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Contents : Internal Revenue Service Department of the Treasury Number: 201002025 Release Date: 1/15/2010 Third Party Communication: None Date of Communication: Not Applicable Index Number: 355.00-00 355.01-00 368.00-00 368.04-00 Person To Contact: Washington DC 20224 ---------------------- ID No. ------------Telephone Number: ------------------------------------------------------------------------------------------------------------------------- -------------------Refer Reply To: CC:CORP:B05 PLR-129282-09 Date: October 08 2009 LEGEND Distributing: ---------------------------- State: ------------------ Year 1: ------- Business A: -------------------------------------- Business B: ----------------------------------------------------------------- Shareholder: ------------------ a -------- Dear --------------: This letter responds to your representative's June 8 2009 letter requesting rulings as to the Federal income tax consequences of proposed transactions. The material information submitted in that letter and subsequent correspondence is summarized below. The rulings contained in this letter are based upon facts and representations that were submitted on behalf of the taxpayer and accompanied by a penalty of perjury PLR-129282-09 2 statement executed by an appropriate party. This office has not verified any of the material submitted in support of the request for rulings. Verification of the information representations and other data may be required as part of the audit process. In particular this office has not reviewed any information pertaining to and has made no determination regarding: (i) whether the distribution described below satisfies the business purpose requirement of Treas. Reg. 1.355-2(b) (ii) whether the distribution is used principally as a device for the distribution of the earnings and profits of the distributing company or the controlled company or both (see section 355(a)(1)(B) of the Internal Revenue Code and Treas. Reg. 1.355-2(d)) and (iii) whether this distribution is part of a plan (or a series of related transactions) pursuant to which one or more persons will acquire directly or indirectly stock representing a fifty percent (50%) or greater interest in Distributing or Controlled (see section 355(e) and Treas. Reg. 1.355-7). Furthermore no opinion is expressed as to the validity of any S corporation election of either Distributing or Controlled. SUMMARY OF FACTS Distributing is a closely held State corporation that uses the accrual method of accounting and a calendar year. Distributing was incorporated in Year 1 and elected S corporation status upon incorporation. Distributing is engaged in Business A and Business B. Distributing has outstanding a shares of common stock (and no other stock) all of which stock is held by Shareholder. Controlled is being formed as a State corporation and will elect to be treated as an S corporation for federal income tax purposes. Controlled will use the accrual method of accounting and a calendar year. Controlled will have outstanding one class of stock which initially will all be held by Distributing. Shareholder A desires to operate Business A and Business B in separate entities in order to achieve cost savings through the minimization of certain state income taxes. To achieve this separation Distributing will transfer Business B to Controlled in exchange for all the stock in Controlled and then will distribute all the Controlled Stock to Shareholder. Financial information submitted by Distributing indicates that each of Distributing's Business A and Distributing's Business B has had gross receipts and operating expenses representative of the active conduct of a trade or business for each of the past 5 years. PROPOSED TRANSACTION For what are represented as valid business reasons and in order to achieve the PLR-129282-09 3 objectives discussed above Distributing proposes the following transaction (the Transaction ): 1. Distributing will transfer to Controlled the assets of Business B in exchange for all of the stock in Controlled and the assumption by Controlled of all of the liabilities associated with Business B (the Contribution ). 2. Distributing will distribute to Shareholder all of the Controlled Stock (the Distribution ). 3. Controlled will make an election under section 1362(a) to be treated as an S corporation (within the meaning of section 1361(a)). REPRESENTATIONS Distributing has made the following representations in connection with the Transaction: (a) The total adjusted bases and the fair market value of the assets to be transferred to Controlled by Distributing each equals or exceeds the sum of the liabilities to be assumed (within the meaning of section 357(d)) by Controlled plus any liabilities to which the transferred assets were subject. (b) The liabilities to be assumed (within the meaning of section 357(d)) by Controlled in the Transaction an

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