IRS Characterizes Series of Reorganization Transactions

Third Party Communication: None

This responds to a letter dated July 17, 2015, and subsequent correspondence, submitted on behalf of X by its authorized representatives, requesting a ruling under Treasury Regulations §§ 1.708-1(c) and 1.708-1(d), with respect to the transaction described in the submissions ("Transaction").

The Transaction will facilitate a potential initial public offering of stock in an entity that will elect to be treated as a "real estate investment trust" as defined in Section 856 ("Public REIT"). Public REIT will acquire an interest in a newly formed operating partnership ("OP") by contributing to OP (a) the proceeds from the initial public offering of its stock and (b) a portion of its shares that OP will use to acquire some of the interests to be acquired in the Transaction. Public REIT will own all of its investments in real estate properties and conduct all of its operations through OP. The Transaction will be achieved as described in the steps below.

Section 708(b)(2)(B) provides that in the case of a division of a partnership into two or more partnerships, the resulting partnerships (other than any resulting partnership the members of which had an interest of 50 percent or less in the capital and profits of the prior partnership) shall, for purposes of this section, be considered a continuation of the prior partnership.

Section 1.708-1(d)(1) provides, in part, that upon the division of a partnership into two or more partnerships, any resulting partnership (as defined in Section 1.708-1(d)(4)(iv)) or resulting partnerships shall be considered a continuation of the prior partnership (as defined in Section 1.708-1(d)(4)(ii)) if the members of the resulting partnership or partnerships had an interest of more than 50 percent in the capital and profits of the prior partnership. Any other resulting partnership will not be considered a continuation of the prior partnership but will be considered a new partnership.

Section 1.708-1(d)(3)(i)(A) provides that in a division under the assets-over form where at least one resulting partnership is a continuation of the prior partnership, the divided partnership (as defined in Section 1.708-1(d)(4)(i)) contributes certain assets and liabilities to a recipient partnership (as defined in Section 1.708-1(d)(4)(iii)) or recipient partnerships in exchange for interests in such recipient partnership or partnerships; and, immediately thereafter, the divided partnership distributes the interests in such recipient partnership or partnerships to some or all of its partners in partial or complete liquidation of the partners' interests in the divided partnership

Section 1.708-1(d)(4)(i) provides, in part, that for purposes of Section 1.708-1(d), the divided partnership is the continuing partnership which is treated, for federal income tax purposes, as transferring the assets and liabilities to the recipient partnership or partnerships, either directly (under the assets-over form) or indirectly (under the assets-up form). If a partnership divides into two or more partnerships without undertaking a form for the division that is recognized under Section 1.708-1(d)(3), or if the resulting partnership that had, in form, transferred assets and liabilities is not considered a continuation of the prior partnership, and more than one resulting partnership is considered a continuation of the prior partnership, the continuing resulting partnership with the assets having the greatest fair market value (net of liabilities) will be treated as the divided partnership.

Section 1.708-1(d)(4)(ii) provides that for purposes of Section 1.708-1(d), the prior partnership is the partnership subject to division that exists under applicable jurisdictional law before the division.

Section 1.708-1(d)(4)(iii) provides that for purposes of Section 1.708-1(d), a recipient partnership is a partnership that is treated as receiving, for federal income tax purposes, assets and liabilities from a divided partnership, either directly (under the assets-over form) or indirectly (under the assets-up form).

Section 1.708-1(d)(4)(iv) provides that for purposes of Section 1.708-1(d), a resulting partnership is a partnership resulting from the division that exists under applicable jurisdictional law after the division and that has at least two partners who were partners in the prior partnership. For example, where a prior partnership divides into two partnerships, both partnerships existing after the division are resulting partnerships.

Section 1.708-1(c)(3)(i) provides that when two or more partnerships merge or consolidate into one partnership under the applicable jurisdictional law without undertaking a form for the merger or consolidation, or undertake a form for the merger that is not an assets-up form, any merged or consolidated partnership that is considered terminated under this Section 1.708-1(c)(1) is treated as undertaking the assets-over form for federal income tax purposes. Under the assets-over form, the merged or consolidated partnership that is considered terminated under Section 1.708-1(c)(1) contributes all of its assets and liabilities to the resulting partnership in exchange for an interest in the resulting partnership, and immediately thereafter, the terminated partnership distributes interest in the resulting partnership to its partners in liquidation of the terminated partnership.

Section 1.708-1(c)(4) provides that in a transaction characterized under the assets-over form, a sale of all or part of a partner's interest in the terminated partnership to the resulting partnership that occurs as part of a merger or consolidation under section 708(b)(2)(A), as described in Section 1.708-1(c)(3)(i), will be respected as a sale of a partnership interest if the merger agreement (or another document) specifies that the resulting partnership is purchasing interests from a particular partner in the merging or consolidating partnership and the consideration that is transferred for each interest sold, and if the selling partner in the terminated partnership, either prior to or contemporaneous with the transaction, consents to treat the transaction as a sale of the partnership interest.

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. In accordance with a power of attorney on file with this office, we are sending a copy of this letter to X's authorized representative.

The ruling contained in this letter is 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 ruling request, it is subject to verification on examination.