Reincorporation does not bar potential F reorganization

Plain-English summary

A publicly traded parent planned a holding-company restructuring involving a merger, conversion of the original corporation into a disregarded limited liability company, asset and ownership transfers, and a later conversion back into a corporation. The taxpayer asked about one discrete issue under IRC § 368. The IRS ruled that the later reincorporation would not prevent the earlier steps from otherwise qualifying as an F reorganization. The ruling did not decide whether the potential reorganization actually qualified or address the transaction's other federal tax consequences.

Ruling snapshot

• Question: Would the later reincorporation prevent the potential holding-company reorganization from otherwise qualifying under IRC § 368(a)(1)(F)?
• Outcome: Approved on the discrete issue presented.
• Key authorities: IRC § 368(a)(1)(F); Rev. Proc. 2015-1

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201611015                                              Third Party Communication: None
Release Date: 3/11/2016                                        Date of Communication: Not Applicable
Index Number: 368.06-00
                                                               Person To Contact:
-----------------------------                                  -------------------, ID No. -----------------
--------------------                                           Telephone Number:
------------------------------------------------------------   -------------------
-------------------------------------                          Refer Reply To:
 --------------------------------------------                  CC:CORP:3
                                                               PLR-129625-15
                                                               Date:
                                                               December 10, 2015

Legend

Oldco                               =         ---------------------------------------
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Holdco A                            =        -------------------------------

Holdco B                            =        -------------------------------
Merger Sub                          =        -------------------------------

Sub 1                               =         ---------------------------------------
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Sub 2                               =         --------------------------------------
--------------------------------------------------------------------------
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Sub 3                               =         ------------------------------------
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Sub 4                               =         ----------------------------------
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Sub 5                               =         ---------------------------------------------
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PLR-129625-15                                                2

Partnership                         =         ----------------------------------------------
-------------------------------------------------------------------------------------
--------------------------------------------------------------------

Segment A                           =        ------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------

Segment B                           =        ------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------

a                                   =        ------

b                                   =        ---

c                                   =        --

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

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

This letter responds to your authorized representatives’ letter dated September 4,
2015, requesting a ruling on certain Federal income tax consequences of a proposed
transaction (the “Proposed Transaction”). The information provided in that letter and in
later correspondence is summarized below.

The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

This letter and the ruling contained herein are issued pursuant to section 6.03 of
Rev. Proc. 2015-1, 2015-1 I.R.B. 1, 17, regarding a significant issue under section 368
and only addresses a discrete legal issue involved in the transaction. This Office
expresses no opinion as to the overall tax consequences of the transaction described in
this letter, or as to any issue not specifically addressed by the rulings below.

PLR-129625-15                                 3

                                      SUMMARY OF FACTS

Oldco is a State X corporation that is publicly-traded and is the common parent of
an affiliated group the includible corporations of which join in the filing of a consolidated
Federal income tax return (the “Oldco Group”). Oldco directly owns all of the stock of
Sub 1, Sub 2, Sub 3, and Sub 4. Sub 4 owns a% of the stock of Sub 5. An unrelated
third party owns the remaining stock of Sub 5. Oldco owns b% and Sub 1 owns c% of
the interest in Partnership. The Oldco Group is engaged in Segment A (through Sub 5)
and Segment B (through Sub 1, Sub 2, Sub 3, and Partnership).

                                  PROPOSED TRANSACTION

Oldco is entering into the Proposed Transaction to facilitate the restructuring of
Segment A and Segment B. The relevant steps of the Proposed Transaction are set
forth below:

(i)     Oldco will form Holdco A, State X corporation.

(ii)    Holdco A will form Merger Sub, State X corporation.

(iii)   Merger Sub will merge with and into Oldco, with Oldco as the surviving
        legal entity and Merger Sub ceasing to exist. In the merger, the Oldco
        shareholders will exchange their Oldco shares for Holdco A shares.
        Immediately following this step, Holdco A will own all of the outstanding
        stock of Oldco.

(iv)    Pursuant to State X law, Oldco will convert to a limited liability company
        (“Old LLC”) that will be treated as a disregarded entity for Federal income
        tax purposes. Steps (i) through (iv), collectively, are referred to as the
        “Potential Reorganization.”

(v)     Old LLC will distribute the stock of Sub 4 to Holdco A.

(vi)    Holdco A will form Holdco B, State X corporation. Holdco A will contribute
        all of its interest in Old LLC to Holdco B in exchange for all of the stock of
        Holdco B. Holdco B will act as the holding company for Segment B.

(vii)   Old LLC will re-convert to a corporation under State X law (“Newco”) and
        for Federal income tax purposes (the “Reincorporation”).

PLR-129625-15                                4

                                            RULING

Based solely on the information submitted, we rule that the Reincorporation will
not preclude the Potential Reorganization from otherwise qualifying as a reorganization
under section 368(a)(1)(F).

                                           CAVEATS

No opinion is expressed or implied about the Federal income tax consequences
of any other aspect of any transaction or item discussed or referenced in this letter, or
the Federal income tax treatment of any conditions existing at the time of, or effects
resulting from, the Proposed Transaction that are not specifically covered by the above
ruling.

                                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 of this letter ruling.

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

                                      Sincerely,


                                      _____________________________________
                                      Mark J. Weiss
                                      Chief, Branch 2
                                      Office of Chief Counsel (Corporate)