An Alternate Route to an IPO: Up-C Partnership Tax Considerations (Part 2)

Partnerships considering converting to a C corporation and raising capital in an initial public offering (IPO) can often realize considerable advantages by employing an Up-C partnership structure. The structure is implemented by forming a C corporation while continuing to operate the underlying business through a partnership structure. The corporation raises capital in the public market via an IPO, contributes the capital to the operating partnership in exchange for a partnership interest, and typically becomes the managing member of the operating partnership. The partnership’s legacy partners typically have rights to exchange their partnership interests for stock of the public company on a one-for-one basis. Last month, Part 1 of this two-part article¹ described the Up-C structure, common issues in its implementation, and its enhancement via a tax receivable agreement (TRA). This Part 2 explores common tax considerations preceding and following an IPO employing an Up-C structure.

Interest in using the Up-C structure is driven by the potential to create additional value to both the public company and the legacy partners. To ensure that these benefits are realized, it is critical that taxpayers and their advisers traverse a maze of possible pitfalls and traps for the unwary. While each transaction presents its own nuances and specific issues, a number of considerations apply in setting up nearly every Up-C structure.

The following provides an overview of typical issues and considerations that need to be addressed when implementing an Up-C structure. However, it should not be considered an exhaustive discussion of the various considerations and issues that one may encounter when embarking on the journey to an Up-C structure.

Evaluating Impact of Pre-IPO Partnership Restructuring

To ensure that the most advantageous post-IPO structure is in place, pre-IPO restructuring transactions are likely necessary. It may not be possible to effectuate certain restructuring steps in a tax-free manner, and some upfront tax costs may result. Consequently, it is critical for the tax adviser to take into account the potential impact of these transactions. Any company that is considering an Up-C structure should seek the advice of qualified advisers, as determining the optimum pre-IPO structure is not always intuitive. In many cases, several alternative paths lead to the optimum structure, and determining which path is most advantageous to the parties may require complicated tax modeling exercises.

Sec. 708(b)(1)(B) Terminations

One universal consideration in the pre-IPO restructuring is identifying the potential Sec. 708(b)(1)(B) technical terminations at the operating partnership or other levels within the existing organizational structure. A technical termination under Sec. 708(b)(1)(B) occurs upon a sale or exchange within any 12-month period of 50% or more of the interests in the capital and profits of a partnership. It is therefore critical to determine whether there has been a sale or exchange of partnership capital and profits interests. Further, it is necessary to quantify the percentage of capital and profits interests sold or exchanged. These two requirements create numerous planning opportunities as well as pitfalls. While determining whether a sale or exchange has occurred can be straightforward, care must be taken in many situations. Consider, for example, the “all or nothing” rule in tiered partnership structures under Regs. Sec. 1.708-1(b)(2):

[I]f the sale or exchange of an interest in a partnership (upper-tier partnership) that holds an interest in another partnership (lower-tier partnership) results in a termination of the upper-tier partnership, the upper-tier partnership is treated as exchanging its entire interest in the capital and profits of the lower-tier partnership. If the sale or exchange of an interest in an upper-tier partnership does not terminate the upper-tier partnership, the sale or exchange of an interest in the upper-tier partnership is not treated as a sale or exchange of a proportionate share of the upper-tier partnership’s interest in the capital and profits of the lower-tier partnership.

Once all of the potential sale and exchange transactions have been identified, it will be necessary to determine the actual percentage of capital and profits exchanged. Although conceptually straightforward, determining these percentages can become extremely complicated very quickly. Fortunately, because the overall Up-C transaction will require a detailed analysis of each partner’s Sec. 704(b) capital account and ownership in the pre-IPO and post-IPO entities, the requisite information to determine the percentage interests in both capital and profits should be available. Although a technical termination generally does not result in immediate taxable income recognition, failure to properly identify each technical termination can have significant consequences for the overall Up-C plan.²

A related consideration is whether the pre-IPO restructuring will involve any partnership merger transactions with a combination of cash-out and rollover partners. In this situation, careful planning is required to ensure that any gain resulting from the partnership merger is recognized only to those partners receiving cash. For example, structuring a pre-IPO partnership merger transaction to take advantage of Regs. Sec. 1.708-1(c)(4)³ may avoid potential gain recognition to the rollover partners.

Disguised Sales Under Sec. 707(a)(2)(B)

In connection with the likely restructuring transactions, certain legacy partners may receive cash distributions. Although these distributions may be provided for a variety of valid and reasonable business purposes, care must be taken to avoid the rules for a disguised sale of a partnership interest of Sec. 707(a)(2)(B). Due to the absence of Treasury regulations providing guidance on disguised sale treatment, tax advisers need to wade through the Sec. 707(a)(2)(B) legislative history as well as voluminous and often conflicting case law and IRS pronouncements to determine whether this treatment is appropriate.

Sec. 707(a)(2)(B) provides that if (1) there is a direct or indirect transfer of money or other property by a partner to a partnership; (2) there is a related direct or indirect transfer of money or other property by the partnership to such partner (or another partner); and (3) the transfers, when viewed together, are properly characterized as a sale or exchange of property, then the transfers shall be treated either as a transaction between the partnership and one who is not a partner or as a transaction between two or more partners acting other than in their capacity as members of the partnership. In the absence of regulations, Treasury has indicated, pursuant to Notice 2001-64, that determination of whether a transaction is a disguised sale of a partnership interest under Sec. 707(a)(2)(B) is to be made on the basis of the statute and its legislative history.⁴

Calculating Sec. 704(b) Capital Accounts

It will be necessary to revalue the operating partnership Sec. 704(b) capital accounts upon contribution of IPO proceeds by the public company. When the operating partnership revalues its Sec. 704(b) capital, it must consider the allocation of the expected revaluation gain or loss among the particular legacy partners. In addition to maintaining future income/loss allocations, these capital accounts will likely become the basis for determining the ownership interest held by each legacy partner immediately after the Up-C transaction.

As part of the pre-IPO restructuring, there will typically be a recapitalization at the operating partnership ownership level. In connection with this recapitalization, the legacy partners will receive new, recapitalized operating partnership units in exchange for their old units. These recapitalized operating partnership units allow each unit to be exchanged on a one-for-one basis for a share of public company stock.

Determining a legacy partner’s pre-IPO Sec. 704(b) capital account balance, which will assist in determining the legacy partner’s post-IPO ownership, will likely be complicated by multiple classes of pre-restructuring operating partnership units. It is common for the operating partnership to have multiple classes of partnership units providing differing rights to the holders. Whether these are simple profits interest units or complex preferential units, additional complexities can arise when determining the ownership of a post-IPO operating partnership. Additionally, as many partnerships fail to accurately track the partnership Sec. 704(b) capital in the required level of detail, it may be necessary to redetermine the historic Sec. 704(b) capital accounts of the partners to determine the starting point at the IPO date.

These complexities will need to be skillfully navigated, as the results of this analysis will be reflected in the legacy partners’ actual ownership of operating partnership recapitalized units. While the general capital account maintenance rules, including revaluations under Regs. Sec. 1.704-1(b)(2)(iv)(f), are complicated on their own, special consideration is warranted in at least two potentially problematic situations that are likely to arise in the Up-C transaction.

First, the ultimate allocation of partnership interests in the post-IPO partnership will likely involve capital shifts to some extent. Consequently, tax advisers will need to evaluate whether any such capital shift is taxable. To the extent a position is developed that the capital shift is not taxable, the taxpayer and tax return signer will need to consider whether disclosure will be required before filing the tax return. Unfortunately, there is a dearth of guidance regarding the proper treatment of capital shifts.

Although Regs. Sec. 1.721-1(b) provides guidance regarding compensatory capital shifts, there is little statutory or regulatory guidance specifically addressing the treatment of noncompensatory capital shifts. Judicial guidance is similarly limited. The Tax Court in Lehman⁵ considered the taxability of a capital shift, but the analysis does not fit well within the structure of a noncompensatory capital shift. As a result, taxpayers have generally been left to either recognize a capital shift as immediately taxable or develop supportable positions to avoid or defer income recognition until a future event.

Numerous commentators have written articles discussing the issue of noncompensatory capital shifts and the possible income tax consequences. In the authors’ view, this is currently an uncertain area with virtually no directly applicable authority. Further, it is unclear how the IRS or the courts will view these noncompensatory capital shift transactions. Consequently, taxpayers and their advisers should carefully consider the treatment of noncompensatory capital shifts to ensure they are comfortable with the ultimate reporting position, bearing in mind that the rules for uncertain tax positions under FASB Accounting Standards Codification Subtopic 740-10 may have an impact on a partner’s financial statements and related footnote disclosures.

Second, it is quite possible that “noncompensatory partnership options” will be outstanding at the time of the pre-IPO restructuring. Whether these noncompensatory partnership options are extinguished or converted, care must be taken to ensure the correct tax treatment. In the event the noncompensatory partnership options lapse or are settled for a cash payment, the general tax consequences should be relatively straightforward. In both of these instances, Sec. 721 would not apply, and it would be necessary to consider general tax principles. However, open questions remain under the recently finalized noncompensatory option regulations. Potential areas of uncertainty include application of Sec. 1234A relating to taxable gains or losses to the holder, Sec. 1234(b) relating to taxable gains or losses to the partnership, and recognition of ordinary income under Sec. 751 relating to “hot assets” (see Part 1 for a discussion of hot assets).

Taxation of the exercise of the noncompensatory partnership option, alternatively, is more complex. While Sec. 721 will apply to the exercise of the noncompensatory partnership option, special rules under Sec. 704 apply to ensure the partners’ capital accounts properly reflect their relative economic interests following exercise. For example, Regs. Sec. 1.704-1(b)(2)(iv)(s) supersedes the general revaluation rules under Regs. Sec. 1.704-1(b)(2)(iv)(f) and provides that the partnership will revalue its assets immediately following exercise of the noncompensatory partnership option rather than before, and the revaluation gain or loss must be allocated to the former option holder as necessary to produce an appropriate beginning capital account.

Further, the regulations require curative allocations of gross income to effectively cover any deficiency between the capital shift amount and unrealized gain available to allocate upon the revaluation. Failure to consider these rules could result in unexpected current taxable income recognition to the noncompensatory partnership option holder.⁶

Tracking Reverse Sec. 704(c) Layers

When the public company contributes the IPO proceeds to the operating partnership, the Sec. 704(b) capital accounts of the legacy partners will be revalued, creating a potentially significant “reverse” Sec. 704(c) layer. The allocation method selected (i.e.,traditional, traditional with curative allocations, or remedial) may materially affect the taxable income recognized by the public company, which in turn may have an impact on the timing of TRA benefit payments (see Part 1). Consequently, it is advisable to consider these impacts and agree on a Sec. 704(c) method prior to finalizing the transaction documents.

Once the Sec. 704(c) method has been established, the operating partnership should work with its tax adviser to create a detailed framework to monitor and track required allocations associated with the reverse Sec. 704(c) layer. Up-C partnership structures will likely have numerous subsequent revaluation events creating additional reverse Sec. 704(c) layers. Consequently, the partnership will need to determine the appropriate accounting for these multiple layers. In Notice 2009-70, the IRS requested comments regarding application of the so-called layering vs. netting approaches to tracking multiple Sec. 704(c) layers. In January 2014, Treasury published proposed regulations (REG-144468-05) that, among other things, would limit a taxpayer’s ability to net multiple Sec. 704(c) layers, due to perceived distortions. Treasury acknowledged, however, that significant administrative complexities could result and has requested additional comments. As a result of the direction taken by the proposed regulations and continued uncertainty regarding allowable methods of maintaining multiple Sec. 704(c) layers, care should be taken in selecting and implementing a layering methodology.

Sec. 743(b) Adjustment Calculation and Tracking

As discussed in Part 1 of this article, each time a legacy partner disposes of operating partnership units under the exchange agreement, a new Sec. 743(b) adjustment should be available for the benefit of the public company. Additionally, each time the public company makes a TRA payment to a legacy partner, this will be treated as an additional payment on the disposition of legacy partner units to the extent not considered imputed interest under the installment sale rules, giving rise to further Sec. 743(b) adjustments. Given the number of potential transactions that can result in Sec. 743(b) basis adjustments and the timing of the expected future TRA payment stream (likely to be at least 15 years), the calculation and tracking of these basis adjustments, and corresponding amortization and depreciation deductions, can quickly become cumbersome and complex.

The first step, of course, is calculating the Sec. 743(b) basis adjustment. Under Regs. Sec. 1.743-1(b), the Sec. 743(b) basis adjustment is equal to the difference between the transferee partner’s tax basis (outside basis) in the acquired partnership interest and the transferee’s share of the partnership’s tax basis in partnership property (inside basis). The calculation of the Sec. 743(b) adjustment is thus deceptively simple. While the calculation of the transferee partner’s outside basis should be straightforward, the second part of the calculation is significantly more complex. A transferee’s share of inside basis is equal to the transferee’s share of partnership liabilities plus its share of “previously taxed capital.” The transferee’s share of previously taxed capital is equal to the amount of cash the partner would receive if the partnership liquidated following a sale of all of its assets at fair market value (FMV), increased by the transferee’s allocable share of any tax loss (including any remedial allocation under Regs. Sec. 1.704-3(d)) and decreased by the transferee partner’s allocable share of any tax gain (including any remedial allocation under Regs. Sec. 1.704-3(d)).

The computation of the Sec. 743(b) adjustment can be illustrated with the formula in the exhibit below.

As can be seen from this formula, the amount of the Sec. 743(b) adjustment should generally be equal to the amount of gain or loss that would be allocated to the transferee partner following a hypothetical sale of all partnership assets at FMV. Care should be taken to ensure that the transferee partner’s share of gain from such a hypothetical sale is properly determined, taking into account the myriad potential complicating factors such as Sec. 704(c).

Once the Sec. 743(b) basis adjustment has been calculated, it must then be allocated to the partnership’s assets. Sec. 743(c) provides that the Sec. 743(b) basis adjustment is to be allocated among partnership assets in accordance with the rules provided in Sec. 755. Sec. 755(a) generally provides that any increase or decrease in the adjusted basis of partnership property under Sec. 743(b) shall be allocated in a manner that has the effect of reducing the difference between the FMV and the adjusted basis of partnership properties or in any other manner permitted by regulations prescribed by Treasury.

The general basis allocation rule described in Sec. 755(a) is then refined by requiring the basis adjustment to first be allocated between (1) capital assets and property described in Sec. 1231(b) and (2) any other partnership property. The allocation between these two classes of partnership assets depends on the relative amounts of unrealized gains and losses attributable to each class. The Treasury regulations provide that the basis adjustment allocated to each class of partnership property is then allocated to the specific partnership assets within the applicable class.⁷

Also, each time there is a transfer triggering a Sec. 743(b) adjustment, a statement must be filed with the return under Regs. Sec. 1.743-1(k). This statement must include a calculation of the basis adjustment as well as the allocation of the basis adjustment among the partnership assets.

Additionally, since the amortization deductions allocated to the public company constitute one of the most significant variables in calculating the TRA benefit payable to the legacy partners, tracking the Sec. 743(b) adjustment takes on high importance for multiple constituents. For example, the legacy partners will be interested in confirming the accuracy of the calculations, since the allocations will have a direct impact on cash TRA payments. Likewise, the public company’s financial statement auditors will want to be certain that the calculations are performed correctly, since they also directly affect the TRA liabilities recorded in the audited financial statements that are included in public filings. Consequently, creating a detailed and comprehensive schedule or model to properly track the creation, amortization, and use of the Sec. 743(b) basis adjustments will be critical to the successful implementation of the Up-C structure.

Sec. 754 Elections

Given the importance of the public company’s obtaining a Sec. 743(b) basis adjustment, the operating partnership needs to ensure it has a valid Sec. 754 election in place. A Sec. 754 election needs to be effective at all times when there is a sale or exchange of operating partnership units. As mentioned above, since a partnership technical termination under Sec. 708(b)(1)(B) results in a new partnership for tax purposes, and the Sec. 754 election does not carry over to the new partnership, it is necessary to ensure that all technical terminations are identified and that all required tax returns are timely filed and include a valid Sec. 754 election.

Given the critical importance of maintaining a valid Sec. 754 election, care needs to be taken when making the election. Applicable regulations⁸ provide that a valid Sec. 754 election statement needs to:

1. Set forth the name and address of the partnership making the election;
2. Be signed by any one of the partners; and
3. Contain a declaration that the partnership elects under Sec. 754 to apply the provisions of Secs. 734(b) and 743(b).

A potential trap for the unwary in making the Sec. 754 election is failing to ensure that the election is signed by a partner. This trap often presents itself when the partnership tax return is electronically filed. While Treasury has published guidance eliminating the separate signature requirements for certain elections and statements, the Sec. 754 election has not been specifically excluded. Therefore, taxpayers should consider the guidance in IRS Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-file Providers for Business Returns, to ensure the Sec. 754 election is properly executed and attached to the e-filed tax return.

Additionally, in the common situation involving a tiered partnership structure, it is critical to ensure that a valid Sec. 754 election is in place at each partnership level. Failure to make valid Sec. 754 elections throughout the tiered structure could result in a loss of amortization deductions associated with the anticipated Sec. 743(b) adjustments attributable to assets within the lower-tier partnerships. If a partnership in the organizational structure inadvertently fails to make a valid Sec. 754 election in a timely manner, relief provisions may be available under Regs. Secs. 301.9100-2 and 301.9100-3 allowing for a late election as discussed below.

Automatic relief provisions: Under Regs. Sec. 301.9100-2, a taxpayer is granted an automatic extension of 12 months from the due date for making the Sec. 754 election. To obtain relief under these provisions, the taxpayer must file an original or amended return for the year in which the taxpayer intended the election to be effective. This original or amended return must include the correctly completed Sec. 754 election. Further, any return, statement of election, or other form of filing made to obtain an automatic extension must include the following statement at the top of the document: “FILED PURSUANT TO §301.9100-2.” Also, any filing made to obtain an automatic extension must be sent to the same address that would have applied had the filing been timely made. The regulations also provide that taxpayers making an election under an automatic extension (and all taxpayers whose tax liability would be affected by the election) must file their return(s) in a manner consistent with the election and must comply with all other requirements for making the election for the year the election should have been made and for all affected years; otherwise, the IRS may invalidate the election.⁹

Nonautomatic relief provisions: If a relief request does not meet the requirements of Regs. Sec. 301.9100-2, a nonautomatic request for relief may be granted under Regs. Sec. 301.9100-3(a) if the taxpayer provides evidence that establishes to the satisfaction of the IRS that the taxpayer acted reasonably and in good faith and that granting the extension will not prejudice the interests of the government. A taxpayer will be deemed to have acted reasonably and in good faith with respect to the requested extension if the taxpayer (1) requests relief before the failure to make the election is discovered by the IRS; (2) failed to make the election because of intervening events beyond the taxpayer’s control; (3) failed to make the election because, after exercising reasonable diligence (taking into account the taxpayer’s experience and the complexity of the return or issue), the taxpayer was unaware of the necessity for the election; (4) reasonably relied on the written advice of the IRS; or (5) reasonably relied on a qualified tax professional (including an employee of the taxpayer) who was competent to render advice on the election and aware of all relevant facts, and the tax professional failed to make, or advise the taxpayer to make, the election.¹⁰

The regulations provide that to obtain this discretionary extension, the taxpayer must submit (1) a detailed sworn affidavit describing the events that led to the failure to make a valid election and to the discovery of the failure; (2) sworn affidavits by others that support the taxpayer’s account of events leading to the failure to make the election and the failure’s discovery; and (3) a statement whether the taxpayer’s return or returns for the tax year(s) in which the election should have been made (or any tax year(s) that would have been affected by the election had it been timely made) are either being examined by the IRS or being considered by Appeals or a federal court. Additionally, the taxpayer must submit a copy of any documents that refer to the election and, when requested, must submit a copy of the taxpayer’s return for any tax year for which the taxpayer requests an extension of time to make the election (and any return affected by the election). When applicable, the taxpayer must also submit copies of the returns of any other taxpayers affected by the election. Finally, since the nonautomatic relief provisions entail obtaining a private letter ruling, user fees will apply.

TRA Payment Maintenance

The discussion in Part 1 and above related to the Sec. 743(b) basis adjustment focuses on the importance of properly calculating the basis adjustments and then tracking the public company’s use of the associated depreciation and/or amortization deductions. Since the TRA payments will be paid to specific legacy partners based on usage of depreciation and/or amortization deductions associated with specific Sec. 743(b) basis adjustment amounts, it will be necessary for the public company to track the origin and use of the components of such deductions.¹¹ Tracking the separate components can become a complicated ongoing exercise, and consideration should be given upfront as to how this will be achieved. It will likely involve complex tax modeling performed regularly. Certainly, when one considers whether an Up-C structure makes sense for the operating partnership, the ongoing administrative burden and cost of tracking payments to the legacy partners under the TRA is an important factor.

Sec. 197(f)(9) Anti-Churning Rules

A taxpayer is generally entitled to claim a tax deduction under Sec. 197 with respect to an amortizable Sec. 197 intangible asset, which is defined to include Sec. 197 intangible assets acquired by the taxpayer after Aug. 10, 1993, that are held in connection with the conduct of a trade or business or an activity described in Sec. 212.¹² Notwithstanding this general rule, the “anti-churning” rules of Sec. 197(f)(9) provide that amortizable Sec. 197 intangibles do not include goodwill, going concern value, and certain other intangible assets held or used at any time between July 25, 1991, and Aug. 10, 1993, by the taxpayer or a related person.¹³

Upon the sale of operating partnership units to the public company, it is anticipated that the public company will be entitled to a Sec. 743(b) basis adjustment relating to its acquired interest in the underlying operating partnership assets. A majority of the Sec. 743(b) basis adjustments will typically be allocable to otherwise amortizable Sec. 197 intangible assets, including goodwill. Because the legacy partners could later own shares of the public company, it is necessary to consider application of the anti-churning rules.¹⁴ To the extent these rules apply, the public company may be unable to claim amortization deductions on some portion of the Sec. 743(b) adjustments allocated to certain intangibles.

In the context of the Up-C structure, the anti-churning rules are applied to Sec. 743(b) adjustments at the partner level, and each partner is treated as having owned and used a proportionate share of the partnership assets.¹⁵ Consequently, it is necessary only to assess the relationship between the transferor and transferee of the partnership interest.

Conclusion

It is the authors’ hope that the information presented in this article has piqued the reader’s interest in exploring the side roads that lead to the IPO destination. While some partnerships will be best served by pursuing the typical IPO transaction structure, significant value may be available for those willing to travel the side roads. Should a company’s facts allow for use of the Up-C transaction, the journey can yield significant benefits.  

Footnotes

¹Bilsky and Goodman, “An Alternate Route to an IPO: The Up-C Partnership Structure (Part 1),” 46 The Tax Adviser 832 (November 2015).

²For example, failure to identify a technical termination may result in the failure to file a partnership tax return that would have included the necessary Sec. 754 election to obtain a Sec. 743(b) basis adjustment. Since the Sec. 743(b) basis adjustment is the impetus to future TRA payments (see Part 1 of this article), failure to obtain this basis adjustment could diminish the availability of future TRA value.

³Under the so-called sale-within-a-merger regulations, a sale of all or part of a partner’s interest in the terminated partnership to the resulting partnership that occurs as part of a merger or consolidation under Sec. 708(b)(2)(A) will be respected as a sale of a partnership interest if the merger agreement (or another document) specifies that the resulting partnership is purchasing interests from a particular partner in the merging or consolidating partnership and the consideration that is transferred for each interest sold, and if the selling partner in the terminated partnership, either prior to or contemporaneous with the transaction, consents to treat the transaction as a sale of the partnership interest.

⁴For a detailed analysis of the disguised sale rules relating to sales of both property and partnership interests, see Silverman and Nocjar, Partnership Disguised Sale Rules (Practising Law Institute 2013).

⁵Lehman, 19 T.C. 659 (1953).

⁶For example, if the exercise of the noncompensatory partnership option occurs after another pre-IPO transaction that resulted in a revaluation under Regs. Sec. 1.704-1(b)(2)(iv)(f), it would be unlikely that sufficient additional unrealized gain would be available to allocate to the new partner following exercise of the noncompensatory partnership option. This would result in the required allocation of gross income equal to the amount of capital shift.

⁷Regs. Sec. 1.755-1.

⁸Regs. Sec. 1.754-1(b)(1).

⁹Regs. Secs. 301.9100-2(c) and (d).

¹⁰Regs. Sec. 301.9100-3(b).

¹¹Additionally, a disposition of operating partnership assets subject to a Sec. 743(b) basis adjustment could accelerate the public company’s realization of any unrecovered basis adjustment.

¹²Sec. 197(c)(1).

¹³Secs. 197(f)(9)(A)(ii) and (iii) provide additional situations where the anti-churning rules may apply. Although likely not applicable in a typical Up-C transaction, these provisions should not be overlooked.

¹⁴See Letter Ruling 200551018 for an example of the analysis that may be necessary in determining application of the Sec. 197(f) anti-churning rules.

¹⁵Sec. 197(f)(9)(E).