Approves multi-step corporate separation and spin-off

View official IRS release (PDF)

Plain-English summary

A publicly traded parent proposed an extensive series of internal restructurings followed by a contribution of the separated business to a new corporation and a pro rata distribution of that corporation's stock. The IRS ruled that the external contribution and distribution would qualify as a Section 368(a)(1)(D) reorganization and a Section 355 distribution, with no gain or loss to the parent, the new corporation, or the parent's shareholders under the specified provisions. Six internal contribution-and-distribution pairs also qualified as Type D reorganizations, and two other internal distributions received Section 355(c) nonrecognition treatment. The ruling addressed basis, holding periods, earnings and profits, specified post-closing payments, and successor status under Section 1504(a)(3). It also held that an earlier transfer of reincorporated assets would not prevent a conversion from qualifying as a complete liquidation under Section 332.

Ruling snapshot

• Question: Would the proposed internal restructurings, external spin-off, related payments, and conversion receive the requested nonrecognition and reorganization treatment?
• Outcome: Approved on 26 rulings, subject to the stated representations and caveats.
• Key authorities: IRC §§ 311, 312, 332, 355, 357, 358, 361, 362, 368(a)(1)(D), 1032, 1223, 1504; Treas. Reg. §§ 1.312-10, 1.358-2

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201827006 Third Party Communication: None
Release Date: 7/6/2018 Date of Communication: Not Applicable
Index Number: 355.01-00, 332.01-00,
361.02-00, 368.04-00 Person To Contact:
-----------------------, ID No. -------------------
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------------------------------- Telephone Number:
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-------------------------------- Refer Reply To:
----------------------------------------- CC:CORP:B04
PLR-131449-17
Date:
April 09, 2018

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Separation = ------------------------------------------------------------------
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Dear -----------------:

This letter responds to your letter dated October 16, 2017, as supplemented by
subsequent submissions, requesting rulings on certain federal income tax
consequences of a series of proposed transactions described below (the Proposed
Transactions, as defined herein). The information submitted in that letter and in
subsequent correspondence is summarized below.

This letter is issued pursuant to Rev. Proc. 2017-52, 2017-41 I.R.B. 283 regarding one
or more “Covered Transactions” under section 355 and/or section 368 of the Internal
Revenue Code (the “Code”) and pursuant to section 6.03(2) of Rev. Proc. 2017-1,
2017-1 I.R.B. 1, regarding one or more significant issues under section 332 of the Code.
The significant issue ruling contained in this letter only addresses the significant issue
involved in the transactions described in this letter. This Office expresses no opinion as
to the overall tax consequences of the transaction for which a significant issue ruling is
requested or as to any issue not specifically addressed by the rulings below.

The rulings contained in this letter are based on facts and representations submitted by
the taxpayer and accompanied by a penalties of perjury statement executed by an
appropriate party. This office has not verified any of the materials submitted in support
of the request for rulings. Verification of the information, representations, and other
data may be required as part of the audit process.

This office has made no determination regarding whether any of the Distributions (as
defined below): (i) satisfies the business purpose requirement of Treas. Reg. § 1.355-
2(b); (ii) is used principally as a device for the distribution of the earnings and profits of
the distributing corporation or the controlled corporation or both (see section
355(a)(1)(B) and Treas. Reg. § 1.355-2(d)); or (iii) is part of a plan (or series of related
transactions) pursuant to which one or more persons will acquire directly or indirectly
stock representing a 50-percent or greater interest in the distributing corporation or the
controlled corporation, or any predecessor or successor of the distributing corporation
or the controlled corporation, within the meaning of Treas. Reg. § 1.355-8T (see section
355(e)(2)(A)(ii) and Treas. Reg. § 1.355-7).

                              Summary of the Facts

Parent, a publicly traded corporation, is the parent company of a worldwide group of
foreign and domestic affiliates (the “Parent Group”). Parent and its domestic affiliates
join in the filing of a consolidated U.S. federal income tax return. The following
describes the relevant corporate structure of the Parent Group immediately before the
Proposed Transactions (described below) were undertaken. Except as described
below, each entity is treated as a corporation for Federal income tax purposes.

Parent directly owns all of the issued and outstanding stock of Sub1, Sub2, and Sub3.
Sub2 directly owns all of the issued and outstanding stock of Sub4 and membership
interests of LLC1, a company that is treated as an entity disregarded as separate from

its owner for U.S. federal income tax purposes (a “disregarded entity”). Sub2 and LLC1
own a percent and b percent (together, consisting of 100 percent), respectively, of the
issued and outstanding stock in FSub1. Sub2 also directly owns all of the issued and
outstanding stock of Sub5. Sub2 indirectly owns all of the issued and outstanding stock
of FSub2. FSub2 owns (i) all of the interests of LLC2, a disregarded entity, and (ii) c
percent of the issued and outstanding stock of FSub3. The remaining d percent of
FSub3 is owned by LLC2.

Parent and Sub4 own e percent and f percent (together, consisting of 100 percent),
respectively, of the issued and outstanding stock of Sub6. Sub4 owns several entities
that are engaged in the Remaining Segments (such entities, “remaining entities”). As
relevant for this ruling, Sub4 indirectly owns all of the issued and outstanding stock of
Sub7 and Sub8. Entities conducting the SpinCo Business are predominantly owned
within four chains of ownership: Sub3, Sub6, Sub5, and FSub1. Sub3 owns, directly or
indirectly, stock of or interests in certain entities that operate in the SpinCo Business.
Sub3 directly owns (i) g percent of FSub4 (of which the other h percent is owned by an
unrelated third party), (ii) c percent of FSub5, and (iii) i percent of FSub6. Sub4 owns
the remaining d percent in FSub5. FSub7, an indirect, wholly-owned subsidiary of
Parent, owns the remaining j percent interest in FSub6. Sub3 also directly owns all of
the issued and outstanding stock of Sub9, which owns all of the interests of Branch1.
Sub6 owns, directly or indirectly, all of the issued and outstanding stock of or interests in
many domestic entities that operate in the SpinCo Business. Sub6 directly owns all of
the issued and outstanding shares of the following domestic SpinCo Subs: Sub10,
Sub11, Sub12, Sub13, Sub14, Sub15, Sub16, Sub17, Sub18, Sub19, and LLC3.
Sub12 directly owns all of the issued and outstanding stock of Sub20. Sub11 owns all
of the issued and outstanding stock of FSub8. Sub16 owns all of the issued and
outstanding stock of Sub21. LLC3 owns all of the issued and outstanding stock of (i)
FSub9; (ii) Sub22, which, in turn, owns all of the issued and outstanding stock of Sub23;
and (iii) LLC4.

Sub6 also directly owns all of the interests of the following entities (each a SpinCo Sub)
that operate in the SpinCo Business each of which is treated as a disregarded entity:
LLC5, LLC6, LLC7, and LLC8. LLC5 directly owns all of the issued and outstanding
stock of Sub24, which, in turn, directly owns all of the issued and outstanding stock of
Sub25. LLC7 directly owns all of the issued and outstanding stock of Sub26. LLC6
directly owns all of the issued and outstanding stock of Sub27, which, in turn, owns all
of the shares of FSub10.

Sub6 also directly or indirectly owns all of the interests in the following entities: Branch2,
Branch3, and LLC9, a disregarded entity that is a remaining entity. Each of Sub5 and
FSub1 owns, directly or indirectly, entities and branches that operate in the SpinCo
Business. Sub5 indirectly owns all of the interests in (i) Division1, a division of LLC10, a
disregarded entity, (ii) Division2, a division of FSub11, (iii) Division3, a division of
FSub12, a company indirectly owned by FSub11, and (iv) Division4, also a division of
FSub12. Sub5 also indirectly owns all of the issued and outstanding stock of FSub13

and FSub14. Sub5 also owns FSub15, a disregarded entity. FSub15 owns all of the
issued and outstanding stock of FSub16. FSub16 owns all of the issued and
outstanding stock of FSub17, which owns all of the issued and outstanding stock of
FSub18. FSub18 owns all of the issued and outstanding stock of (i) FSub19 which, in
turn, owns all of the issued and outstanding stock of FSub20, a remaining entity, and (ii)
FSub21, a disregarded entity. FSub21 owns all of the issued and outstanding stock of
(i) FSub22 and (ii) FSub23, a disregarded entity. FSub18 also owns FSub24, a
disregarded entity.

FSub24 directly owns (i) c percent of the issued and outstanding stock of FSub25; (ii) k
percent of the issued and outstanding stock of FSub26; (iii) k percent of the issued and
outstanding stock of FSub27; and (iv) k percent of the issued and outstanding stock of
FSub28. FSub19 owns the remaining d percent interest in FSub25. FSub17 owns the
remaining l percent interest of each of FSub26, FSub27, and FSub28. FSub19 owns all
of the issued and outstanding stock of FSub46.

FSub18 also owns FSub29, which owns all of the issued and outstanding stock of
FSub30 and FSub31. Each of FSub29, FSub30, and FSub31 is a remaining entity.
FSub1 owns all of the interests in FSub32, a disregarded entity. FSub32 owns all of the
interests in LLC11 and FSub33, each a disregarded entity. FSub33 owns all of the
issued and outstanding stock or interests of (i) FSub34; (ii) FSub35; (iii) Branch4; (iv)
FSub36; (v) Branch5; (vi) Branch6, a remaining entity; and (vii) FSub37, a remaining
entity. FSub34 directly owns all of the issued and outstanding stock of FSub38.
FSub35 owns all of the issued and outstanding stock of Sub28.

                      Overview of Parent’s CP Program

As of Date1, Parent had outstanding approximately $m in total short-term debt, of which
approximately $n was commercial paper. Between Date2 and Date3, Parent has had a
monthly average amount of commercial paper outstanding of $o. The commercial
paper program, under which up to $p of commercial paper can be outstanding at any
one time, is used for general corporate purposes including the funding of working capital
and acquisitions.

                         The Proposed Transactions

The following transactions have occurred or will occur to separate the SpinCo Business
from Parent (such steps, the “Proposed Transactions”).

Step 0.1: FSub11 contributes an intracompany receivable from its wholly owned
branch, Division2, to Division2.

Step 0.2: Division3 distributes an intracompany receivable from Division4 to FSub12.

Step 1.1: Sub3 converts to a limited liability company under State A law (the
“Conversion”).

Step 1.2: Sub3 contributes its g-percent interest of FSub4, c-percent interest of FSub5,
and i-percent interest of FSub6 (such assets, collectively, the “Reincorporated
Assets”) to a newly formed U.S. holding company, Sub29. The Reincorporated Assets
transferred to Sub29 in this Step 1.2 will constitute less than l percent of the value of
Sub3’s total assets.

Step 1.3: Sub3 distributes all of the Sub29 stock to Parent.

Step 2.1: FSub24 sells all of its stock in (i) FSub25, (ii) FSub26, (iii) FSub27, and (iv)
FSub28 to FSub18, and FSub21 distributes FSub22 to FSub18.

Step 2.2: FSub18 contributes the stock received in the previous step to a newly formed
holding company organized under the laws of Country A (such entity, “FSub39,” and
such contribution, “Contribution 1”).

Step 2.3: FSub18 distributes all of the FSub39 stock to FSub17 (“Distribution 1”).

Step 2.4: FSub17 contributes its l-percent interest in each of FSub28, FSub27, and
FSub26 to a newly formed Country B holding company, FSub40, which makes an initial
election under Treas. Reg. § 301.7701-3 to be treated as a disregarded entity.

Step 2.5: FSub17 contributes FSub40 stock to FSub39 (“Contribution 2”).

Step 2.6: FSub17 distributes FSub39 stock to FSub16 (“Distribution 2”).

Step 2.7: FSub16 distributes all of the FSub39 stock to FSub15 (“Distribution 3”).

Step 2.8: FSub15 distributes all of the FSub39 stock to Sub5.

Step 2.9: Sub5 distributes all of the FSub39 stock to Sub2 (“Distribution 4”).

Step 2.9A: Sub3 contributes $q to Sub9.

Step 2.10: Sub9 advances $q to Branch1.

Step 2.11: Branch1 uses the funds received in Step 2.10 to repay (i) approximately $r
to FSub35, (ii) approximately $s to FSub34, (iii) approximately $t to Branch4, (iv)
approximately $ff to FSub6, (v) approximately $gg to LLC7, and (vi) approximately $hh
to Sub9.

Step 2.12: FSub35 loans approximately $r to FSub34.

Step 2.13: FSub34 uses approximately $s received in Step 2.11 and approximately $r
received in Step 2.12 to partially satisfy outstanding intercompany liabilities owed to
FSub33.

Step 2.14: Branch4 transfers approximately $t to FSub33.

Step 2.15: FSub33 satisfies its payables of (i) approximately $u with FSub13, (ii)
approximately $v with FSub36, and (iii) approximately $w with FSub14.

Step 2.16: FSub8 satisfies approximately $x intercompany liabilities owed to FSub33.

Step 2.17: Parent loans, with FSub5 and Sub12 funds, approximately $y to FSub33.

Step 2.18: FSub33 contributes approximately $z to FSub34, which uses the money to
partially repay its payable to FSub33.

Step 2.19: FSub33 repays its approximately $aa payable to FSub37.

Step 2.20: FSub33 repays its approximately $bb payable to Sub7.

Step 2.21: Each of FSub37 and FSub34 forms a new Country C entity that is treated as
a corporation for U.S. federal income tax purposes: FSub41 and New FSub34,
respectively.

Step 2.22: FSub37 contributes all of its assets and liabilities to FSub41.

Step 2.23: FSub34 continues into Jurisdiction A from Jurisdiction B.

Step 2.24: FSub34 contributes all of its assets and liabilities, including FSub 38 stock,
to New FSub34.

Step 2.25: FSub37 and FSub34 amalgamate into a new Country C unlimited liability
company formed by FSub33, FSub42, which makes an initial election to be treated as a
disregarded entity (the “Amalgamation”). As a result of the Amalgamation, FSub33,
the sole shareholder of each of FSub37 and FSub34, becomes the sole shareholder
(through FSub42, a disregarded entity) of each of FSub41 and New FSub34.

Step 2.26: FSub33 distributes FSub42 stock to FSub32.

Step 2.27: FSub42 distributes New FSub34 stock to FSub32.

Step 2.28: FSub32 distributes LLC11 to FSub1.

Step 2.29: FSub33 contributes all of Branch5 and Branch6 assets and liabilities to a
newly formed entity organized under the laws of Country C, FSub43, which makes an

initial election under Treas. Reg. § 301.7701-3 to be treated as a corporation for U.S.
federal income tax purposes.

Step 2.30: FSub33 distributes FSub36 and FSub43 stock to FSub32.

Step 2.31: FSub32 forms an entity under the laws of Jurisdiction A, FSub44, which
makes an initial election under Treas. Reg. § 301.7701-3 to be treated as a disregarded
entity for U.S. federal income tax purposes.

Step 2.32: FSub32 contributes FSub33 to FSub44.

Step 2.33: FSub33 liquidates into FSub44.

Step 2.34: FSub32 forms a new Country B entity, FSub45, which makes an initial
election under Treas. Reg. § 301.7701-3 to be treated as a corporation for U.S. federal
income tax purposes.

Step 2.34A: FSub45 changes its name to New FSub45.

Step 2.35: FSub32 contributes the shares of FSub34 and FSub44 to New FSub45
(“Contribution 3”).

Step 2.36: FSub32 distributes New FSub45 to FSub1. FSub1 distributes a percent of
New FSub45 stock to Sub2 and the remaining b percent of New FSub45 stock to its
minority shareholder, LLC1 (together, “Distribution 5”). LLC1 then distributes the b
percent of New FSub45 stock to Sub2.

Step 3.1: Branch2 distributes receivables from Sub19 (a SpinCo Sub), to Sub6.

Step 3.1A: Sub6 assumes payables of Sub12 and Sub22 (each a SpinCo Sub) owed to
Parent.

Step 3.2: Sub6 contributes the SpinCo Subs owned by Sub6 and the receivables
received in step 3.1 to a newly formed domestic subsidiary, Sub30 (“Contribution 4”).
In exchange for the SpinCo Subs contributed, Sub30 assumes the liabilities owed by
Branch3 to SpinCo Subs and certain liabilities owed by Sub6 to Sub1. (The liabilities
owed by Sub6 were incurred to acquire LLC3, Sub11, Sub14, and Sub24.)

Step 3.3: Sub6 distributes Sub30 stock in a pro-rata distribution to Sub4 and Parent
(“Distribution 6”).

Step 3.4: Sub4 contributes its minority interest in FSub5 to Sub30 (“Contribution 5”).

Step 3.5: Sub4 distributes the f percent of Sub30 stock received in Distribution 6 to
Sub2 (“Distribution 7”).

Step 3.6: Sub2 contributes New FSub45 and FSub39 stock to Sub30 (together with the
contribution of Sub31 in Step 3.8, “Contribution 6”).

Step 3.7: Sub2 contributes intellectual property related to the SpinCo Business to a
newly formed domestic subsidiary (“Sub31”).

Step 3.8: Sub2 contributes Sub31 to Sub30 (together with the contribution in Step 3.6,
“Contribution 6” and together with Contributions 1 through 5, the “Internal
Contributions”).

Step 3.9: Sub2 distributes the f percent of Sub30 stock received in Distribution 7 to
Parent (“Distribution 8” and together with Distributions 1 through 7, the “Internal
Distributions”).

Step 3.10: Sub1 distributes notes receivable from various SpinCo Subs to Parent.

Step 3.11: Parent contributes the notes received in the previous step to a newly formed
domestic corporation (“Sub32”).

Step 3.12: Sub30 contributes cash to FSub39.

Step 3.13: FSub39 uses the cash received in the previous step to acquire the assets
and liabilities of (i) Division3, (ii) Division2, and (iii) Division1 from (i) FSub12, (ii)
FSub11, and (iii) LLC10, respectively.

Step 3.14: FSub19 sells its minority interest in FSub25 to FSub40 for cash equal to the
fair market value of such minority interest.

Step 3.15: FSub7 sells its minority interest in FSub6 to Sub30 in exchange for cash
equal to the fair market value of such minority interest.

Step 3.16: Branch1 sells its assets and liabilities to Sub30.

Step 3.17: Sub30 allocates the assets received in the previous step to a newly formed
Country D branch, Branch7.

Step 3.18: FSub2 sells its interest in FSub3 to FSub39 for nominal consideration, and
LLC2 sells its interest in FSub3 to FSub40.

Step 3.19: FSub39 borrows cash from Sub12 and contributes such cash to FSub 3.

Step 3.20: FSub3 uses the cash received in the previous step to acquire a group of
employees of FSub46 supporting the SpinCo Business from FSub46.

Step 4.1: Parent forms a new domestic corporation (“SpinCo Corporation”), which
borrows cash (the “SpinCo Cash”) from one or more third-party banks or other lenders.

Step 4.2: Sub30 distributes excess cash, if any, to Parent.

Step 4.3: Parent contributes Sub29, Sub30, and Sub32 to SpinCo Corporation in
exchange for the SpinCo Cash, SpinCo Corporation common stock, and the assumption
by SpinCo Corporation of the liabilities owed by Parent to the SpinCo Subs (including
any of the entities formed to hold the SpinCo Subs as part of the Proposed
Transactions) (the “External Contribution” and together with the Internal Contributions,
the “Contributions”). Parent may contribute the stock of each of Sub29, Sub30, and
Sub32 to SpinCo Corporation before the borrowing and/or before SpinCo Corporation
transfers the SpinCo Cash to Parent.

Step 4.4: Parent distributes SpinCo Corporation common stock to its shareholders in a
pro rata distribution (the “External Distribution” and together with the Internal
Distributions, the “Distributions”).

Step 4.5: After the External Distribution, pursuant to (a) the Tax Matters Agreement
(defined below), (b) the Separation and Distribution Agreement (defined below), (c) the
Employee Matters Agreement (defined below), and (d) other agreements entered into in
connection with the Proposed Transactions, Parent may transfer to SpinCo Corporation
and SpinCo Corporation may transfer to Parent, as the case may be, amounts
attributable to the pre-closing period (collectively, (a) through (d) are referred to as the
“Pre-Closing Payment Items”). In addition, after the External Distribution, Parent may
transfer to SpinCo Corporation, and SpinCo Corporation may transfer to Parent, one or
more “Post-Closing Adjustment Payments” (defined below).

Step 4.6: Taking into account all transfers of cash from Parent to SpinCo Corporation or
from SpinCo Corporation to Parent made pursuant to the External Contribution, the
payment of the Pre-Closing Payment Items, and the payment of Post-Closing
Adjustment Payments, if the total cash that Parent receives from SpinCo Corporation
pursuant to such items exceeds the total cash that Parent transfers to SpinCo
Corporation pursuant to such items (the “Net Cash Proceeds”), Parent will, (i) as soon
as possible and in all events during the cc-month period following the External
Contribution/Distribution, or (ii) with respect to cash proceeds received more than dd
months after the External Contribution/Distribution pursuant to the payment of the Pre-
Closing Payment Items and the Post-Closing Adjustment Payments, within dd months
of such receipt, use the Net Cash Proceeds to engage in one or more of the following
transactions: (a) (i) to make distributions to Parent’s shareholders with respect to stock
(pursuant to one or more special distributions), or (ii) to make share repurchases
(whether pursuant to an existing or newly authorized share repurchase program, and
whether pursuant to periodic open market repurchases or one or more accelerated
stock repurchase programs) (the “Shareholder Cash Purge”); (b) to satisfy outstanding
Parent short-term liabilities (mostly commercial paper) whenever incurred (which could

include ordinary course liabilities, and principal, interest, and associated consent and
other fees on bank debt, and other short-term borrowings, and which could include debt
incurred before the External Distribution or during the cc-month period following the
External Distribution) (the “Debt Cash Purge,” and together with the Shareholder Cash
Purge, the “Cash Proceeds Purge”); or (c) a combination of the items in (a) and
(b). However, the short-term liabilities to be repaid in pursuance of (b), which would
consist mostly of commercial paper, will not exceed the average monthly commercial
paper balance for the 24-month period preceding the Date 4 Board of Directors meeting
when the Board first considered the Separation (i.e., an amount not to exceed $o).
Parent will engage in the Debt Cash Purge only to the extent it determines that it would
not use the entire amount of the Net Cash Proceeds in the Shareholder Cash Purge. In
that case, the Debt Cash Purge will occur within ee months of such a determination, but
in all events within cc months of the External Contribution/Distribution; however, with
respect to cash proceeds received more than dd months after the External
Contribution/Distribution pursuant to the payment of Pre-Closing Payment Items and the
Post-Closing Adjustment Payments, Parent will use any such cash to repay short-term
liabilities (or commercial paper) no more than ee months after such receipt. Parent
anticipates that, pending the distribution of an amount of cash equal to the Net Cash
Proceeds to shareholders and/or creditors, the Net Cash Proceeds will be invested
and/or otherwise used. Parent will segregate the Net Cash Proceeds into a separate
bank account. The total amount of the Net Cash Proceeds used to pay creditors
pursuant to the Debt Cash Purge will not exceed the basis of the assets that Parent
transferred to SpinCo Corporation in the External Contribution, reduced by the liabilities
assumed (as determined under section 357(c)) by SpinCo Corporation in the External
Contribution. In computing the Net Cash Proceeds at any point in time, Parent will
reduce the Net Cash Proceeds amount by any cash that it has already distributed to its
shareholders or paid to its creditors consistent with this Step 4.6.

It is possible that one or more third-party consents with respect to transfers of SpinCo
Subs or assets to be acquired by SpinCo Subs, or with respect to any transfers by
SpinCo Subs of assets of or entities conducting the business of the Remaining
Segments, will not have been obtained before the effective time of the External
Distribution. In that event, Parent and SpinCo Corporation will cooperate with each
other in any reasonable and lawful arrangements designed to provide to SpinCo
Corporation or Parent, as applicable, the benefits, obligations, and liabilities associated
with the transferred assets relating to such third-party consent until such third-party
consent is obtained. Subject to the terms of any arrangement described in the previous
sentence, Parent will pay to SpinCo Corporation, or SpinCo Corporation will pay to
Parent, as applicable, any amounts received pertaining primarily to such transferred
assets or any claim, right, or benefit arising under such transferred assets. Such
transfers described in this paragraph are referred to as “Post-Closing Adjustment
Payments.

Parent and SpinCo Corporation will enter into an agreement that sets forth the terms of
the Separation and will govern the allocation of various items, including the items above

and liabilities attributable to actions or events occurring prior to the External Distribution
that do not become fixed until some time after the External Distribution (the “Separation
and Distribution Agreement”). Parent and SpinCo Corporation will also enter into
other agreements relating to pre-External Distribution liabilities, including an Employee
Matters Agreement (described below) and a Tax Matters Agreement (described
below).

Following the External Distribution, Parent will have certain continuing business
relationships with SpinCo Corporation. All such relationships will be based on arm’s
length terms and conditions. Except as described below, these arrangements are
expected to terminate within several years after the External Distribution. The specific
relationships are as follows:

   Transition Services Agreement – Parent is providing and for many years has
   been providing various services to the SpinCo Business (along with the
   Remaining Segments). Parent will agree to perform (or cause its affiliates to
   perform) certain similar services for SpinCo Corporation after the Separation,
   pursuant to a transition services agreement (the “Transition Services
   Agreement”) to be entered into by Parent and SpinCo Corporation, to give
   SpinCo Corporation time to establish the structures and resources to perform
   such services for itself. The transition services will be provided for no longer than
   two years following the External Distribution, subject to certain exceptions.
   SpinCo Corporation may also provide certain services to Parent and its affiliates
   following the External Distribution. The services (whether provided by Parent or
   SpinCo Corporation) will be provided on a cost plus basis, subject to termination
   by the recipient of such services at any time upon advance notice with respect to
   all or any service (or portion thereof, subject to certain exceptions). Examples of
   services that may be provided pursuant to this agreement may include personnel
   administration, corporate compensation, corporate benefits administration,
   employee services, office services, distribution, warehousing and transportation,
   payroll administration, management information services, engineering services,
   and corporate accounting.

   Employee Matters Agreement – Parent and SpinCo Corporation will enter into an
   agreement that addresses issues associated with the employment of Parent and
   SpinCo Corporation employees, the transfer of certain assets and the
   assumption of certain liabilities and other matters relating to employee benefit
   plans, agreements, and arrangements (the “Employee Matters Agreement”).

   Tax Matters Agreement – Parent and SpinCo Corporation will enter into an
   agreement (the “Tax Matters Agreement”) that generally addresses two
   categories of tax issues: taxes on the pre-External Distribution operations of all
   the business segments (including the SpinCo Business), and taxes that would be
   imposed if the Separation resulted in tax liabilities. Responsibility for taxes on
   pre-External Distribution operations and the Separation will be allocated between
   SpinCo Corporation and Parent (as will be refunds from such periods).

  Other Agreements – Parent and SpinCo Corporation may enter into one or more
  license agreements with respect to certain products (permitting the licensee to
  market and sell products) or other agreements that contemplate continued
  interaction between Parent and SpinCo Corporation after the External
  Distribution. With the possible exception of license agreements, these
  relationships would be short-term in nature. In all cases, these agreements
  between Parent and SpinCo Corporation will reflect arm’s length terms and
  conditions and will not be inconsistent with the overall separation of the SpinCo
  Business from the Remaining Segments.

Less than half of the SpinCo Corporation Board of Directors (“Board”) will also be
members of the Parent Board (the “Overlapping Directors”). The presence of the
Overlapping Directors, if any, will be intended to provide continuity as SpinCo
Corporation transitions to becoming a public company and to enable SpinCo
Corporation to continue to benefit from the expertise of such directors regarding the
SpinCo Business. The Overlapping Directors are expected to remain on the SpinCo
Corporation Board for a limited period of time, only as long as necessary to ensure the
non-Overlapping Directors on the SpinCo Corporation Board can effectively operate the
SpinCo Business as a public company.

                                Representations

  The Distributions

With respect to each of the Distributions, except as set forth below, Parent has made all
of the representations in section 3 of the Appendix to Rev. Proc. 2017-52, 2017-41
I.R.B. 283.

  (1) Parent has made the following alternative representations set forth in section
  3 of the Appendix to Rev. Proc. 2017-52:

         Representations 3(a); 8(b) (with respect to Distributions other than 4, 5
         and 8); 8(a) (with respect to Distributions 4, 5, and 8); 11(a); 15(b); 22(a);
         31(a); 41(a).

  (2) Parent has not made the following representations, which do not apply to the
  proposed transactions:

         Representations 7; 24; 25; 35 (with respect to Distributions 1 through 8);
         40 (with respect to the External Distribution).

  (3) Parent has not made the following representations:

         (a) Representation 40 (with respect to each of Distributions 1 through 8).

          (b) Representation 43 (with respect to each of Distributions 1, 2, 3, 4 (with
          respect to Controlled), and 5) but provided the required explanation.

   (4) Parent has made the following modified representations:

          Representation 5 (with respect to the External Distribution): None of the
          Controlled stock to be distributed in the Distribution will be received in any
          capacity other than that of a shareholder of Distributing.

          Representation 18 (with respect to the External Distribution): Taking into
          account any amounts paid by Distributing pursuant to Pre-Closing
          Payment Items and Post-Closing Adjustment Payments, the total adjusted
          basis and fair market value of assets transferred by Distributing to
          Controlled will each equal or exceed the sum of: (i) the total amount of the
          Liabilities assumed (within the meaning of section 357(d)) by Controlled
          and (ii) the total amount of any money and the fair market value of other
          property, if any, received by Distributing and transferred to its
          shareholders and its creditors.

          Representation 32 (with respect to each Distribution): No intercorporate
          debt will exist between Distributing and Controlled at the time of the
          Distribution, and no intercorporate debt will exist between Distributing and
          Controlled subsequent to the Distribution, except in each case for (i)
          amounts payable under the Transition Services Agreement, the
          Separation and Distribution Agreement, and the Tax Matters Agreement,
          which will be settled on an arm’s length basis and (ii) payables arising in
          the ordinary course of business that will be settled after the Distribution on
          an arm’s length basis in the ordinary course of business.

   The Conversion

But for it being a part of a larger transaction including the External Contribution and
External Distribution, the Conversion will qualify as a liquidation under section 332.

                                     Rulings

For purposes of these rulings, with respect to each of Distribution 1 through Distribution
8 and the External Distribution, references to “Controlled” and “Distributing” are to the
distributing corporation and the controlled corporation in each such Distribution,
respectively.

Based solely on the information submitted and the representations made, we rule as
follows with respect to the Covered Transactions and the Conversion:

   External Contribution and External Distribution

   1.      The External Contribution, followed by the External Distribution, will be a

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

   2.     No gain or loss will be recognized by Parent (i) on its receipt of SpinCo

Corporation common stock and the Net Cash Proceeds, if any, or (ii) on the assumption
by SpinCo Corporation of the liabilities owed by Parent to the SpinCo Subs (including
any of the entities formed to hold the SpinCo Subs as part of the Proposed
Transactions), in connection with the External Contribution (sections 357(a) and
361(b)).

   3.     No gain or loss will be recognized by SpinCo Corporation on the External

Contribution (section 1032(a)).

   4.     The basis in each asset received by SpinCo Corporation in the External

Contribution will equal the basis of that asset in the hands of Parent immediately before
the External Contribution (section 362(b)).

  5.     The holding period in each asset received by SpinCo Corporation in the

External Contribution will include the period during which Parent held that asset (section
1223(2)).

   6.      No gain or loss will be recognized by (and no amount otherwise will be

included in the income of) the Parent shareholders as a result of the External
Distribution (section 355(a)(1)).

   7.    No gain or loss will be recognized by Parent on the External Distribution

(section 361(c)(1)).

   8.    The basis of the Parent shares and the SpinCo Corporation shares in the

hands of each distributee Parent shareholder after the External Distribution will be the
same as the basis of the Parent shares in the hands of such distributee Parent
shareholder immediately before the External Distribution, allocated between the Parent
shares and the SpinCo Corporation shares in proportion to the fair market value of each
in accordance with section 358(a)(1) and Treas. Reg. § 1.358-2(a)(2) (section 358(b)(2)
and (c)).

   9.    The holding period of the SpinCo Corporation shares received by each

Parent shareholder in the External Distribution will include the holding period of the
Parent shares with respect to which the External Distribution will be made, provided that
such Parent shares are held as capital assets on the date of the External Distribution
(section 1223(1)).

  10.   As provided in section 312(h), proper allocation of earnings and profits

between Parent and SpinCo Corporation will be made under Treas. Reg. § 1.312-10(a).

    11.    Payments made by Parent to SpinCo Corporation or by SpinCo

Corporation to Parent pursuant to either (a) the Pre-Closing Payment Items that (i) have
arisen or will arise for a taxable period ending on or before the External Distribution or
for a taxable period beginning before and ending after the External Distribution and (ii)
will not become fixed and ascertainable until after the External Distribution or (b) the
Post-Closing Adjustment Payments will be treated as adjustments to amounts
contributed by Parent to SpinCo Corporation or distributed by SpinCo Corporation to
Parent immediately before the External Distribution (Arrowsmith v. Commissioner, 344
U.S. 6 (1952)). Accordingly, except to the extent of any imputed interest component, for
amounts paid by Parent to SpinCo Corporation, Parent will not be entitled to any
deduction for the payment of such amounts (see sections 361(a) and 357(a)) and
SpinCo Corporation will not recognize any income upon the receipt of such amounts
(section 1032(a)). Similarly, except to the extent of any imputed interest component, for
amounts paid by SpinCo Corporation to Parent, SpinCo Corporation will not be entitled
to any deduction for the payment of such amounts (section 311(a)).

      12.   Following the External Distribution, neither SpinCo Corporation nor any of

its affiliates will be treated as a “successor” to Parent or any of its affiliates for purposes
of section 1504(a)(3).

   Internal Distributions and Internal Contributions Subject to Section
   368(a)(1)(D)

With respect to Contribution 1/Distribution 1, Contribution 2/Distribution 2, Contribution
3/Distribution 5, Contribution 4/Distribution 6, Contribution 5/Distribution 7, and
Contribution 6/Distribution 8, the below rulings refer to the distributing corporation as
“Distributing” and the controlled corporation as “Controlled,” and to the respective
numbered contribution and distribution as the “Contribution” and the “Distribution,”
respectively.

    13.    The Contribution, followed by the Distribution, will qualify as a

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

   14.   No gain or loss will be recognized by Distributing on the Contribution

(sections 357(a) and 361(a)).

   15.   No gain or loss will be recognized by Controlled on the Contribution

(section 1032(a)).

   16.    The basis of each asset received by Controlled in the Contribution will

equal the basis of that asset in the hands of Distributing immediately before the
Contribution (section 362(b)).

   17.   The holding period of each asset received by Controlled in the

Contribution will include the period during which Distributing held the asset (section
1223(2)).

   18.    No gain or loss will be recognized by (and no amount otherwise will be

included in the income of) Distributing shareholders as a result of the Distribution
(section 355(a)(1)).

   19.     No gain or loss will be recognized by Distributing as a result of the

Distribution (section 361(c)(1)).

   20.    The holding period of the Controlled shares received by each Distributing

shareholder in the Distribution will include the holding period of the Distributing shares
with respect to which the Distribution will be made, provided that such Distributing
shares are held as capital assets on the date of the Distribution (section 1223(1)).

  21.    As provided in section 312(h), proper allocation of earnings and profits

between Distributing and Controlled will be made under Treas. Reg. § 1.312-10(a).

   Distributions Subject to Section 355(c)

With respect to Distribution 3 and Distribution 4, the below rulings refer to the
distributing corporation as “Distributing” and the controlled corporation as “Controlled,”
and to the respective numbered contribution and distribution as the “Contribution” and
the “Distribution,” respectively:

   22.    No gain or loss will be recognized by (and no amount otherwise will be

included in the income of) any Distributing shareholder as a result of the Distribution
(section 355(a)(1)).

   23.     No gain or loss will be recognized by Distributing as a result of the

Distribution (section 355(c)).

   24.    The holding period of the Controlled shares received by each Distributing

shareholder in the Distribution will include the holding period of the Distributing shares
with respect to which the Distribution will be made, provided that such Distributing
shares are held as capital assets on the date of the Distribution (section 1223(1)).

   25.   The earnings and profits of Distributing and Controlled will be determined

in accordance with section 312(h) and Treas. Reg. § 1.312-10(b).

   The Conversion

   With respect to the Conversion:

  26.    The transfer of the Reincorporated Assets to Sub29 in Step 1.2 will not

preclude the Conversion from qualifying as a complete liquidation under section 332.

                                     CAVEATS

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax treatment of the proposed transactions under any provision of the Code and
regulations or the tax treatment of any condition existing at the time of, or effects
resulting from, the proposed transactions that is not specifically addressed by this letter.

                          PROCEDURAL STATEMENTS

This ruling 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 ruling letter should be attached to the federal income tax return of each
taxpayer involved for the taxable year in which the transaction covered by this ruling
letter is consummated. 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, a copy of this letter is
being sent to your authorized representatives.

                                    Sincerely,



                                    Gerald B. Fleming
                                    Senior Technician Reviewer, Branch 2
                                    Office of Associate Chief Counsel (Corporate)

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