-291-
provide no analysis of the partnership basis rules (specifically
section 704(c)) but instead focus on the recognition or
nonrecognition of gain or loss under section 351, the
consolidated loss disallowance and separate return limitation
year rules under section 1502, the built-in loss limitations of
section 382, the section 384(a) pre-acquisition loss rules, and
the section 269(a)(2) disallowance rules for tax-motivated
corporate acquisitions. The memoranda propound a series of
hypothetical transactions, none of which appear to have actually
occurred, and do not rely on, or analyze, the relevant facts of
the CDR transaction.205 Consequently, we cannot agree that these
memoranda establish reasonable cause.
204(...continued)
In the second memorandum dated Aug. 30, 1996, Shearman &
Sterling also analyzed two alternative transactions. In the
first alternative, the “Section 351 Transaction”, Acquirer, a
U.S. corporation (“GCo”), transfers property to a new or existing
subsidiary (“DCo”) in exchange for stock of DCo, and,
concurrently, CDR transfers all the stock of MGM Holdings to DCo
in exchange for cash and stock of DCo. Immediately after these
transfers, GCo owns at least 80 percent of the vote and value of
DCo. In the second alternative, the “B Reorganization”, GCo
acquires all the stock of MGM Holdings from CDR in exchange for
GCo’s publicly traded voting common stock or voting preferred
stock redeemable in 5 years.
205 The memoranda were prepared before the closing date of
the New MGM transaction and MGM Holdings’s dissolution. Although
the memoranda acknowledge the New MGM sale and the existence of
tax attributes in MGM Holdings, the memoranda are framed in terms
of CDR’s “expected” basis in MGM Holdings’s stock following the
sale. The memoranda do not analyze these expectations or provide
any insight regarding CDR’s basis in MGM Group Holdings or the
effect of a dissolution of MGM Holdings.
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