IRS approves tax-free treatment for two corporate split-offs
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This page covers one taxpayer's ruling from 2021, which can't be cited as precedent. Ezel answers your situation under the current Code and IRS guidance, with citations.
Plain-English summary
A corporation proposed separating parts of its businesses into two new controlled corporations so different shareholder groups could manage them without interference from one another. After preliminary stock, trust, partnership, asset, liability, and debt steps, the parent would contribute business assets to each controlled corporation and distribute each corporation's stock in exchange for selected shareholders' parent-company stock. The IRS ruled that each contribution and split-off would qualify as a Section 368(a)(1)(D) reorganization and that the parent, controlled corporations, and exchanging shareholders would recognize no gain or loss on the covered steps. The controlled corporations and shareholders would receive carryover bases and holding periods, and earnings and profits would be allocated under Section 312(h). Certain later payments under transaction agreements for pre-split-off obligations would be treated as occurring immediately before the split-offs.
Ruling snapshot
- Question: Would the two planned contributions and shareholder split-offs qualify for tax-free reorganization and distribution treatment?
- Outcome: Approved for the covered transactions, subject to the stated representations and caveats.
- Key authorities: IRC §§ 312(h), 355(a), 357(a), 358(a), 361, 362(b), 368(a)(1)(D), 1032(a), 1223; Rev. Proc. 2017-52; Rev. Proc. 2018-53
Full text (IRS public release)
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 202132005 Third Party Communication: None
Release Date: 8/13/2021 Date of Communication: Not Applicable
Index Number: 355.00-00, 355.01-01,
361.00-00, 368.00-00, Person To Contact:
368.04-00 ------------------------, ID No. ---------------
Telephone Number:
------------------------ --------------------
----------------------- Refer Reply To:
---------------------------------- CC:CORP:3
------------------------------------ PLR-126768-20
------------------------------- Date:
May 20, 2021
Legend
Distributing = ----------------------------------
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Controlled 1 = -------------------------------
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Controlled 2 = ---------------------------.
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Business A = --------------------------------------------
------------
Business B = ---------------------------------
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Business C = ----------------------------------------
Controlled 1 Segment of Business A = -----------------------------------------------------
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Controlled 2 Segment of Business A = -----------------------------------------------------
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PLR-126768-20 2
Controlled 1 Development Project = -----------------------------------------------------
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General Partnership = ----------------------------------
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GP Controlled 1 = -------------------
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LLC1 = -----------------------------
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Corporation 1 = -----------------------------------
-------------------------------
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Corporation 2 = ----------------------------
----------------------------------
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Shareholder A = --------------------------
Shareholder B = ------------------------
Shareholder C = ---------------------
Shareholder D = ---------------------
Shareholder E = -----------------------
Shareholder F = -------------------------
Shareholder G = ------------------------
Shareholder H = -------------------------------
Shareholder I = -----------------------------------
Shareholder J = -------------------------------
Shareholder K = ---------------------------------------
PLR-126768-20 3
Beneficiary 1 = -----------------------
Beneficiary 2 = ----------------------
Beneficiary 1 Trust = ------------------------------------------------------
Beneficiary 2 Trust = ------------------------------------------------------
Revocable Trust 1 = -----------------------------------------
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Grantor Trust 1 = --------------------
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Grantor Trust 2 = ---------------------
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Grantor Trust 3 = -----------------------
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Grantor Trust 4 = ---------------------------------
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Grantor Trust 5 = ----------------------------------
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Grantor Trust 6 = ----------------------------
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Grantor Trust 7 = ----------------------------
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Grantor Trust 8 = --------------------------------
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PLR-126768-20 4
------------------------
Transaction Agreements = -----------------------------------------------------
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Transitional Agreement = --------------------------------------
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--------------------------------
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Separate Agreement = -----------------------------------------------------
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New Debt 1 = -----------------------------------------------------
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New Debt 2 = -----------------------------------------------------
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New Debt 3 = -----------------------------------------------------
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New Debt 4 = -----------------------------------------------------
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Year 1 = -------
PLR-126768-20 5
State A = -------------
State B = ------------------
State C = ----------
a = ---
b = ---
c = --------
d = --------
e = ------
f = ------
g = -----------
h = ---------
k = --------
l = ------
m = --------
n = ----
o = ------
p = ---
q = ---
r = ---
s = ---
t = ---
Dear ------------------:
PLR-126768-20 6
This letter responds to your letter dated November 12, 2020, as supplemented on May
7, 2021, and May 19, 2021, requesting rulings under sections 355 and 368(a)(1)(D) of
the Internal Revenue Code (the “Code”) with respect to the proposed transaction
described below (the “Proposed Transaction”). The material information is summarized
below.
The rulings contained in this letter are based upon information submitted by the
taxpayer and accompanied by a penalties 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 is issued pursuant to Rev. Proc. 2017-52, 2017-41 I.R.B. 283, as amplified
and modified by Rev. Proc. 2018-53, 2018-43 I.R.B. 667, regarding one or more
“Covered Transactions” under sections 355 and 368 of the Code. This Office expresses
no opinion as to the overall tax consequences of the transactions described in this letter
or as to any issue not specifically addressed by the rulings below.
This office has made no determination regarding whether the Distribution (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 corporations 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 corporations, or any predecessor or successor of the distributing corporation
or the controlled corporations, within the meaning of Treas. Reg. § 1.355-8T (see
section 355(e)(2)(A)(ii) and Treas. Reg. § 1.355-7).
Summary of Facts
Distributing is an accrual method taxpayer that was formed in Year 1 as a State A
corporation. Distributing owns a percent of General Partnership and Shareholder A
owns b percent of General Partnership. Distributing is engaged in Business A and
Business B.
Distributing also owns c percent of LLC1. General Partnership owns d percent of LLC1.
Via direct and indirect ownership, Distributing’s interest in LLC1 is greater than 33 1/3
percent. The Beneficiary 1 Trust and the Beneficiary 2 Trust each own e percent of
LLC1. Corporation 1 and Corporation 2 each own f percent of LLC1. LLC1 owns and
operates Business C.
General Partnership also owns: (1) part of the Controlled 1 Segment of Business A and
the Controlled 1 Division and (2) part of the Controlled 2 Segment of Business A and
the Controlled 2 Division.
PLR-126768-20 7
Distributing has two classes of common stock: Series A voting shares and Series B
non-voting shares. Distributing has g shares of Series A voting stock outstanding and h
shares of Series B non-voting stock outstanding.
Shareholder A owns k percent of each of Distributing Series A and Series B shares.
Shareholder B (Shareholder A’s spouse) owns k percent of each of Distributing Series A
and Series B shares. Shareholder C and Shareholder D each own l percent of each of
Distributing Series A and Series B shares. Shareholder E owns m percent of each of
Distributing Series A and Series B shares. Shareholder F, Shareholder G, Shareholder
H, Shareholder I, and Shareholder J each own n percent of each of Distributing Series
A and Series B shares. Shareholder K owns o percent of each of Distributing Series A
and Series B shares.
Financial information has been submitted indicating that each of Business A, Business
B, and Business C have had gross receipts and operating expenses representing the
active conduct of a trade or business for each of the past five years.
Disputes have arisen among Shareholder C, Shareholder D, and Shareholder E as to
the management of the businesses. To allow Shareholder C, Shareholder D, and
Shareholder E to each manage and conduct the Distributing active businesses more
effectively and profitably without interference or direction from the others, Distributing
proposes the Proposed Transaction.
Preliminary Steps
Stock split of Distributing Series A and Series B shares
Distributing will effect a stock split of its Series A and Series B shares (the
“Recapitalization”). The voting power of the Distributing Series A voting shareholders
will not be affected by the Recapitalization. Each Distributing shareholder will own the
same percentage of Distributing Series A and Series B shares after the
Recapitalization. The Recapitalization will not affect the value of the Distributing shares
that each shareholder will own immediately after the Recapitalization.
Shareholder A’s formation of grantor trusts and trust transfers
Shareholder A and Shareholder B will transmute under State A law a portion of the
Distributing Series A and Series B shares that they own as community property to the
separate property of Shareholder A and Shareholder B. To the extent the transmutation
causes a shift in ownership, such shift will not exceed p percent of all of the interests of
Distributing Series A or p percent of all of the interests of Distributing Series B shares.
Any shift in either the total voting power or the total value will not exceed q percent.
Shareholder A will form Grantor Trust 1 and Grantor Trust 2 in State B. Grantor Trust 1
will be formed for the benefit of Shareholder C, Beneficiary 1, and Beneficiary 1’s
PLR-126768-20 8
descendants. Grantor Trust 2 will be formed for the benefit of Shareholder C,
Beneficiary 2, and Beneficiary 2’s descendants.
Shareholder A will also form Grantor Trust 3 in State C. Grantor Trust 3 will be formed
for the benefit of Shareholder D, Shareholder F, Shareholder G, and their descendants.
Shareholder A will transfer Distributing Series A shares to each of Grantor Trust 1,
Grantor Trust 2, and Grantor Trust 3. Shareholder A will continue to be treated as the
owner of the Distributing Series A shares he transfers to Grantor Trust 1, Grantor Trust
2, and Grantor Trust 3 for Federal income tax purposes under sections 671-679.
Shareholder B’s formation of grantor trusts and trust transfers
Shareholder B will form Grantor Trust 4, Grantor Trust 5, and Grantor Trust 6 in the
State B. Grantor Trust 4 will be formed for the benefit of Shareholder C and Beneficiary
1 and her descendants. Grantor Trust 5 will be formed for the benefit of Shareholder C
and Beneficiary 2 and his descendants. Grantor Trust 6 will be formed for the benefit of
Shareholder E and her descendants. Shareholder B will also form Grantor Trust 7 in
State C. Grantor Trust 7 will be formed for the benefit of Shareholder D and her
descendants.
Shareholder B will transfer Distributing Series B shares to each of Grantor Trust 4,
Grantor Trust 5, Grantor Trust 6, and Grantor Trust 7. Shareholder B will continue to be
treated as the owner of the Distributing Series B shares she transfers to Grantor Trust
4, Grantor Trust 5, Grantor Trust 6, and Grantor Trust 7 for Federal income tax
purposes under sections 671-679.
Transfer to Revocable Trust 1
Any Distributing shares that Shareholder A or Shareholder B have not transferred to the
grantor trusts, will be transferred to Revocable Trust 1. Following the Proposed
Transaction, Revocable Trust 1 will hold approximately r percent of the Distributing
Series A shares attributed to Shareholder A, approximately r percent of the Distributing
Series A shares attributed to Shareholder B, approximately r percent of the Controlled 1
Series A shares, and approximately s percent of the Controlled 2 Series A shares.
Shareholder A and Shareholder B will continue to be treated as the owners of the
shares transferred to or held by Revocable Trust 1 for Federal income tax purposes
under sections 671-679.
Upon the death of Shareholder A and Shareholder B, Revocable Trust 1’s Distributing
Series A and Series B shares will be conveyed to Shareholder C, Grantor Trust 1,
Grantor Trust 2, Grantor Trust 4, and Grantor Trust 5. Upon the death of Shareholder A
and Shareholder B, Revocable Trusts 1’s Controlled 1 Series A and Series B shares will
be conveyed to Controlled 1’s shareholders and Revocable Trusts 1’s Controlled 2
Series A and Series B shares will be conveyed to Controlled 2’s shareholders.
PLR-126768-20 9
Shareholder E’s formation of grantor trust and trust transfers
Shareholder E will form Grantor Trust 8 in State B. Shareholder E will transfer a portion
of her Distributing Series A shares and all of her Distributing Series B shares to Grantor
Trust 8. Shareholder E will continue to be treated as the owner of the Distributing Series
A and Series B shares that she transfers to Grantor Trust 8 for Federal income tax
purposes under sections 671-679.
Proposed Transaction
To achieve the business purpose described above, Distributing proposes the following
Proposed Transaction:
Step 1: Distributing will form Controlled 1 as a direct, wholly owned subsidiary of
Distributing.
Step 2: Distributing will form Controlled 2 as a direct, wholly owned subsidiary of
Distributing.
Step 3: Distributing will negotiate with its lenders to release Distributing from all
legal obligations under the applicable loan documents secured by real
property that will be conveyed in the Controlled 1 Contribution (in Step 5)
and the Controlled 2 Contribution, as the case may be, so that such
properties may be contributed to Controlled 1 and Controlled 2,
respectively, with Controlled 1 or Controlled 2, as applicable, assuming all
liabilities under such loans. It is currently contemplated that all the loans
secured by real property that will be transferred to Controlled 1 and
Controlled 2 will be assumed by Controlled 1 and Controlled 2, if
applicable, with Distributing being released by the lenders from all liability
thereunder. In the event that Controlled 1 and Controlled 2, as applicable,
obtain new debt in connection with these conveyances and distribute the
proceeds to Distributing, Distributing will use the proceeds to extinguish
the historic indebtedness that is secured by the property or other historic
Distributing indebtedness. In the event that Controlled 1 or Controlled 2,
as applicable, retains all or a portion of new loan proceeds (e.g., if the loan
proceeds from the new loan are greater than the principal amount of the
existing indebtedness that is being retired), Controlled 1 or Controlled 2,
as applicable, shall use such retained loan proceeds in their respective
businesses. Following the Proposed Transaction, none of Distributing,
Controlled 1 nor Controlled 2 will guarantee the indebtedness of the other
two companies nor will any co-borrow.
Step 4: The General Partnership will contribute all of its interest in the Controlled 1
Segment of Business A, the assets of the Controlled 1 Division, and
PLR-126768-20 10
certain individual properties to General Partnership Controlled 1 (“GP
Controlled 1”), a newly formed State A general partnership (“the GP
Controlled 1 Contribution”). Distributing and the General Partnership will
be released from all legal obligations under the applicable loan documents
secured by real property conveyed to GP Controlled 1 in the GP
Controlled 1 Contribution. General Partnership will distribute the general
partnership interest in GP Controlled 1 to the General Partnership’s
partners in proportion to their partnership interests in the General
Partnership (the “General Partnership Division”). The General Partnership
Division will qualify as a tax-free “assets-over form” division under Treas.
Reg. § 1.708-1(d)(3)(i). As a result of the General Partnership Division, the
General Partnership (now GP Controlled 2) will retain its d percent interest
in LLC1, the properties associated with the Controlled 2 Segment of
Business A, and the assets of the Controlled 2 Division. Following the
General Partnership Division (and prior to Distributing’s contribution of its
partnership interests of GP Controlled 1 and GP Controlled 2 in Steps 5
and 6), GP Controlled 1 and GP Controlled 2 will be owned a percent by
Distributing and b percent by Shareholder A.
Step 5: In connection with the Proposed Transaction, Distributing will contribute to
Controlled 1 the following: (i) the Controlled 1 Segment of Business A and
the Controlled 1 Development Project, (ii) Distributing’s a percent of GP
Controlled 1, (iii) the remaining assets and liabilities of the Controlled 1
Division, and (iv) cash, in exchange for all the Series A and Series B
common stock of Controlled 1. (The “Controlled 1 Contribution.”)
Step 6: In connection with the Proposed Transaction, Distributing will contribute to
Controlled 2 the following: (i) the Controlled 2 Segment of Business A, (ii)
Distributing’s a percent interest in GP Controlled 2, (iii) the remaining
assets and liabilities of the Controlled 2 Division, and (iv) cash, in
exchange for all the Series A and Series B common stock of Controlled 2.
(The “Controlled 2 Contribution”.)
Step 7: Any obligations (not otherwise settled or resolved in other steps) that
would result in obligations between Distributing and Controlled 1, on the
one hand, and between Distributing and Controlled 2, on the other hand,
immediately following the Proposed Transaction will be settled in cash,
except for certain obligations under the Transaction Agreements.
Step 8: Distributing will distribute all of the Controlled 1 Series A and Series B
stock: (i) to Shareholder D, Shareholder F, and Shareholder G in
exchange for all of their Distributing Series A and Series B shares, (ii) to
Grantor Trust 7 in exchange for all of its Distributing Series B shares; (iii)
to Grantor Trust 3 in exchange for all of its Distributing Series A shares;
and (iv) as applicable, in exchange for a portion of Shareholder A and
PLR-126768-20 11
Shareholder B’s Distributing Series A and Series B shares held in
Revocable Trust 1 (“Controlled 1 Split-Off”).
Step 9: Distributing will distribute all of the Controlled 2 Series A and Series B
stock: (i) to Shareholder E, Shareholder H, Shareholder I, and
Shareholder J in exchange for all of their Distributing Series A and Series
B shares; (ii) to Grantor Trust 6 in exchange for all of its Distributing Series
B shares; (iii) to Grantor Trust 8 in exchange for all of its Distributing
Series A and Series B shares, and (iv) as applicable, in exchange for a
portion of Shareholder A and Shareholder B’s Distributing Series A and
Series B shares held in Revocable Trust 1 (“Controlled 2 Split-Off”;
together with the Controlled 1 Split-Off, the “Split-Off Transactions”).
Step 10: Distributing and Controlled 2 will enter into a Transitional Agreement for
fair market value using arms-length terms that will last no more than t
months. Distributing, Controlled 1, and Controlled 2 will enter into a
Separate Agreement to periodically rent specified properties for fair
market value using arms-length terms.
Representations
With respect to the Distribution, except as set forth below, Distributing has made all the
representations in Section 3 of the Appendix to Rev. Proc. 2017-52, 2017-41 I.R.B. 283
in the form set forth therein.
Distributing has not made the following representations, which do not apply to the
Proposed Transaction:
Representations 5, 6, 19, 20, 24, 25, 35, 36, 37, 38, 39, and 40.
Distributing has made the following alternative representations set forth in Section 3 of
the Appendix to Rev. Proc. 2017-52:
Representations 3(a), 8(a), 11(a), 15(a), 22(a), 31(a), and 41(b).
Distributing has made the following representations pursuant to Rev. Proc. 2018-53:
Representation 1. Distributing is in substance the obligor of each Distributing
Debt that will be assumed or satisfied.
Representation 2. No holder of Distributing Debt that will be assumed or satisfied
is a person related to Distributing or Controlled 1 or Controlled 2 within the meaning of
section 267(b) or section 707(b)(1) (Related Person).
PLR-126768-20 12
Representation 3. The holder of Distributing Debt that will be assumed or
satisfied will not hold the debt for the benefit of Distributing, Controlled 1, Controlled 2,
or any Related Person.
Representation 4. With the exception of New Debt 1, New Debt 2, New Debt 3,
and New Debt 4, Distributing incurred Distributing Debt that will be assumed or satisfied
(a) before the request for any relevant ruling is submitted, and (b) no later than 60 days
before the earliest of the following dates: (i) the date of the first public announcement
(as defined in § 1.355-7(h)(10)) of the Divisive Reorganization or a similar transaction,
(ii) the date of the entry by Distributing into a binding agreement to engage in the
Divisive Reorganization or a similar transaction, and (iii) the date of approval of the
Divisive Reorganization or a similar transaction by the board of directors of Distributing.
A portion of the proceeds of each of New Debt 1 and New Debt 2 will be used in
Controlled 2's business. The remaining proceeds of New Debt 1 and New Debt 2, and
all of the proceeds of New Debt 3 and New Debt 4, were used to satisfy other
Distributing Debt that was incurred no later than the time described in this
representation.
Representation 5. The total adjusted issue price of the Distributing Debt that will
be assumed or satisfied by Controlled 1 and Controlled 2 does not exceed the historic
average of the total adjusted issue price of (a) Distributing Debt owed to persons other
than Related Persons and (b) obligations that are evidenced by Non-contingent Debt
Instruments and are owed by other members of Distributing's separate affiliated group
(within the meaning of § 355(b)(3)(B)) to persons other than Related Persons.
Representation 6: Not applicable. There will be no delayed satisfaction of
Distributing Debt.
Representation 7: Distributing will not replace any Distributing Debt that will be
assumed or satisfied by Controlled 1 and Controlled 2 with previously committed
borrowing, other than borrowing in the ordinary course of business pursuant to a
revolving credit agreement or similar arrangement.
Distributing has made the following additional representations:
(1) The General Partnership Division qualifies as a tax-free “assets-over form”
division under Treas. Reg. § 1.708-1(d)(3)(i).
(2) Shareholder A will continue to be treated as the owner of the Distributing
Series A shares that he transfers to Grantor Trust 1, Grantor Trust 2, and
Grantor Trust 3 for Federal income tax purposes under sections 671-679.
(3) Shareholder B will continue to be treated as the owner of the Distributing
Series B shares that she transfers to Grantor Trust 4, Grantor Trust 5,
PLR-126768-20 13
Grantor Trust 6, and Grantor Trust 7 for Federal income tax purposes under
sections 671-679.
(4) Shareholder A and Shareholder B will continue to be treated as the owners of
the shares transferred to or held by Revocable Trust 1 for Federal income tax
purposes under sections 671-679.
(5) Shareholder E will continue to be treated as the owner of the Distributing
Series A shares and Series B shares that she transfers to Grantor Trust 8 for
Federal income tax purposes under sections 671-679.
Rulings
Based solely on the information submitted and the representations made, we rule as
follows:
Controlled 1
-
The Controlled 1 Contribution followed by the Controlled 1 Split-Off will qualify as
a “reorganization” with the meaning of section 368(a)(1)(D). Distributing and
Controlled 1 will each be a “party to the reorganization” within the meaning of
section 368(b). -
Distributing will recognize no gain or loss on the Controlled 1 Contribution.
Sections 357(a) and 361(a). -
Controlled 1 will recognize no gain or loss on the Controlled 1 Contribution.
Section 1032(a). -
Controlled 1’s basis in each asset received in the Controlled 1 Contribution will
be the same as the basis of that asset in the hands of Distributing immediately
prior to the Controlled 1 Contribution. Section 362(b). -
Controlled 1’s holding period in each asset received in the Controlled 1
Contribution will include the period during which Distributing held such asset.
Section 1223(2). -
Distributing will recognize no gain or loss on the Controlled 1 Split-Off. Section
361(c)(1). -
The Controlled 1 shareholders will recognize no gain or loss on the receipt of the
stock of Controlled 1 in the Controlled 1 Split-Off. Section 355(a). -
The basis of the Controlled 1 stock in the hands of the Controlled 1 shareholders
immediately after the Controlled 1 Split-Off will be the same as the basis of the
PLR-126768-20 14Distributing stock held by the Controlled 1 shareholders immediately before the
Controlled 1 Split-Off. Section 358(a)(1). -
The Controlled 1 shareholders’ holding period of the Controlled 1 stock received
in the Controlled 1 Split-Off will include the holding period of the Controlled 1
shareholders’ Distributing stock exchanged, provided that the Controlled 1
shareholders hold such Distributing stock as a capital asset on the date of the
Controlled 1 Split-Off. Section 1223(1). -
Earnings and profits will be allocated between Distributing and Controlled 1 in
accordance with section 312(h) and Treas. Reg. § 1.312-10(a).
Controlled 2
-
The Controlled 2 Contribution followed by the Controlled 2 Split-Off will qualify as
a “reorganization” with the meaning of section 368(a)(1)(D). Distributing and
Controlled 2 will each be a “party to the reorganization” within the meaning of
section 368(b). -
Distributing will recognize no gain or loss on the Controlled 2 Contribution.
Sections 357(a) and 361(a). -
Controlled 2 will recognize no gain or loss on the Controlled 2 Contribution.
Section 1032(a). -
Controlled 2’s basis in each asset received in the Controlled 2 Contribution will
be the same as the basis of that asset in the hands of Distributing immediately
prior to the Controlled 2 Contribution. Section 362(b). -
Controlled 2’s holding period in each asset received in the Controlled 2
Contribution will include the period during which Distributing held such asset.
Section 1223(2). -
Distributing will recognize no gain or loss on the Controlled 2 Split-Off. Section
361(c)(1). -
The Controlled 2 shareholders will recognize no gain or loss on the receipt of the
stock of Controlled 2 in the Controlled 2 Split-Off. Section 355(a). -
The basis of the Controlled 2 stock in the hands of the Controlled 2 shareholders
immediately after the Controlled 2 Split-Off will be the same as the basis of the
Distributing stock held by the Controlled 2 shareholders immediately before the
Controlled 2 Split-Off. Section 358(a)(1).
PLR-126768-20 15 -
The Controlled 2 shareholders’ holding period of the Controlled 2 stock received
in the Controlled 2 Split-Off will include the holding period of the Controlled 2
shareholders’ Distributing stock exchanged, provided that the Controlled 2
shareholders hold such Distributing stock as a capital asset on the date of the
Controlled 2 Split-Off. Section 1223(1). -
Earnings and profits will be allocated between Distributing and Controlled 2 in
accordance with section 312(h) and Treas. Reg. § 1.312-10(a). -
Payments made by and between Distributing and Controlled 1 and Distributing
and Controlled 2 under the Transaction Agreements regarding liabilities,
indemnities, or other obligations that (i) relate to periods ending on or before the
Split-Off Transactions, and (ii) do not become fixed or ascertainable until after the
Split-Off Transactions, will be treated as occurring immediately before the Split-
Off Transactions. See Arrowsmith v. Comm’r, 344 U.S. 6, 8 (1952); Rev. Rul. 83-
73, 1983-1 C.B. 84.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 Transaction that is not specifically addressed by 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.
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.
PLR-126768-20 16
Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representative.
Sincerely,
______________________________
Susan E. Massey
Chief, Branch 3
Office of Associate Chief Counsel (Corporate)
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