Matching Services Are Not Established Securities Markets

Third Party Communication: None

This letter responds to a letter dated August 31, 2016, and subsequent correspondence, submitted on behalf of X by X's authorized representative, requesting rulings under § 7704 of the Internal Revenue Code.

The Services are not available to the public. Prospective buyers and sellers must complete a New Account Application and, if approved, execute a Subscriber Agreement. As required under applicable FINRA rules and the U.S.A. Patriot Act, X will perform a background check to ensure that a prospective subscriber is qualified to do business with X, that the interest being listed is a valid limited partnership, and that the potential buyer is an accredited investor (as defined under Rule 501 of Regulation D of the Securities Act of 1933), an entity regulated by a Federal functional regulatory authority, or an entity regulated by a comparable foreign financial regulatory authority. X will operate both Services through a password protected website and software application (Platform). X's clients will use third party software to connect to X's Services in order to see the limited partnership interests listed by X.

X represents that neither of the Services is: (1) a national securities exchange registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) (the '34 Act); (2) a national securities exchange exempt from registration under section 6 of the '34 Act because of the limited volume of transactions; (3) a foreign securities exchange that, under the law of the jurisdiction where it is organized, satisfies regulatory requirements that are analogous to the regulatory requirements under the '34 Act; (4) a regional or local exchange; or (5) an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or otherwise.

The Qualifying Service displays only quotes that do not commit any person to buy or sell an interest at a quoted price (nonfirm price quotes) or quotes that express an indication of interest in an interest without an accompanying price (nonbinding indications of interest), and does not display quotes at which any person is committed to buy or sell a partnership interest at the quoted price (firm quotes). No binding contract may be entered into until after the 15th calendar day after the date information regarding an offering of a partnership interest is made available to potential buyers (the "15-day period"). For listings on the Qualifying Service, X also enters into its records the 45th day after the date of the initial entry, which is the earliest date that the closing for the sale of interests through the Qualifying Service will occur.

During the 15-day period, members of X have the opportunity to view the interests on the Qualifying Service, together with a nonbinding "asking price," through X's website. Interested buyers can post an Indication of Interest (IOI) in purchasing a partnership interest with or without specifying a purchase price for the interest. In addition, during this 15-day period, sellers may view buyers' non-binding IOI. Following the 15-day period, if any non-binding IOIs have been received, the highest IOI will become binding provided that such IOI is equal or greater than the minimum non-firm price initially listed by the seller. If the seller does not receive any non-binding IOIs during the 15-day period that are equal to or greater than the minimum non-firm price, then sellers may contact any persons that submitted an IOI to negotiate a price for the sale of the partnership interest. In no case will parties be permitted to enter into a binding agreement until after the 15-day period.

If a buyer and seller are matched, X will provide the parties with a buyer and seller agreement in addition to an assignment agreement so that the parties may complete the transfer of the limited partnership interest.

If no match is found for a listing on the Qualifying Service, the Qualifying Service will remove such interest on the 120th day after the listing date of the interest.

X will notify the partners of the partnership selling limited partnership interests so that those partners can ensure that, in the aggregate, no more than 10% of the limited partnership interests are sold within the selling partnership's taxable year. This 10% includes interests sold both through the Qualifying Service and any other venues the partnership uses to sell limited partnership interests.

Section 7704(b) provides that for purposes of § 7704, the term "publicly traded partnership" means any partnership if -- (1) interests in such partnership are traded on an established securities market, or (2) interests in such partnerships are readily tradable on a secondary market (or the substantial equivalent thereof).

Section 1.7704-1(b) provides, in part, that for purposes of § 7704(b) and § 1.7704-1, an established securities market includes -- (1) A national securities exchange registered under section 6 of the '34 Act; (2) A national securities exchange exempt from registration under section 6 of the '34 Act because of the limited volume of transactions; (3) A foreign securities exchange that, under the law of the jurisdiction where it is organized, satisfies regulatory requirements that are analogous to the regulatory requirements under the '34 Act; (4) A regional or local exchange; (5) An interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or otherwise.

Section 1.7704-1(c)(1) provides that for purposes of § 7704(b) and § 1.7704-1, interests in a partnership that are not traded on an established securities market (within the meaning of § 7704(b) and § 1.7704-1(b)) are readily tradable on a secondary market or the substantial equivalent thereof if, taking into account all of the facts and circumstances, the partners are readily able to buy, sell, or exchange their partnership interests in a manner that is comparable, economically, to trading on an established securities market.

Section 1.7704-1(c)(2) further clarifies that, for purposes of § 1.7704-1(c)(1), interests in a partnership are readily tradable on a secondary market or the substantial equivalent thereof if -- (i) Interests in the partnership are regularly quoted by any person, such as a broker or dealer, making a market in the interests; (ii) Any person regularly makes available to the public (including customers or subscribers) bid or offer quotes with respect to interests in the partnership and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others; (iii) The holder of an interest in the partnership has a readily available, regular, and ongoing opportunity to sell or exchange the interest through a public means of obtaining or providing information of offers to buy, sell, or exchange the interests in the partnership; or (iv) Prospective buyers and sellers otherwise have the opportunity to buy, sell, or exchange interests in the partnership in a time frame and with the regularity and continuity that is comparable to that described in the other provisions of § 1.7704-1(c)(2).

Section 1.7704-1 allows certain types of transfers of partnership interests to be disregarded in determining whether interests in the partnership are readily tradable on a secondary market or the substantial equivalent thereof. However, these safe harbors do not apply to any transfers of partnership interests on an established securities market. One of these safe harbors is a qualified matching service under § 1.7704-1(g).

Section 1.7704-1(g)(1) provides that for purposes of § 7704(b) and § 1.7704-1, the transfer of an interest in a partnership through a qualified matching service is disregarded in determining whether interests in the partnership are readily tradable on a secondary market or the substantial equivalent thereof.

Section 1.7704-1(g)(2) provides that a matching service is a qualified matching service only if -- (i) The matching service consists of a computerized or printed listing system that lists customers' bid and/or ask quotes in order to match partners who want to sell their interests in a partnership (the selling partner) with persons who want to buy those interests; (ii) Matching occurs either by matching the list of interested buyers with the list of interested sellers or through a bid and ask process that allows interested buyers to bid on the listed interest; (iii) The selling partner cannot enter into a binding agreement to sell the interest until the 15th calendar day after the date information regarding the offering of the interest for sale is made available to potential buyers and such time period is evidenced by contemporaneous records ordinarily maintained by the operator at a central location; (iv) The closing of the sale effected by virtue of the matching service does not occur prior to the 45th calendar day after the date information regarding the offering of the interest for sale is made available to potential buyers and such time period is evidenced by contemporaneous records ordinarily maintained by the operator at a central location; (v) The matching service displays only quotes that do not commit any person to buy or sell a partnership interest at the quoted price (nonfirm price quotes) or quotes that express interest in partnership interest without an accompanying price (nonbinding indications of interest) and does not display quotes at which any person is committed to buy or sell a partnership interest at the quoted price (firm quotes); (vi) The selling partner's information is removed from the matching service within 120 calendar days after the date information regarding the offering of the interest for sale is made available to potential buyers and, following any removal (other than removal by reason of a sale of any part of such interest) of the selling partner's information from the matching service, no offer to sell an interest in the partnership is entered into the matching service by the selling partner for at least 60 calendar days; and (vii) The sum of the percentage interests in partnership capital or profits transferred during the taxable year of the partnership (other than in private transfers described in § 1.7704-1(e)) does not exceed 10 percent of the total interests in partnership capital or profits.

Section 1.7704-1(g)(4) provides that a qualified matching service may be sponsored or operated by a partner of the partnership (either formally or informally), the underwriter that handled the issuance of the partnership interests, or an unrelated third party. In addition, a qualified matching service may offer the following features -- (i) The matching service may provide prior pricing information, including information regarding resales of interests and actual prices paid for interests; a description of the business of the partnership; financial and reporting information from the partnership's financial statements and reports; and information regarding material events involving the partnership, including special distributions, capital distributions, and refinancings or sales of significant portions of partnership assets; (ii) The operator may assist with the transfer documentation necessary to transfer the partnership interest; (iii) The operator may receive and deliver funds for completed transactions; and (iv) The operator's fee may consist of a flat fee for use of the service, a fee or commission based on completed transactions, or any combination thereof.

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 the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,