Deletion of Certain Information

Office of Chief Counsel
Internal Revenue Service memorandum
Number: 202119001
Release Date: 5/14/2021
CC:FIP:RAMartin
POSTS-107405-17
UILC: 6110.05-00 date: February 03, 2021 to: Area Counsel (Area 3)
(Large Business & International)
Attn: Dan Trevino, Senior Attorney, CC:LBI:3:CHI:1 from: Robert A. Martin
Senior Technician Reviewer, Branch 1
(Financial Institutions & Products) subject: ---
This Chief Counsel Advice responds to your request for assistance. This advice may not be used or cited as precedent.
LEGEND
Taxpayer = ---
Target = ---
State A = ---
--- -- ---
Date A = ---
Date B = ---
Date C = ---
Industry = ---
TPEntity 1 = --- -
TPEntity 2 = ---
TPEntity 3 = ---
TPEntity 4 = ---
Amount A = ---
B = ---
Amount C = ---
Amount D = ---
E = ---
F = ---
GGG = ---
H = ---
J = ---
K = --
L = --
Amount M = ---

# ISSUES

(1) Whether a ---fee ---that Taxpayer ---
--- is treated as a ---
--- I.R.C. ---
--- under I.R.C. ---

(a) Whether there --- ---
--- the ---

(b) Whether case law ---
---
---
---under section ---

(c) Whether the Treasury Regulations accompanying I.R.C. § ---
---under section ---
--- and

(d) --- section --- in this case, if applied in other cases, ---
--- under I.R.C. ---

(2) Whether the form of the proposed Transaction, which contemplated that --- stock would be acquired by a newly formed subsidiary of Taxpayer ------ precludes application of section ------ section ------

# CONCLUSIONS

1. The Service is correct that --- section --- resulting in a ---With respect to Taxpayer’s specific arguments, we conclude that (a) there ------(b) the case law pertaining to --------- section --- (c) the regulations accompanying section --- do not require that the ------be treated as ---section --- and (d) the Service’s interpretation of section ------------section ---
2. The phrase ---
--- of section ---The --- provided
Taxpayer --- We read the plain language of section ---
---
---
--- to be completed.

# FACTS

On Date A, Taxpayer, a publicly traded corporation incorporated in State A, and ---
--- a --- publicly traded company --- ---
---
---
---Also, on Date A, Taxpayer and Target entered into ---
---
---
---
---set forth the consideration that --- shareholders would receive in exchange for their --- stock under the proposed Transaction, i.e., --- a ------corporation. ------ ------------.” ---explained Taxpayer’s ------ the proposed Transaction, which included:
• ---
---
---
• ---
---
• ---
---
---
---
• ---
---
• ---
---
---
Accordingly, on the date ---, Taxpayer’s ---
---
---The ---directors who held shares in ---at the --- ---
---on the matter.
To facilitate the Transaction and pursuant to its obligations ---
--- -
---among other entities, TPEntity 1 and TPEntity 2, both formed under the laws of ---and TPEntity 3 and TPEntity 4, both formed as State A limited liability companies. --------------- To accommodate this requirement, Taxpayer would have formed a ---of TPEntity 1. On the closing date of the Transaction, --------------- The --- would have been implemented as follows:
1. ---
2. ---
---
---
---
---
---1 ---
1 The ---refers to --- as “a newly formed Subsidiary of Taxpayer.”
---2 ---
---
---
---
---
---
---
---
---
---
---
---
---
---
The implementation of the Transaction had numerous conditions. In particular, these conditions included: The approval of the --- by the --- shareholders and the approval by the --------------------- 3 Taxpayer reported ------its Form 1120, U.S. Corporation Income Tax Return, as-filed. On audit, the Service --------- I.R.C. § ---2 ---defines the term ---of ---to include Taxpayer; the terms of the --- are set forth at ------------------3 ---------------------------Taxpayer’s position is that section ---------section ---

# LAW AND ANALYSIS

Section ---
---
---
---
---
---
---
---
Application of section --- begins with the plain language of the statute. See ---
---
---The plain language of section --- sets forth the following --- requirements in determining whether a transaction is subject to section ---

(1) ---
---

(2) ---

(3) ---
---

(4) ---
---
In determining whether to apply section ---
---
---
---
---
---
---
---
---
---
In concluding that Taxpayer’s ---
---section ---
---
---
---
---
---
---
---
---
---In applying the plain language of section --- the Service interpreted the phrase ---
--- 4 as it is ---
---and that the common meaning of ---
---
---
---
Issue 1: Whether the ---under section ---
---under section --- a. Whether there was ---
---
Section --- implicitly requires that there be ---
---
--- Section ---
---
--- resulted in a section --- and that section ---
--- section ---
The legislative history of ---reflects Congress’ assumption that ---
---
--- to apply the statute. Section ---
---To address how
Congress understood the phrase ---when enacting section --- we turn first to the legislative history ---which explains:
4 ---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---further provides, as an example of a type ---section --- the following ---
---or securities:
---
---
---
---
---
---
---
---
---
--- -
---
---
--- This example reflects Congress’s understanding that ---
---
---
--- of section ---
Congress enacted section ---
---
--- Congress did not have to provide that a ---
--- prior to enactment of section
---
In --- Congress amended section --- to apply it ---
--- As originally enacted in --- section ---
--- ---
---
Section --- at that time defined ---
---The --- amendment broadened the scope of section ---
---
---
The legislative history of the --- amendment, consistent with the legislative history from --- also confirms Congress’ belief that, before the enactment of section --------- which some taxpayers were treating ---The --- legislative history also confirms that section --- was intended to provide that ---------A Senate Report describing the --- amendment explains:
---
---
---
---
---
---
---
---
---
---
--- --
---
---
---
---
---
---
---
---5
The legislative history from --- reaffirms Congress’ concerns, expressed in --- that
5 The parties in --- a case cited in the legislative history, assumed that ---
---
--- taxpayers could --- The legislative history from --- further explains that Congress amended section ---------The ---in describing how the amendment to section --- would affect ---explains as follows:
---
---
---
---
---
---
The case cited in the above-quoted language from the ---
--- is of particular relevance in the present case because it also involved a ---
--- In ---a taxpayer entered ---
---
---
--- The taxpayer became concerned that ---
---
--- The Court ---
---
---6 The Court nevertheless concluded that the ---
---
---
---
---
6 ---
---
---
---
---
---
---
---
---
---Although the court concluded that ---
---, the court further explained that it “need not decide” whether the ---
---
--- raising the possibility that the item could have been ---
---
---
---
---.
--- -
---
---Accordingly, the --- clear: Congress understood that the fact pattern ---
--- section --- thereby overriding the result in that case ---
---
Although ---did not concern a ---, courts have treated ---
--- and have treated the ---
---of section ---
---7 Accordingly, we conclude that ---
--- meaning of I.R.C. § --- which resulted in a --- when it ---
--- In doing so, we note that Taxpayer’s ---
---
---
---
---
---
---set forth the rationale for Taxpayer’s ---
---
---
---
---Taxpayer saw considerable value in the ---The ---was not merely a ---
---
---itself.
7 ---
---
---
---
---
---
---
---
---
---
---
---
---We discuss this case law in more detail in our analysis under Issue 1.b. of this memorandum.
Our conclusion is consistent with the legislative history of section ---which, by citing ---indicates that Congress considered the ---------and intended that section --- apply to ------ b. Whether case law pertaining to ------supports Taxpayer’s position that the ------ under section ---Taxpayer next argues that the ------ referring to three lines of cases, the first involving ------ the second involving the ------, and a third involving the ---Taxpayer first cites --- cases involving the ------------Taxpayer’s reliance upon these cases is misplaced. The threshold question in the present case is whether the ------ under section ---8 to which section --- could apply, rather than a ----under section --- The --- cases cited by Taxpayer do not consider that distinction --- under section ---versus --- under section -----Instead, they primarily concern whether ------ ---under ---section --- or section ---(or both) when the ------instead must be ------Nevertheless, each of the cases cited by Taxpayers lends support for the Service’s position that ---------In ---at issue was whether --------- section ---when the ------------8 ------------------------------------------------------ were ---section --- the court further concluded that the ------under section --- that became ------9 Under the court’s analysis in ---Taxpayer’s ---under section --- because it was the ---The opinions in ---and --- are even more applicable to the present case than ---because they involve ------ In both ---and --- the taxpayers were ---------The issue in ---and ------ was similar to the --- issue that was addressed in ------------.10 The courts rendered --- ---9 The ---took place before ---expansion of the scope of section ------------------10 In --- ---the government argued that the ------------------------ under either sections ---or --The courts rejected the government’s arguments, reasoning instead that the ------------------------section --- and section --- The courts concluded that the ------under section --- because the ---------and the courts alternatively concluded that the ---section ------11 Taxpayer suggests that ------under sections ---and --- mean that its --------- section ---The section --- rationale in --- and ---however, is not applicable to the present case because the ---------Rather, Taxpayer --- ------. More importantly, the issue in this case is whether there ---which was not in issue in those cases.
Given that the legislative purpose of section --- was to ---
---we disagree that taxpayers can rely upon case law ---
---
---
---. Section --- requires that if the ---
---
11 The court in --- found ---
---
---
---
---
---
---
--- and further held in the alternative ---
---
---
---
---
---The court in --- likewise held that the ---section --- and alternatively concluded that the taxpayer was ------------------------ Neither -nor ---considered whether section --- could apply to --- ----those cases occurred before the ------amendment to section ---------Taxpayer also cites other ---cases that --- section --- as authority for its position that ---------These are cases in which taxpayers ------In both of these cases, the courts concluded that the taxpayers should ------As discussed previously, however, the ---cited ---to clarify that --------- section --- generally applies. Thus, ---have no bearing on the applicability of section --- in this case.
Lastly, Taxpayer argues that the ---
---under section ---because it was ---
This appears to be a reference to the ---
--- ---
--- ---
--- to determine its tax consequences. ---
--- --- Taxpayer provides little evidence that the ---
---
--- would not affect our analysis under section ---. Taxpayer had ---
---
---
---
---
---
---.12 --- -
12 The development of ---
---
---
---
---
---
---
---
---
---
---
---This lends further support to the notion that---which section --- ---
---a section ---
---
---
---was applicable in this case, we further note that the ---
---
---
---
---
---
---
---
---13 A ---
---
---would fall squarely within section ---
The case law is clear: A taxpayer who makes ---
--- We have seen no evidence in this case that would warrant our departure from this general rule. c. Whether the Treasury Regulations accompanying section ---provide that ----under section ------The next authority Taxpayer relies on is Treas. Reg. § ---Taxpayer asserts that this regulation provides that ------Taxpayer further asserts that the Service is disregarding this regulation by ------------------Thus, Taxpayer makes the inference that if the ---------13 The use of ---------------------------------Section ---------Treas. Reg. § ---provides rules for applying section ---See Treas. Reg. § ------Treas. Reg. § ---provides rules for applying section --------- For this purpose, an ---------See Treas. Reg. § ------Treas. Reg. § ---14 considers when a ---------. Under Treas. Reg. § ------------of Treas. Reg. § ---illustrate this rule.
Treas. Reg. § --- of Treas. Reg. § --- do not address whether ---section --- --- section --- when the requirements of Treas. Reg. § ---are not applicable, which is the case here. Section --- and its regulations provide guidance on when ---------under another section of the Internal Revenue Code (Code) such as sections ---. ------of Treas. Regs. §§ --- states:
---
---
---
---
---
---
---
---
---
---
14 Treas. Reg. §---provides that Treas. Reg. §1---
---
---
---
---
---
---
--- See also --- of Treas. Reg. § ---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
--- -15
The preambles to the proposed and final regulations similarly ---
---
---16 In addition, with regard to ---
--- the preamble to the final regulations states:
The final regulations clarify ---
---
---
---
---
---
---
---
---.17
Contrary to Taxpayer’s assertion, the Service is not disregarding Treas. Reg. § ---
---or any other regulation. Treas. Reg. § ---does not control whether
15 ---
16 See the preamble to Proposed Treas. Regs. §§ ---
---
---
---
---
---
---
---
---
---
---
---
17 ---
--- section ---section ---
---section --- d. Whether the Service’s interpretation of section --- in this case, if applied in other cases, will allow ------section ---Taxpayer makes the hypothetical argument that if the Service applies section --------- under section --- which would be a result that Congress did not intend by amending section ------Given that Taxpayer’s argument is not actually at issue, we can only offer a general analysis of how section ------ The actual application of section --- in a given case would be specific to each taxpayer and transaction.
Section ---provides as follows:
---
---
---
---
---
---
---
---
---
--- 18 ---
---
---
---
---
18 ---
---
---
---
---
---
---
---
---
---
For these reasons, section --- has no apparent applicability to ---
---even under the Service’s approach in applying section ---
Issue 2: Whether the phrase in section ---
--- means that the ---
---
---
Taxpayer argues that section --- cannot apply to ---
---
---
---Taxpayer reads section ---
---to mean that a taxpayer ---
---
---
---Taxpayer maintains that the Service is asserting that section ---can be applied on a ---
---
--- or that the Service is otherwise ---
---section --- applicable in this case.19
Taxpayer is incorrect. By its express terms, section ---applies when a taxpayer’s ---
---
---
--- --- ---Contrary to Taxpayer’s assertions, the plain language of section ---
---
---
---
--- The facts of this case satisfy those statutory requirements, and the Service need not adopt ---------section --- in this case.
The Service’s interpretation of section --- in this manner is likewise consistent with general principles ---19 ------------------------------------------------------ In this case, Taxpayer --------- Taxpayer had --------- because ---that the Transaction was of strategic value to Taxpayer and its shareholders. ---------Additionally, if Taxpayer’s arguments were accepted, section --- would be rendered ------------This further supports the Service’s conclusion that section---can apply to a taxpayer that has --------We note that the Service is not contending that Taxpayer ------------.20 Rather, the Service instead contends that, if Taxpayer’s position were accepted, the statute --------- that expanded the scope of section --- explains that the amendment was intended to apply ------and make the tax results more uniform.21 Section --- is not limited to tax-avoidance 20 On the other hand, under Taxpayer’s interpretation ---------------21 The legislative history of the --- amendment to section --- makes clear that eliminating the ability --- Establishing clearer rules for the taxation ---was another. See, e.g., --------- transactions in which a taxpayer intended from the ------In accordance with the plain language of section ---------------------In applying the phrase---the Service uses its ordinary meaning, i.e------ Accordingly, the fact that Taxpayer and Target --------- has no bearing on whether section --- applies to ------CASE DEVELOPMENT, HAZARDS AND OTHER CONSIDERATIONS This writing may contain privileged information. Any unauthorized disclosure of this writing may undermine our ability to protect the privileged information. If disclosure is determined to be necessary, please contact this office for our views.
Please call --- if you have any further questions.
By: ____
Robert A. Martin
Senior Technician Reviewer, Branch 1
(Financial Institutions & Products)
---
---
---
---
---
---
---
---
--- cc: ---
---
---