Rev. Proc. 81-57

SECTION 351

CHECKLIST QUESTIONNAIRE

CONTENTS

SECTION 1. PURPOSE

SECTION 2. BACKGROUND

SECTION 3. CHANGES

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

.01 Information regarding transferee corporation

1 Identification

2 Business

3 Jurisdiction

.02 Information regarding the transferors

1 Identification

2 Method of accounting

3 Business

.03 Transfer to corporation

1 Property

2 Services and indebtedness

3 Assets and Liabilities

(a) Assets

(1) Unreported Income

(2) Partners and Partnerships

(3) Patents or patent applications

(4) Trademarks or trade names

(5) Technical "know-how"

(6) Stock of another corporation

(7) Other information

(a) Retained rights

(b) Licenses, leases, etc.

(c) Leaseback

(b) Liabilities

(1) Amount

(2) Manner in which incurred. Business purpose for assumption

(3) Indebtedness between transferee and transferor

(4) Stock of another corporation subject to liabilities

(5) Reserve for bad debts

.04 Consideration from the transferee

1 Stock

(a) Property

(b) Services

2 Indebtedness

(a) Property

(b) Services

3 Other property

(a) Cash

(b) Stock rights, warrants, or certificates of contingent interest

4 Consideration substantially in proportion to interest transferred

.05 Control by transferors

1 Stock outstanding immediately before transaction

(a) Description of terms

(b) Total number held by transferors

(c) Total number held by large shareholders

2 Stock outstanding immediately after transaction

(a) Total number outstanding

(b) Total number and percent of each class held by each transferor

(3) Plan and date of exchanges

(a) Plan

(b) Date or dates of exchanges

(c) Escrowed or contingent stock

4 Additional stock issues

(a) Details

(b) Public offering

(1) Total number of shares involved

(2) Underwriters involved

(c) Stock rights, warrants, or subscriptions

(1) Total number of shares of each class of stock involved

(2) Details

5 Disposition of stock by transferors

(a) Number of each class

(b) Consideration

(c) Identity of acquiring parties and relationship to transferors

(d) Reasons for disposition

(e) Options

.06 General

1 Business purpose for transaction

2 Activities of transferee

3 Disposition of property

4 Related, connected, or step transactions

5 Representations

(a) Fair market value of stock and assets

(b) No liquidation of transferee

(c) Payment of expenses

.07 Special corporations

1 Investment Company

2 Small Business Corporation

3 Bankrupt Transferor

.08 Copies of documents to be submitted with request

1 Balance sheets

2 Plan or agreement of exchange

3 Securities

(a) A brief

(b) A copy

.09 Foreign transferee

.10 Taxpayer's memorandum

SECTION 5. INQUIRIES

SECTION 6. EFFECT ON OTHER DOCUMENTS

Section 1. Purpose

The purpose of this revenue procedure is to update Revenue Procedure 73-10, 1973-1 C.B. 760 which sets forth in a convenient 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 complete enough to permit a determination to be made. In such cases, it is necessary to get additional facts from the taxpayer before the ruling request 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 of requests for rulings under section 351 of the Code by showing specific information which should be included so that the application will be as complete as possible when originally filed. However, since the information necessary to rule on a particular transaction depends upon all the facts and circumstances of that case, information in addition to that suggested in this revenue procedure may be required. Nevertheless, careful use of the checklist should avoid much needless delay and permit rulings to be issued sooner.

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 advance rulings and determination letters are outlined in Revenue Procedure 80-20, 1980-1 C.B. 633, as amended by Rev. Proc. 81-33, page 564, this Bulletin. See also Rev. Proc. 81-10, 1981-1 C.B. 647, relating to areas in which advance rulings generally will not be issued.

Careful attention to all the requirements of these revenue procedures will also serve to minimize needless delays in processing requests for rulings.

Sec. 3. Changes

.01 Section 1 has been changed to indicate that the purpose of the revenue procedure is to update Rev. Proc. 73-10.

.02 Section 2 has been modified by substituting Rev. Proc. 80-20, as amended by Rev. Proc. 81-33, for Rev. Proc. 72-3, which has been superseded. A reference to the Rev. Proc. 81-10 "no-rule" areas has been added.

.03 Section 4 has been substantially altered.

1 The taxpayer must now state the reason why a checklist item is considered inapplicable to the transaction.

2 Section 4.012 has been modified by adding a request for the transferee's method and period of accounting.

3 Section 4.013 has been modified by substituting the language contained in section 9.06 of Rev. Proc. 80-20 for the language from section 3.01 of Rev. Proc. 72-3, which has been superseded.

4 Section 4.02 is a new section, which requests information regarding the transferors.

5 Section 4.03 is a rearranged version of previously asked questions, which have, in some instances, been considerably shortened and simplified, concerning the nature of the assets transferred, and the nature and amount of the liabilities assumed.

6 Section 4.04 is simply a restatement of the old section 3.04 of Rev. Proc. 73-10 with minor changes.

7 Section 4.05 substantially restates old section 3.05 of Rev. Proc. 73-10 with one addition and two deletions. The addition concerns any planned contingent or escrow stock arrangements. The deletions were made because old sections 3.052(a)(1), (2), and (3) and 3.052(b)(1), (2), and (3) ask for information requested elsewhere in the revenue procedure.

8 Section 4.065 is a new section, which requests certain factual representations required in all requests for rulings under section 351 of the Code.

9 Section 4.071 is a new section, which asks the taxpayer to represent that the transfer is not to an investment company as defined in section 1.351-1(c) of the regulations.

10 Section 4.073 is a new section, which requests a representation that section 351(e)(2) of the Code is not applicable to the transaction.

11 Section 4.10 is a new section, which has been added to inform the taxpayers that they must comply with section 9.08 of Rev. Proc. 80-20.

Sec. 4. Information to be Included in Requests for Rulings Under Section 351 of the Code

Each of the items included in this Section should be specifically dealt with in the application even though some may not appear to be applicable. Presentation of the information should follow the format of this revenue procedure as closely as possible. If an item is not applicable, say so and briefly explain why it is not applicable.

.01 Information regarding transferee corporation.

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

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

3 Identify the District Office that will have audit jurisdiction over the return of the transferee corporation and the known transferors (the taxpayers), and state whether to the best of the knowledge of the taxpayers and the taxpayers' representative(s), if any, 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 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.

If the request deals with only one step of a larger integrated transaction, the facts, circumstances, etc., relating to the entire transaction must be submitted.

.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--Describe fully all types and categories of property, tangible and intangible, to be transferred to the corporation by each transferor and identify specifically each transferor.

2 Services and Indebtedness--Represent that no services are to be performed by any transferor for or on behalf of the corporate transferee in connection with the transaction. Represent that no indebtedness of the transferee which is not evidenced by a security and no interest on indebtedness of the transferee which accrued on or after the beginning of the transferor's holding period for the debt will be transferred to the transferee by the transferor as part of the transaction. If such representations cannot be made, explain fully. See section 351(d) of the Code.

3 Assets and Liabilities.

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

(1) Unreported Income--Indicate whether income items, such as accounts receivable or commissions due, are being transferred to the transferee. If so, and the transferor of these items uses the cash method of accounting, represent that the transferor neither accumulated receivables nor made extraordinary payment of payables in anticipation of the transaction.

(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--Represent that they qualify as "property" within the meaning of Revenue Ruling 64-56, 1964-1 C.B. (Part I) 133.

(4) Trademarks or trade names--Represent that the transferor will not retain any significant power, right, or continuing interest, within the meaning of section 1253(b) of the Code, in any trade-marks or trade names transferred to the transferee.

(5) For information and statements required to be included in an application involving an agreement that purports to furnish technical "know-how" in exchange for stock in a transfer within the meaning of section 351 of the Code, see Revenue Procedure 69-19, 1969-2 C.B. 301.

(6) Stock of another corporation--If stock of another corporation is part or all of the property transferred, state what percentage of this stock and stock of the corporate transferee is owned actually and constructively by the transferor. See section 304 of the Code.

(7) Other information on transfer.

(a) Retained rights--State what rights, if any, the transferors will retain in the property transferred.

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

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

(b) Liabilities.

(1) State whether the amount of the liabilities that will be assumed by the corporate transferee or to which the property transferred will be subject exceeds the adjusted basis of the property transferred.

(2) State whether the liabilities to be assumed by the corporate transferee were incurred in the ordinary course of the transferor's business. If the liabilities to be assumed were not so incurred, state the business reason or purpose for the assumption of these liabilities.

(3) Indicate whether there is any indebtedness between the transferee and transferors. Explain how and when this indebtedness was created and how it will be discharged.

(4) Stock of another corporation--If stock of another corporation is part or all of the property transferred to the transferee, state whether the stock is being taken by the corporate transferee subject to any liabilities.

(5) Reserve for bad debts--State the amount of any reserve for bad debts attributable to accounts or other receivables being transferred. See Rev. Rul. 78-280, 1978-2 C.B. 139.

.04 Consideration from the transferee.

1 Stock--A description of 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, if any. 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 Consideration substantially in proportion to interest transferred--Will each transferor receive stock, securities, or other property substantially in proportion to the transferor's interest in the property transferred to the corporation or services to be rendered for the benefit of the corporation? If not, give a full explanation.

.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) Indicate the total number of shares of each class held by each shareholder owning five percent or 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) Indicate the total number of shares of each class.

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

3 Plan and dates of exchanges.

(a) Will the transfers and exchanges 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) If all exchanges will not occur on approximately the same date, give a full explanation.

(c) Will any of the stock issued be placed in escrow, or will any of the stock be issued later under a contingent stock arrangement? If so, give a full explanation.

4 Additional stock issues.

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

(b) If a public offering is planned.

(1) Indicate 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 corporation.

(c) Stock rights, warrants, or subscriptions.

(1) If any of the rights, warrants, or subscriptions of the corporate transferee are outstanding or will be issued or offered in the near future, give the total number of shares of each class of stock involved.

(2) Explain the circumstances in which they were or will be issued or offered.

5 Disposition of stock by transferors.

(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.

(c) Provide the names of the acquiring parties and their relationship to the corporate 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.

.06 General.

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

2 Activities of transferee--Will it remain in existence and retain and use the property transferred to it in an active trade or business?

3 Disposition of property--Identify any of the transferred property that the transferee plans or intends to dispose of other than through normal business operations, and give full particulars concerning the proposed disposition.

4 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. See, for example, the type of transactions described in section 3.0120 of Rev. Proc. 81-10.

5 Make the following representations, or explain fully an inability to do so:

(a) The fair market value of the transferee corporation's stock to be issued to each transferor will be equal to the fair market value of the assets transferred to the transferee by that transferor.

(b) The transferors have no plan or intention to liquidate the transferee.

(c) Each of the parties to the transaction will pay its own expenses, if any, arising out of the transaction.

.07 Special corporations.

1 Investment Company--Represent that the transfer of property will not be to an investment company within the meaning of section 1.351-1(c) of the regulations.

2 Small Business Corporation--Does the transferee intend to make the election under section 1372(a) of the Code to be taxed as a "small business corporation" as defined in section 1371 of the Code?

3 Bankrupt Transferor--Represent that the transferor is not under the jurisdiction of a court in a title 11 or similar case (within the meaning of section 368(a)(3)(A)) or that the stock or securities received in the exchange will not be used to satisfy the indebtedness of such debtor. See section 351(e) of the Code.

.08 Copies of documents to be submitted with request.

1 Balance sheets--Latest of transferee corporation or other business involved.

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 .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 4.019 of Rev. Proc. 81-10.

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

.10 Taxpayer's memorandum--Submit the information required by section 9.08 of Rev. Proc. 80-20, 1980-1 C.B. 633, 639.

Sec. 5. Inquiries

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

Sec. 6. Effect on Other Documents

Revenue Procedure 73-10, 1973-1 C.B. 760, is superseded.