LTR 201242007 is a section 351 ruling with a public offering: not a busted 351, but a good 351. It likely involves the IPO of the new Manchester United football team holding company that was taken public by the Glazer interests, which acquired the UK football team in recent years.
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LTR 201228002 involves a plain vanilla group structure change in a consolidated group owned by a foreign parent. The ruling is so obvious that one wonders why the taxpayer sought it. The explanation likely lies in the substantial tax savings that can be facilitated by the reverse acquisition. It is likely that someone at the taxpayers’ office said “this is too good to be true, no matter how clear my tax director says the results are, I don’t mind paying to get an IRS seal of approval on the transaction, no matter how many caveats it carries.”
The following example, with made up numbers, shows how tax benefits might be facilitated.
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LTRS 201213013 and 201214012 are the same ruling, evidently issued to a buyer and a seller, in the common scenario where the seller consolidated group wants to sell subsidiary stock and the buyer wants to buy assets and obtain a cost basis; both taxpayers got what they wanted, including placing the target corporation into the buying consolidated group, without having a qualified stock purchase and thereby avoiding the consistency rules.
Facts. Seller and Buyer are both privately owned domestic consolidated groups. Seller has a domestic subsidiary, Seller 2, which holds the stock of Seller’s foreign subsidiaries in two lines of business, directly or indirectly. Seller wants to sell Seller 2. Buyer is a domestic group that wants to buy Seller 2’s assets in one l line of business, principally the foreign business.
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A North-South spinoff is a section 355 distribution that is accompanied by a contribution of property from the shareholder to the Distributing corporation. The IRS has consistently ruled in recent years that the contribution will not be integrated with the spinoff. Taxpayers like this result because integrating the contribution with the spinoff could generate tax liabilities: the shareholder and Distributing might be found to have exchanged property in a taxable exchange. Given the state of play allowed by the IRS, the more interesting question is why so many shareholders evidently want to make such contributions incident to spinoffs.
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LTR 201203004 rules favorably on a spinoff of Controlled to public shareholders in which Controlled will be allowed to use in its corporate name the trade name of Distributing, which will be licensed to Controlled by Distributing. This appears to be the first time that a section 355 ruling has explicitly allowed such a close continuing connection between two corporations that split up for the business purpose of conducting separately Businesses A and B.
Facts: Distributing is a domestic public corporation that conducts Businesses A and B. For the usual “fit and focus” reasons it desires to separate the two businesses by spinning off the Business B group to the public shareholders. Preliminary steps include the following:
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The usual Friday release of a large number of letter rulings by the IRS included several rulings of interest on reorganizations and consolidated return issues.
Bankruptcy Reorganization: LTR 201208036 addresses the use of qualified settlement funds, disputed ownership funds and liquidating trusts (all referred to as trusts) to hold both some of the assets of the debtor and the securities of Newco, the corporation into which the debtor was reorganized. This debtor evidently was brought down in part by environmental liabilities. It is not clear what assets the debtor transferred to Newco in exchange for securities, but the debtor also transferred plant and equipment to one trust, other assets to another trust and Newco securities to two other trusts.
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LTR 201150021 is a surprising cross chain restructuring ruling that treats the transfer of the assets of one subsidiary of P to a subsidiary at the bottom of another chain of subsidiaries below P as a series of section 351 exchanges and a D reorganization at the bottom of the acquiring chain. This is somewhat inconsistent with Rev. Rul. 78-130, 1978-1 C.B. 140. Although not the focus of the ruling, it appears that what was actually going on with the taxpayer was repatriation of foreign earnings in a most efficient manner, plus a reshuffling of assets to facilitate further repatriations.
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The new LB&I Directive on the economic subject doctrine (ESD) (dated July 15, 2011) probably could not be much better for taxpayers.
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Say you are a foreign person that owns the Parent of a U.S. consolidated group. You would like (1) to "buy" part of the group (perhaps to create a foreign tax benefit through basis?), (2) to eliminate intercompany debt so that the part you "buy" will not owe money to the remaining part of the group (so, if perchance you sell one part, unrelated owners will not have your debt), (3) you would like to make sure that none of the substantial restructuring needed to effect these transactions creates U.S. gain recognition, and (4) oh by the way, arranging to own two U.S. subs rather than one is always a nice idea if you think you might sell one (nothing definite, of course).
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LTR 201122002 rules that a two step reincorporation of a controlled foreign corporation is a F reorganization. The use of F reorganizations abroad is a very important tool in treaty and subpart F planning.
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LTR 201050020 is one of a fairly large number of letter rulings issued recently on novel reincorporation patterns. It involves a foreign-to-foreign Type F reorganization of a CFC. The taxpayer engineered the reorganization by using a transitory loan from an outside lender and a circular flow of the borrowed cash around its corporations. You might think that the transitory loan and circular flow of cash would cause the IRS to view the transaction uncharitably; instead, the IRS charitably allowed an odd assortment of events to be cobbled together into what it called a section 368(a)(1)(F) reorganization.
Therefore, you would think that the taxpayer must have had a compelling business reason to reincorporate. If so, it was well-disguised. Lacking the business reason served, the best lesson to be drawn from the ruling is that the Chief Counsel will allow a wide assortment of real world transactions to amount to a Type F reincorporation.
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