Tax-free "Reverse Morris Trust" separation and merger under sections 355 and 368(a)(1)(D) (19 rulings)

Plain-English summary

A publicly traded parent corporation asked the IRS to bless a tax-free "Reverse Morris Trust" transaction, in which it separates one of its businesses and combines it with an unrelated public company. The parent (Distributing) will drop the business (held through a recently acquired subsidiary) into a new subsidiary (Controlled), then either spin it off pro rata to its shareholders or split it off in exchange for parent stock. Immediately after, Controlled merges with a subsidiary of the unrelated acquirer, so Controlled becomes a subsidiary of the acquirer and the parent's former shareholders end up owning a minority stake in the combined company. As part of the plan, the parent uses cash and securities it receives from Controlled to pay down its own debt, including satisfying bank debt with Controlled securities. The IRS issued 19 rulings, holding that the contribution and distribution together are a tax-free reorganization under section 368(a)(1)(D), that neither the parent nor Controlled recognizes gain on the contribution (sections 361 and 1032), and that shareholders recognize no gain on receiving Controlled stock under section 355(a), with related rulings on the debt-for-securities exchange, the cash "purge," the 401(k) savings-plan stock, and the section 355(e) anti-abuse rules. The IRS did not rule on the business-purpose, "device," or section 355(e) plan questions.

Ruling snapshot

• Question: Does a parent's separation of a business into a new subsidiary, followed by that subsidiary's merger into an unrelated acquirer (a Reverse Morris Trust), qualify as a tax-free spin-off/split-off under sections 355 and 368(a)(1)(D)?
• Outcome: Approved (19 rulings; business-purpose, device, and section 355(e) plan issues not addressed).
• Key authorities: IRC §§ 355, 361, 362(b), 368(a)(1)(D), 358, 1032, 1223; Treas. Reg. §§ 1.355-2, 1.355-7; Rev. Proc. 2017-52; Rev. Proc. 2018-53.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202224002 Third Party Communication: None
Release Date: 6/17/2022 Date of Communication: Not Applicable
Index Number: 355.01-00, 355.01-01,
355.10-00, 368.04-00 Person To Contact:
------------------------, ID No. -----------------
------------------------ Telephone Number:
------------------------------------ --------------------
------------- Refer Reply To:
---------------------- CC:CORP:3
------------------------- PLR-113942-21
Date:
December 28, 2021

Legend

Distributing = ---------------------------------------------------------------------------------------
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Controlled = ---------------------------------------------------------------------------------------
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Sub = ---------------------------------------------------------------------------------------
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Acquiring = ---------------------------------------------------------------------------------------
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Acquiring Sub = ---------------------------------------------------------------------------------------
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Business A = ----------------------------

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

State A = -------------

Date 1 = -------------------
PLR-113942-21 2

Date 2 = ------------------

Long-Term = ---------------------------------------------------------------------------------------
Debts ---------------------------------------------------------------------------------------
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Recent Debt = ---------------------------------------------------------------------------------------
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Transition = ---------------------------------------------------------------------------------------
Services ---------------------------------------------------------------------------------------
Agreement ---------------------------------------------------------------------------------------
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Tax Matters = ---------------------------------------------------------------------------------------
Agreement ---------------------------------------------------------------------------------------
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Employee = ---------------------------------------------------------------------------------------
Matters ---------------------------------------------------------------------------------------
Agreement

IP Matters = ---------------------------------------------------------------------------------------
Agreement ---------------------------------------------------------------------------------------
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Commercial = ---------------------------------------------------------------------------------------
Agreements ---------------------------------------------------------------------------------------
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Securities = ---------------------------------------------------------------------------------------
Exchange ---------------------------------------------------------------------------------------
Condition
PLR-113942-21 3

Internal = -------------------------------------------------------------------------------------------
Distributing -------------------------------------------------------------------------------------------
Ownership -------------------------------------------------------------------------------------------
List -------------------------------------------------------------------------------------------
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a = -------------

b = ----

c = ------------

d = --------------

e = ---

f = ---

g = ---

h = --

i = --

j = ---

k = --

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

This letter responds to the letter from your authorized representative dated June 30,
2021, submitted on behalf of Distributing, requesting rulings on certain federal income
tax consequences of a transaction described below (the “Proposed Transaction”). The
material information submitted in that request and in subsequent correspondence is
summarized below.

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, and section 6.03(2) of Rev.
Proc. 2021-1, 2021-1 I.R.B. 1, regarding one or more significant issues under sections
355, 361, and 368 of the Internal Revenue Code (the Code”). This Office expresses no
opinion 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. 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.
PLR-113942-21 4

This office has made no determination regarding whether the distribution in the
Proposed Transaction: (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 Distributing or Controlled 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 Distributing or Controlled, or any predecessor or successor of
Distributing or Controlled, within the meaning of Treas. Reg. § 1.355-8 (see Section
355(e)(2)(A)(ii) and Treas. Reg. § 1.355-7).

                                 Summary of Facts

Distributing is a publicly traded State A corporation, the parent of a worldwide group,
and the common parent of an affiliated group of corporations filing a consolidated U.S.
federal income tax return (the “Distributing Group”). Distributing, itself and through its
affiliates, has been engaged in Business A, Business B, and other lines of business for
more than five years.

On Date 1 (less than five years ago), in a transaction in which gain was recognized,
Distributing acquired Sub, now a wholly owned subsidiary of Distributing. Sub is
engaged in Business B and other lines of business.

Acquiring is a publicly traded State A corporation unrelated to Distributing. Acquiring
operates businesses that are complementary with those of Sub.

Distributing and Acquiring have determined that there are business synergies between
Acquiring and Sub. Therefore, Distributing will spin off or split off Sub’s business
(through newly formed Controlled), and Acquiring will combine with Controlled.

For purposes of satisfying the active trade or business requirement of Section 355(b)
with respect to the Distribution (defined below), Distributing will rely upon Business A
conducted by members of its separate affiliated group (as defined in Section
355(b)(3)(B)), and Controlled will rely upon Business B conducted by members of its
separate affiliated group. Financial information has been submitted in accordance with
Rev. Proc. 2017-52 indicating that each of Business A and Business B had gross
receipts and operating expenses representing the active conduct of a trade or business
for each of the past five years.

Distributing has various debts that it intends to satisfy as part of the Proposed
Transaction. In particular, it has Long-Term Debts with varying maturity dates. Certain
Long-Term Debts will mature prior to or after the Distribution and may be refinanced
prior to their maturity dates (the “Distributing Refinanced Debt”). Additionally, in its
ordinary course of business, Distributing routinely borrows under an ongoing
commercial paper (“Commercial Paper”) program. Distributing has approximately $a of
PLR-113942-21 5

Commercial Paper outstanding that has been rolled over or refinanced from earlier
borrowings. Together, these debts are Distributing’s “Historic Debt.”

Distributing also entered into the Recent Debt, which was funded or incurred less than
60 days before the Proposed Transaction was approved by Distributing’s board on Date

2. However, more than 60 days before Date 2, Distributing was already obligated to
   make the payments funded by the Recent Debt, and those obligations were
   independent of its decision to engage in the Proposed Transaction. Together,
   Distributing’s Historic Debt and its Recent Debt are its “Qualifying Debt.”

Distributing has a Section 401(k) qualified plan (a “Savings Plan”) for the Distributing
Group’s employees. Distributing stock is one of the investment options available to
Savings Plan participants, who may self-direct investments. The Savings Plan currently
holds approximately b% (less than 5%) of the stock of Distributing in aggregate. In the
Proposed Transaction, the Savings Plan may receive stock of Controlled, which will
then be converted to stock of Acquiring in the Merger.

In tandem with the proposed separation of Distributing and Controlled, the Savings Plan
will also be split into a Distributing Savings Plan (whose participants are the employees
remaining in the Distributing Group) and a Controlled Savings Plan (whose participants
are the employees of Controlled and its subsidiaries). To ensure that the Distributing
Savings Plan is in compliance with certain legal requirements, the Distributing Savings
Plan will sell all of its shares of Acquiring stock by a specified date after the Distribution
in open-market transactions. In contrast, participants in the Controlled Savings Plan will
not be required to sell their Acquiring stock.

The Proposed Transaction may result in members of the Distributing group taking into
account certain intercompany gains and losses (the losses, “Deferred Losses”) under
Treas. Reg. § 1.1502-13. Distributing will not selectively take into account Deferred
Losses.

                              Proposed Transaction

For what are represented to be valid business purposes, Distributing proposes the
following steps:

1. Acquiring has already formed Acquiring Sub, a wholly owned State A
   corporation, and Distributing has formed Controlled, a wholly owned State A
   corporation.

2. One or more banks will lend approximately $c to Distributing (“New Bank Debt”).
   At least one day later, Distributing will enter an arm’s-length agreement with the
   banks to satisfy the New Bank Debt with Controlled securities.
   PLR-113942-21 6

3. Controlled will borrow approximately $d from unrelated lenders (the “Controlled
   Borrowing”). The precise amount of borrowing in steps 2 and 3 will depend on
   market considerations and working-capital determinations at the time of the
   transaction.

4. Provided market conditions satisfy the Securities Exchange Condition, within e
   business days of entering into the agreement in step 2 and pursuant to that
   agreement, Distributing will use the Controlled securities, which may be received
   prior to the Contribution in step 5, to satisfy the New Bank Debt (the “Securities
   Exchange”).

    a. If the Securities Exchange Condition is not satisfied, Controlled will borrow
       an equivalent additional amount of cash and distribute it to Distributing in
       the Contribution (the “Contingent Additional Cash”).
   
    b. If the Controlled securities are received prior to step 5, Distributing will be
       obligated under certain agreements to contribute Controlled’s business to
       Controlled, and the legal documentation for the Controlled Securities will
       include covenants, enforceable by the debt holders, that Distributing will
       make such contributions prior to the Distribution. In the event the
       Distribution is abandoned, Distributing will contribute cash, including the
       proceeds of the New Bank Debt, to Controlled, and Controlled will redeem
       the Controlled Securities, potentially with a prepayment premium.
   

5. Distributing will contribute Sub and other assets and entities relating to
   Controlled’s business to Controlled in exchange for Controlled stock and
   Controlled securities (“Controlled Securities”), some or all of the cash borrowed
   in step 3 (the “Controlled Cash”), and the assumption of liabilities associated with
   the Controlled business (together, the “Contribution”).

6. Distributing will distribute all of the Controlled stock to its shareholders (the
   “Distribution”). The Distribution will take the form of a pro rata dividend, an
   exchange offer for Distributing stock, or a combination of the two.

7. Immediately after the Distribution, Acquiring Sub will merge into Controlled in a
   Section 368 reorganization (the “Merger”). As a result, Controlled will become a
   wholly owned subsidiary of Acquiring. Immediately after the Merger, Distributing
   shareholders will hold f% of the stock of Acquiring; the remaining g% of the stock
   will be held by pre-Merger shareholders of Acquiring.

    a. Pursuant to the Merger, in order to avoid the expense and inconvenience
       of issuing fractional shares, all fractional shares of Acquiring common
       stock that a record holder of shares of Controlled stock would otherwise
       be entitled to receive as a result of the Merger will be aggregated by the
       exchange agent. The exchange agent will sell the shares on behalf of
       such holders of Controlled stock in an open market transaction or as
   

   PLR-113942-21 7

         otherwise reasonably directed by Acquiring, in each case at then-
         prevailing market prices, and remit the cash proceeds to the shareholders
         of record.
   
     b. Distributing will designate h members of Acquiring’s initial board after the
        Merger and Acquiring will designate the remaining i members. These
        members will be subject to election by shareholders in the normal course
        after serving their initial terms.
   

8. Within j months after the Distribution:

     a. Distributing will use an amount of cash equal to the proceeds of the New
        Bank Debt to repay principal, interest, or premium of Qualifying Debt.
   
     b. Distributing will use an amount of cash equal to the Controlled Cash to
        make distributions to shareholders; repurchase its outstanding common
        stock; repay principal, interest, or premium of Qualifying Debt; or satisfy
        ordinary-course liabilities whenever incurred (or some combination of
        these) (the “Controlled Cash Purge”).
   

The term “Controlled Separation” refers to the Proposed Transaction excluding the
Merger.

In connection with the Proposed Transaction, Distributing, Acquiring, and Controlled
have entered into and will enter into agreements (the “Continuing Arrangements”)
intended to govern their relationship (and that of their respective subsidiaries) following
the Proposed Transaction. The specific agreements include the Transition Services
Agreement, the Tax Matters Agreement, the Employee Matters Agreement, and the IP
Matters Agreement. Distributing, Acquiring, and Controlled also have entered into and
will enter into certain Commercial Agreements.

                                 Representations

Except as follows, Distributing has made all of the representations in section 3 of the
Appendix to Rev. Proc. 2017-52 with respect to the Controlled Separation:

1. Distributing has made the following alternative representations: 3(a), 11(a), 15(a),
   22(b), 31(a), 41(a).

2. Distributing has not made the following representations, which do not apply to the
   Distribution: 24, 25, 35, 40.

3. To the extent the Distribution is a split-off, Distributing makes Representation 7,
   and representations 5 and 6 do not apply. To the extent the Distribution is a pro-
   rata distribution, Distributing makes Representations 5 (as modified below) and
   6, and Representation 7 does not apply.
   PLR-113942-21 8

4. Distributing has made the following modified representations:

   a. Representation 2: In the Proposed Transaction, Distributing will distribute
      or exchange all of the stock and securities of Controlled.
   
   b. Representation 4: Other than the Controlled Securities, no indebtedness
      owed by Controlled to Distributing after the Distribution will constitute
      stock or securities of Controlled or any other entity.
   
   c. Representation 5: To the extent the Distribution is effected as a pro rata
      distribution, other than Controlled Securities transferred in the Securities
      Exchange or the cash transferred in the Controlled Cash Purge, none of
      the Controlled stock, Controlled Securities, or other property to be
      distributed in the Controlled Separation will be received in any capacity
      other than that of a shareholder of Distributing.
   
   d. Representation 8(b): Distributing has securities outstanding, but it will not
      distribute Controlled stock, Controlled Securities, or other property to any
      holder of such securities in the Controlled Separation, in satisfaction
      thereof, except potentially pursuant to the Securities Exchange or the
      Controlled Cash Purge.
   
   e. Representation 13: Except to the extent of the Contingent Additional Cash
      and potential payments under the Tax Matters Agreement, Distributing will
      not have acquired any Controlled stock in a transaction in which gain or
      loss was recognized during the five-year period immediately preceding the
      Distribution.
   
   f. Representation 19: The Controlled Cash distributed by Controlled to
      Distributing in pursuance of the plan of reorganization will be transferred
      by Distributing to its shareholders in pursuance of the plan of
      reorganization or to its creditors in connection with the reorganization.
   
   g. Representation 23: Other than potentially as a result of a Continuing
      Arrangement, the Proposed Transaction does not involve and will not
      result in a situation in which one party recognizes income but another
      party recognizes the deductions associated with such income or a
      situation in which one party owns property but another party recognizes
      the income associated with such property.
   
   h. Representation 32: Except for the Continuing Arrangements, ordinary-
      course payables and receivables, or potentially the Controlled Securities,
      no intercorporate debt will exist between Distributing and Controlled at the
      time of, or subsequent to, the Distribution.
   

   PLR-113942-21 9

     i. Representation 33: Payments made in connection with all continuing
        transactions, if any, between Distributing and Controlled will be for fair
        market value based on arm's-length terms, except as contemplated by the
        Continuing Arrangements.
   
     j. Representation 37: Other than the Deferred Losses, there is no loss
        subject to Treas. Reg. § 1.1502-13 that will be taken into account as a
        result of a transaction related to the Distribution.
   
     k. Representation 46: Other than potentially pursuant to the Controlled
        Borrowing, Controlled will not issue stock or securities to a person other
        than Distributing in anticipation of the Distribution.
   

Except as follows, Distributing has made all of the representations in section 3.04 of
Rev. Proc. 2018-53 with respect to the Controlled Separation:

5. Distributing has made the following modified representations:

     a. Representation 3: Distributing makes Representation 3 with respect to its
        Qualifying Debt. With respect to the New Bank Debt, Distributing modifies
        Representation 3 to provide that the holder(s) of the New Bank Debt that
        will be satisfied will not hold the New Bank Debt for the benefit of
        Distributing, Controlled, or any related person. Neither Distributing, nor
        Controlled, nor any related person will participate in any profit gained by
        the Banks upon an exchange of § 361 Consideration; nor will any such
        profit be limited by agreement or other arrangement. The value of the
        § 361 Consideration received by the Banks in satisfaction of the New
        Bank Debt will be determined pursuant to arm's length negotiations.
   
     b. Representation 4: Other than the New Bank Debt, the Recent Debt,
        Commercial Paper, and the Distributing Refinanced Debt, Distributing
        incurred the Qualifying Debt that will be assumed or satisfied pursuant to
        the Controlled Separation (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 Proposed Transaction or a similar transaction, (ii) the date
        of the entry by Distributing into a binding agreement to engage in the
        Proposed Transaction or a similar transaction, and (iii) the date of
        approval of the Proposed Transaction or a similar transaction by the board
        of directors of Distributing.
   
     c. Representation 6: There are one or more substantial business reasons for
        any delay in satisfying Qualifying Debt with § 361 Consideration beyond
        the 30 days after the date of Distribution. All the Qualifying Debt that will
        be satisfied with § 361 Consideration will be satisf ied no later than j
        months after the Distribution.
   

   PLR-113942-21 10

Distributing has made the following additional representations:

6. The payment of cash in lieu of fractional shares of Acquiring common stock in the
   Merger is solely for the purpose of avoiding the expense and inconvenience of
   issuing fractional shares and does not represent separately bargained-for
   consideration. The fractional share interests of each Distributing shareholder will
   be aggregated, and no Distributing shareholder of record will receive cash in an
   amount equal to or greater than the value of one full share of Acquiring common
   stock (with the possible exception of shareholders who hold Distributing stock in
   multiple accounts or with multiple brokers).

7. Distributing would have incurred the Recent Debt at the same time and in the
   same amount regardless of the Proposed Transaction, and Distributing would
   have entered into an agreement to undertake the Proposed Transaction
   regardless of whether the Recent Debt had been incurred.

                                    Rulings
   

Based solely on the information submitted and representations made, we rule as
follows:

1. The Contribution, together with the Distribution, will be a reorganization within the
   meaning of Section 368(a)(1)(D). Distributing and Controlled will each be “a party
   to a reorganization” within the meaning of Section 368(b).

2. No gain or loss will be recognized by Distributing on the Contribution except to
   the extent of the distribution of the Contingent Additional Cash and potential
   payments under the Tax Matters Agreement. Section 361(a); Section 361(b);
   Section 357(a).

3. No gain or loss will be recognized by Controlled on the Contribution. Section
   1032(a).

4. The basis in each asset received by Controlled in the Contribution will equal the
   basis of that asset in the hands of Distributing immediately before the transfer,
   increased by the amount of gain, if any, recognized by Distributing as a result of
   the distribution of the Contingent Additional Cash and taxable payments under
   the Tax Matters Agreement. Section 362(b).

5. The holding period in each asset received by Controlled in the Contribution will
   include the period during which the asset was held by Distributing. Section
   1223(2).

6. No gain or loss will be recognized by Distributing upon the distribution of the
   Controlled stock in the Distribution. Section 355(c); Section 361(c).
   PLR-113942-21 11

7. The Controlled Cash will be treated as being distributed pursuant to the plan of
   reorganization for purposes of Section 361(b)(1)(A) and (b)(3).

8. No gain or loss on the Controlled securities will be recognized by Distributing in
   the Securities Exchange. Section 361(c).

9. No gain or loss will be recognized by holders of Distributing stock upon the
   receipt of Controlled stock in the Distribution. Section 355(a).

10. To the extent the Distribution is effected as a split-off, the aggregate basis of the
    Controlled stock in the hands of a holder of Distributing stock who exchanges
    Distributing stock for Controlled stock in the Distribution immediately after the
    Distribution will be the same as the aggregate basis of the Distributing stock
    exchanged therefor. Section 358(a).

11. To the extent Controlled stock is distributed to holders of Distributing stock on a
    pro rata basis, the aggregate basis of the Distributing stock and the Controlled
    stock in the hands of such holders immediately after the Distribution will be the
    same as the basis of the Distributing stock immediately before the Distribution on
    which such distribution was made, allocated between the Distributing stock and
    Controlled stock in proportion to the fair market value of each in accordance with
    Treas. Reg. § 1.358-2(a). Section 358(a).

12. The holding period of the Controlled stock received in the Distribution will include
    the holding period of the Distributing stock exchanged therefor (if the Distribution
    is effected as a split-off) or the holding period of the Distributing stock with
    respect to which the Controlled stock is distributed (if the Distribution is effected
    as a pro rata distribution), provided that such Distributing stock is held as a
    capital asset on the date of such Distribution. Section 1223(1).

13. Earnings and profits of Distributing will be allocated between Controlled and
    Distributing in accordance with Section 312(h) and Treas. Reg. §§ 1.312-10(a)
    and 1.1502-33(e)(3), as applicable.

14. The initial designations of the post-Merger members of the Acquiring board of
    directors will not affect the determination of the total voting power or value of the
    stock of Controlled acquired within the meaning of Section 355(e).

15. In applying Treas. Reg. § 1.355-7(d)(7), the determination, with respect to a
    particular acquisition, sale, or disposition (a “stock transaction”), of whether an
    acquiror or seller that is a participant in the Distributing Savings Plan is a “Five-
    percent shareholder” or “Ten-percent shareholder” within the meaning of Treas.
    Reg. § 1.355-7(h)(8) and (14) is made solely by reference to the Filings and
    Actual Knowledge. For this purpose, (A) the Filings are the latest relevant
    Schedules 13D or 13G; and (B) Actual Knowledge is limited to (i) the ownership
    of stock and/or options listed in the latest relevant Forms 3, 4, or 10-K or in the
    PLR-113942-21 12

    latest available Internal Distributing Ownership List updated as of the date of the
    Distribution, and (ii) if such stock transaction occurs less than k years after the
    Distribution, actual knowledge of those persons whose ownership of stock and/or
    options is listed in the latest relevant Forms 3, 4, or 10-K. The “latest relevant”
    schedules or forms are the latest schedules or forms filed with the Securities
    Exchange Commission (SEC) with respect to the issuing corporation on or prior
    to the date of such stock transaction.

    Moreover, the aggregation rule of Section 355(e)(4)(C)(i) will not apply with
    respect to stock owned through the Distributing Savings Plan for purposes of
    determining whether an acquiror or seller “actively participates in the
    management or operation” of any corporation for purposes of the definition of
    “controlling shareholder” within the meaning of Treas. Reg. § 1.355-7(h)(3).

16. In applying Treas. Reg. § 1.355-7(d)(7), the determination, with respect to a
    stock transaction, of whether an acquiror or seller that is a participant in the
    Controlled Savings Plan is a “Five-percent shareholder” or “Ten-percent
    shareholder” within the meaning of Treas. Reg. § 1.355-7(h)(8) and (14) is made
    solely by reference to the Filings and Actual Knowledge. For this purpose, (A) the
    Filings are the latest Schedules 13D or 13G; and (B) Actual Knowledge is limited
    to (i) the ownership of stock and/or options listed in the latest relevant Forms 3,
    4, or 10-K, and, (ii) if such stock transaction occurs less than k years after the
    Distribution, actual knowledge of those persons whose ownership of stock and/or
    options is listed in the latest relevant Forms 3, 4, or 10-K. The “latest relevant”
    schedules or forms are the latest schedules or forms filed with the SEC with
    respect to the issuing corporation on or prior to the date of such stock
    transaction.

    Moreover, the aggregation rule of Section 355(e)(4)(C)(i) will not apply with
    respect to stock owned through the Controlled Savings Plan for purposes of
    determining whether an acquiror or seller “actively participates in the
    management or operation” of any corporation for purposes of the definition of
    “controlling shareholder” within the meaning of Treas. Reg. § 1.355-7(h)(3).

17. Any increase, directly or indirectly, in the percentage of either voting power or
    value of the stock of Acquiring owned by a shareholder by virtue of share
    repurchases or acquisitions of the stock of Acquiring, if any, as part of a plan (or
    series of related transactions) with the Distribution will be taken into account for
    purposes of Section 355(e) only after reducing such increase for any reduction in
    such percentage interest, directly or indirectly, resulting from the share
    repurchases and any disposition of stock of Acquiring by such shareholder or
    issuance of stock by Acquiring, if any, as part of a plan (or series of related
    transactions) with the Distribution.

18. Any payments made between any of Distributing and Controlled and their
    respective affiliates under any of the Continuing Arrangements regarding
    PLR-113942-21 13

    liabilities, indemnities, or other obligations that (i) have arisen or will arise for a
    taxable period ending on or before the Distribution or for taxable year beginning
    before and ending after the Distribution and (ii) will not become fixed and
    ascertainable until after the Distribution will be characterized in a manner
    consistent with the proper treatment if such payments had occurred immediately
    before the Distribution. See Arrowsmith v. Commissioner, 344 U.S. 6 (1952), and
    Rev. Rul. 83-73, 1983-1 C.B. 84.

19. Following the Distribution, Controlled will not be a successor of Distributing for
    purposes of Section 1504(a)(3). Therefore, immediately after the Distribution,
    Controlled and its direct and indirect subsidiaries that are “includible
    corporations” under Section 1504(b) and satisfy the ownership requirements of
    Section 1504(a)(2) will be members of an affiliated group of corporations entitled
    to file a consolidated US federal income tax return with Controlled as the
    common parent.

                                      Caveats
    

Except as expressly provided in this letter, no opinion is expressed or implied
concerning the tax treatment of the Proposed Transaction under any other provisions of
the Code or regulations or the tax treatment of any conditions existing at the time of, or
effects resulting from the Proposed Transaction that is not specifically covered by the
above ruling. In particular, no opinion is expressed on whether the Distributing Savings
Plan’s disposition of Acquiring stock is part of a plan (or series of related transactions)
with the Distribution for purposes of Section 355(e).

                             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 returns that provides the date on and control number
(PLR-113942-21) of this letter ruling.
PLR-113942-21 14

Pursuant to a Power of Attorney on file with this office, copies of this letter are being
sent to your authorized representatives.

                                   Sincerely,



                                   Julie T. Wang
                                   Senior Counsel, Branch 2
                                   Office of Associate Chief Counsel (Corporate)

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