Private Letter Ruling
201614001
Released April 1, 2016
Approved
Partnership contributions are not a purchase under section 355(d)
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This page covers one taxpayer's ruling from 2016, which can't be cited as precedent. Ezel answers your situation under the current Code and IRS guidance, with citations.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)
Plain-English summary
A public parent corporation planned to separate two businesses after subsidiaries had contributed assets, mostly stock in foreign entities, to a partnership in section 721 transactions. The planned steps would move one business into a new foreign controlled corporation and distribute that corporation's stock up to the partnership. The taxpayer represented that, if the partnership had instead been a corporation, the earlier contributions would have qualified under section 351 and the partnership stock received would not have been treated as purchased under section 355(d)(5). Based on that representation, the IRS ruled that the section 721 contributions did not result in a purchase for section 355(d)(5). The ruling addressed only that discrete significant issue and gave no opinion on the transaction's overall tax consequences.
Ruling snapshot
- Question: Did prior section 721 asset contributions to the partnership constitute a purchase for the section 355(d) acquisition rules?
- Outcome: Approved, the contributions did not result in a purchase for purposes of IRC § 355(d)(5).
- Key authorities: IRC §§ 351, 355(d)(5), and 721; Rev. Proc. 2015-1 § 6.03
Full text (IRS public release)
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 201614001 Third Party Communication: None
Release Date: 4/1/2016 Date of Communication: Not Applicable
Index Number: 355.10-00
Person To Contact:
------------------------------------------------ -----------------------, ID No. -----------------
------------------------------------------------------------ Telephone Number:
------------- -------------------
------------------------ Refer Reply To:
-------------------------- CC:CORP:BR:2
PLR-113033-15
Date:
October 09, 2015
TY:------
Legend
Parent = ----------------
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Sub 1 = --------------------------------------------------------
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Sub 2 = ------------ -----
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Sub 3 = --------------------------------------------------------
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Sub 4 = --------------------------------------------------------
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Partnership = -----------------
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Sub 5 = --------------------------------------------------
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PLR-113033-15 2
Foreign Sub 1 = ------------------------------------
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------------
Foreign Sub 2 = ----------- ------
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---------------------------------------------------------------------------------------------------------------
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Foreign Controlled = ------------------
Public Controlled = ------------------
Country A = ----------------
State A = ------------
Business A = ---------------------------------------------------------------------------------
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Business B = ---------------------------------------------------------------------------------
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Date 1 = ----------------------
Date 2 = ---------------------------------------------------------------------------------
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Date 3 = -----------------
Date 4 = ----------------------
a = ---------------------------
b = -------------------------
c = ---------------------------
PLR-113033-15 3
Dear ------------:
This letter responds to your April 10, 2015 request, submitted by your authorized
representatives, for a ruling under section 355(d). The information provided in that letter
and in later correspondence 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 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 355 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 ruling below.
FACTS
Parent is a State A corporation that is publicly traded and is the common parent of an
affiliated group the includible corporations of which join in the filing a consolidated
Federal income tax return (the “Parent Group”). Parent owns all of the stock of Sub 1,
Sub 2, and Sub 3. Parent has owned its Sub 1 stock and Sub 2 stock for over five
years. Parent acquired the stock of Sub 3 in a taxable transaction on Date 1. Sub 3
indirectly owns all of the common stock of Sub 4, a U.S. corporation. Sub 1, Sub 2, Sub
3, and Sub 4 are members of the Parent Group.
Sub 1 owns a percent, Sub 2 owns b percent, and Sub 4 owns c percent (a percentage
greater than 50 percent) of the interests in Partnership, a Country A entity treated as a
partnership for Federal income tax purposes. Partnership owns all of the stock in Sub
5. Sub 5 owns all of the stock in Foreign Sub 1 and Foreign Sub 1 owns all of the stock
in Foreign Sub 2.
Parent is directly and indirectly engaged in Business A and Business B.
Between Date 2 and Date 3, Sub 4 transferred assets (mostly consisting of stock in
foreign entities) to Partnership in transactions qualifying under section 721 (“the Section
721 Transfers”).
PROPOSED TRANSACTION
PLR-113033-15 4
As part of a plan to effect the separation of Business B from Business A and distribute
either Business B or Business A to Parent’s public shareholders, Parent proposes to
engage in the following steps to separate the foreign Business B assets from the foreign
Business A assets no earlier than Date 4 (a date five years later than Date 1):
(i) Foreign Sub 2 (or a direct or indirect subsidiary of Foreign Sub 2) will contribute
its Business A assets to a newly formed disregarded entity, Foreign Controlled.
Foreign Controlled will make an election to be treated as a corporation for
Federal income tax purposes.
(ii) Foreign Sub 2 will distribute all of the stock of Foreign Controlled to Foreign Sub
1. Foreign Sub 1 will distribute all of the stock of Foreign Controlled to Sub 5.
Sub 5 will distribute all of the stock of Foreign Controlled to Partnership.
REPRESENTATION
If Partnership were instead a corporation for U.S. federal income tax purposes, the
Section 721 Transfers by Sub 4 to Partnership would have qualified under section 351
and the stock of Partnership (if it were a corporation) received would not be treated as
purchased within the meaning of section 355(d)(5).
RULING
Based solely on the information submitted and the representation set forth above, we
rule that the Section 721 Transfers do not result in a purchase for purposes of section
355(d)(5).
CAVEATS
Except as expressly stated in the ruling section herein, no opinion is expressed or
implied concerning the tax consequences of any aspect of any transaction or item
discussed or referenced in this letter.
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.
PLR-113033-15 5
A copy of this letter must be attached to any income tax return to which it is
relevant. Alternatively, taxpayers filing their returns electronically may satisfy this
requirement by attaching a statement to their return that provides the date and control
number of the letter ruling.
In accordance with the Power of Attorney on file with this office, copies of this letter are
being sent to your authorized representatives.
Sincerely,
________________________
Mark J. Weiss
Chief, Branch 2
Office of Associate Chief Counsel (Corporate)
cc:
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