IRS written determination 201536016

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201536016
Release Date: 9/4/2015
Index Number: 301.00-00, 305.03-00
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In Re:
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
------------------------, ID No. ------------------
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Telephone Number:
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Refer Reply To:
CC:CORP:BO1 -
PLR-145539-14
Date:
June 04, 2015
Taxpayer=------------------------------------
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State X=------------
Y Properties=----------------------------------------------------------
P Partnership=---------------------------------------------------------
a =---------------------------
Date 1=---------------------
Date 2=-------------------
Date 3=-----------------------
Date 4=----------------------
Property B=--------------------------------------------------------
b=---------------
c=---------------
d=----------------------------------
e=---------------------------------

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Advisor E=------------------------
F=------
Dear --------------------
This letter responds to a letter from Taxpayer’s authorized representative dated
December 12, 2014, requesting a ruling under sections 301 and 305 of the Internal
Revenue Code. Taxpayer furnished additional information in a letter dated February 12,
2015. The information submitted is summarized below.
Summary of Facts
Taxpayer is s State X corporation that has elected to be taxed as a real estate
investment trust (REIT) as defined in section 856(a) for federal income tax purposes.
Taxpayer invests inY Properties. It also acquires or originated mortgages or other
real-estate related loans. It owns substantially all its assets and conducts its operations
through P Partnership, of which Taxpayer is the sole general partner. As of Date 1,
Taxpayer’s common stock was held by a shareholders, none of which held more than 5
percent of Taxpayer stock. Taxpayer regularly distributes its earnings and profits in full
or in part.
On Date 2, Taxpayer, through a disregarded subsidiary, acquired an interest in
three distressed mortgage loans (the Loans) for a purchase price of $b. The aggregate
principal amount was $c (a larger amount than $b), but the Loans were in default when
Taxpayer acquired them. The Loans were secured by Property B. Taxpayer took over
the foreclosure proceedings that the former lender had already begun. On Date 3,
Taxpayer acquired title to Property B pursuant to a consent foreclosing proceeding. An
appraisal determined that Property B had a fair market value of $d, which was larger
than Taxpayer’s $b purchase price for acquiring the loans. Taxpayer recognized gain
of $e ($d less $b) (the “Bargain Purchase Gain”), but Taxpayer’s former management
determined that this gain should not be recognized for federal tax purposes.
On Date4, Advisor E became Taxpayer’s external advisor, whose duties
included tax advice. Advisor E recommended that Taxpayer should have recognized
the Bargain Purchase Gain.

Proposed Transaction
Taxpayer proposes to make a distribution (the Proposed Distribution) to which
section 305 applies and have that distribution be treated as a deficiency dividend under
section 860(f) that will be allowed as a deduction under section 860(a). The amount of
the Proposed Distribution is intended to fully offset Taxpayer’s net income as

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redetermined. After Taxpayer receives the requested rulings, Taxpayer will follow the
procedures set forth in Rev. Proc. 2009-28, 2009-20 I.R.B. 1011, which concerns a self-
determination of a deficiency dividend by a REIT under section 860(e)(4).
The Proposed Distribution will be a dividend distribution declared by Taxpayer
for taxable year F under which its shareholders may elect to receive either cash or
additional Taxpayer stock, or a mixture thereof. The aggregate cash component will be
capped at 20 percent of the dividend distribution (the “Cash Limitation.”). To the extent
the shareholders of Taxpayer elect to receive in the aggregate more cash than the Cash
Limitation, management will substitute stock for cash under a predetermined formula
(described below), consistent with applicable corporate law. Shareholders who fail to
make an election will be deemed to have elected to receive only stock.
Representations
Taxpayer makes the following representations in connection with the Proposed
Distribution.
(a)The Proposed Distribution will be by Taxpayer to its shareholders with
respect to its stock.
(b)Pursuant to the declaration of the Proposed Distribution, each shareholder
of Taxpayer will be able to request to receive the shareholder’s entire entitlement under
the declaration in either all cash, all stock or Taxpayer of equivalent value, or a mix of
cash and stock, the aggregate of which is subject to the Cash Limitation. A
shareholder making the mixed election could elect to receive a percentage of his or her
distribution in cash, the aggregate of which will not exceed the Cash Limitation
percentage, with the balance of the distribution consisting of Taxpayer stock.
(c) The Cash Limitation will be 20 percent of the aggregate declared
distribution.
(d)In no event will the aggregate cash distributed be less than the Cash
Limitation. If the aggregate cash distributed is less than the Cash Limitation (such
difference, the “Shortfall”), the Shortfall will be distributed to shareholders pro rata, in
proportion to the amount of cash requested.
(e) If the requested cash component of the Proposed Distribution is
oversubscribed and exceeds the aggregate Cash Limitation, the following sets forth
what each shareholder will receive. Each shareholder will receive the lesser of (i) the
amount of cash requested, or (ii) 20 percent of its portion of the proposed distribution (in
the aggregate, “Portion A.”). In addition, the difference between the aggregate Cash
Limitation and Portion A(such difference, “Portion B”), will be distributed to all
shareholders who requested to receive all or part of their distribution in cash. Portion B

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will be distributed to this shareholder group pro rata, according to their relative share of
the difference between their requested cash amount and their share of Portion A.
(f) Any cash paid in lieu of fractional shares will not count toward the Cash
Limitation.
(g) Taxpayer does not have any convertible debt instruments or preferred stock
outstanding.
(h) The calculation of the number of shares to be received by any shareholder
will be determined, as of a date not more than 15 days before the record date of the
proposed distribution, based upon appraisals of Taxpayer’s assets and liabilities, as
approved by Taxpayer’s Board of Directors, and is designed to equate in value the
number of shares to be received with the amount of money that could be received
instead.
Rulings
Based solely on the information submitted and the representations set forth
above, we rule as follows:
1. All of the cash and shares of common stock distributed by Taxpayer in the
Proposed Distribution will be treated as a distribution of property by Taxpayer with
respect to its stock to which section 301 applies by reason of section 305(b).
2. Because Taxpayer regularly distributes its earnings and profits, the amount of
the distribution of the stock to which section 301 applies received by any shareholder of
Taxpayer electing to receive stock will be considered to equal the amount of money that
the shareholder could have received instead. (Reg. § 1.305-1(b)(2)).
Caveats
We express no opinion on the tax treatment of the transactions described above
under any other provisions of the Code or Treasury Regulations, or the tax treatment of
any conditions existing at the time of, or effects resulting from, the transactions that are
not specifically covered by the above rulings. In particular, we express no opinions on
(i) whether Taxpayer qualifies as a REIT under Part II, Subchapter M, Chapter 1 of the
Code; (ii) whether the Proposed Distribution will satisfy the requirements of section
857(a)(2); or (iii) whether the Proposed Distribution will constitute a preferential dividend
under section 562(c). Furthermore, we express no opinion on the reasonableness of
Taxpayer’s stock valuation method.
Procedural Statements

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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.
A copy of this letter must be attached to any income tax return to which it is
relevant. Alternatively, taxpayers filing their returns electronically may satisfy this
requirement by attaching a statement to their return that provides the date and control
number of the letter ruling.
In accordance with a power of attorney on file with this office, copies of this letter
are being sent to two of your authorized representatives.
Sincerely,
__________________________
Mark S. Jennings
Chief, Branch 1
Office of Associate Chief Counsel
(Corporate)
cc: