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Internal Revenue Service Department of the Treasury
Index Number: 0355.00-00, 0368.00-00 Washington, DC 20224
James R. Burke, Vice President Person to Contact:
Ceridian Corporation Kevin Shea, ID# 50-06578
3311 East Old Shakopee Road Telephone Number:
Minneapolis, MN 55425-1640 202-622-7550
Refer Reply To:
CC:CORP:B05 - PLR 113953-00
Date:
November 7, 2000
Distributing = Ceridian Corporation (to be renamed Arbitron
Corporation)
EIN: 52-0278528
a Delaware corporation
Controlled = Newco, Inc. (to be renamed Ceridian Corporation)
EIN: applied for
a Delaware Corporation
State X = Delaware
Date A = March 31, 2000
Business R = the human resource management products and
services business
Business S = provides services to trucking companies,
truck stops and truck drivers in the long haul
segment and the local fleet segment of the
trucking industry
Business T = provides radio audience measurement information
Business R1 = Ceridian Employer Services Payroll Service
Business R2 = Ceridian Performance Partners
V = 144,877,668
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Dear Mr. Burke:
This is in response to a letter dated July 17, 2000, in which rulings
were requested as to the federal income tax consequences of a proposed
transaction. Additional information was submitted in letters dated September 8
and 14, and October 13, 2000. The facts submitted for consideration are
substantially as set forth below.
Distributing is a State X corporation which is engaged in three
separate business lines: Business R, Business S, and Business T. Distributing
directly operates Business T and Business R1 and Business R2 of Business R. As
of Date A, Distributing has outstanding V shares of voting common stock, which
is publicly traded
Financial information has been submitted which indicates that each of
Business R1 and R2 of Business R, and Business T has had group receipts and
operating expenses representative of the active conduct of a trade or business
for each of the past five years.
According to taxpayer's submission, along with supporting
documentation, the separation of Business T from Business R would positively
affect the operations of each business, which are disparate on several levels.
Distributing has experienced significant management and systemic problems by
operating Business R and Business T in the same affiliated group. Once the
businesses are separated Distributing and Newco will each be able to focus on
its respective problems without the competing interests and concerns of the
other business.
After the transaction, no continuing relationship will exist between
Distributing and Controlled such as common directors, officers, or key
employees, the provision of goods or services by one to the other company, or
commonly-owned property except that certain transitional services will be
provided. This will involve services such as payroll and tax filing services and
will be for a period of from 12 to 24 months.
To accomplish the separation of Business T from Business R,
Distributing proposes the following transaction:
(i) Distributing will transfer to Controlled, a newly created
State X corporation, all the assets and liabilities of
Business R and Business S solely in exchange for voting
common stock (which will be the only stock of Controlled
outstanding).
(ii) Distributing will distribute the Controlled stock, pro rata,
to its shareholders.
In connection with the transaction, it has been represented that:
(a) Distributing and Controlled and their respective
shareholders will each pay their own expenses, if any,
incurred in connection with the transaction.
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(b) No part of the consideration distributed by Distributing is
being received by a shareholder as a creditor, employee or
in any capacity other than that of a shareholder of the
corporation.
(c) Following the transaction, Distributing and Controlled will
each continue the active conduct of its business,
independently and with its separate employees.
(d) The distribution of the stock of Controlled is carried out
for the following corporation business purpose: to enhance
the success of Business R and Business T by enabling
Distributing to resolve management, systemic and other
problems that arise (or are exacerbated) by Distributing's
operation of distinct businesses within a single corporation
or affiliated group. The distribution of the stock of
Controlled is motivated in whole or substantial part by this
corporate business purpose.
(e) Neither Distributing nor Controlled will elect to be treated
as an S corporation under Section 1361 of the Internal
Revenue Code for federal income tax purposes.
(f) The total adjusted basis and the fair market value of the
assets transferred to Controlled by Distributing each equals
or exceeds the sum of the liabilities assumed (as determined
under Section 357(d)) by Controlled.
(g) The liabilities assumed (as determined under Section 357(d))
in the transaction were incurred in the ordinary course of
business and are associated with the assets being
transferred.
(h) No intercorporate debt will exist between Distributing and
Controlled at the time of, or subsequent to, the
distribution of the Controlled stock.
(i) No two parties to the transaction are investment companies
as defined in Section 368(a)(2)(F)(iii) and (iv).
(j) The 5 years of financial information submitted on behalf of
Distributing's Businesses R1 and R2 of Business R, and
Business T is representative of its present operations and,
with regard to such corporation, there have been no
substantial operational changes since the date of the last
financial statement submitted.
(k) There is no plan or intention to liquidate either
Distributing on Controlled, 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.
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(l) Only four shareholders hold 5 percent or more of
Distributing stock. These four are investment funds that
hold their shares on behalf of other investors, no one of
which individually holds an interest in the investment fund
which represents a 5 percent or more interest in
Distributing. There is no plan or intention by any
shareholder who owns 5 percent or more of the stock of
Distributing to sell, exchange, transfer by gift, or
otherwise dispose of any stock in, or securities of, either
Distributing or Controlled, except in the ordinary course of
business. The management of Distributing, to its best
knowledge, is not aware of any plan or intention on the part
of any particular remaining shareholder or security holder
of Distributing, to sell, exchange, transfer by gift, or
otherwise dispose of any stock in, or securities of, either
Distributing or Controlled after the Distribution.
(m) Payments made in connection with all continuing
transactions, if any, between Distributing and Controlled
(and entities in their respective groups) will be for fair
market value based on terms and conditions arrived at by the
parties bargaining at arm's length.
(n) There is no plan or intention by either Distributing or
Controlled, directly or through any subsidiary corporation,
to purchase any of its outstanding stock after the
transaction other than through stock purchases meeting the
requirements of Section 4.05(1)(b) of Rev. Proc. 96-30.
(o) Immediately before the Distribution, items of income, gain,
loss, deduction, and credit will be taken into account as
required by the applicable intercompany regulations.
Further, any Distributing excess loss account that may exist
with respect to the Controlled stock will be included in
income immediately before Distribution.
(p) After the transaction Controlled will issue stock options to
purchase Controlled shares to its directors and officers and
other employees. The total shares subject to stock options
will be less than 20 percent of the outstanding stock of
Controlled.
Based on the information submitted and the representation set forth
above, we hold as follows:
(1) The transfer by Distributing of Business R and Business S
assets to Controlled solely in exchange for common stock of
Controlled and the assumption by Controlled of liabilities
of Distributing, followed by the distribution of all the
stock of Controlled to the shareholders or Distributing will
constitute a reorganization within the meaning of ss.
368(a)(1)(D). Distributing and Controlled will each be "a
party to a reorganization" within the meaning of
Section 368(b).
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(2) Distributing will organize no gain or loss upon the transfer
of assets to Controlled in exchange for Newco stock and the
assumption of liabilities (Sections 361(a) and 357(a)).
(3) Controlled will recognize no gain or loss on the receipt of
the assets in exchange for Controlled stock
(Section 1032(a)).
(4) Controlled's basis in the assets to be received from
Distributing will be the same as the basis of such assets in
the hands of Distributing immediately prior to the
transaction (Section 362(b)).
(5) Controlled's holding period for the assets to be received
will include the period during which such assets were held
by Distributing (Section 1223(2)).
(6) Distributing will recognize no gain or loss on the
distribution of Controlled stock to Distributing
shareholders (Section 361(c)(1)).
(7) The shareholders of Distributing will recognize no gain or
loss (and no amount will be included in their income) upon
the receipt of Controlled stock (Section 355(a)(1)).
(8) The aggregate basis of the Controlled stock and Distributing
stock in the hands of the shareholders of Distributing
immediately after the distribution will, in each instance,
be the same as the aggregate basis of the Distributing stock
held immediately prior to the distribution, allocated in
proportion to the fair market value of each, in accordance
with Section 1.358-2(a)(2) of the Income Tax Regulations
(Section 358(b)).
(9) The holding period of the Controlled stock to be received by
the shareholders of Distributing will include the holding
period of the Distributing stock with respect to which the
distribution will be made, provided that such stock is held
as a capital asset on the date of the distribution
(Section 1223(1)).
(10) As provided in ss. 312(h), proper allocation of earnings and
profits between Distributing and Controlled will be made
under Section 1.312-10(a).
No opinion is expressed about the tax treatment of the transactions
under other provisions of the Code and regulations or about the tax treatment of
any conditions existing at the time of, or effects resulting from, the
transaction that are not specifically covered by the above rulings.
This ruling is directed only to the taxpayer who requested it.
Section 6110(k)(3) of the Code provides that it may not be used or cited as
precedent.
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A copy of this letter should be attached to the federal income tax
returns of the taxpayers involved for the taxable year consummated.
A copy of this letter has been sent to the taxpayer's authorized
representative.
Sincerely yours,
Associate Chief Counsel (Corporate)
By /s/ Debra Carlisle
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Debra Carlisle
Chief, Branch 5
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