Rev. Proc. 86-41

             SECTION 355 CHECKLIST QUESTIONNAIRE CONTENTS

The purpose of this revenue procedure is to update Rev. Proc. 81-41, 1981-2 C.B. 605, which sets forth in a checklist questionnaire the information that must be included in a request for a ruling under section 355 of the Internal Revenue Code, relating to the nonrecognition of gain or loss on distribution of stock and securities of controlled corporations.

SEC. 2. BACKGROUND

The Internal Revenue Service receives many requests for rulings in which the information relating to the proposed transaction is not sufficient to permit a determination to be made. In those cases, it is necessary to obtain additional facts from the taxpayer before the request for a letter ruling can be considered. Obtaining these additional facts is time consuming for both Service personnel and taxpayers and delays issuance of the ruling letter.

This checklist will facilitate the filing and processing of requests for rulings under section 355 of the Code by showing specific information and representations to be included so that the requests will be as complete as possible when initially filed. Because the information and representations necessary to rule on a particular transaction depend upon 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 rulings and determination letters are outlined in Rev. Proc. 86-1, 1986-1 C.B. 395. See also Rev. Proc. 86-3, 1986-1 C.B. 416, relating to areas in which advance rulings generally will not be issued. These revenue procedures, along with the present checklist revenue procedure, are subject to periodic updating by the Service. Therefore, careful attention should be given to ensure usage of the most current revenue procedures.

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

SEC. 3. CHANGES

01 Section 1 is modified to indicate that the purpose of the revenue procedure is to update Rev. Proc. 81-41.

02 Section 2 is modified to state that representations are now required, and to update references to revenue procedures cited.

03 Section 4 is substantially altered. The taxpayer must now submit standard representations using the precise language specified herein, or submit an explanation why the representations cannot be made in the requested form. Sections 4.023, 4.024, 4.034, 4.035, 4.036, 4.051, 4.052, 4.055, and 4.06 are modified accordingly. To properly reflect applicable changes, some citations to Code sections and to revenue rulings and procedures have been added or deleted. Changes include:

1. Section 4.012 now requires taxpayers to submit information concerning any prior ruling requests submitted by the taxpayer (or predecessor) that were withdrawn in which the identical or similar issue was present.

2. Section 4.02 now indicates more precisely the information required regarding ownership interests in Distributing and Controlled.

3. Sections 4.031, 4.032, 4.033, 4.034, and 4.035 now deal with the active business issue in greater detail, including a request for separate employee information for different active businesses and a request for the percent of activities performed by independent contractors.

4. Section 4.036 now contains a centralized request for financial information, including pro forma balance sheets and profit and loss statements for each active business of Distributing, Controlled, and Other Corporations.

5. Section 4.04 now indicates more precisely the information required regarding business purpose. Included is a list of revenue rulings showing factual situations in which the Service has found a valid business purpose. It is emphasized that in some instances third part documentation may be essential in substantiating the business purpose.

6. Section 4.056(a) and (b) has been added to request information concerning investment and inactive assets held by Distributing and Controlled following the transaction.

7. Section 4.06 has been added to reference Rev. Proc. 77-37 for a continuity of equity interest representation, if shareholders are disposing of their stock.

8. Section 4.07 requests certain general information and now includes a cross reference to the information and statements required for all ruling requests pursuant to Rev. Proc. 86-1 and requires taxpayers to list the specific rulings being requested and the authorities supporting the rulings.

04 Section 5 is modified to substitute Associate Chief Counsel (Technical) for Assistant Commissioner (Technical) and CC:C:R for T:C:R.

05 Section 6 is modified to state that Rev. Proc. 81-41 is superseded.

SEC. 4. INFORMATION TO BE INCLUDED IN REQUESTS FOR RULINGS UNDER SECTION 355 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. Standard representations are set forth throughout this section and are highlighted by the word `representation` in boldface type. These representations are of equal importance with the other factual information requested herein. The representations function to ensure that specific statutory and judicial requirements and administrative ruling guidelines are satisfied. Each representation set forth in this section should be submitted precisely in the language requested. If a representation cannot be submitted as requested, an explanation must be given. Variations of the language of the representations may 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, with appropriate descriptive headings. Care must be taken to ensure that all the facts relating to the transaction are submitted.

01 Information regarding the distributing corporation (Distributing) and the corporation or corporations whose stock and securities are distributed (Controlled).

1. Identification.-Name, taxpayer identification number, and place and date of incorporation of Distributing and Controlled.

2. Jurisdiction.-Identify the District Office that will have audit jurisdiction over the return of Distributing (referred to below as `taxpayer`) and of Controlled(s). State whether, to the best knowledge of the taxpayer and the taxpayer's representatives, if any, the identical issue is in a return of the taxpayer (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 by a District Director and (a) the statutory period of limitation either on assessment or for filing a claim for refund or credit of tax has not expired, and (b) 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 taxpayer's return for an earlier period, (4) has been considered by an Appeals Office and (a) the statutory period of limitation either on assessment or for filing a claim for refund or credit of tax has not expired and (b) a closing agreement covering the issue or liability has not been entered into by an Appeals Office, or (5) is pending in litigation in a case involving the taxpayer or a related taxpayer. The request must contain a statement whether, to the best knowledge of the taxpayer and the taxpayer's representatives, the identical or a similar issue has been (i) submitted to the Service, but withdrawn before a ruling was issued, or (ii) ruled on by the Service to the taxpayer or the taxpayer's predecessor and, if so, when and with what result. If, after the request is filed but before a ruling is issued, the taxpayer knows that an examination of the issue by a District Director has been started, the taxpayer must notify the National Office of this action. If a return is filed before a ruling is received from the National Office concerning the issue that is the subject of the request for ruling, a copy of the request must be attached to the return. This alerts the District Office and avoids premature District action on the issue.

3. Taxable year.-State the last day of the taxable year of Distributing and Controlled.

02 Ownership of interests in Distributing and Controlled.

1. Stock in Distributing immediately prior to the distribution.- Provide a complete description of each class of Distributing's outstanding stock (throughout this document the word `stock` includes all forms of equity ownership) setting forth the rights and privileges and each class, including voting on nonvoting rights, dividend and liquidation preferences or limitations, and whether classified as common or preferred stock. State the number of shares and the percentage of each class of stock owned by each shareholder of Distributing prior to the distribution. However, if there are more than 25 shareholders, the statement in the preceding sentence may be limited by listing only those shareholders owning 5 percent or more of any class of stock, and then stating the total number of other shareholders together with the total number of shares and percentages which these other shareholders own of each class of stock. List all shareholders owning five percent or more of any class of stock who are foreign persons.

2. Capital Structure of Controlled immediately prior to the distribution.-Furnish a complete description of each class of Controlled's outstanding stock setting forth the rights and privileges of each class, including voting or nonvoting rights, dividend and liquidation preferences or limitations, and whether classified as common or preferred stock. Also describe all other outstanding interest (bonds, debentures, notes, warrants, options, etc.), and briefly explain why each of these items should or should not be considered a stock interest. State the number of shares and the percentage of each class of stock in Controlled owned by Distributing. If there are minority shareholders of Controlled, furnish information with respect to these shareholders similar to the information requested under section 4.021 above.

3. Description of stock, securities, and other property being distributed.

(a) Stock.-State the number of shares of each class of stock in Controlled being distributed. In addition, if preferred stock is distributed and it is contended that this stock is not `section 306 stock,` within the meaning of section 306(c) of the Code, fully explain the reasons for this contention.

(b) Securities.-State the principal amount of each series of securities of controlled being distributed.

(c) Other property.-State the amount and provide full particulars as to any property, other than stock and securities of Controlled, being distributed by Distributing including, but not limited to, cash and stock rights or warrants (see section 1.355-2(a) of the Income Tax Regulations). Submit the following REPRESENTATION: The distributing and controlled corporations and their respective shareholders will each pay their own expenses, if any, incurred in connection with the transaction.

(d) Timing.-State the date of the transaction and whether all the stock, securities, and other property is being distributed on that date. If all the stock, securities, and other property is not distributed on the same date, state the approximate length of the delay and the reasons for the delay in distribution.

4. Ownership of stock and securities immediately after the distribution.

(a) Interests in Controlled held by Distributing.

(1) Retention of stock or securities.-State the number of shares of each class of stock in, or the principal amount of each series of securities of, Controlled held by Distributing subsequent to the distribution, and the length of time Distributing will hold this interest.

(2) Issuance of debt.-State whether Controlled intends to issue debt instruments to Distributing after the distribution. If so, submit copies of the instruments or, if copies are not available, provide full particulars as to the principal amounts, terms, and reasons for the issuance.

(3) Purpose for Distributing holding a stock or security interest in Controlled.-If subsequent to the distribution, Distributing will hold a stock or security interest in Controlled, submit a detailed explanation of the purpose and why this should not be viewed as in pursuance of a plan having as one of its principal purposes the avoidance of federal income tax. See section 1.355-2(d) of the regulations.

(b) Interests in Controlled held by shareholders of Distributing.

(1) Pro rata.-State whether the distribution of Controlled stock is pro rate with respect to all the shareholders of Distributing. If so, fully describe the details of the transaction.

(A) Ownership.-Set forth the number of shares and the percentage of each class of stock outstanding in Distributing and Controlled to be owned by each shareholder immediately after the distribution. If there are more than 25 shareholders, see section 4.021 above for the information to be provided.

(B) Securities.-Identify any shareholders of Distributing receiving securities of Controlled and state the principal amount of each series of securities being received. With respect to each shareholder, state the principal amount of each series of Distributing securities being exchanged therefor, or, if no securities are being exchanged, so state. See section 1.355-2(e)(1) of the regulations.

(2) Non pro rata.-State whether the distribution of Controlled stock is non pro rata with respect to the shareholders of Distributing. If so, fully describe the details of the transaction.

(A) Ownership.-Set forth the number of shares and the percentage of each class of stock outstanding in Distributing and Controlled that each shareholder owns immediately after the distribution. If there are more than 25 shareholders, see section 4.021 above for the information to be furnished.

(B) Values.-Submit the following REPRESENTATION: The fair market value of the controlled corporation stock and other consideration received by each shareholder of the distributing corporation approximately equals the fair market value of the distributing corporation stock surrendered by the shareholder in the exchange.

(C) Securities.-Identify any shareholders of Distributing receiving securities of Controlled, and state the principal amount of each series of securities being received. With respect to each shareholder, state the principal amount of each series of securities of Distributing being surrendered in the transaction, or if no securities are being exchanged, so state. See section 1.355-2(e)(1) of the regulations.

(c) Interests in Controlled held by security holders of Distributing.

(1) Receiving stock.-Identify those security holders receiving Controlled stock, the total number of shares of each class of stock being received, and the principal amount of the securities of Distributing being exchanged. If no securities are being exchanged, so state. If the securities are held by more than 25 security holders, identify only those security holders owning in excess of 5 percent of the outstanding shares of any class of Controlled stock immediately after the distribution.

(2) Receiving securities.-Identify those security holders of Distributing receiving securities of Controlled, the principal amount being received by each holder, and the principal amount of the securities of Distributing being exchanged. See section 1.355-2(e)(1) of the regulations.

(d) Receipt of consideration other than with respect to stock.

(1) Shareholder in dual capacity.-Submit the following REPRESENTATION: No part of the consideration distributed by the distributing corporation is being received by a shareholder as a creditor, employee, or in any capacity other than that of a shareholder of the corporation.

(2) Other transfers.-State whether the shareholders of Distributing transfer or surrender any property in the transaction other than stock or securities of Distributing. If so, provide full details.

03 INFORMATION CONCERNING THE BUSINESS OF DISTRIBUTING AND CONTROLLED.

1. Distributing's businesses.

(a) Description of businesses remaining in Distributing.-Submit a complete description of each business conducted directly by Distributing for each of the past 5 years that will be retained by Distributing. Provide all information necessary to establish that each business described constitutes an active trade or business (Active Business) within the meaning of Rev. Rul. 75-160, 1975-1 C.B. 112. In general, the description should conclusively show that substantial managerial and operational activities have been directly carried on by each business of the corporation during each of the past 5 years. See Rev. Rul. 86-126, 1986-43 I.R.B. 5; Rev. Rul. 86- 125, 1986-43 I.R.B. 4; Rev. Rul. 80-181, 1980-2 C.B. 121, amplifying Rev. Rul. 79-394, 1979-2 C.B. 141; Rev. Rul. 73-237, 1973-1 C.B. 184; Rev. Rul. 73-236, 1973-1 C.B. 183; and Rev. Rul. 73-234, 1973-1 C.B. 180.

(b) Description of businesses being transferred by Distributing to Controlled.-If, as part of the plan, Distributing transfers all the assets of one or more of its Active Businesses or part of the assets of a single Active Business (Rev. Rul. 64-147, 1964-1 (Part 1) C.B. 136) to either a newly formed or preexisting Controlled, identify and submit a complete description of each Active Business or part being transferred. See section 4.031(a) for the information to be submitted as to each Active Business transferred.

2. Controlled's businesses.-If Controlled is a preexisting corporation submit a complete description of each Active Business conducted directly by Controlled during each of the past 5 years. See section 4.031(a) for the information to be submitted as to each Active Business.

3. Employee information.-Submit separate lists for each Active Business listed in section 4.031 and 032, above, showing the job title and number of each category of managerial and operational employees employed in each Active Business for each of the past 5 years. Include a brief description of the type of duties performed by each category of employee during each of these years. Additionally, state whether either Distributing or Controlled utilizes independent contractors. If so, include a brief description of duties they perform, and the percent of the corporation's activities performed by independent contractors. State whether managerial or operational activities of an Active Business are conducted by employees of an affiliated corporation. If so, describe which activities are so conducted. See Rev. Rul. 79-394, amplified by Rev. Rul. 80-181.

4. Indirect conduct of trade or business through ownership of stock in other corporations.-If either Distributing or Controlled is not directly engaged in an Active Business and it is contended that either Distributing or Controlled will be so engaged indirectly through ownership of stock and securities in one or more corporations controlled by it or by a controlled subsidiary immediately after the distribution (Other Corporations) (see Rev. Rul. 74-382, 1974-2 C.B. 120), provide the information and representations requested in sections 4.031, 4.033, 4.035, and 4.036 (treating each Other Corporation as Distributing or Controlled, as appropriate, for this purpose) (see section 355(b)(2)(A) of the Code). In addition, if Distributing or Controlled is not directly engaged in an Active Business, submit the following. REPRESENTATION: Following the transaction, at least 90 percent of the fair market value of the gross assets of the corporation so indirectly engaged /*/ will consist of the stock and securities of controlled corporations that are engaged in the active conduct of a trade or business as defined in section 355(b)(2) of the Code. See Section 3.04 of Rev. Proc. 77-37, 1977-2 C.B. 568, 570.

5. Five-year requirement.-Provide the following information with respect to each Active Business described in sections 4.031, 4.032, and 4.034 above, conducted by Distributing, Controlled, and Other Corporations.

(a) Continuous operation.-State which Active Businesses have been continuously conducted, within the meaning of section 1.355-1(c) of the regulations, by Distributing, Controlled, and Other Corporations, for the 5-year period immediately preceding the date of distribution. Give the date each Active Business was commenced or acquired. If, for any active business, the 5-year period includes any time during which there was no business activity, or a significant amount of time during which there was a substantial reduction in business activity, identify the period of time, the type and amount of business activity during this period, and the reasons for the cessation or reduction in activity. See Rev. Rul. 82-219, 1982-2 C.B. 82.

(b) Stock ownership.-Identify Controlled and Other Corporations whose shares have been continuously held by Distributing or Controlled for the 5-year period immediately preceding the date of distribution.

(c) Active business acquired by Distributing, Controlled, or Other Corporations during the preceding 5-year period.

(1) Identify.-Identify the party from whom the business was acquired and the party's relationship to Distributing or its shareholders.

(2) Date.-State the date the business was acquired and the period of time the business had been previously conducted by Distributing, Controlled, or Other Corporation's predecessor in interest.

(3) Transaction.-Describe the transaction in which the business was acquired: for example, acquired in a reorganization under section 368(a)(1) of the Code, acquired by purchase, etc. If a ruling letter was issued with respect to the transaction, submit a copy.

(4) Consideration.-State the consideration given in the acquisition.

(5) Gain or loss.-State whether gain or loss was recognized, in whole or in part, by any party to the transaction.

(d) Stock of Controlled or Other Corporations acquired by Distributing, Controlled, or Other Corporations during the preceding 5-year period.

(1) Identity.-Identify the party from whom the stock was acquired and that party's relationship to Distributing or its shareholders.

(2) Date and consideration.-State the date the stock was acquired and the consideration given in the acquisition.

(3) Transaction.-Describe the transaction in which the stock was acquired: for example, acquired in a reorganization under section 368(a)(1) of the Code, acquired by purchase, etc. State whether control was acquired as a result of Distributing transferring cash or other liquid or inactive assets to Controlled (see section 4.0120 of Rev. Proc. 86-3). If a ruling letter was issued with respect to the transaction, submit a copy.

(4) Gain or loss.-State whether gain or loss was recognized, in whole or in part, by any party to the transaction.

(e) Changes in ownership.-Provide complete details concerning any changes in ownership of the stock of Distributing, Controlled, and Other Corporations during the 5-year period preceding the distribution, including, but not limited to, acquisitions, redemptions, recapitalizations, stock dividends, and sales. Information regarding sales of stock in which the issuing corporation is not a party need not be provided, if (i) the sale occurs on a recognized stock exchange or in an established market, and (ii) both the purchaser and the seller hold less than five percent of the corporation's stock before and after the sale.

(f) Continued operations.-If the transaction involves the vertical division of a single business (See Commissioner v. Coady, 289 F.2d 490 (6th Cir. 1961), aff'g 33 T.C. 771 (1960)), submit the following REPRESENTATION: Following the transaction, the distributing and controlled corporations will each continue independently and with their separate employees the active conduct of all the integrated activities of the business conducted by the distributing corporation prior to consummation of the transaction. If the transaction involves the separation of two or more active businesses, submit the following REPRESENTATION: Following the transaction, the distributing and controlled corporations will each continue the active conduct of their respective businesses, independently and with their separate employees. Additionally, if, following the transaction, Distributing and Controlled share the services of certain employees identify these employees and specify the services performed and the compensation arrangements.

(g) Change in business.-Describe any substantial change in the type of business activity during the preceding 5-year period such as the adding of new or the dropping of old products, changes in production capacity, extraordinary purchases, replacements or sales of assets, and change of business location (see section 1.355-4(b)(3) of the regulations).

6. Financial statements.

(a) Information as to assets and liabilities associated with the Active Businesses of Distributing and Controlled.-

(1) Balance sheets.-Submit a copy of the most recent balance sheets of Distributing, Controlled, and Other Corporations. State whether any property is being transferred by Distributing to Controlled, whether any transferred property is subject to liabilities, and whether Controlled is assuming any liabilities in the transaction. If property is being transferred from Distributing to Controlled, a pro forma balance sheet should be submitted clearly showing all assets transferred to each Controlled and all liabilities assumed or to which the property transferred is subject. In addition, if Controlled is receiving assets or assuming liabilities, submit the following REPRESENTATIONS: (1) The total adjusted basis and the fair market value of the assets transferred to the controlled corporation by the distributing corporation each equal or exceed the sum of the liabilities assumed by the controlled corporation plus any liabilities to which the transferred assets are subject; and (2) The liabilities assumed in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred. (Alternatively, state why these representations cannot be made.)

(2) Continuing indebtedness.-Submit the following REPRESENTATION: No intercorporate debt will exist between the distributing corporation and the controlled corporation at the time of, or subsequent to, the distribution of the controlled corporation stock. Alternatively, submit a full description of all debts existing between Distributing and Controlled. If any debt exists between Controlled, as debtor, and Distributing, as creditor, state whether such debt arose in connection with a transfer of assets by Distributing to Controlled and whether the debt resulted from Controlled's assumption of an intradivisional obligation owing from one division of Distributing to another division of Distributing. In addition, if Controlled will be indebted to Distributing subsequent to the distribution of Controlled stock, submit the following REPRESENTATION: The indebtedness owed by the controlled corporation to the distributing corporation subsequent to the distribution of the controlled corporation stock will not constitute stock or securities within the meaning of section 355 of the Code.

(3) Section 38 property. State whether any assets being transferred between Distributing and Controlled include property for which an investment tax credit was taken in prior years. If so, submit the following REPRESENTATION: The investment tax credit previously computed with respect to the section 38 property transferred will be adjusted in the year of transfer to reflect an early disposition of the property pursuant to section 47(a)(1) and (5) of the Code.

(4) Investment company.-If assets are transferred by Distributing to Controlled, or liabilities owed by Controlled to Distributing are cancelled, submit the following REPRESENTATION: No two parties to the transaction are investment companies as defined in section 368(a)(2)(F)(iii) and (iv) of the Code.

(5) Consideration received by Distributing.-Set forth all consideration received by Distributing in connection with the transaction.

(b) Profit and loss statements.-Submit separate unconsolidated profit and loss statements (including all applicable notes) for each of the past 5 years for each Active Business (sections 4.031, 4.032, and 4.034 above) relied on to satisfy the active trade or business requirement of section 355(b) of the Code for Distributing and each Controlled. The statements must show that each business has had gross receipts and operating expenses (including employee expenses such as payroll withholding taxes) representative of the active conduct of a trade or business for each of the past 5 years. Submit the following REPRESENTATION: The 5 years of financial information submitted on behalf of the distributing, controlled, and other corporations is representative of each corporation's present operations, and, with regard to each corporation, there have been no substantial operational changes since the date of the last financial statements submitted.

(c) Method of accounting.-State the overall method of accounting of Distribution and each Controlled. If Distributing is on the cash method of accounting or a similar method and Controlled is also on the cash method or similar method, or it is represented that Controlled will be on this method, then submit a statement as to whether any income items such as accounts receivable, or any items resulting from a sale, exchange or disposition which would have resulted in income to Distributing, or any items of expense, will be transferred to Controlled. If any of these items are being transferred, fully explain. Further, submit the following REPRESENTATION: The distributing corporation neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction. If Distributing is on the cash method of accounting or similar method and Controlled is on the accrual method or similar method, a closing agreement will be required unless the following REPRESENTATION is submitted: No income items, including accounts receivable or any items resulting from a sale, exchange or disposition or property, that would have resulted in income to the distributing corporation, and no items of expense, will be transferred to the controlled corporation, if the distributing corporation has earned the right to receive the income or could claim a deduction for the expense under the accrual or similar method of accounting.

04. Business purpose.

1. Detailed Description.-Describe in detail the business purpose for the distribution of the stock of Controlled.

2. Relevance of business purpose.-Explain how the business purpose is germane to the businesses of the corporations (see section 1.355-2(c) of the regulations). Also, see, generally, Rev. Rul. 85- 127, 1985-2 C.B. 119; Rev. Rul. 85-122, 1985-2 C.B. 118; Rev. Rul. 82- 131, 1982-2 C.B. 83; Rev. Rul. 82-130, 1982-2 C.B. 83; Rev. Rul. 78- 383, 1978-2 C.B. 142; Rev. Rul. 77-22, 1977-1 C.B. 91; Rev. Rul. 76- 527, 1976-2 C.B. 103; Rev. Rul. 76-187, 1976-1 C.B. 97; Rev. Rul. 75- 337, 1975-2 C.B. 124; Rev. Rul. 72-530, 1972-2 C.B. 212; Rev. Rul. 70- 18, 1970-1 C.B. 74; Rev. Rul. 69-460, 1969-2 C.B. 51; Rev. Rul. 68- 603, 1968-2 C.B. 148; and Rev. Rul. 56-450, 1956-2 C.B. 201.

3. Need for present transaction.-Explain why other feasible ways of meeting the corporation's business needs were rejected in favor of the present transaction.

4. Third party documentation.-If the transaction is being undertaken at the request of, or under the advice of, persons other than Controlled or Distributing, explain fully.

Documentation of third party requests or advice may be essential to substantiate the business purpose for the distribution. (Illustrations of business purposes for which third party documentation would be requested are suggested by the facts of Rev. Ruls. 85-122, 82-131, 82-130, 77-22, 76-527, 75-337, and 69-460 (Situation 2).

05. Information relating to whether the transaction will be considered to be used principally as a device for the distribution of earnings and profits of Distributing, Controlled, or both.

1. Liquidation or sale of assets.-Submit the following REPRESENTATION: There is no plan or intention to liquidate either the distributing or controlled corporation, to merge either corporation with any other corporation, or to sell or otherwise dispose of the assets of either corporation subsequent to the transaction, except in the ordinary course of business. Alternatively, describe the subsequent transaction.

2. Disposition of stock or securities.-Submit the following REPRESENTATION: There is no plan or intention by the shareholders or security holders of the distributing corporation to sell, exchange, transfer by gift, or otherwise dispose of any of their stock in, or securities of, either the distributing or controlled corporation subsequent to the transaction. Alternatively, if a plan or intent to dispose exists, see section 1.355-2(b)(1) of the regulations as to what constitutes evidence of a device and provide the following information:

(a) Transaction.-Give complete details concerning the transaction, including any agreements existing between the parties and the number of shares of each class of stock or the amount of each series of securities that each shareholder or security holder will dispose of. If the disposition results from governmental action, explain fully how this action necessitates the shareholder disposition. See Rev. Ruls. 83-23, 1983-1 C.B. 82, and 78-383.

(b) Consideration.-State the consideration to be received by each shareholder and security holder.

3. Earnings and profits.-State whether either Distributing or Controlled will have any earnings and profits, within the meaning of section 316 of the Code, on the date of the distribution or at the close of their respective taxable years. This information aids the Service in determining whether the transaction is being used principally as a device for the distribution of earnings and profits. See Rev. Rul. 71-384, 1971-2 C.B. 181.

4. Non pro rata distribution.-State whether all or any part of the distribution, if considered taxable, would qualify as an exchange under section 302(a) of the Code (see Rev. Rul. 71-383, 1971-2 C.B. 180, and Rev. Rul. 64-102, 1964-1 (Part 1) C.B. 136).

5. Transfers between Distributing and Controlled.

(a) Contributions to capital.-Provide complete details concerning any contributions of property made by Distributing to the capital of Controlled as part of the transaction.

(b) Cancellation of indebtedness.-With respect to any indebtedness between Distributing and Controlled, give complete details concerning the principal amount of the indebtedness, the circumstances under which it arose, and the date and method under which the indebtedness will be discharged. See Rev. Rul. 83-114, 1983- 2 C.B. 66.

(c) Continuing transactions between Distributing and Controlled.-Describe in detail any continuing transactions between Distributing and Controlled following the distribution. In addition, submit the following REPRESENTATION: Payments made in connection with all continuing transactions between the distributing and controlled corporations will be for fair market value based on terms and conditions arrived at by the parties bargaining at arm's length.

(d) Distribution to Distributing.-Provide complete details concerning any distributions of property by Controlled to Distributing in connection with the transaction.

6. Investment and inactive assets.

(2) Distributing.-State the total amount of investment assets, and other assets that are not used in an active business, that will be held by Distributing or by any of its subsidiaries. Explain the reason why Distributing or its subsidiaries will hold these assets.

(b) Controlled.-State the total amount of investment assets, and other assets that are not used in an active business, that will be held by Controlled or by any of its subsidiaries. Explain the reason why Controlled or its subsidiaries will hold these assets.

06 Continuity of shareholder interest.-If any shareholder plans to dispose of stock in Distributing or Controlled, submit a representation that the shareholder disposition will not violate the requirement of a 50 percent in value continuing interest in stock ownership as specified in section 3.02 of Rev. Proc. 77-37. See section 1.355-2(c) of the regulations.

07 General

1. Other transactions.-State whether there have been, or will be any related transactions, and, if so, briefly describe these other transactions and fully explain their relationship to, and impact on, the present transaction. Even if the transaction is thought to be unrelated, provide full details if it is contemplated that any stock is to be issued by Distributing or Controlled other than that already described as being distributed pursuant to the plan. Include a description of the stock of Distributing or Controlled being issued pursuant to a public offering or pursuant to the exercise of stock rights or warrants. See section 9.05 of Rev. Proc. 86-1.

2. Copy of plan.-Submit a copy of the plan of reorganization or distribution. Alternatively, state why a copy is not available.

3. Foreign corporation.-State whether either Distributing or Controlled is a foreign corporation. See section 367 of the Code.

4. Additional statements.-See Rev. Proc. 86-1 for additional information and statements that must be submitted with all ruling requests, including statements required under section 9.02 and 9.09 (relating to instructions to taxpayers).

5. Requested rulings.-List the rulings being requested in the exact wording desired, and provide statutory, regulatory, or other authority for their issuance.

6. Taxpayer's memorandum.-Submit the information required by section 9.08 of Rev. Proc. 86-1 (relating to relevant authorities regarding the tax results of the transaction).

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

Rev. Proc. 81-41 is superseded.