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Note 4--1999 Recapitalization
In September 1999, the Company and certain of its
affiliates participated in a transaction (1999
recapitalization) involving agreements with Times
Mirror Company’s largest shareholders, Chandler Trust
No. 1 and Chandler Trust No. 2. The 1999
recapitalization resulted in the formation of a new
limited liability company, TMCT II, LLC (TMCT II).
Pursuant to the TMCT II contribution agreement, the
Company contributed a total of $233,252,000 in cash and
cash equivalents.
On May 31, 2000, the board of directors of MB Parent accepted and
approved the LLC’s financial statements for the fiscal years
ended December 31, 1999 and 1998.
IRS Determinations
On August 14, 2002, the IRS sent to petitioner a statutory
notice of deficiency with respect to petitioner’s Federal income
tax for 1998. In the statutory notice of deficiency, the IRS
made the following determinations regarding the Bender
transaction:
1. $1,375,000,000 is the amount realized in 1998
under Code section 1001 by TMD in exchange for the 100%
common stock interest in MB [Bender].
2. In 1998, TMD must recognize capital gain in
the amount of $1,322,035,840, as computed below. * * *
TMD’s exchange of its 100% common stock interest in MB
is ineligible for nonrecognition treatment under Code
section 354 because the series of prearranged
transactions that included the merger of Bender
Mergersub into MB failed to qualify as a
“reorganization” under section 368 of the Code.
In addition, the IRS explained the basis for its determinations
under the following headings: “A. TMD CASHED OUT ITS INVESTMENT
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