 Reorganization, Sub 40 will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant to which any
person could acquire stock in Sub 40 that, if exercised or converted, would affect Sub
39’s acquisition or retention of control of Sub 41, as defined in § 368(a)(2)(H).

(rrrr) Sub 39, Sub 40, and Sub 41 will pay their respective expenses, if any, incurred in
connection with the transaction.
PLR-155842-09 19

(ssss) No intercorporate debt will exist between Sub 40 and Sub 41 at the time of, or
subsequent to, the Sub 40 Reorganization.

(tttt) No party to the Sub 40 Reorganization is an investment company as defined in
§§ 368(a)(2)(F)(iii) and (iv).

(uuuu) Immediately after the Sub 40 Reorganization, no party will be a disqualified
investment corporation (within the meaning of § 355(g)(2)).

(vvvv) The total adjusted basis and the fair market value of the assets deemed
transferred to Sub 41 by Sub 40 in the Sub 40 Reorganization will equal or exceed the
sum of the liabilities, if any, assumed (as determined under § 357(d)) by Sub 41.

(wwww) The total fair market value of the assets that Sub 40 will be deemed to transfer
to Sub 41 in the Sub 40 Reorganization will equal or exceed the sum of (i) the amount
of liabilities, if any, assumed (within the meaning of § 357(d)) by Sub 41 in connection
with the exchange, (ii) the amount of any liabilities owed to Sub 41 by Sub 40 that are
discharged or extinguished in connection with the exchange, and (iii) the amount of any
cash and the fair market value of any other property (other than stock and securities
permitted to be received under § 361(a) without the recognition of gain) deemed
received by Sub 40 in connection with the exchange. The total fair market value of the
assets of Sub 41 will exceed the total amount of its liabilities immediately after the
deemed exchange.

(xxxx) The liabilities, if any, to be assumed (as determined under § 357(d)) by Sub 41
in the Sub 40 Reorganization were incurred in the ordinary course of business and are
associated with the assets being deemed transferred.

(yyyy) Sub 40 is not under the jurisdiction of a court in a title 11 of similar case within
the meaning of § 368(a)(3)(A).

F. The Sub 9 Reorganization

(zzzz) The fair market value of the cash and other consideration deemed received by
Sub 8 will be approximately equal to the fair market value of the Sub 9 stock deemed
surrendered in the exchange.

(aaaaa) Other than as provided by operation of § 1.368-2(l) with respect to the nominal
share deemed issued, there is no plan or intention by Sub 8 to sell, exchange, or
otherwise dispose of shares of Sub 43 stock deemed received in the transaction.

(bbbbb) There is no plan or intent for Sub 44 to sell, exchange, or otherwise dispose of
any shares of Sub 43 stock.
PLR-155842-09 20

(ccccc) Sub 43 will be deemed to 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 9 immediately prior to the Sub 9 Reorganization. For purposes of this
representation, amounts used by Sub 9 to pay its reorganization expenses, if any, and
all redemptions and distributions (except for regular, normal dividends) made by Sub 9
immediately preceding the Sub 9 Reorganization will be included as assets of Sub 9
held immediately prior to the Sub 9 Reorganization.

(ddddd) After the Sub 9 Reorganization, Sub 8 will be in control of Sub 43 within the
meaning of § 368(a)(2)(H).

(eeeee) Sub 43 has no plan or intention to sell or otherwise dispose of any of the
assets of Sub 9 deemed acquired in the Sub 9 Reorganization, except for dispositions
made in the ordinary course of business.

(fffff) Following the Sub 9 Reorganization, Sub 43 will continue the historic business of
Sub 9 or use a significant portion of Sub 9’s historic business assets in a business.

(ggggg) At the time of the Sub 9 Reorganization, Sub 9 will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant to which any
person could acquire stock in Sub 9 that, if exercised or converted, would affect Sub 8’s
acquisition or retention of control of Sub 43, as defined in § 368(a)(2)(H).

(hhhhh) Sub 8, Sub 9, and Sub 43 will pay their respective expenses, if any, incurred in
connection with the transaction.

(iiiii) No intercorporate debt will exist between Sub 9 and Sub 43 at the time of, or
subsequent to, the Sub 9 Reorganization.

(jjjjj) No party to the Sub 9 Reorganization is an investment company as defined in
§§ 368(a)(2)(F)(iii) and (iv).

(kkkkk) Immediately after the Sub 40 Reorganization, no party will be a disqualified
investment corporation (within the meaning of § 355(g)(2)).

(lllll) The total adjusted basis and the fair market value of the assets deemed
transferred to Sub 43 by Sub 9 in the Sub 9 Reorganization will equal or exceed the
sum of the liabilities, if any, assumed (as determined under § 357(d)) by Sub 43.

(mmmmm) The total fair market value of the assets that Sub 9 will be deemed to
transfer to Sub 43 in the Sub 9 Reorganization will equal or exceed the sum of (i) the
amount of liabilities, if any, assumed (within the meaning of § 357(d)) by Sub 43 in
connection with the exchange, (ii) the amount of any liabilities owed to Sub 43 by Sub 9
that are discharged or extinguished in connection with the exchange, and (iii) the
PLR-155842-09 21

amount of any cash and the fair market value of any other property (other than stock
and securities permitted to be received under § 361(a) without the recognition of gain)
deemed received by Sub 9 in connection with the exchange. The total fair market value
of the assets of Sub 43 will exceed the total amount of its liabilities immediately after the
deemed exchange.

(nnnnn) The liabilities, if any, to be assumed (as determined under § 357(d)) by Sub 43
in the Sub 9 Reorganization were incurred in the ordinary course of business and are
associated with the assets being deemed transferred.

(ooooo) Sub 9 is not under the jurisdiction of a court in a title 11 of similar case within
the meaning of § 368(a)(3)(A).

G. Contribution 4A, Contribution 4B, Contribution 4C, and Distribution 4

(ppppp) No intercorporate debt will exist between Distributing 4 and its subsidiaries, on
the one hand, and Controlled 4 and its subsidiaries, on the other hand, at the time of, or
subsequent to, Distribution 4.

(qqqqq) Except for the issuance of Controlled 4 warrants to the holders of Distributing 4
warrants, the issuance of Controlled 4 exchangeable notes to the holders of Distributing
4 exchangeable notes, and the possible issuance of options to employees of Controlled
4, no part of the consideration to be distributed by Distributing 4 will be received by a
shareholder as a creditor, employee, or in any capacity other than that of a shareholder
of Distributing 4.

(rrrrr) The 5 years of financial information submitted on behalf of Distributing 3 (a
wholly-owned subsidiary of Distributing 4) is representative of Distributing 3’s present
operation, and with regard to such corporation, there have been no substantial
operational changes since the date of the last financial statements submitted.

(sssss) The 5 years of financial information submitted on behalf of Sub 24 (immediately
before the distribution, an indirect wholly-owned subsidiary of Controlled 4) is
representative of Sub 24’s present operation, and with regard to such corporation, there
have been no substantial operational changes since the date of the last financial
statements submitted.

(ttttt) Following Distribution 4, Distributing 4 (through the business of Distributing 3) and
Controlled 4 (through the business of Sub 24) will each continue the active conduct of
its business, independently and with its separate employees.
PLR-155842-09 22

(uuuuu) Distribution 4 is being carried out for the following corporate business
purposes: (i) to permit Distributing 4’s management team to focus entirely on its core
Business B operations, which are fundamentally different than those of Business A, (ii)
to permit Distributing 4 and Controlled 4 to allocate resources in the manner best suited
for their independent businesses, and (iii) to enable Controlled 4 to implement a
compensation plan based on its industry and focused solely on the performance of
Business A. The distribution of the stock, or stock and securities, of Controlled 4 is
motivated, in whole or substantial part, by one or more of these corporate business
purposes.

(vvvvv) Distribution 4 is not being used principally as a device for the distribution of the
earnings and profits of Distributing 4, Controlled 4, or both.

(wwwww) 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 (determined after
applying § 355(d)(7)) will acquire directly or indirectly stock representing a 50 percent or
greater interest (within the meaning of § 355(d)(4)) in Distributing 4 or Controlled 4
(including a predecessor or successor of any such corporation).

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

(yyyyy) For purposes of § 355(d), immediately after Distribution 4, no person
(determined after applying § 355(d)(7)) will hold stock possessing 50 percent or more of
the total combined voting power of all classes of Controlled 4 stock entitled to vote, or
50 percent or more of the total value of shares of all classes of Controlled 4 stock, that
was either (1) acquired by purchase (as defined in §§ 355(d)(5) and (8)) during the 5-
year period (determined after applying § 355(d)(6)) ending on the date of Distribution 4
or (2) attributable to distributions on stock of Distributing 4 that was acquired by
purchase (as defined in §§ 355(d)(5) and (8)) during the 5-year period (determined after
applying § 355(d)(6)) ending on the date of Distribution 4.

(zzzzz) Distributing 4 neither accumulated its receivables nor made extraordinary
payment of its payables in anticipation of the transaction.

(aaaaaa) Payments made in connection with all continuing transactions, if any,
between Distributing 4 and Controlled 4, will be for fair market value based on terms
and conditions arrived at by the parties bargaining at arm’s length.
PLR-155842-09 23

(bbbbbb) No two parties to the transaction are investment companies as defined in
§§ 368(a)(2)(F)(iii) and (iv).

(cccccc) Immediately after Distribution 4, neither Distributing 4 nor Controlled 4 will be
a disqualified investment corporation (within the meaning of § 355(g)(2)).

(dddddd) 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.

(eeeeee) The payment of cash in lieu of fractional shares of Controlled 4 is solely for
the purpose of avoiding the expense and inconvenience of issuing fractional shares and
does not represent separately bargained-for consideration. The fractional share
interests of each Distributing 4 shareholder will be aggregated, and no Distributing 4
shareholder is expected to receive cash with respect to their Common Stock or Class B
Common Stock in an amount greater than the value of one full share of the class of
stock with respect to which the fractional share payment is made.

(ffffff) The total adjusted basis and the fair market value of the assets transferred to
Controlled 4 in Contribution 4A, Contribution 4B, and Contribution 4C will equal or
exceed the sum of the liabilities, if any, assumed (as determined under § 357(d)) by
Controlled 4.

(gggggg) The total fair market value of the assets that Distributing 4 will to transfer to
Controlled 4 in Contribution 4A, Contribution 4B, and Contribution 4C will exceed the
sum of (i) the amount of liabilities, if any, assumed (within the meaning of § 357(d)) by
Controlled 4 in connection with the exchanges, (ii) the amount of any liabilities owed to
Controlled 4 by Distributing 4 that are discharged or extinguished in connection with the
exchanges, and (iii) the amount of any cash and the fair market value of any other
property (other than stock and securities permitted to be received under § 361(a)
without the recognition of gain) received by Distributing 4 in connection with the
exchanges. The total fair market value of the assets of Controlled 4 will exceed the total
amount of its liabilities immediately after the exchanges.

(hhhhhh) The liabilities, if any, to be assumed (as determined under § 357(d)) by
Controlled 4 in Contribution 4A, Contribution 4B, and Contribution 4C were incurred in
the ordinary course of business and are associated with the assets being deemed
transferred.

                                      Rulings

Based solely on the information submitted and representations made, we rule as follows
with regard to the following named transaction (or transactions):
PLR-155842-09 24

A. Contribution 1A and Distribution 1

(1) For federal income tax purposes, the transactions described in step (vi) will be
treated as if, following Contribution 1A, Distributing 1 distributed Controlled 1 to
Distributing 3, followed by a transfer of Controlled 1 from Distributing 3 to Sub 5 as part
of the Integrated Transaction described in representation (jjj). See Rev. Rul. 77-191,
1977-1 C.B. 94.

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

(3) No gain or loss will be recognized by Distributing 1 on Contribution 1A. § 361(a);
§ 357(a).

(4) No gain or loss will be recognized by Controlled 1 on Contribution 1A. § 1032(a).

(5) The basis of the asset received by Controlled 1 will equal Distributing 1’s basis in
such asset immediately before Contribution 1A. § 362(b).

(6) The holding period of the asset received by Controlled 1 will include the period
Distributing 1 held such asset. § 1223(2).

(7) No gain or loss will be recognized by Distributing 1 on Distribution 1. § 361(c)(1).

(8) No gain or loss will be recognized by (and no amount will be included in the income
of) Distributing 3 on its receipt of Controlled 1 stock. § 355(a)(1).

(9) The aggregate basis of the Distributing 1 stock and the Controlled 1 stock in the
hands of Distributing 3 immediately after Distribution 1 will equal the aggregate basis of
the Distributing 1 stock held by Distributing 3 immediately before Distribution 1,
allocated between the stock of Distributing 1 and Controlled 1 in proportion to the fair
market value of each immediately following Distribution 1 in accordance with
§ 1.358-2(a). § 358(b)(2) and (c).

(10) Distributing 3’s holding period for the Controlled 1 stock received by Distributing 3
will include the holding period of the Distributing 1 stock with respect to which the
Controlled 1 stock will be distributed, provided that the Distributing 1 stock is held as a
capital asset on the date of Distribution 1. § 1223(1).

(11) As provided in § 312(h), proper allocation of earnings and profits between
Distributing 1 and Controlled 1 will be made under § 1.312-10(b).
PLR-155842-09 25

(12) Distribution 1 will be a distribution to which §§ 1.367(b)-1(c), 1.367(b)-5(a), and
1.367(b)-5(c) apply. If Distributing 3’s postdistribution amount (as defined in § 1.367(b)-
5(e)(2)) with respect to Distributing 1 or Controlled 1 is less than Distributing 3’s
predistribution amount (as defined in § 1.367(b)-5(e)(1)) with respect to Distributing 1 or
Controlled 1, then Distributing 3’s basis in such stock immediately after the distribution
must be reduced by the amount of the difference. However, Distributing 3’s basis in
such stock must not be reduced below zero, and to the extent the foregoing reduction
would reduce basis below zero, then Distributing 3 must instead include such amount in
income as a deemed dividend from such corporation. § 1.367(b)-5(c)(2). If Distributing
3 reduces its basis in the stock of Distributing 1 or Controlled 1 (or has an inclusion with
respect to such stock), then Distributing 3 shall increase its basis in the stock of the
other corporation to the extent provided in § 1.367(b)-5(c)(4).

B. Distribution 2

(13) For federal income tax purposes, the transactions described in step (vii) will be
treated as if Distributing 2 distributed Controlled 2 to Distributing 3, followed by a
transfer of Controlled 2 from Distributing 3 to Sub 5 as part of the Integrated Transaction
described in representation (jjj). See Rev. Rul. 77-191, 1977-1 C.B. 94.

(14) No gain or loss will be recognized by Distributing 2 on Distribution 2. § 355(c).

(15) No gain or loss will be recognized by (and no amount will be included in the
income of) Distributing 3 on its receipt of Controlled 2 stock. § 355(a)(1).

(16) The aggregate basis of the Distributing 2 stock and the Controlled 2 stock in the
hands of Distributing 3 immediately after Distribution 2 will equal the aggregate basis of
the Distributing 2 stock held by Distributing 3 immediately before Distribution 2,
allocated between the stock of Distributing 2 and Controlled 2 in proportion to the fair
market value of each immediately following Distribution 2 in accordance with § 1.358-
2(a). § 358(b)(2) and (c).

(17) Distributing 3’s holding period for the Controlled 2 stock received by Distributing 3
will include the holding period of the Distributing 2 stock with respect to which the
Controlled 2 stock will be distributed, provided that the Distributing 2 stock is held as a
capital asset on the date of Distribution 2. § 1223(1).

(18) As provided in § 312(h), proper allocation of earnings and profits between
Distributing 2 and Controlled 2 will be made under § 1.312-10(b).

(19) Distribution 2 will be a distribution to which §§ 1.367(b)-1(c), 1.367(b)-5(a), and
1.367(b)-5(c) apply. If Distributing 3’s postdistribution amount (as defined in § 1.367(b)-
5(e)(2)) with respect to Distributing 2 or Controlled 2 is less than Distributing 3’s
predistribution amount (as defined in § 1.367(b)-5(e)(1)) with respect to Distributing 2 or
PLR-155842-09 26

Controlled 2, then Distributing 3’s basis in such stock immediately after the distribution
must be reduced by the amount of the difference. However, Distributing 3’s basis in
such stock must not be reduced below zero, and to the extent the foregoing reduction
would reduce basis below zero, then Distributing 3 must instead include such amount in
income as a deemed dividend from such corporation. § 1.367(b)-5(c)(2). If Distributing
3 reduces its basis in the stock of Distributing 2 or Controlled 2 (or has an inclusion with
respect to such stock), then Distributing 3 shall increase its basis in the stock of the
other corporation to the extent provided in § 1.367(b)-5(c)(4).

C. Contribution 1B, Contribution 1C, Contribution 1D, and Contribution 2

(20) For federal income tax purposes, the asset sale from Distributing 3 to Sub 5
followed by the contribution of the sales proceeds back to Sub 5 described in step (v)
will be treated as a contribution by Distributing 3 to Sub 5 of the assets sold. The
circular flow of cash will be disregarded.

(21) Sub 5’s transfer of Business B assets to Distributing 3 described in step (iv) will be
treated as integrated with deemed Contribution 1B, deemed Contribution 1C,
Contribution 1D, and deemed Contribution 2, such that a pro rata portion of the
Business B assets will be treated as exchanged for the assets transferred from
Distributing 3 to Sub 5 based upon the relative fair market value of each asset
transferred.

(22) Except as provided by ruling (21), no gain or loss will be recognized by Distributing
3 on Contribution 1B, Contribution 1C, Contribution 1D, or Contribution 2. §§ 351(a)
and 357(a); Rev. Rul. 2003-51, 2003-1 C.B. 938.

(23) Contribution 1B, Contribution 1C, Contribution 1D, and Contribution 2 will each be
an exchange to which §§ 1.367(b)-1(c) and 1.367(b)-4(a) apply.

(24) No amount will be included in income as a deemed dividend equal to the § 1248
amount under § 367(b) as a result of Contribution 1B, Contribution 1C, Contribution 1D,
or Contribution 2. §§ 1.367(b)-1(b) and 1.367(b)-4(b).

D. Contribution 3 and Distribution 3

(25) For federal income tax purposes, the transactions described in steps (viii) and (ix)
will be treated as if Distributing 3 had formed Controlled 3 and transferred the assets of
Sub 3, Sub 4 stock, Sub 5 stock, and land assets to Controlled 3, and then Distributing
3 distributed Controlled 3 to Distributing 4. See Rev. Rul. 77-191, 1977-1 C.B. 94.

(26) Contribution 3 followed by Distribution 3 will qualify as a reorganization within the
meaning of § 368(a)(1)(D). Distributing 3 and Controlled 3 will each be a “party to a
reorganization” within the meaning of § 368(b).
PLR-155842-09 27

(27) No gain or loss will be recognized by Distributing 3 on Contribution 3. § 361(a);
§ 357(a).

(28) No gain or loss will be recognized by Controlled 3 on Contribution 3. § 1032(a).

(29) The basis of each asset, including the assets of Sub 3, Sub 4 stock, Sub 5 stock,
and land assets, received by Controlled 3 will equal Distributing 3’s basis in such asset
immediately before Contribution 3. § 362(b).

(30) The holding period of each asset, including the assets of Sub 3, Sub 4 stock, Sub
5 stock, and land assets received by Controlled 3 will include the period Distributing 3
held such asset. § 1223(2).

(31) No gain or loss will be recognized by Distributing 3 on Distribution 3. § 361(c)(1).

(32) No gain or loss will be recognized by (and no amount will be included in the
income of) Distributing 4 on its receipt of Controlled 3 stock. § 355(a)(1).

(33) The aggregate basis of the Distributing 3 stock and the Controlled 3 stock in the
hands of Distributing 4 immediately after Distribution 3 will equal the aggregate basis of
the Distributing 3 stock held by Distributing 4 immediately before Distribution 3,
allocated between the stock of Distributing 3 and Controlled 3 in proportion to the fair
market value of each immediately following Distribution 3 in accordance with § 1.358-
2(a). § 358(b)(2) and (c).

(34) Distributing 4’s holding period for the Controlled 3 stock received by Distributing 4
will include the holding period of the Distributing 3 stock with respect to which the
Controlled 3 stock will be distributed, provided that the Distributing 3 stock is held as a
capital asset on the date of Distribution 3. § 1223(1).

(35) As provided in § 312(h), proper allocation of earnings and profits between
Distributing 1 and Controlled 2 will be made under § 1.312-10(a).

(36) Contribution 3 will be an exchange to which §§ 1.367(b)-1(c) and 1.367(b)-4(a)
apply.

(37) No amount will be included in income as a deemed dividend equal to the § 1248
amount under § 367(b) as a result of Contribution 3. §§ 1.367(b)-1(b) and
1.367(b)-4(b).

(38) Distribution 3 will be a distribution to which §§ 1.367(b)-1(c), 1.367(b)-5(a), and
1.367(b)-5(c) apply. If Distributing 4’s postdistribution amount (as defined in § 1.367(b)-
5(e)(2)) with respect to Distributing 3 or Controlled 3 is less than Distributing 4’s
PLR-155842-09 28

predistribution amount (as defined in § 1.367(b)-5(e)(1)) with respect to Distributing 3 or
Controlled 3, then Distributing 4’s basis in such stock immediately after the distribution
must be reduced by the amount of the difference. However, Distributing 4’s basis in
such stock must not be reduced below zero, and to the extent the foregoing reduction
would reduce basis below zero, then Distributing 4 must instead include such amount in
income as a deemed dividend from such corporation (see § 1.367(b)-5(f)). If
Distributing 4 reduces its basis in the stock of Distributing 3 or Controlled 3 (or has an
inclusion with respect to such stock), then Distributing 3 shall increase its basis in the
stock of the other corporation to the extent provided in § 1.367(b)-5(c)(4).

E. The Sub 40 Reorganization and the Sub 9 Reorganization

(39) For federal income tax purposes, the Sub 40 Reorganization will be treated as if
Sub 40 transferred substantially all its assets to Sub 41 in exchange for cash and a
nominal share of Sub 41 stock and the assumption by Sub 41 of Sub 40 liabilities,
followed by the distribution of the cash and the deemed distribution of the nominal share
to Sub 39 in a distribution subject to §§ 354 and 356. So viewed, the Sub 40
Reorganization will qualify as a reorganization within the meaning of § 368(a)(1)(D).
Sub 40 and Sub 41 will each be a “party to a reorganization” within the meaning of
§ 368(b). The nominal share is deemed to have been further transferred from Sub 39 to
Sub 13 to reflect the actual ownership of Sub 40 and Sub 41. See § 1.368-2(l)(2)(i).
The cash distributed by Sub 40 to Sub 39 in step (xi) will be treated as distributed in the
distribution subject to §§ 354 and 356.

(40) For federal income tax purposes, the Sub 9 Reorganization will be treated as if
Sub 9 transferred substantially all of its assets to Sub 43 in exchange for cash and a
nominal share of Sub 43 stock and the assumption by Sub 43 of Sub 9 liabilities,
followed by the distribution of the cash and the deemed distribution of the nominal share
to Sub 8 in a distribution subject to §§ 354 and 356. So viewed, the Sub 9
Reorganization will qualify as a reorganization within the meaning of § 368(a)(1)(D).
Sub 9 and Sub 43 will each be a “party to a reorganization” within the meaning of
§ 368(b). The nominal share is deemed to have been further transferred from Sub 8 to
Sub 44 to reflect the actual ownership of Sub 9 and Sub 43. See § 1.368-2(l)(2)(i).

F. Contribution 4A, Contribution 4B, Contribution 4C, and Distribution 4

(41) For federal income tax purposes, the merger of Controlled 4’s merger sub with and
into Sub 1, resulting in Controlled 4 owning 100 percent of the stock of Sub 1, will be
treated as a contribution of Sub 1 stock to Controlled 4 by Distributing 4.

(42) Contribution 4A, Contribution 4B, and Contribution 4C, followed by Distribution 4
will qualify as a reorganization within the meaning of § 368(a)(1)(D). Distributing 4 and
Controlled 4 will each be a “party to a reorganization” within the meaning of § 368(b).
PLR-155842-09 29

(43) No gain or loss will be recognized by Distributing 4 on Contribution 4A,
Contribution 4B and Contribution 4C. § 361(a); § 357(a).

(44) No gain or loss will be recognized by Controlled 4 on Contribution 4A, Contribution
4B, and Contribution 4C. § 1032(a).

(45) The basis of each asset, including the Sub 1 stock, Sub 2 stock, Sub 10 stock,
Sub 45 stock, and Controlled 3 stock, received by Controlled 4 will equal Distributing 4’s
basis in such asset immediately before Contribution 4A, Contribution 4B, and
Contribution 4C. § 362(b).

(46) The holding period of each asset, including the Sub 1 stock, Sub 2 stock, Sub 10
stock, Sub 45 stock, and Controlled 3 stock, received by Controlled 4 will include the
period Distributing 4 held such asset. § 1223(2).

(47) No gain or loss will be recognized by Distributing 4 on Distribution 4. § 361(c)(1).

(48) No gain or loss will be recognized by (and no amount will be included in the
income of) Distributing 4’s shareholders on the receipt of Controlled 4 stock in
Distribution 4. § 355(a)(1).

(49) The aggregate basis of the Distributing 4 stock and the Controlled 4 stock in the
hands of Distributing 4’s shareholders immediately after Distribution 4 will equal the
aggregate basis of the Distributing 4 stock held by Distributing 4’s shareholders
immediately before Distribution 4, allocated between the stock of Distributing 4 and
Controlled 4 in proportion to the fair market value of each immediately following
Distribution 4 in accordance with § 1.358-2(a). § 358(b)(2) and (c).

(50) Each Distributing 4 shareholder’s holding period for the Controlled 4 stock will
include the holding period of the Distributing 4 stock with respect to which the Controlled
4 stock will be distributed, provided that the Distributing 4 stock is held as a capital
asset on the date of Distribution 4. § 1223(1).

(51) As provided in § 312(h), proper allocation of earnings and profits between
Distributing 4 and Controlled 4 will be made under § 1.312-10(a).

(52) Payments made by Distributing 4 or its subsidiaries to Controlled 4 or its
subsidiaries, or vice versa, under the MSDA, the Tax Sharing Agreement, or any of the
other ancillary agreements entered into in connection with the transactions that (i) have
arisen or will arise for a taxable period ending on or before Distribution 4 or for a taxable
period beginning on or before and ending after Distribution 4 and (ii) will not have
become fixed and ascertainable until after Distribution 4, will be treated as occurring
immediately before Distribution 4. See Arrowsmith v. Commissioner, 344 U.S. 6 (1952);
Rev. Rul. 83-73, 1983-1 C.B. 84.
PLR-155842-09 30

(53) The receipt of cash, if any, in lieu of fractional share interests in Controlled 4 stock
will be treated for federal income tax purposes as if the fractional share interests are
distributed by Distributing 4 and then sold by the recipient. The amount and character
of any gain or loss (measured by the difference between the basis allocated to the
fractional share and the amount of cash received, and taking into consideration the
holding period given the fractional share), will be treated as capital, provided the stock
was held as a capital asset by the selling shareholder.

G. Miscellaneous

(54) Except to the extent required under § 1.1502-9T(b)(6)(i), no recapture will arise
under § 904(f)(3) to reduce Distributing 4’s consolidated overall foreign loss account to
be apportioned as a result of any of the transaction steps described herein.

(55) The asset sales described in transaction steps (iii) and (xvi) will be respected as
independent transactions and will not be viewed as an integrated part of any other
transaction.

(56) Distributing 4’s purchase of the stock of Sub 10 will not be an acquisition of stock
by a related corporation described in § 304.

                                       Caveats

No opinion is expressed about the tax treatment of the Proposed Transactions under
other provisions of the Code and regulations, including under the International
provisions, or the tax treatment of any conditions existing at the time of, or effects
resulting from, the Proposed Transactions that are not specifically covered by the above
rulings. In particular, no opinion is expressed regarding: (i) whether Distribution 1,
Distribution 2, Distribution 3, and Distribution 4 satisfy the business purpose
requirement of § 1.355-2(b); (ii) whether Distribution 1, Distribution 2, Distribution 3, and
Distribution 4 are being used principally as a device for the distribution of the earnings
and profits of either Distributing 1, Distributing 2, Distributing 3, Distributing 4, Controlled
1, Controlled 2, Controlled 3, or Controlled 4, or any combination thereof (see §
355(a)(1)(B) and § 1.355-2(d)); and (iii) whether Distribution 1, Distribution 2,
Distribution 3, and Distribution 4 are 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 Distributing 1, Distributing 2, Distributing
3, Distributing 4, Controlled 1, Controlled 2, Controlled 3, or Controlled 4 (see § 355(e)
and § 1.355-7).
PLR-155842-09 31

                              Procedural Statements

This ruling letter is directed only to the taxpayer requesting it. Section 6110(k)(3)
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 this ruling letter.

In accordance with the powers of attorney on file in this office, a copy of this ruling letter
is being sent to your authorized representatives.

                                    Sincerely,



                                    Alfred C. Bishop, Jr.
                                    Branch Chief, Branch 6
                                    Office of Associate Chief Counsel (Corporate)