Rev. Proc. 78-33

SECTION 368(a)(1)(E)

CHECKLIST QUESTIONNAIRE

CONTENTS

1 PURPOSE.

The purpose of this Revenue Procedure is to set forth in a convenient checklist questionnaire the information necessary to be included in a request for a ruling relating to the recapitalization of a corporation under section 368(a)(1)(E) of the Internal Revenue Code of 1954.

Sec. 2. Background

The Internal Revenue Service receives many requests for rulings in which the information furnished as to the proposed transaction is not complete enough to permit a determination to be made. In such cases it is necessary to secure 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 368(a)(1)(E) of the Code by showing specific information that 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. Pursuant to Rev. Proc. 76-29, 1976-2 C.B. 646, such additional information normally will be requested within 15 work days after the original ruling has been received in the Branch having jurisdiction over the case. Nevertheless, careful use of the checklist should avoid much needless delay and permit the issuance of rulings in the most expeditious fashion possible.

The authority and general procedures of the National Office of the 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 Rev. Proc. 72-3, 1972-1 C.B. 698. See also Rev. Proc. 72-9, 1972-1 C.B. 718, 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. In addition, there must accompany the requests for ruling the penalties of perjury declaration signed by the person or persons on whose behalf the request is made in the form set forth in section 601.201(e)(1) of the Statement of Procedural Rules (26 CFR section 601.201 (1977)) and a statement pertaining to the procedures under section 6110 of the Code as described in section 601.201(e)(5) of the Statement of Procedural Rules.

Sec. 3. Information to be Included In Requests for Rulings Under Section 368(a)(1)(E) of the Code.

Each of the items included in this section should be specifically dealt with in the application even though apparent nonapplicability exists. Presentation of the information required should follow the format of this Revenue Procedure as closely as possible with the appropriate descriptive headings. If an item is not applicable, the letters "N.A." may be inserted after that section or subsection to so indicate.

.01 Information regarding the corporation (the Corporation) involved in the recapitalization.

1 Idenification. -- Name, taxpayer identification number, place, and date of incorporation of the Corporation.

2 Taxable year. -- State the last day of the taxable year of the Corporation.

3 Jurisdiction. -- The location of the District Office that will have audit jurisdiction over the return of the Corporation and a statement whether, to the best knowledge of the taxpayer or the taxpayer's representative, the identical issue is being considered by any field office of the Service in connection with an active examination or audit of a tax return already filed or is being considered by a branch office of the Appellate Division. See section 3.01 of Rev. Proc. 72-3.

4 Business. -- Describe the business of the Corporation.

.02 Description and ownership of stock and securities.

1 Description of outstanding stock immediately before the recapitalization.

(a) Classes of Stock--Furnish a complete description of each class of stock outstanding of the Corporation before the recapitalization, setting forth the rights and privileges of each

(1) Par or stated values.

(2) Voting rights. class as follows:

(3) Liquidation rights--State the amount per share and preferences of each class of stock upon liquidation.

(4) Dividend rights (including any rights to receive stock).

(A) State the terms, preferences and amount of the dividend distribution.

(B) State whether the stock is cumulative or noncumulative.

(C) Does the stock have a right to participate with other classes of stock? If so, explain.

(D) State whether there are any dividends in arrears.

(E) State the cash and stock dividend history of each class of stock for the past 5 years.

(5) Conversion rights.

(A) Is the stock convertible? If so, when?

(B) State the class of stock or securities into which the stock is convertible.

(C) State the rate of conversion or conversion price and whether the rate or price may change.

(D) Will there be oustanding at the time of the recapitalization any stock options, warrants, convertible securities, or any other right that is convertible into any class of stock or securities of the Corporation? If so, explain.

(6) Redemption rights.

(A) Is the stock, by its terms, redeemable or callable by the Corporation? If so, when and how will the stock be redeemed?

(B) State the amount per share of stock to be received upon redemption. Does this amount exceed 110 percent of the issue price of the stock? See section 1.305(b) of the Income Tax Regulations.

(C) Do the shareholders have a right ("put") to have the stock redeemed by the Corporation? If so, state the terms and conditions.

(D) Does the Corporation have any plan or intention to redeem or otherwise acquire any of the shares of the stock? If so, explain.

(E) Have there been any prior redemptions or acquisitions of the stock during the last 5 years (including any open market purchases)? If so, explain in full.

(7) Section 306 stock.--State whether any of the stock outstanding is "section 306 stock" within the meaning of section 306(c) and identify that stock.

(8) Other terms--State any other terms or features of each class of stock.

2 Ownership of outstanding stock immediately before the recapitalization.--Set forth the number of shares and the percentage of each class of stock outstanding owned by each shareholder, and the relationship between each shareholder, of the Corporation. However, if there are more than 25 shareholders, the number and percentage of shares owned by each shareholder may be limited to those shareholders owning in excess of 5 percent of the outstanding shares of each class and the total number of shareholders owning the balance of each class.

3 Description of outstanding securities immediately before the recapitalization--Furnish a complete description of each type of security outstanding of the Corporation that will be surrendered or exchanged in the recapitalization setting forth the principal amount, the rights, and privileges of each type.

(a) Interest arrearages--State whether there are any interest arrearages on the outstanding securities to be surrendered or exchanged. If so, explain.

4 Ownership of outstanding securities immediately before the recapitalization.--Set forth the number of securities and the percentage of each type of security outstanding to be surrendered or exchanged owned by each security holder of the Corporation. However, if the securities are held by more than 25 security holders, the number and percentage of securities owned by each security holder may be limited to those security holders owning in excess of 5 percent of the outstanding securities of each type and the total number of security holders owning the balance of each type.

5 Description of stock to be issued in the recapitalization.--Furnish a complete description of each class of stock of the Corporation to be issued in the recapitalization, setting forth the rights and privileges of each class. See 3.021(a)(1) through (8) above for the information to be furnished.

6 Ownership of stock immediately after the recapitalization.--Set forth the number of shares and the percentage of each class of stock outstanding owned by each shareholder, and the relationship between each shareholder of the Corporation. If the stock is held by more than 25 shareholders, the number and percentage of shares owned by each shareholder may be limited to those shareholders owning in excess of 5 percent of the outstanding shares of each class and the total number of shareholders owning the balance of each class.

7 Description of securities to be issued in the recapitalization.--Furnish a complete description of each type of security to be issued in the recapitalization, setting forth the principal amount, the rights and the privileges of each type.

8 Ownership of securities immediately after the recapitalization.--Set forth the number of securities and the percentage of each type of security to be issued in the recapitalization to each security holder of the Corporation. However, if the type of security is held by more than 25 security holders, the number and percentage of securities owned by each security holder may be limited to those security holders owning in excess of 5 percent of the outstanding securities of each type and the total number of security holders owning the balance of each type.

.03 Information as to the plan of recapitalization.

1 Plan--Furnish the plan or agreement of exchange if reduced to writing (including any amendment to the articles of incorporation of the Corporation).

2 Exchange of stock and securities.

(a) Date of exchange--When will the exchange take effect?

(b) Exchanging shareholders--Identify those shareholders and security holders who will exchange their stock or securities.

(c) Exchange--Set forth the stock or securities to be issued and the stock or securities to be surrendered in exchange therefor.

(1) Will any stock or security be issued for dividend or interest arrearages? If so, explain. See section 1.305-7(c) of the Income Tax Regulations.

(d) Values--Furnish a statement that the fair market value of the stock to be received by each exchanging shareholder will be equal to the fair market value of the stock surrendered in exchange therefor. If values will not be equal, provide a full explanation. (See section 356(f) of the Code.)

(e) Principal amount--State the principal amount of the securities to be issued and the principal amount of the securities to be exchanged therefor. (See sections 354(a)(2)(A) and 356(d)(2)(B) of the Code.)

(f) Disposition--State whether the shareholders or security holders have any plan or intention to dispose of any of the stock or securities to be received by them in the exchange. If so, explain.

(g) Conversion--If convertible preferred stock is to be received see Section 4 of Rev. Proc. 77-37, 1977-2 C.B. 568, for information to be furnished.

(h) Fractional shares--State how fractional shares, if any, will be treated in the exchange. (See Rev. Proc. 77-41, 1977-2 C.B. 574.)

(i) Other property--State whether any property other than stock or securities of the Corporation will be involved in the recapitalization.

(j) Related steps or transactions--Describe any other transactions that will occur or are contemplated, whether or not considered as related to or in connection with the recapitalization. State whether the recapitalization is one step in a two or more step transaction. If so, explain all steps in the transaction or plan.

(k) Other effects of the recapitalization--State whether the recapitalization will have any effect upon the conversion rights or other privileges of any stock, stock rights, or security of the Corporation (whether or not involved in the recapitalization). If so, explain in detail. See section 305(c) of the Code and 1.305-7(c) of the Income Tax Regulations.

.04 Business Purpose.--Describe in detail the corporate business purpose or purposes for the recapitalization of the Corporation.

.05 General.

1 Continued operation--Furnish a statement that the Corporation will continue to conduct its business operations after the recapitalization.

2 Expenses--Furnish a statement that the Corporation and its shareholders and security holders will each pay their own expenses, if any, incurred in connection with the recapitalization.

3 Balance sheet--Furnish the most recent year end balance sheet and profit and loss statement of the Corporation.

Sec. 4. 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.