Rev. Proc. 83-59

                             SECTION 351

The purpose of this revenue procedure is to update Revenue Procedure 81-57, 1981-2 C.B. 674 which sets forth in a checklist questionnaire the information necessary to be included in a request for a ruling under section 351 of the Internal Revenue Code, relating to transfers to a corporation controlled by the transferor or transferors.

SEC. 2. BACKGROUND

The Internal Revenue Service receives many requests for rulings in which the information furnished about the proposed transaction is not sufficient to permit a determination to be made. In such cases it is necessary to obtain additional facts from the taxpayer before the request for a letter ruling can be considered. This procedure is time consuming for both Service personnel and taxpayers and delays issuance of the final ruling letter. This checklist will facilitate the filing and processing of requests for rulings under section 351 of the Code by showing specific information and representations to be included so the request will be as complete as possible when initially filed. Because the information and representations necessary to rule on a particular transaction depend upon all the facts and circumstances, information or representations in addition to those set forth in this revenue procedure may be required.

The authority and general procedures of the National Office of the Internal Revenue Service and of the Office of the District Directors of Internal Revenue with respect to the issuance of letter rulings and determination letters are outlined in Rev. Proc. 83-1, 1983-1 C.B. 545. See also Rev. Proc. 83-22, 1983-1 C.B. 680, relating to areas in which advance rulings generally will not be issued.

Careful attention to all the requirements of these revenue procedures will aid in the timely processing of letter ruling requests.

SEC. 3. CHANGES

.01 Section I has been changed to indicate the purpose of the revenue procedure is to update Rev. Proc. 8157.

.02 Section 2 is modified to set forth the necessary representations, as well as to update references to Revenue Procedures cited.

.03 Section 4 is substantially altered.

1 The taxpayer must now submit standard representations using the precise language or submit an explanation of the reasons why the representation cannot be made in that form.

2 Section 4.032 is expanded to include several representations concerning the issuance of stock or securities for services.

3 Section 4.033(a) is changed by rewording the request for information.

4 Section 4.033(a)(1) requests the same information in representation form, and adds a new representation relating to reporting items of income and deduction, and also requests information from transferors on the completed contract method of accounting.

5 Section 4.033(a)(3) through (7) have been reworded using representation format.

6 Section 4.033(8) is expanded to request several new representations concerning solicitation, continuity of interest, and acquisition indebtedness.

7 Section 4.033(9) is added to request representations concerning the formation of bank holding companies.

8 Section 4.033(b) is modified to request information in representation format.

9 Section 4.044 is added to request information concerning the issuance of "section 306 stock".

10 Section 4.055(f) is added to request a representation pertaining to redemptions or other reacquisitions of stock.

11 Section 4.055(g) is added to request a representation pertaining to "control" of the transferee.

12 Section 4.06 is modified and reworded to request information in representation format.

13 Section 4.071 is modified to include citations to section 351(e)(1) of the Code and section 1.351l(c)(1)(ii) of the Income Tax Regulations.

14 Section 4.074 is added to request a representation concerning personal service corporations.

15 Section 4.083(b) is updated to reflect the revenue procedure being superseded.

16 Section 4. 1 0 is updated to reflect the revenue procedure being superseded.

17 Section 5 is updated to reflect a new title and symbols.

18 Section 6 is updated to reflect the revenue procedure being superseded.

SEC. 4. INFORMATION TO BE INCLUDED IN REQUESTS FOR RULINGS UNDER SECTION 351 OF THE CODE

Each of the items in this Section should be specifically dealt with in the letter ruling request. If an item is not applicable, so state and briefly explain why it is not applicable. Standard representations are set forth throughout this Section and are highlighted by having the word "representation" in boldface type. These representations are of equal importance with the other factual information requested herein. They, however, function to insure that specific statutory and judicial requirements, and administrative ruling guidelines, are satisfied. Each representation should be submitted in precisely the language requested. If a representation cannot be submitted, an explanation must be given. Variations of the language of the representations delay processing the ruling request and will not be accepted unless reasons satisfactory to the Service are submitted. Submission of the information and representations should follow the format of this revenue procedure as closely as possible.

.01 Information regarding transferee corporation.

1 Name, taxpayer identification number, and place and date of incorporation of the transferee corporation (transferee)

2 Description of the business of the transferee, and its method and period of accounting.

3 Identify the District Office having audit jurisdiction over the return of the transferee and the known transferors (collectively referred to as taxpayers). State whether, to the best of the knowledge of the taxpayers, and the taxpayer's representative(s), the identical issue is in a return of the taxpayers (or of a related taxpayer within the meaning of section 267 of the Code or a member of an affiliated group of which the taxpayer is also a member within the meaning of section 1504) and, if so, whether the issue (1) is being examined by a District Director, (2) has been examined and the statutory period of limitation on assessment or refund of tax has not expired or a closing agreement covering the issue or liability has not been entered into by a District Director, (3) is being considered by an Appeals Office in connection with the taxpayers return for an earlier period, or that issue has been considered by an Appeals Office and the statutory period of limitation on assessment or refund of tax has not expired or a closing agreement covering the issue or liability has not been entered into by an Appeals Office, or (4) is pending in litigation in a case involving the taxpayers or a related taxpayer. The request must contain a statement whether, to the best of the knowledge of the taxpayers and the taxpayers representative(s), the identical or similar issue has been the subject matter of a prior ruling request and whether it was ruled on by the Service to the taxpayers or to the taxpayers' predecessor and, if so, when and with what results. If after the request is filed but before a ruling is issued, the taxpayers know that an examination of the issue by a District Director has been started, the taxpayers must notify the National Office of such an action. If a return is filed before a ruling is received from the National Office concerning the return, a copy of the request must be attached to the return. This alerts the District Office and avoids premature District action on the issue.

.02 Information regarding the transferors.

1 Name and taxpayer identification number of all known transferors.

2 State the method and period of accounting used by such transferors.

.03 Transfer to corporation.

1 Property - Identify and describe fully all types of property, tangible and intangible, to be transferred to the transferee by each transferor. Identify specifically each transferor and the property being transferred by that transferor. Also, furnish a description of the business, if any, of each transferor and the property transferred that is related to that business.

2 Services and Indebtedness - State whether services have been or will be performed by any transferor for or on behalf of the transferee in connection with the transaction. Submit a REPRESENTATION as follows: (i) No stock or securities will be issued for services rendered to or for the benefit of the transferee in connection with the proposed transaction, and (ii) No stock or securities will be issued for indebtedness of the transferee that is not evidenced by a security or for interest on indebtedness of the transferee which accrued on or after the beginning of the holding period of the transferor(s) for the debt. See section 35 1 (d) of the Code.

3 Assets and Liabilities.

(a) Assets - State whether any of the assets to be transferred were received by the transferor(s) as part of a plan of liquidation of another corporation.

(1) Unreported Income - State whether income items, such as accounts receivable or commissions due, are being transferred to the transferee. If so, and the transferor(s) of these items uses the cash method of accounting, submit a REPRESENTATION as follows: (i) The transferor(s) neither accumulated receivables nor made extraordinary payment of payables in anticipation of the transaction, and (ii) The transferee will report items which, but for the transfer, would have resulted in income or deduction to a transferor in a period subsequent to the transfer and such items will constitute income or deductions to the transferee when received or paid by it. Further, submit a REPRESENTATION as follows: The proceeds received in collection of the income items will be included as ordinary income in computing the taxable income of the transferee. ( Rev. Rul. 80-198, 1980-2 C.B. 113). If a transferor is on the completed contract method of accounting, explain fully how the transferor has reported income, costs and expenses related to each contract and how the transferee will report such items subsequent to the transfer.

(2) Partners and Partnerships - State whether the partners' interests in the partnership or the partnership's assets will be transferred and whether the partnership will be liquidated.

(3) Patents or patent applications. If patents or patent applications are being transferred, submit a REPRESENTATION as follows: The patents or patent applications qualify as "property" within the meaning of section 351 of the Code. See Rev. Rul. 64- 56, 1964-1 C.B. (Part 1) 133. Also, submit a REPRESENTATION as follows: The transferor(s) will transfer all substantial rights in such patents or patent applications within the meaning of section 1235 of the Code. See Rev. Rul. 69-15, 1969-1 C.B. 101.

(4) Copyrights - If copyrights are being transferred, state whether the copyright for all media are being transferred and whether any contracts for the exploitation of a copyright in a particular medium are being transferred. Submit a REPRESENTATION as follows: All rights, title and interests for each copyright, in each medium of exploitation, will be transferred to the transferee.

(5) Franchises, trademarks or trade names. If franchises, trademarks or trade names are being transferred, submit a REPRESENTATION as follows: The transferor will not retain any significant power, right, or continuing interest, within the meaning of section 1253(b) of the Code, in the franchises, trademarks or trade names being transferred.

(6) Technical "Know-how" - State whether the transaction involves an agreement that purports to furnish technical "know- how" in exchange for stock. If so, submit the information required by Rev. Proc. 69-19, 1969-2 C.B. 301, as amplified by Rev. Proc. 74-36, 1974-2 C.B. 491.

(7) Stock of another corporation - State whether stock of another corporation is part or all of the property being transferred to the transferee. If so, state the percentage of the transferred stock and the percentage of the transferee's stock which is owned actually and constructively by the transferor. Also, state whether the stock is being transferred subject to any liabilities or whether any liabilities of the transferor are being assumed in connection with the transfer of such stock. See section 304 of the Code. If the stock to be transferred is other than common stock, submit a REPRESENTATION as follows: None of the stock to be transferred is "section 306 stock" within the meaning of section 306(c) of the Code.

(8) Other information.

(a) Solicitation - Submit a REPRESENTATION as follows: The transfer is not the result of the solicitation by a promoter, broker, or investment house.

(b) Retained rights - Submit a REPRESENTATION as follows: The transferor(s) will not retain any rights in the property transferred to the transferee.

(c) Licenses, leases, etc. Describe any licenses, leases, etc., to be granted in exchange for stock or securities.

(d) Leaseback - Describe any property to be transferred to the transferee that will be leased back to a transferor, other shareholder, or a related party. Furnish the terms of the lease and identify the lessee.

(e) Reserve for bad debts - Submit a REPRESENTATION as follows: The value of the stock received in exchange for accounts receivable will be equal to the net value of the accounts transferred, i.e., the face amount of the accounts receivable previously included in income less the amount of the reserve for bad debts. See Rev. Rul. 78-280, 1978-2 C.B 139.

(f) Continuity of interest - If the exchange is part of a larger transaction that fits a pattern common to acquisitive reorganizations (see section 3.0123 of Rev. Proc. 83-22), submit the following REPRESENTATION: (i) With respect to the larger transaction, shareholders of the acquired corporation will receive, in exchange for their stock of the acquired corporation, stock of the acquiring corporation equal, in the aggregate, to a number of shares having a value, as of the date of the exchange, of at least 50 percent of the value of all of the formerly outstanding stock of the acquired corporation as of the same date; (ii) There is no plan or intention on the part of the shareholders of the acquired corporation to sell or otherwise dispose of a number of shares of stock of the acquiring corporation to be received in the transaction that would reduce such shareholders' ownership to a number of shares having, in the aggregate, a value of less than 50 percent of the total fair market value of the acquired corporation's stock outstanding as of the effective date of the proposed transaction; and, (iii) There have not been any significant changes in the stock ownership of the acquired corporation in the last five years that would cause the continuity of interest requirement not to be satisfied.

(g) Acquisition indebtedness - If stock of a corporation is being transferred, submit a REPRESENTATION as follows: Any debt relating to the stock being transferred that is being assumed (or to which such stock is subject) was incurred to acquire such stock and was incurred when such stock was acquired, and each transferor is transferring all of the stock for which the acquisition indebtedness being assumed (or to which such stock is subject) was incurred.

(9) Formation of bank holding companies(a) If the stock of a bank is being transferred to a bank holding company, submit a REPRESENTATION as follows: The transferee will be a bank holding company within the meaning of section 2(a) of the Bank Holding Company Act of 1956.

(b) Submit a REPRESENTATION as follows: An application to form a bank holding company was not filed with the Federal Reserve Board before August 16, 1982. If such an application was filed then submit a REPRESENTATION as follows: The bank holding company was formed no later than the later of (i) the 90th day after the date of the last required approval of any regulatory authority to form such bank holding company, or (ii) January 1, 1983.

(c) Submit a REPRESENTATION as follows: The transferor(s), in the aggregate, who have "acquisition indebtedness" assumed, or receive "securities", or receive other property (as described in section 304(a)), will not have the 50 percent control (as defined in section 304(c) by applying the modified section 318 attribution rules) of the transferee bank holding company.

(d) Submit a REPRESENTATION as follows: The transferor(s) receiving securities qualify as "Qualified Minority Shareholders", as defined in section 304(b)(3)(D)(i) of the Code.

(e) Submit a REPRESENTATION as follows: The bank, the stock of which is being transferred in the transaction to the transferee bank holding company, was an operating company when the acquisition indebtedness being assumed was incurred.

(f) If securities are being issued by the bank holding company, submit a REPRESENTATION as follows: The acquisition of control of the bank, the stock of which is being transferred in the transaction to the bank holding company, as well as the transfer of the bank stock that constitutes control, are transferred pursuant to a single plan.

(b) Liabilities.

(1) Submit a REPRESENTATION as follows: The adjusted basis and the fair market value of the assets to be transferred by the transferor(s) to the transferee will, in each instance, be equal to or exceed the sum of the liabilities to be assumed by the transferee plus any liabilities to which the transferred assets are subject. See section 357(c) of the Code.

(2) Submit a REPRESENTATION as follows: The liabilities of the transferor(s) to be assumed by the transferee were incurred in the ordinary course of business and are associated with the assets to be transferred. If the liabilities to be assumed were not so incurred, state the business reason or purpose for the assumption of these liabilities. See section 357(b) of the Code.

(3) Submit a REPRESENTATION as follows: There is no indebtedness between the transferee and the transferor(s) and there will be no indebtedness created in favor of the transferor(s) as a result of the transaction.

.04 Consideration from the transferee.

1 Stock - Describe the terms of each class and the number of shares of each class to be issued to each transferor for:

(a) Property - See .031 above and identify the property of each transferor.

(b) Services - See .032 above and identify the services. Indicate those transferors who will also receive stock for property.

2 Indebtedness - State the principal amount of indebtedness and its terms to be created in favor of each transferor for:

(a) Property - See .031 above and identify the property of each transferor.

(b) Services - See .032 above and identify the services.

3 Other property in addition to stock and indebtedness - Indicate the amount and provide a complete description of any other property that will be issued to each transferor including, but not limited to:

(a) Cash

(b) Stock rights, warrants, or certificates of contingent interest, with the terms of each.

4 Section 306 stock - If any stock other than common stock will be received in the exchange, explain why it is believed this stock is not "section 306 stock" within the meaning of section 306(c)(3) of the Code.

.05 Control by transferors.

1 Stock of transferee outstanding immediately before transaction.

(a) Furnish a description of the terms and the total number of shares of each class outstanding.

(b) State the total number of shares of each class held by a shareholder who will be a transferor in the exchange.

(c) State the total number of shares of each class held by each shareholder owning five percent o r more of a class and the number of shareholders owning the balance of each class outstanding.

2 Stock of transferee outstanding immediately after transaction.

(a) State the total number of shares of each class.

(b) State the total number and percent of shares of each class held by each transferor.

3 Plan and dates of exchanges.

(a) Submit a REPRESENTATION as follows: The transfers and exchanges will occur under a plan agreed upon before the transaction in which the rights of the parties are defined. See section 1. 351-1(a)(1) of the regulations.

(b) Submit a REPRESENTATION as follows: All exchanges will occur on approximately the same date.

(c) State whether any of the stock issued will be placed in escrow, or whether any of the stock will be issued later under a contingent stock arrangement.

4 Additional stock issues.

(a) State whether any stock will be issued in the near future in addition to that being issued under the plan. If so, give full particulars.

(b) If a public offering is planned, submit the following information:

(1) The total number of shares of each class involved.

(2) If underwriters are involved, explain whether the underwriter will purchase these shares for their own account or will act as agent for the transferee. See Rev. Rul. 78-294, 1978- 2C.B. 141.

(c) If any rights, warrants, or subscriptions of the transferee are outstanding or will be issued or offered, state the total number of shares of each class of stock involved and explain the circumstances in which they were or will be issued or offered.

5 Disposition of stock by transferor(s)

(a) Indicate the number of shares of each class that each transferor will dispose of after the exchange.

(b) State the consideration to be received in exchange for the transferee stock disposed.

(c) Provide the names of the acquiring parties and their relationship to the transferee or shareholder transferor.

(d) State the circumstances and reasons for the disposition, including any agreements between the parties.

(e) If there are, or will be, any options to purchase stock from any of the transferors, give full particulars.

(f) Submit a REPRESENTATION as follows: There is no plan or intention on the part of the transferee to redeem or otherwise reacquire any stock or indebtedness to be issued in the proposed transaction.

(g) Submit a REPRESENTATION as follows: Taking into account any issuance of additional shares of transferee stock; any issuance of stock for services; the exercise of any transferee stock rights, warrants, or subscriptions; a public offering of transferee stock; and the sale, exchange, transfer by gift, or other disposition of any of the stock of the transferee to be received in the exchange, the transferor(s) will be in "control" of the transferee within the meaning of section 368(c) of the Code. See Rev. Rul. 59-259, 1959-2 C. B. 115, and section 1. 351-1 (a)(1) of the regulations.

.06 General.

1 Business reasons or purpose - Explain the business reasons for the transaction.

2 Value for value - Submit a REPRESENTATION as follows: Each transferor will receive stock, securities or other property approximately equal to the fair market value of the property transferred to the transferee or for services rendered or to be rendered for the benefit of the transferee.

3 Activities of transferee - Submit a REPRESENTATION as follows: The transferee will remain in existence and retain and use the property transferred to it in a trade or business.

4 Disposition of property - Submit a REPRESENTATION as follows: There is no plan or intention by the transferee to dispose of the transferred property other than in the normal course of business operations.

5 Related, connected, or step transactions - Describe any loans, sales, exchanges, or other transactions, other than recurring arm's length sales, purchases, etc. in the normal course of business, that will occur or are contemplated whether or not considered as related to or in connection with the exchange.

6 Expenses - Submit a REPRESENTATION as follows: Each of the parties to the transaction will pay its or his/her own expenses, if any, incurred in connection with the proposed transaction.

.07 Special Corporations.

1 Investment Company - Submit a REPRESENTATION as follows: The transferee will not be an investment company within the meaning of section 351(e)(1) of the Code and section 1.351- 1(c)(1)(ii) of the regulations.

2 Small Business Corporation - State whether the transferee intends to make the election under section 1362(a) of the Code to be taxed as a "small business corporation" as defined in section 1361(a).

3 Bankrupt Transferor - Submit a REPRESENTATION as follows: The transferor is not under the jurisdiction of a court in a title II or similar case (within the meaning of section 368(a)(3)(A)) and the stock or securities received in the exchange will not be used to satisfy the indebtedness of such debtor. See section 35 1 (e) of the Code.

4 Personal Service Corporation Submit a REPRESENTATION as follows: The transferee will not be a "personal service corporation" within the meaning of section 269A of the Code.

.08 Copies of documents to be submitted with request.

1 Balance sheets - Latest of transferee or other business involved. If transferee is a new corporation, submit a pro-forma balance sheet.

2 Plan or agreement of exchange If one has been committed to writing.

3 Securities - If it is contended that any part or all of the indebtedness described in 4.042(a) above is "securities" within the meaning of section 351 of the Code submit:

(a) A brief explaining why.

(b) A copy of the note or other evidence of the indebtedness and loan agreement, if any.

However, see section 4.0112 of Rev. Proc. 83-22

.09 Foreign Transferee - If the transfer is to a foreign corporation, see section 367 of the Code and the regulations thereunder and Rev. Proc. 68-23, 1968-1 C.B. 821.

.10 Taxpayer's memorandum - Submit the information required by section 9 of Rev. Proc. 83-1, 1983-1 C.B. 545.

SEC. 5. INQUIRIES

Inquiries in regard to this revenue procedure should refer to its number and should be addressed to the Associate Chief Counsel (Technical), Attention CC:C:R, Internal Revenue Service, Washington, D.C. 20224

SEC. 6. EFFECT ON OTHER DOCUMENTS

Revenue Procedure 81-57, 1981-2 C.B. 674, is superseded.