IRS approves a spin-off separating two business lines

Plain-English summary

A publicly traded corporation planned to separate two business lines by contributing one business and related entities to a newly formed corporation, then distributing that corporation's stock to its shareholders and certain creditors. The IRS ruled that the contribution and distributions would qualify as a section 368(a)(1)(D) reorganization and that the specified corporate-level and shareholder-level nonrecognition rules would apply. It also approved the treatment of cash used to repay debt, redeem stock, pay dividends, or complete related exchanges, and addressed basis, holding periods, earnings and profits, and fractional shares. The ruling was based on the taxpayer's representations and did not cover several business purpose, device, section 355(e), and continuing-transaction questions.

Ruling snapshot

• Question: Would the proposed contribution, public distribution, and related stock and debt transactions qualify for the requested tax treatment?
• Outcome: Approved, subject to stated representations and caveats
• Key authorities: IRC §§ 355, 357, 358, 361, 368(a)(1)(D), 1001, 1032, 1223, and 312(h); Treas. Reg. §§ 1.355-2, 1.355-7, 1.1502-13, 1.1502-19, and 1.1502-33

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201409002 Third Party Communication: None
Release Date: 2/28/2014 Date of Communication: Not Applicable
Index Number: 355.01-00, 368.04-00
Person To Contact:

------------------------- Telephone Number:
------------------------------- ----------------------
--------------------------- Refer Reply To:
CC:CORP:BO1
In Re: PLR-122385-13
------------------------- Date:
November 22, 2013

Distributing = -------------------------------

Controlled = --------------------------------------------------

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

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

-

Corp 1 = ----------------------------

Corp 2 = -------------------------------------------

Corp 3 = ----------------------------------------------

Corp 4 = -----------------------------------------

Corp 5 = -----------------------------------------------

LLC 1 = -------------------------------------------------
PLR-122385-13 2

LLC 2 = ------------------------------------------

Operating LLCs = ------------------------------------------------------------------------

Joint Venture = ----------------------------

A Leases = ------------------------------------------------------------------------

B Leases = ------------------------------------------------------------------------

k = ----

m = ----------------

n = ----

State X = --------------

Outlets = ------------------------

C = ------------------------------------------------------------------------

Collectibles = ------------------------------------------------------------------------

Dear ------------------

   This letter responds to your May 10, 2013 request for rulings on certain federal

income tax consequences of a proposed transaction. Additional information was
furnished in letters dated November 21, 2013 and November 22, 2013. The information
submitted is summarized below.

  The rulings contained in this letter are based upon information and

representations submitted by the taxpayer and accompanied by a penalty of perjury
PLR-122385-13 3

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 this 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 the proposed transaction (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 earnings and profits of the distributing
corporation(s), or the controlled corporation, or both (see section 355(a)(1)(B) of the
Internal Revenue 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(s) or
the controlled corporation (see section 355(e) and § 1.355-7).

                                Summary of Facts

  Distributing is a publicly traded State X corporation that is the common parent of

a consolidated group and directly and through subsidiary entities conducts Business A
and Business B.

   Business B is conducted in multiple Outlets. Distributing leases some of the

Outlets from third parties under A Leases and B Leases. Distributing owns the other
Outlets, some of which Distributing leases to tenants who operate the Outlets.

   Distributing also owns all the stock of Corp 1, Corp 2, and Corp 3, which conduct

Business B. Distributing also owns k percent of Joint Venture, which conducts Business
B. Distributing has entered into a letter of intent contemplating a purchase for cash of
the Joint Venture interests not presently owned by Distributing. These interests may be
purchase through a wholly-owned subsidiary of Distributing (“JV Holdco”).

  Controlled is a State X corporation to be formed for purposes of the proposed

transactions.

    We have received financial information indicating that Business A and Business

B have had gross income and operating expenses representative of the active conduct
of a trade or business for each of the past five years.

     The taxpayer represents that the proposed transactions will separate Business B

from Business A for the following corporate business purposes (“Corporate Business
Purposes”): (a) to allow Business A and Business B to focus on their differing strategic
priorities; (b) to allow Business B greater financial flexibility to allocate its cash flows
toward its growth opportunities; (c) to allow Business B to receive more focused
coverage from equity research analysts; and (d) to allow Business A and Business B to
each attract institutional investors that prefer more targeted investments.
PLR-122385-13 4

    For valid business purposes, Distributing plans to separate Business A and

Business B by contributing Business B to Controlled and distributing Controlled stock to
Distributing’s shareholders and creditors as described below. The transaction will take
the following steps.

   (i) Distributing will form the Operating LLCs, each a State X LLC, which will be

treated as disregarded entities for federal income tax purposes.

   (ii) Distributing will contribute the Outlets it owns and certain real estate to, and

novate the B Leases to, the Operating LLCs. Distributing will also enter into subleases
regarding the A Leases with the Operating LLCs. Distributing may also contribute
certain intellectual property to the Operating LLCs.

   (iii) Distributing will form Controlled.

   (iv) Controlled will form Corp 4, a State X corporation.

   (v) Corp 4 will form Corp 5, a State X corporation.

  (vi) Controlled will borrow up to m dollars from third-party lenders (the “Financing

Transaction”). The amount borrowed is the “Cash Amount.”

   (vii) Distributing will contribute to Controlled all the ownership interests in LLC 1,

LLC 2, the Operating LLCs, Corp 1,Corp 2, Corp 3, certain intellectual property (unless
previously contributed to the Operating LLCs), JV Holdco (if applicable), and
Distributing’s interest in Joint Venture (the “Contributed Assets”) in exchange for
Controlled common stock, the Cash Amount, and the assumption of liabilities to which
the Contributed Assets are subject (the “Contribution”).

   (viii) Controlled may contribute the Contributed Assets to Corp 4 and/or any other

wholly owned subsidiaries of Controlled.

   (ix) Distributing will distribute Controlled common stock that constitutes at least

80 percent of the total voting power of all Controlled common stock pro rata to holders
pf Distributing common stock (the “Public Shareholders’). This distribution is the “Public
Distribution”. There will be no class of nonvoting stock of Distributing outstanding.

   (x) Distributing will distribute all of the Cash Amount as follows: (a) to

Distributing’s common shareholders in redemption of outstanding Distributing common
stock, including pursuant to a stock repurchase program recently announced by
Distributing (the “Stock Repurchase’), (b) to creditors to retire outstanding third-party
indebtedness that was not incurred in anticipation of the Public Distribution (the “Debt
Repurchase”), (c) to creditors that are members of Distributing’s consolidated group (the
“Related Creditors”) to retire outstanding Distributing indebtedness (the “Distributed
PLR-122385-13 5

Related Debt”) that was not incurred in anticipation of the Public Distribution (the
“Related Creditors Debt Repurchase”), (d) to Distributing’s common shareholders by
funding the payment of regular quarterly dividends, and/or (d) to one or more
investment banks in exchange for Distributing Debt or Distributing Common Stock
acquired by the investment bank in the open market (the “Investment Bank
Repurchase”). Distributing intends to effect the transactions described in the preceding
sentence as soon as practicable following the Public Distribution, consistent with sound
business practices, and in any event no later than the n-month anniversary of the Public
Distribution. Distributing will deposit the Cash Amount in a segregated account until it is
used for the transactions described above.

    (xi) Distributing will distribute the Controlled Common Stock, if any, held by

Distributing after the Public Distribution (the “Retention” of the “Remaining Controlled
Stock”) (a) to Public Shareholders in redemption of outstanding Distributing Common
Stock (the “Stock-for-Stock Exchange”, (b) to creditors to retire outstanding Distributing
debt (the “Stock-for-Debt Exchange”), (c) to the Related Creditors to retire outstanding
Distributing debt, which the Related Creditors would dispose of such Distributing
Common Stock within n months of the Public Distribution (the “Related Creditors Debt
Exchange”), and/or (d) to one or more investment banks in exchange for Distributing
debt or Distributing common stock acquired by an investment bank in the open market
(the “Investment Bank Stock Exchange”). Distributing intends to effect the exchanges
described in the preceding sentence as soon as practicable following the Public
Distribution, consistent with sound business practices, and in any event no later than
the n-month anniversary of the Public Distribution.

  The Contribution, the Public Distribution, and the dispositions of the Remaining

Controlled Stock after the Public Distribution together constitute the “Spin-Off.”

   The payment of the Cash Amount to retire Distributing debt or to redeem

Distributing common stock and the exchange of Remaining Controlled Stock for
Distributing Debt or Distributing common stock may be effectuated either through a
direct exchange with market holders of Distributing debt or Distributing stock or with
investment banks that acquire Distributing debt or Distributing common stock in the
market for their own account. Any Distributing debt will be acquired by these
investment banks at least five days before entering into any agreement with Distributing
to effectuate an Investment Bank Repurchase or an Investment Bank Stock Exchange,
as applicable, with respect to such Distributing debt, and at least 14 days before
effectuating these transactions with respect to such Distributing debt. Any Distributing
common stock will be acquired by these investment banks at least five days before
effectuating any such Investment Bank Repurchase or Investment Bank Stock
Exchange with respect to the Distributing common stock. During (and perhaps before)
the period the investment banks are acquiring Distributing debt or stock, the investment
banks (including their affiliates) may solicit non-binding offers from third parties for the
Controlled common stock. Distributing anticipates that, following any Investment Bank
PLR-122385-13 6

Stock Exchange, the investment banks will sell any Controlled common stock received
by them in a public or private offering pursuant to such non-binding offers.

    To avoid administrative difficulties associated with issuance fractional shares of

Controlled stock, Distributing may issue fractional shares to a distribution agent. The
distribution agent will bundle the fractional shares, sell whole shares on the open
market, and remit the proceeds to the Public Shareholders, Distributing’s creditors, or
the investment banks (as applicable), net of transaction costs, in proportion to their
ownership of fractional shares.

  In connection with the Spin-Off, Distributing and Controlled will enter into

separation arrangements (“Separation Arrangements”) under which (i) Distributing and
Controlled will indemnify each other with respect to certain securities law, tax, and other
matters, and (ii) under transition services agreements, Distributing employees will
provide certain services for both Distributing and Controlled. This sharing of services is
expected to continue until Controlled is able to hire employees to fill these functions.

                                  Representations

  Distributing makes the following representations regarding the proposed

transaction:

The Contribution and the Public Distribution

   (a) Any indebtedness owed by Controlled (or any entity controlled directly or

indirectly by Controlled) to Distributing (or any entity controlled directly or indirectly by
Distributing) after the Public Distribution will not constitute stock or securities.

   (b) No part of the consideration distributed by Distributing in the Public

Distribution will be received by any shareholder of Distributing as a creditor, employee,
or in any capacity other than that of a shareholder of Distributing.

    (c) Distributing and Controlled each will treat all members of its Separate

Affiliated Group (SAG) (as defined in section 355(b)(3)(B)) as one corporation in
determining whether the requirements of section 355(b)(2)(A) regarding the active
conduct of a trade or business are satisfied.

   (d) The five years of financial information submitted for Business A conducted by

the Distributing SAG and for Business B to be conducted by the Controlled SAG
following the Contribution is representative of the present operations of each business,
and there have been no substantial operational changes in either business since the
date of the last financial statements submitted.
PLR-122385-13 7

    (e) Neither Business A conducted by the Distributing SAG nor control of any

entity conducting the business will have been acquired during the five-year period
ending on the date of the Public Distribution in a transaction in which gain or loss was
recognized (or treated as recognized) in whole or in part, except in connection with (i)
transfers between members of the affiliated group (as defined in section 1504(a),
determined without regard to section 1504(b)) of which Distributing was the parent, (ii)
the expansion of an existing five-year trade or business, or (iii) acquisitions that were
immaterial relative to the overall size and scope of Business A. Except to the extent
owned by joint ventures in which the Distributing SAG had a significant interest, the
Distributing SAG will have been the sole owner of the goodwill and significant assets of
Business A throughout the five-year period ending on the date of the Public Distribution
and will continue to be the sole owner following the Public Distribution.

     (f) Neither Business B to be conducted by the Controlled SAG following the

Contribution nor control of any entity conducting this business will have been acquired
during the five-year period ending on the date of the Public Distribution in a transaction
in which gain or loss was recognized (or treated as recognized) in whole or in part,
except in connection with (i) transfers between members of the affiliated group (as
defined in section 1504(a), determined without regard to section 1504(b)) of which
Distributing was the parent, (ii) the expansion of an existing five-year trade or business,
or (iii) acquisitions that were immaterial relative to the overall size and scope of
Business B. Except for certain Outlets that the Distributing SAG will lease to the
Controlled SAG following the Spin-Off, certain office space that the Controlled SAG may
lease to the Distributing SAG following the Spin-Off, certain intellectual property that will
be licensed by the Distributing SAG to the Controlled SAG, certain rights relating to the
design, manufacture, and sale of Collectibles (such leases, licenses, and rights,
collectively the “Continuing Arrangements”) and except to the extent any assets or
goodwill have been owned by joint ventures in which the Controlled SAG had a
significant interest, the Distributing SAG will have been the sole owner of the goodwill
and significant assets of Business B throughout the five-year period ending on the date
of the Contribution, and the Controlled SAG will be the sole owner following the
Contribution.

  (g) Apart from transitional services that may be provided under the Separation

Arrangements, the Distributing SAG will continue the active conduct of Business A,
independently and with its separate employees, following the Public Distribution.

   (h) Apart from the Continuing Arrangements and transitional services that may be

provided under the Separation Arrangements, the Controlled SAG will continue the
active conduct of Business B, independently and with its separate employees, following
the Public Distribution.
PLR-122385-13 8

  (i) The Spin-Off is being undertaken to accomplish the Corporate Business

Purposes. The Spin-Off is motivated in whole or substantial part by the Corporate
Business Purposes.

  (j) The Spin-Off will not be used principally as a device for the distribution of the

earnings and profits of Distributing or Controlled or both.

   (k) There is no plan or intention to liquidate any member of the Distributing SAG

engaged in Business A or any member of the Controlled SAG engaged in Business B,
to merge any member of either SAG with any other entity outside such SAG, or to sell
or otherwise dispose of the assets or shares of any member after the Public Distribution
to an extent that would cause the Distributing SAG to cease to be engaged in Business
A or the Controlled SAG to cease to be engaged in Business B.

   (l) The total adjusted basis and the fair market value of the assets transferred to

Controlled in the Contribution each will equal or exceed the sum of (i) the total liabilities
to be assumed (as determined under section 357(d)) by Controlled and (ii) the total
amount of any money and the fair market value of any other property (within the
meaning of section 361(b)) received by Distributing from Controlled and transferred to
Distributing’s creditors in connection with the reorganization.

  (m) Any liabilities assumed (as determined under section 357(d)) by Controlled in

the Contribution will have been incurred in the ordinary course of business and will be
associated with the assets transferred.

    (n) The total fair market value of the assets transferred to Controlled in the

Contribution will exceed the sum of (i) the amount of any liabilities assumed (as
determined under section 357(d)) by Controlled in connection with the Contribution, (ii)
the amount of any liabilities owed to Controlled by Distributing that are discharged or
extinguished in connection with the Contribution, 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 section 361(a) without the recognition of gain) received by
Distributing in connection with the Contribution. The fair market value of the assets of
Controlled will exceed the amount of its liabilities immediately after the Contribution.

  (o) The aggregate fair market value of the assets transferred by Distributing to

Controlled in the Contribution will equal or exceed the aggregate adjusted basis of those
assets.

 (p) Distributing will neither accumulate its receivables nor make extraordinary

payment of its payables in anticipation of the Contribution.

  (q) No two parties to the Spin-Off are investment companies as defined in section

368(a)(2)(F)(iii) and (iv).
PLR-122385-13 9

   (r) Immediately before the Public Distribution, items of income, gain, loss,

deduction, and credit will be taken into account as required by the applicable
intercompany transaction regulations (see Treas. Reg. §§ 1.1502-13 and -14 as in
effect before the publication of T.D. 8597, 1995-2 C.B. 147, and as currently in effect;
Treas. Reg. § 1.1502-13 as published in T.D. 8597). Further, any excess loss account
that Distributing has in the Controlled common stock or the stock of any direct or indirect
subsidiary of Controlled will be included in income immediately before the Public
Distribution to the extent required by regulations (see Treas. Reg. § 1.1502-19). At the
time of the Public Distribution, Distributing will not have an excess loss account in the
stock of Controlled or the stock of any direct or indirect subsidiary of Controlled.

    (s) Apart from debt arising in connection with the Separation Arrangements, the

Continuing Arrangements, and intercompany loans or other obligations that have arisen,
or will arise, in the ordinary course of business, no intercorporate debt will exist between
Controlled (or any entity controlled directly or indirectly by Controlled) and Distributing
(or any entity controlled directly or indirectly by Distributing) at the time of, or after, the
Public Distribution.

    (t) Apart from payments for certain services that may be rendered under the

Separation Arrangements and the Continuing Arrangements, payments made in
connection with all continuing transactions between Distributing (or any entity controlled
directly or indirectly by Distributing) and Controlled (or any entity controlled directly or
indirectly by Controlled) will be for fair market value based on terms and conditions
arrived at by the parties bargaining at arm's length.

    (u) For purposes of section 355(d), immediately after the Public Distribution, no

person (determined after applying section 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 section 355(d)(5) and
(8)) during the five-year period (determined after applying section 355(d)(6)) ending on
the date of the Public Distribution.

   (v) For purposes of section 355(d), immediately after the Public Distribution, no

person (determined after applying section 355(d)(7)) will hold stock possessing 50
percent or more of the total combined voting power of all classes of Controlled common
stock entitled to vote, or 50 percent of more of the total value of shares of all classes of
Controlled common stock, that was either (i) acquired by purchase (as defined in
section 355(d)(5) and (8)) during the five-year period (determined after applying section
355(d)(6)) ending on the date of the Public Distribution or (ii) attributable to distributions
on Distributing stock or securities that were acquired by purchase (as defined in section
355(d)(5) and (8)) during the five-year period (determined after applying section
355(d)(6)) ending on the date of the Public Distribution.
PLR-122385-13 10

    (w) The Public Distribution is not part of a plan or series of related transactions

(within the meaning of Treas. Reg. § 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 section 355(d)(4)) in Controlled or Distributing (including any
predecessor or successor of either corporation).

    (x) Immediately after the transaction (as defined in section 355(g)(4)), (i) if any

person holds a 50-percent or greater interest (within the meaning of section 355(g)(3))
in any disqualified investment corporation (within the meaning of section 355(g)(2)),
such person will have held such interest in such corporation (either directly or through
attribution) immediately before the Public Distribution, or (ii) neither Distributing nor
Controlled will be a disqualified investment corporation (within the meaning of section
355(g)(2)).

   (y) The payment of cash for fractional shares of Controlled, if any, is solely for

the purpose of avoiding the expense and inconvenience of issuing fractional shares and
does not represent separately bargained for consideration. The method used for
handling fractional shares is designed to limit the amount of cash received by any one
shareholder to less than the value of one full share of Controlled. The total amount of
cash paid for fractional shares will not exceed one percent of the fair market value of
Controlled common stock distributed in the Spin-Off.

     (z) Any (i) Distributing debt redeemed in the Debt Repurchase, the Stock-for-

Debt Exchange, the Investment Bank Repurchase, or the Investment Bank Exchange,
or (ii) Distributing Related Debt redeemed in the Related Creditors Debt Repurchase will
not have been issued in anticipation of the Spin-Off.

  (aa) Controlled or entities controlled by Controlled will be the sole obligors in the

Financing Transaction, and after the Public Distribution, neither Distributing nor any
member of Distributing’s affiliated group will be a guarantor of the Financing
Transaction.

The Retention

   (bb) The business purposes for the Retention are to reduce Distributing’s

indebtedness or improve its capital structure or stock valuation pursuant to the Stock-
for-Stock Exchange, the Stock-for-Debt Exchange, the Related Creditors Debt
Exchange, and/or the Investment Bank Stock Exchange.

   (cc) With one exception, none of Distributing's directors or officers will serve as a

director or officer of Controlled as long as Distributing retains the Remaining Controlled
Stock. C may serve as a director of Controlled.
PLR-122385-13 11

    (dd) Distributing will dispose of the Remaining Controlled Stock pursuant to the

Stock-for-Stock Exchange, the Stock-for-Debt Exchange, the Related Creditors Debt
Exchange), or the Investment Bank Stock Exchange as soon as practicable following
the Public Distribution, consistent with sound business practices, and in any event no
later than the n-month anniversary of the Public Distribution.
.
(ee) Distributing will vote the Remaining Controlled Stock in proportion to the
votes cast by Controlled's other shareholders and will grant Controlled a proxy for the
Remaining Controlled Stock requiring this manner of voting.

  (ff) In no event will the Retention prevent Distributing from distributing stock of

Controlled in the Public Distribution that represents control under section 368(c).

                                      Rulings

The Contribution and the Public Distribution

   (1) The Contribution, followed by the Public Distribution, will qualify as a

“reorganization” under section 368(a)(1)(D). Distributing and Controlled will each be “a
party to a reorganization” within the meaning of section 368(b).

   (2) No gain or loss will be recognized by Distributing on the Contribution.

Sections 361(a) and (b) and 357(a). Further, Distributing will not recognize income or
gain upon the receipt of cash from Controlled, provided that Distributing distributes the
entire amount of the cash to its shareholders or creditors within a n-month period
beginning on the date of the Public Distribution. Section 361(b)(1)(A) and (b)(3).

  (3) No gain or loss will be recognized by Controlled on the Contribution. Section

1032(a).

   (4) Controlled's basis in each of the Contributed Assets will equal the basis of

that asset in the hands of Distributing immediately before the Contribution. Section
362(b).

   (5) Controlled's holding period of each of the Contributed Assets will include the

period during which Distributing held that asset. Section 1223(2).

   (6) No income, gain or loss will be recognized by Distributing on the distribution

of the Controlled stock to the Public Shareholders pursuant to the Public Distribution
and the dispositions of the Controlled stock to Distributing shareholders and creditors
described in step (xi), above, other than deductions attributable to the redemption of any
Distributing debt at a premium, income attributable to the redemption of any Distributing
debt at a discount, and interest expense accrued with respect to any Distributing debt.
Section 361(c).
PLR-122385-13 12

    (7) No gain or loss will be recognized by (and no amount will be included in the

income of) the Public Shareholders upon their receipt of Controlled stock in the Public
Distribution. Section 355(a)(1).

   (8) Immediately following the Public Distribution, the basis that a Distributing

shareholder had in a share of Distributing stock before the Public Distribution will be
allocated between the share of Distributing stock with respect to which the Public
Distribution is made and the share of Controlled stock received with respect to the share
of Distributing stock (including any fractional share interest in Controlled stock to which
the shareholder may be entitled) in proportion to the fair market value of each in
accordance with section 358(a)(1) and § 1.358-2(a) (Section 358(a), (b), and (c)). If a
Distributing shareholder that purchased or acquired shares of Distributing stock on
different dates or at different prices is not able to identify which particular share of
Controlled stock is received with respect to a particular share of Distributing stock, the
shareholder may designate which share of Controlled stock is received with respect to a
particular share of Distributing stock, provided the terms of the designation are
consistent with the terms of the Public Distribution.

   (9) The holding period of the Controlled stock received by a shareholder of

Distributing in the Public Distribution (including any fractional share interest in
Controlled stock to which the shareholder may be entitled) will include the holding
period of the Distributing stock on which the Public Distribution is made, provided the
Distributing stock is held by the shareholder as a capital asset on the date of the Public
Distribution. Section 1223(1).

  (10) Earnings and profits, if any, will be allocated between Distributing and

Controlled in accordance with section 312(h) and Treas. Reg. §§ 1.312-10(b) and
1.1502-33(e)(3).

   (11) The receipt by a Distributing shareholder of cash in lieu of fractional shares

of Controlled stock will be treated for federal income tax purposes as if the fractional
shares had been distributed to the Distributing shareholder as part of the Public
Distribution and then had been disposed of by such shareholder for the amount of such
cash in a sale or exchange. The gain (or loss), if any (determined using the basis
allocated to the fractional shares in ruling (8) and the holding period attributed to the
fractional shares in ruling (9)), will be treated as a capital gain (or loss), provided the
stock was held as a capital asset by the selling shareholder. Section 1001.

The Retention

   (12) The Retention by Distributing of the Remaining Controlled Stock will not be

in pursuance of a plan having as one of its principal purposes the avoidance of U.S.
federal income tax within the meaning of section 355(a)(1)(D)(jj).
PLR-122385-13 13

                                      Caveats

   No opinion is expressed about the tax treatment of the proposed Spin-Off 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 Spin-Of that are not specifically
covered by the above rulings. In particular, no opinion is expressed regarding:

    (i) Whether the Spin-Off satisfies the business purpose requirement of § 1.355-

2(b);

  (ii) Whether the Spin-Off is used primarily as a device for the distribution of

earnings and profits of Distributing or Controlled or both (see §§ 355(a)(1)(B) and
1.355-2(d));

  (iii) Whether the Spin-Off 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 either Distributing or Controlled (see §§
355(e)(2)(A)(ii) and 1.355-8);

  (iv) The federal income tax consequences of steps (iii), (iv), (v), and (viii) of the

Spin-Off; and

   (v) The federal income tax consequences of any continuing transactions between

Distributing (or any entity controlled directly or indirectly by Distributing) and Controlled
(or any entity controlled directly or indirectly by Controlled), including payments made
pursuant to the Separation Arrangements or the Continuing Arrangements.

                             Procedural Statements

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

Code 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 (PLR-122385-13) of this letter ruling.
PLR-122385-13 14

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

letter are being sent to your authorized representatives.

                                                     Sincerely,



                                                     _________________________
                                                     Mark S. Jennings
                                                     Chief, Branch 1
                                                     Office of Associate Chief Counsel
                                                     (Corporate)