IRS Rules on Tax Consequences of Proposed Merger

Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact: * * *, ID No. * * *
Telephone Number: * * *

Index Number: 332.00-00, 337.00-00
Release Date: 8/27/2021

Date: May 28, 2021

Refer Reply To: CC:CORP:B01 - PLR-127839-20

LEGEND:

Authority = * * *
State = * * *
Subsidiary = * * *
Year X Transaction = * * *
Service Area = * * *
Business A = * * *
The Act = * * *
z = * * *
Systems = * * *

Dear * * *:

We respond to your authorized representatives' letter dated December 4, 2020, requesting rulings on certain federal income tax consequences of a proposed transaction described below (the Proposed Transaction). The material information provided in that request and in subsequent correspondence is summarized below.

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party. While this Office has not verified any of the facts and material submitted in support of the request for rulings, it is subject to verification on examination.

This letter is issued pursuant to section 6.03 of Rev. Proc. 2021-1, 2021-1 I.R.B. 1, regarding rulings on one or more significant issues under sections 332, 351, 355, 368, or 1036 of the Internal Revenue Code (the Code). The rulings contained in this letter address only one or more discrete legal issues involved in the Proposed Transaction. This Office expresses no opinion as to the overall federal tax consequences of the Proposed Transaction or as to any issue not specifically addressed by the rulings below.

Summary of Facts

Authority is a political subdivision of State. It was created pursuant to the Act and is governed by a z-member board of trustees (the Board). Authority has no outstanding stock, and, as a political subdivision, Authority is not subject to federal income taxation and does not file federal income tax returns. The Act authorized Authority to provide Business A services to residents of State.

Authority provides Business A services in the Service Area through its wholly owned subsidiary, Subsidiary, a State corporation acquired by Authority in the Year X Transaction. Income Subsidiary derives from the conduct of Business A is excluded from gross income under section 115(1) of the Code.

Authority and Subsidiary are parties to certain financing agreements that outline their respective duties and obligations relating to the operation of Business A. Authority issues all debt for Authority and Subsidiary, the proceeds of which are treated as loaned from Authority to Subsidiary. All revenues received by Subsidiary are pledged to Authority and used to repay the loans from Authority. All of the income generated by Subsidiary inures to the benefit of Authority to be used in the conduct of essential governmental and public functions.

Pursuant to certain administrative agreements, Authority provides Subsidiary with personnel, management, supervisory, payroll and other services for use in the conduct of its day to day operations. Subsidiary separately contracts with independent agents, attorneys, and consultants for services in addition to obtaining other services through contracts approved by Authority.

Authority approves the disbursement of all funds of Subsidiary, prepares its operating budgets, coordinates all accounting matters and administration of billings and collections from Subsidiary's customers and coordinates all other matters arising under agreements relating to any projects that Subsidiary might undertake to carry out Business A. Subsidiary also outsources to third parties some of its day to day operations including maintenance, customer service, billing and collections to obtain resources, including critical Systems, necessary for Subsidiary to conduct Business A in the Service Area. These outsourcing agreements are subject to the approval of Authority.

State and the Board have determined that Business A can be conducted more efficiently if Subsidiary is eliminated as a separately controlled corporation and that merging subsidiary into Authority is consistent with the objectives of the Act. Authority represents that directly providing Business A services in the Service Area will reduce ongoing compliance and administrative cost to the public in the conduct of Business A in the Service Area and will reduce public confusion.

Proposed Transaction

Pursuant to the law of State, Authority and Subsidiary will adopt a plan of merger and reorganization in which Subsidiary will merge with and into the Authority with Authority surviving.

Representations

Authority has made the following representations with respect to the Proposed Transaction:

Rulings

Based solely on the information provided and the representations set forth above, we rule as follows regarding the Proposed Transaction:

Caveats

Except as expressly provided herein, no opinion is expressed or implied concerning the federal tax consequences of the proposed transaction under any other provisions of the Code and regulations thereunder or about the tax treatment of any aspect of any transaction or item not specifically discussed or referenced in this letter. Specifically, we express no opinion concerning the application of section 1245 or section 1250 upon the disposition of any assets in the Proposed Transaction and future transactions.

Procedural Statements

This ruling letter is directed only to the taxpayer requesting it. Section 6110(k)(3) 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 this letter is being sent to your authorized representatives.

A copy of this letter must be attached to any income tax return to which it is relevant.

Sincerely,

Filiz A. Serbes
Special Counsel
Office of Associate Chief Counsel (Corporate)

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