IRS rules a leveraged corporate spin-off qualifies as tax-free under §§ 355 and 368
Plain-English summary
A publicly traded parent company (Distributing) asked the IRS to bless the tax treatment of a plan to separate one of its businesses (the SpinCo Business) into a new public company (Controlled 1). The plan runs through many steps: an internal restructuring that moves the business into a new subsidiary (Controlled 2), a contribution of that subsidiary and other assets to Controlled 1, and a distribution of more than 80% of Controlled 1's stock to the parent's shareholders (the External Distribution). Controlled 1 borrows cash and passes some of the proceeds up to Distributing, which uses them to repay old debt, pay special dividends, or buy back shares. Distributing also plans to hand any retained Controlled 1 stock and certain Controlled 1 debt securities to its own creditors to satisfy debt (equity-for-debt and debt-for-debt exchanges). The IRS issued 27 rulings concluding that the contributions and distributions qualify as tax-free reorganizations under §§ 368(a)(1)(D) and 355, so generally no gain or loss is recognized by Distributing, the new companies, or the shareholders, with the usual carryover of basis and holding period. The IRS did not rule on the business-purpose requirement of Treas. Reg. § 1.355-2(b) or on the overall tax consequences, and it expressed no opinion on issues outside the specific rulings.
Ruling snapshot
- Question: Do the steps of the proposed corporate separation (internal spin of Controlled 2, external distribution of Controlled 1, and related debt exchanges) qualify as tax-free reorganizations under §§ 355 and 368?
- Outcome: Approved (27 favorable rulings; the transactions qualify as tax-free under §§ 355 and 368(a)(1)(D)).
- Key authorities: IRC §§ 355, 361, 368(a)(1)(D), 357, 358, 362, 1032, 1223, 312(h); Rev. Proc. 2017-52; Rev. Proc. 2024-24.
Full text (IRS public release)
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 202627007 Third Party Communication: None
Release Date: 7/2/2026 Date of Communication: Not Applicable
Index Number: 355.01-00, 355.01-01,
355.10-00, 361.02-02, Person To Contact:
361.02-00 -------------------------, ID No. -----------------
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------------------------- Refer Reply To:
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-------------------------------------- PLR-117056-25
Date:
April 09, 2026
Legend
Distributing = -------------------------------------------------------
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Controlled 1 = -------------------------------------------------------
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Controlled 2 = -------------------------------------------------------
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Sub 1 = -------------------------------------------------------
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Sub 2 = -------------------------------------------------------
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Sub 3 = -------------------------------------------------------
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Sub 5 = -------------------------------------------------------
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FSub 1 = -------------------------------------------------------
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FSub 2 = -------------------------------------------------------
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FSub 3 = -------------------------------------------------------
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FSub 4 = -------------------------------------------------------
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Distributing Notes = -------------------------------------------------------
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Date 1 = --------------------------
SpinCo Business = -------------------------------------------------------
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RemainCo Business = -------------------------------------------------------
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Business A = -------------------------------------------------------
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Business B = -------------------------------------------------------
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RemainCo Business Initiatives = -------------------------------------------------------
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Delayed Assets = -------------------------------------------------------
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Shareholder A = -------------------------------------------------------
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Overlapping Individual = -------------------------------------------------------
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Separation Agreement = -------------------------------------------------------
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Tax Matters Agreement = -------------------------------------------------------
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Employee Matters Agreement = -------------------------------------------------------
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Transition Services Agreement = -------------------------------------------------------
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IP Matters Agreement = -------------------------------------------------------
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Trademark Licensing Agreement = -------------------------------------------------------
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Lease Agreements = -------------------------------------------------------
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Continuing Commercial Arrangement = -------------------------------------------------------
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Technology Services Arrangement = -------------------------------------------------------
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Arrangement A = -------------------------------------------------------
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Arrangement B = -------------------------------------------------------
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Pension Payment = -------------------------------------------------------
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Dear ----- ---------:
This letter responds to a letter dated September 15, 2025, submitted on behalf of
Distributing, its affiliates, and its shareholders, requesting rulings on certain Federal
income tax consequences of a series of proposed transactions (the "Proposed
Transactions," as defined below). The material information submitted in that request and
subsequent correspondence is summarized below.
This letter is issued pursuant to Rev. Proc. 2017-52, 2017-41 I.R.B. 283, and
Rev. Proc. 2024-24, 2024-21 I.R.B. 1214, regarding one or more transactions under
section 355 and/or section 368 of the Internal Revenue Code (the “Code”). The 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.
The rulings contained in this letter are based upon information and
representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification on
examination.
This office has made no determination regarding whether each of the
distributions in the Proposed Transactions (defined below) satisfies the business
purpose requirement of Treas. Reg. § 1.355-2(b).
Summary of Facts
Distributing, a publicly traded corporation, is the parent company of a worldwide
group of foreign and domestic affiliates (the “Distributing Group”). Distributing is the
common parent of an affiliated group of corporations that join in the filing of a
consolidated Federal income tax return (the “Distributing Consolidated Group”).
Distributing has a single class of common stock issued and outstanding (the
“Distributing Common Stock”).
Prior to the Proposed Transactions (defined below), Distributing and the
members of its separate affiliated group (as defined in section 355(b)(3)) (“SAG”) will be
engaged in the RemainCo Business (including Business B) and the SpinCo Business
(including Business A).
Distributing owns all of the issued and outstanding stock of Sub 1.
Sub 1 directly owns all of the issued and outstanding stock of Sub 2 and Sub 5.
Sub 2 directly owns all of the issued and outstanding stock of Sub 3, Sub 4,
FSub 1, and FSub 2.
Sub 2 and Sub 4 own all of the issued and outstanding stock of FSub 3 and all of
the issued and outstanding interests in FSub 4.
As of Date 1 (the “Earliest Applicable Date”), Distributing had amounts
outstanding under the Distributing Notes. None of the Distributing Notes was issued in
anticipation of the Proposed Transactions.
For purposes of satisfying the active trade or business requirements of section
355(b) with respect to each of the Distributions (defined below), financial information
has been submitted in accordance with Rev. Proc. 2017-52, 2017-41 I.R.B. 283,
indicating that each of Business A and Business B has had gross receipts and operating
expenses representing the active conduct of a trade or business for each of the past
five years. Sub 2 is engaged in Business A directly and through its subsidiaries. Sub 1 is
engaged in Business B directly and through its subsidiaries (other than Sub 2 and its
subsidiaries).
Proposed Transactions
The following transactions (the “Proposed Transactions”) occurred or will occur to
separate the SpinCo Business from the Distributing Group (the “Separation”):
- Distributing formed Controlled 1.
- Sub 1 formed Controlled 2.
- Controlled 1 borrowed cash pursuant to an offering of Controlled 1 debt to third-party
investors in the capital markets and will borrow additional cash from one or more
third-party financial institutions (collectively, the “Controlled 1 Borrowing”). - Sub 5 will distribute certain SpinCo Business assets to Sub 1 (the “Sub 5
Distribution”), and Sub 1 will contribute the SpinCo Business assets received in the
Sub 5 Distribution to Sub 2 in partial repayment of an existing intercompany
receivable due from Sub 1 to Sub 2 (the “Sub 2 Receivable”). - Sub 3 will distribute to Sub 2 an existing intercompany receivable due from Sub 1 to
Sub 3 (the “Sub 3 Receivable”). -
Sub 2 will distribute the Sub 2 Receivable and the Sub 3 Receivable to Sub 1.
-
Sub 1 will contribute all of the issued and outstanding stock of Sub 2 and certain
SpinCo Business assets to Controlled 2 in exchange for the actual or constructive
issuance of Controlled 2 stock and the assumption of certain SpinCo Business
liabilities (the “Controlled 2 Contribution”). - Sub 1 will distribute all of the issued and outstanding stock of Controlled 2 to
Distributing (the “Internal Distribution”). - Distributing will contribute all of the issued and outstanding stock of Controlled 2 and
certain SpinCo Business assets (including beneficial ownership of the Delayed
Assets) to Controlled 1 in exchange for the actual or constructive issuance of
Controlled 1 stock, the assumption of certain SpinCo Business liabilities, some or all
of the net proceeds from the Controlled 1 Borrowing (the “Controlled 1 Proceeds”),
and potentially an amount of debt instruments of Controlled 1 that qualify as
securities within the meaning of section 361(a) (any such securities, the “Controlled
1 Securities,” and the contribution, the “Controlled 1 Contribution”). Immediately
following Distributing’s receipt of the Controlled 1 Proceeds, Distributing will deposit
the Controlled 1 Proceeds into a segregated account until the cash is used as
described in Step 12. - Distributing will distribute more than 80% of the issued and outstanding stock of
Controlled 1 to holders of Distributing Common Stock (the “External Distribution”).
Distributing will continue to hold the remaining amount of Controlled 1 stock
following the External Distribution (the “Remainder Stock”). - Following the External Distribution, Distributing will make any required Pension
Payment to Controlled 1, or vice versa. - No later than 12 months following Distributing’s receipt of the Controlled 1 Proceeds,
Distributing will use the Controlled 1 Proceeds to repay outstanding amounts under
the Distributing Notes or more recently incurred Distributing debt the proceeds of
which were used to repay outstanding amounts under the Distributing Notes, pay
one or more special dividends to holders of Distributing Common Stock and/or
repurchase shares of Distributing Common Stock pursuant to a newly authorized
share repurchase program (the “Controlled 1 Proceeds Purge”). - To the extent Controlled 1 issues Controlled 1 Securities in the Controlled 1
Contribution, no later than 24 months following the Controlled 1 Contribution,
Distributing will transfer such Controlled 1 Securities to one or more third-party
holders of Exchange Debt (defined below) in satisfaction of such debt pursuant to
one more exchanges (each, a “Debt-for-Debt Exchange”). -
No later than 24 months following the Controlled 1 Contribution, Distributing will
transfer the Remainder Stock to one or more third-party holders of Exchange Debt
(defined below) in satisfaction of such debt pursuant to one or more exchanges
(each, an “Equity-for-Debt Exchange,” and together with a Debt-for-Debt Exchange,
a “Debt Exchange”). To the extent that Distributing disposes of less than all of the
Remainder Stock pursuant to one or more Equity-for-Debt Exchanges, Distributing
will distribute the remaining Remainder Stock to holders of Distributing CommonStock either in redemption of such stock (a “Clean-Up Split-Off”) or as a non-
redemptive distribution (a “Clean-Up Spin-Off,” and together with a Clean-Up Split-
Off, a “Clean-Up Distribution”).To effectuate a Debt Exchange, Distributing will enter into an agreement with one
or more financial institutions (an “Exchange Bank”) to borrow cash on a short-term basis
(“Exchange Debt”). The proceeds of the Exchange Debt will be immediately placed in
an escrow account and promptly used to repay outstanding amounts under the
Distributing Notes or more recently incurred Distributing debt the proceeds of which
were used to repay outstanding amounts under the Distributing Notes. After the
issuance of the Exchange Debt, Distributing and each Exchange Bank will enter into an
agreement to transfer a specified amount of Remainder Stock or Controlled 1 Securities
to such Exchange Bank in satisfaction of the Exchange Debt. Any such exchange will
occur no earlier than 30 days after the issuance of the Exchange Debt.In connection with the Proposed Transactions, Distributing (and/or one or more ofits direct or indirect subsidiaries) and Controlled 1 (and/or one or more of its direct or
indirect subsidiaries) will enter into certain transitional and commercial agreements (the
“Post-Separation Agreements”) intended to govern certain of their relationships (and
that of their respective subsidiaries) following the consummation of the Proposed
Transactions, and to manage an orderly transition in the operation of the SpinCo
Business. The Post-Separation Agreements will include the Separation Agreement, Tax
Matters Agreement, Employee Matters Agreement, Transition Services Agreement, IP
Matters Agreement, Trademark Licensing Agreement, Lease Agreements, Continuing
Commercial Arrangement, Technology Services Arrangement, and Arrangement B.
Each of the Post-Separation Agreements will last no longer than is necessary to achieve
a successful separation of the SpinCo Business. Except with respect to the
Arrangement A and the Arrangement B, any payments made in connection with any of
the Post-Separation Agreements that occur more than 24 months after the External
Distribution will be for fair market value based on arm’s length terms.Following the External Distribution, it is expected that the Overlapping Individualwill serve as Role 1 and Role 2. --------------------------------------------------------------------------
----------------------------------------------------------------------------. Except for the Overlapping
Individual, no officer, board member, or key employee of Distributing will serve as an
officer, board member, or key employee of Controlled 1, or vice versa.RepresentationsThe following representations have been made with respect to the Proposed
Transactions:
With respect to the Controlled 2 Contribution and Internal Distribution
Except as otherwise provided below, Distributing has made all of the
representations in section 3 of the Appendix of Rev. Proc. 2017-52 with respect to the
Controlled 2 Contribution and Internal Distribution in the form set forth therein.
1. Distributing has made the following alternative representations: 3(a), 8(b), 11(a),
22(a), 31(a), and 41(a).
2. Distributing did not make following representations, which do not apply to the
Controlled 2 Contribution and Internal Distribution: 7, 24, 25, 35, 39, and 40.
3. Distributing did not make the following representations, which have been replaced
by representations in Rev. Proc. 2024-24: 2, 4, 17, 18, 19, 20, and 21.
4. Distributing has made the following representations in lieu of Representations 14,15,
and 29:
i. Immediately after the Internal Distribution, the fair market value of the business
assets of each of Sub 1 and Controlled 2 will be greater than 80% of the fair
market value of its total assets. For this purpose, the term “business assets” of a
corporation means the gross assets used in one or more businesses by such
corporation and its SAG members. Such assets include cash and cash
equivalents held as a reasonable amount of working capital for one or more
businesses. Such assets also include assets required (by binding commitment or
legal requirement) to be held to provide for exigencies related to a business or for
regulatory purposes with respect to a business. Total assets do not include any
intercompany debt between members of such corporation’s affiliated group (as
defined in section 1504(a)).
ii. There is no plan or intention by the shareholders or security holders of Sub 1 to
sell, exchange, transfer by gift, or otherwise dispose of any of their stock in, or
securities of, either Sub 1 or Controlled 2 after the transaction, other than in
connection with the Proposed Transactions.
iii. There is no plan or intention by Sub 1 or Controlled 2, directly or through any
related person (within the meaning of section 267(b) or section 707(b)(1)), to
purchase any of its outstanding stock after the Proposed Transactions.
iv. There is no plan or intention to liquidate either Sub 1 or Controlled 2, to merge
either corporation with any other corporation, or to sell or otherwise dispose of
the assets of either corporation after the Proposed Transactions, except in the
ordinary course of business.
v. There was no agreement, understanding, arrangement, or substantial
negotiations at any point during the two-year period ending on the date of the
Internal Distribution regarding an acquisition of either Sub 1 or Controlled 2
(including a predecessor or successor within the meaning of Treas. Reg. section
1.355-8) or a similar acquisition, except for negotiations that have otherwise
terminated.
5. In addition, Distributing has made the following modified representations:
Representation 10:
With respect to the business relied on by each of Sub 1 or its SAG and
Controlled 2 or its SAG to meet the active trade or business requirement of
section 355(b), there have been no substantial operational changes since the
end of the taxpayer’s most recent taxable year other than any changes resulting
from the RemainCo Business Initiatives.
Representation 33:
Payments made in connection with all continuing transactions, if any, between
Sub 1 and Controlled 2 after the Internal Distribution will be for fair market value
based on arm’s-length terms, except as otherwise provided in the Post-
Separation Agreements.
Except as otherwise provided below, Distributing has made all of the
representations in section 3.02(3) of Rev. Proc. 2024-24 in the form set forth therein or
provided adequate explanation for any modifications or revisions with respect to the
Controlled 2 Contribution and Internal Distribution.
- Distributing has made Alternative Representation 1(a).
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Distributing did not make the following representations, which do not apply to the
Controlled 2 Contribution and Internal Distribution: 2, 3, 4, 5, 6, 15, 17,18, 19, 20, 23,
25, 26, 27, 28, 29, and 30. -
Distributing has made the following revised / modified representations:
Representation 21
Other than with respect to trade payables related to Controlled 2’s business that
will be assumed or deemed assumed by Controlled 2 in connection with the
Controlled 2 Contribution and Internal Distribution, Sub 1 incurred each Sub 1
debt that will be satisfied with section 361 consideration, and each Sub 1 liability
that will be assumed by Controlled 2 (except with regard to any Sub 1 contingent
liability), before the Earliest Applicable Date.
Representation 37
No proposed transaction or series of transactions will have as a principal purpose
the avoidance of any requirement or limitation in section 357 or section 361.
With respect to the Controlled 1 Contribution, External Distribution, Controlled 1
Proceeds Purge, and Debt Exchanges
Except as otherwise provided below, Distributing has made all of the
representations in section 3 of the Appendix of Rev. Proc. 2017-52 with respect to the
Controlled 1 Contribution and External Distribution in the form set forth therein.
1. Distributing has made the following alternative representations: 3(a), 11(a), 22(a),
and 31(a).
-
Distributing did not make the following representations, which do not apply to the
Controlled 2 Contribution and External Distribution: 7, 24, 25, and 40. -
Distributing did not make the following representations, which have been replaced
by representations in Rev. Proc. 2024-24: 2, 4, 17, 18, 19, 20, and 21. -
Distributing has made the following representations in lieu of Representations 14,15,
and 29:
i. Immediately after the External Distribution, the fair market value of the business
assets of each of Distributing and Controlled 1 will be greater than 80% of the fair
market value of its total assets. For this purpose, the term “business assets” of a
corporation means the gross assets used in one or more businesses by such
corporation and its SAG members. Such assets include cash and cash
equivalents held as a reasonable amount of working capital for one or more
businesses. Such assets also include assets required (by binding commitment or
legal requirement) to be held to provide for exigencies related to a business or for
regulatory purposes with respect to a business.
ii. To the knowledge of Distributing’s management, there is no plan or intention by
the shareholders or security holders of Distributing to sell, exchange, transfer by
gift, or otherwise dispose of any of their stock in, or securities of, either
Distributing or Controlled 1 after the transaction, other than (i) through the public
trading of their stock on an established market, (ii) sales by the distribution agent
in the External Distribution of aggregated fractional shares that Distributing’s
shareholders would otherwise be entitled to receive, (iii) sales or other
dispositions in connection with the Debt-for-Debt Exchange or the Debt-for-
Equity Exchange, (iv) a disposition or purchase of Distributing or Controlled 1
stock by any institutional investor or any shareholder who owns 5% or more of
the stock of Distributing or Controlled 1 in the normal course of its business
based upon market conditions and investment needs in existence at that time,
and (v) any disposition or other transfer of Distributing or Controlled 1 stock by
the Shareholder A ------------------------------------------------------------------.
iii. There is no plan or intention by Distributing or Controlled 1, directly or through
any related person (within the meaning of section 267(b) or section 707(b)(1)), to
purchase any of its outstanding stock after the transaction, other than through
stock purchases meeting the requirements set forth below:1. Any Share Repurchase will be motivated by a business purpose, and the stock that will be repurchased by Distributing or Controlled 1, or acquired by a counterparty pursuant to an ASR, will be widely held; 2. To the extent that any Share Repurchase is made on the open market (including through a U.S. Securities and Exchange Commission (“SEC”) Rule 10b5-1 plan under the Securities Exchange Act of 1934 (15 U.S.C. 78) (“Exchange Act”), a purchase in compliance with SEC Rule 10b-18 of the Exchange Act, or a tender offer), Distributing or Controlled 1, as applicable, does not expect to know the identity of any shareholder from which stock will be repurchased. To the extent that any Share Repurchase is made through an ASR, Distributing or Controlled 1, as applicable, does not expect to know with certainty the identity of any shareholder from which stock is borrowed or purchased by each counterparty that participates in such ASR; 3. There is no plan or intention that the aggregate amount of stock purchased or acquired through Share Repurchases will equal or exceed 20 percent of the outstanding stock of Distributing or Controlled 1, as applicable; and 4. No Share Repurchase will be motivated to any extent by a desire to increase or decrease the ownership percentage of any particular shareholder or group of shareholders.iv. There is no plan or intention to liquidate Distributing or Controlled 1, to merge
either corporation with any other corporation, or to sell or otherwise dispose of
the assets of either corporation after the transaction, except (i) in the ordinary
course of business or (ii) sales and other dispositions of assets to members of
each corporation’s SAG.
v. There was no agreement, understanding, arrangement, or substantial
negotiations at any point during the two-year period ending on the date of the
External Distribution regarding an acquisition of more than 20% of either
Distributing or Controlled 1 (including a predecessor or successor within the
meaning of Treas. Reg. section 1.355-8) or a similar acquisition, except for
negotiations that have otherwise terminated. -
In addition, Distributing has made the following modified representations:
Representation 5:
None of the Controlled 1 stock, Controlled 1 Securities, or other property to be
distributed in the External Distribution will be received in any capacity other than
that of a shareholder of Distributing, other than any Controlled 1 stock to be
disposed of in an Equity-for-Debt Exchange and any Controlled 1 Securities to be
disposed of in a Debt-for-Debt Exchange.
Representation 8:
Distributing has securities outstanding, but it will not distribute Controlled 1 stock,
Controlled 1 Securities or other property to any holder of such securities in the
External Distribution, in satisfaction thereof, except for cash transferred to
holders of Distributing securities in satisfaction thereof in connection with the
reorganization.
Representation 10:
With respect to the business relied on by each of Distributing or its SAG and
Controlled 1 or its SAG to meet the active trade or business requirement of
section 355(b), there have been no substantial operational changes since the
end of the taxpayer’s most recent taxable year other than any changes resulting
from the RemainCo Business Initiatives.
Representation 32:
No intercorporate debt will exist between Distributing and Controlled 1 at the time
of, or subsequent to, the Distribution of Controlled 1 stock, except for any
payables arising in the ordinary course of business, any indebtedness incurred
pursuant to the Post-Separation Agreements, and any Controlled 1 Securities
that are to be disposed of by Distributing in a Debt-for-Debt Exchange following
the External Distribution and pursuant to the plan of reorganization.
Representation 35:
The payment of cash in lieu of fractional shares of Controlled 1 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 Controlled 1 (except with respect to
any Distributing shareholders that hold Distributing stock in multiple accounts or
with multiple brokers).
Representation 37:
To the knowledge of Distributing’s management, there is no loss subject to Treas.
Reg. section 1.1502-13 that will be taken into account as a result of a transaction
related to the External Distribution.
Except as otherwise provided below, Distributing has made all of the
representations in section 3.02(3) of Rev. Proc. 2024-24 or provided adequate
explanation for any modifications or revisions with respect to the Controlled 1
Contribution and External Distribution in the form set forth therein.
-
Distributing has made Alternative Representation 15(a).
-
Distributing did not make the following representations, which do not apply to the
Controlled 1 Contribution and External Distribution: 26 and 28. -
Distributing has made the following revised / modified representations:
Representation 1(b)
The distribution period will be no longer than the period of time necessary to
complete all distributions, but in any event the final distribution date will be no
later than 24 months after the date of the Controlled 1 Contribution.
Representation 3
Distributing will have a specific corporate business purpose for the retention (i) as
of the date on which the plan of reorganization is adopted and (ii) at all times
during the period of retention.
Representation 4
Except for the Overlapping Director, following the Distribution, no officer, director,
or key employee of a member of Distributing’s SAG will serve as an officer,
director, or key employee of a member of Controlled 1’s SAG during the period of
retention. The Overlapping Director will serve as a director of Controlled 1 solely
to accommodate the Controlled 1 SAG’s business needs and will not constitute a
majority of the Controlled 1 Board. The period of time during which the
Overlapping Director will serve as a director, officer, or key employee of each of
Distributing and Controlled 1 will not exceed two years after the Distribution Date,
unless the Overlapping Director is reelected as a director in an ordinary course
election for a term that extends beyond such period.
Representation 6
Distributing will vote any retained Controlled 1 stock, and any other Controlled
stock with respect to which it has voting power, in proportion to the votes cast by
Controlled 1’s other shareholders of the same class (other than any persons
related to Distributing (within the meaning of section 267(b) or section 707(b)(1))
(“Distributing Related Persons”)).
Except as otherwise provided in the Post-Separation Agreements, any continuing
arrangement between Distributing and Controlled 1 during the period of retention
will be (i) negotiated on, and reflect, arm’s-length terms or (ii) terminated within
two years after the Distribution Date and/or renegotiated within two years after
the Distribution Date to reflect arm’s-length terms.
The disposition of retained Controlled 1 stock (or securities) would not result in
less Federal income tax to Distributing (determined based on the fair market
value and adjusted basis of such stock or securities on the Distribution Date)
than if such Controlled 1 stock (or securities) had been distributed in the first
distribution.
Representation 7
No debt owed by Controlled 1, or by any person related to Controlled 1 (within
the meaning of section 267(b) or section 707(b)(1)) (a “Controlled 1 Related
Person”), to Distributing, or to any Distributing Related Person, after the External
Distribution will constitute stock or securities, other than any Controlled 1
securities disposed of in a Debt-for-Debt Exchange following the External
Distribution.
Representation 16
No holder of a Distributing debt that will be satisfied with section 361
consideration, or of other Distributing liability (including a Distributing contingent
liability) that will be assumed by Controlled 1, will hold the debt or other liability
for the benefit of Distributing, Controlled 1, a Distributing Related Person, or a
Controlled 1 Related Person, other than any collateral benefit from an
intermediary’s facilitation of the transfer of Controlled 1 stock or securities in
satisfaction of Distributing debt in a Debt-for-Debt Exchange or Equity-for-Debt
Exchange.
Representation 17(a)
With respect to each Debt-for-Debt Exchange and Equity-for-Debt Exchange, the
relevant Exchange Bank will acquire Distributing debt (that will be satisfied with
section 361 consideration) from Distributing.
Representation 20
With respect to each Debt-for-Debt Exchange and Equity-for-Debt Exchange, the
Exchange Bank will (i) act for its own account, and (ii) bear the risk of loss with
respect to (A) the Distributing debt and (B) any subsequent sale or other
disposition of section 361 consideration transferred to the intermediary to satisfy
the Distributing debt, provided that (x) the intermediary may enter into hedging or
similar transactions with parties other than Distributing, Controlled 1, or any
Distributing Related Person or Controlled 1 Related Person, (y) the Exchange
Bank may enter into one or more agreements to sell the section 361
consideration to parties other than Distributing, Controlled 1, or any Distributing
Related Person or Controlled 1 Related Person before or after the Exchange
Bank’s receipt of the section 361 consideration, and (z) Distributing and the
Exchange Bank may enter into an agreement to exchange the Distributing debt
for section 361 consideration at any time after the Exchange Bank acquires the
Distributing debt.
With respect to each Debt-for-Debt Exchange and Equity-for-Debt Exchange:
i. The Distributing debt that will be satisfied with section 361 consideration
will be issued in a transaction that will result in a refinancing of Distributing
Notes (or more recently incurred Distributing debt the proceeds of which
were used to repay outstanding amounts under the Distributing Notes).
ii. Distributing will not have, at any time, legal or practical dominion or control
over any proceeds of the Exchange Debt.
iii. The Exchange Bank will hold the Exchange Debt for a period of not less
than 30 days ending on the date of its satisfaction with section 361
consideration.
Representation 21
Other than with respect to any Exchange Debt to be satisfied in a Debt-for-Debt
Exchange or Equity-for-Debt Exchange and trade payables related to Controlled
1’s business that will be assumed or deemed assumed by Controlled 1 in
connection with the Controlled 1 Contribution and External Distribution,
Distributing incurred each Distributing debt that will be satisfied with section 361
consideration, and each Distributing liability that will be assumed by Controlled 1
(except with regard to any Distributing contingent liability), before the Earliest
Applicable Date.
Representation 27
All transfers of section 361 consideration (other than Controlled 1 stock or
securities) by Distributing to Distributing’s creditors in satisfaction of Distributing
debt will be made no later than 12 months after Distributing’s receipt of such
section 361 consideration from Controlled 1.
Representation 30
Neither Distributing nor any Distributing Related Person (determined immediately
after the External Distribution), will replace after the Earliest Applicable Date,
directly or indirectly, any amount of Distributing debt that will be satisfied with
section 361 consideration with borrowing that Distributing or any Distributing
Related Person (determined immediately after the Earliest Applicable Date)
expects or is committed to, directly or indirectly, before the Earliest Applicable
Date, other than (i) a borrowing that results from (A) an event unrelated to the
Controlled 1 Contribution and External Distribution and not in the ordinary course
of business of Distributing and (B) changed circumstances that were not
expected prior to the date of the External Distribution, or (ii) a borrowing incurred
in the ordinary course of business of Distributing or any Distributing Related
Person (as appropriate) and that would have been incurred without regard to the
Controlled 1 Contribution and External Distribution (i.e., unrelated to and
demonstrably independent of the Controlled 1 Contribution and External
Distribution).
Representation 37
No proposed transaction or series of transactions will have as a principal purpose
the avoidance of any requirement or limitation in section 357 or section 361. For
purposes of this representation, the issuance of Controlled 1 Securities that will
be used to satisfy Distributing debt will not be taken into account.
Rulings
Based solely on the information submitted and the representations set forth
above, we rule as follows:
With respect to the Controlled 2 Contribution and Internal Distribution
-
The Controlled 2 Contribution, together with the Internal Distribution, will be a
reorganization within the meaning of section 368(a)(1)(D) to which section 355
applies. Sub 1 and Controlled 1 will each be “a party to the reorganization” under
section 368(b). -
No gain or loss will be recognized by Sub 1 on the Controlled 2 Contribution.
Section 361(a); Section 357(a). -
No gain or loss will be recognized by Controlled 2 on the Controlled 2
Contribution. Section 1032(a). - The basis in each asset received by Controlled 2 in the Controlled 2 Contribution
will equal the basis of that asset held by Sub 1 immediately before the Controlled
2 Contribution. Section 362(b). - The holding period in each asset received by Controlled 2 in the Controlled 2
Contribution will include the period during which that asset was held by Sub 1.
Section 1223(2). - No gain or loss will be recognized by Sub 1 upon the distribution of Controlled 2
stock in the Internal Distribution. Section 361(c). - No gain or loss will be recognized by (and no amount will be included in the
income of) Distributing upon the receipt of Controlled 2 stock in the Internal
Distribution. Section 355(a). - The aggregate basis of the stock of Sub 1 and Controlled 2 in the hands of
Distributing immediately after the Internal Distribution will be the same as the
basis of the stock of Sub 1 immediately before the Internal Distribution on which
such distribution was made, allocated in proportion to the fair market value of the
stock of Sub 1 and Controlled 2. Section 358(b), (c); Treas. Reg. section 1.358-
1(a). - The holding period of Distributing in the Controlled 2 stock received in the
Internal Distribution will include the holding period of the stock of Sub 1 held by
Distributing. Section 1223(1). - Earnings and profits of Sub 1, if any, will be allocated between Sub 1 and
Controlled 2 in accordance with section 312(h) and Treas. Reg. section 1.312-
10(a).
With respect to the Controlled 1 Contribution, External Distribution, Controlled 1
Proceeds Purge, and Debt Exchanges
-
The Controlled 1 Contribution, together with the External Distribution, will be a
reorganization within the meaning of section 368(a)(1)(D) to which section 355
applies. Distributing and Controlled 1 will each be “a party to the reorganization”
under section 368(b). -
No gain or loss will be recognized by Distributing on the Controlled 1
Contribution. Section 361(a); Section 361(b); Section 357(a). - No gain or loss will be recognized by Controlled 1 on the Controlled 1
Contribution. Section 1032(a). -
The basis in each asset received by Controlled 1 in the Controlled 1 Contribution
will equal the basis of that asset in the hands of Distributing immediately before
the Controlled 1 Contribution. Section 362(b). -
The holding period in each asset received by Controlled 1 in the Controlled 1
Contribution will include the period during which that asset was held by
Distributing. Section 1223(2). -
No gain or loss will be recognized by Distributing upon the distribution of
Controlled 1 stock in the External Distribution or any Clean-Up Distribution.
Section 361(c). -
No gain or loss will be recognized by (and no amount will be included in the
income of) holders of Distributing Common Stock upon the receipt of Controlled 1
stock in the External Distribution or any Clean-Up Distribution. Section 355(a). - With respect to Controlled 1 stock distributed in the External Distribution, the
aggregate basis of the Distributing Common Stock and Controlled 1 stock in the
hands of a holder of Distributing Common Stock immediately after the External
Distribution will be the same as the basis of the Distributing Common Stock
immediately before the External Distribution on which such distribution was
made, allocated in proportion to the fair market value of the Distributing Common
Stock and Controlled 1 stock. Section 358(b), (c); Treas. Reg. section 1.358-1(a). - With respect to Controlled 1 stock distributed in a Clean-Up Spin-Off, the
aggregate basis of the Distributing Common Stock and Controlled 1 stock in the
hands of a holder of Distributing Common Stock immediately after the Clean-Up
Spin-Off will be the same as the basis of the Distributing Common Stock
immediately before the Clean-Up Spin-Off on which such distribution was made,
allocated in proportion to the fair market value of the Distribution Common Stock
and Controlled 1 stock. Section 358(b), (c); Treas. Reg. section 1.358-1(a). - With respect to Controlled 1 stock distributed in a Clean-Up Split-Off, the
aggregate basis of the Controlled 1 stock in the hands of a holder of Distributing
Common Stock immediately after the Clean-Up Split-Off will be the same as the
aggregate basis of the Distributing Common Stock exchanged therefor. Section
358(a), (b); Treas. Reg. section 1.358-1(a). - If a holder of Distributing Common Stock that purchased or acquired shares on
different dates or at different prices is not able to identify which particular share of
Controlled 1 stock is received in exchange for, or as a distribution with respect to,
a particular share of Distributing Common Stock, the holder may designate which
particular share of Controlled 1 stock is received in exchange for, or as a
distribution with respect to, a particular share of Distributing Common Stock,
provided that the designation is consistent with the terms of the External
Distribution or any Clean-Up Distribution. Treas. Reg. section 1.358-2(a)(2). -
The holding period of each holder of Distributing Common Stock in the Controlled
1 stock received in the External Distribution (or any Clean-Up Distribution) will
include the holding period of the Distributing Common Stock exchanged therefor
or with respect to which the distribution of Controlled 1 stock is made, providedthat such Distributing Common Stock is held as a capital asset on the date of the
External Distribution (or such Clean-Up Distribution). Section 1223(1).
23. Earnings and profits of Distributing, if any, will be allocated between Distributing
and Controlled 1 in accordance with section 312(h), Treas. Reg. section 1.312-
10(a), and Treas. Reg. section 1.1502-33(e)(3).
24. The receipt by holders of Distributing Common Stock of cash in lieu of fractional
shares of Controlled 1 stock in the External Distribution (or any Clean-Up Spin-
Off) will be treated for Federal income tax purposes as if the fractional shares
had been distributed to holders of Distributing Common Stock as part of the
External Distribution (or such Clean-Up Spin-Off) and then had been disposed of
by such holders for the amount of such cash in a sale or exchange. The gain (or
loss) recognized, if any (determined using the bases allocated to the fractional
shares in Ruling 18 or 19 (as applicable) and Ruling 21), will be treated as capital
gain (or loss), provided the stock was held as a capital asset by the selling
shareholder. Section 1001. Such gain (or loss) will be short-term or long-term
capital gain (or loss), provided that such Controlled 1 stock is deemed held as a
capital asset on the date of the External Distribution (or such Clean-Up Spin-Off)
(determined using the holding period provided in Ruling 22).
25. Amounts paid pursuant to the Controlled 1 Proceeds Purge, any Controlled 1
Securities transferred pursuant to any Debt-for-Debt Exchange, and any
Remainder Stock transferred in any Equity-for-Debt Exchange, Clean-Up Spin-
Off or Clean-Up Split-Off will be treated as being distributed pursuant to the plan
of reorganization for purposes of Section 361(b)(1)(A), (b)(3), and (c).
26. Distributing will recognize no gain or loss on any Debt Exchange, other than (i)
deductions attributable to fact that the Exchange Debt may be redeemed at a
premium, (ii) income attributable to the fact that the Exchange Debt may be
redeemed at a discount, and (iii) interest expense accrued with respect to the
Exchange Debt. Section 361(c).
27. Any Pension Payment made between Distributing and Controlled 1 will be
characterized as if such payment had occurred immediately before the External
Distribution pursuant to the Controlled 1 Contribution. See Arrowsmith v.
Commissioner, 344 U.S. 6 (1952); Rev. Rul. 83-73, 1983-1 C.B. 84.CaveatsExcept as expressly provided herein, no opinion is expressed or implied
concerning the tax treatment of the Proposed Transactions 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 Transactions that are not specifically addressed
by this letter.Procedural StatementsThis 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.In accordance with the Power of Attorney on file with this office, a copy of thisletter is being sent to your authorized representative.
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.Sincerely, Mark J. Weiss Chief, Branch 2 Associate Office of Chief Counsel (Corporate)
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