Kligfeld Holdings, Kligfeld Corporation, Tax Matters Partner - Page 5

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               •    On about November 1, 1999, Kligfeld Investments,                  
                    LLC (Investments), whose sole member was Marnin                   
                    Kligfeld, engaged in a short sale6 of U.S.                        
                    Treasury notes.  Before closing the short sale,                   
                    Investments transferred the resulting proceeds--                  
                    along with the attached obligation--to Holdings                   
                    1.7  At the end of this transaction, Kligfeld                     
                    owned 99 percent of Holdings 1 and Corporation                    
                    owned one percent.                                                
               •    On about November 3, 1999, Holdings 1 closed the                  
                    short position by buying U.S. Treasury notes and                  
                    using them to replace those borrowed.                             
               •    On November 15, 1999, Kligfeld transferred a 98-                  
                    percent interest in Holdings 1 to Corporation                     
                    through a non-taxable section 3518 exchange.                      

          when exactly Kligfeld transferred the Inktomi stock to Holdings             
          1.  It is also unclear what the percentage ownership was at the             
          formation of Holdings 1.                                                    
               6 A short sale is the sale of borrowed securities, typically           
          for cash.  The short sale is closed when the short seller buys              
          and returns identical securities to the person from whom he                 
          borrowed them.  The amount and characterization of the gain or              
          loss is determined and reported at the time the short sale is               
          closed.  See sec. 1.1233-1(a), Income Tax Regs.                             
               7 Because Investments is not incorporated and has only one             
          member, it is disregarded for tax purposes, and Kligfeld is                 
          treated as contributing the short sale proceeds and obligation              
          himself.  See sec. 301.7701-2(c)(2), Proced. & Admin. Regs.                 
               8 Unless otherwise indicated, section references are to the            
          Internal Revenue Code as in effect for the years at issue.                  
          Section 351 allows a person to transfer property to a corporation           
          with no recognition of gain or loss, as long as he receives only            
          that corporation’s stock in exchange for the property and,                  
          immediately after the exchange, is “in control” of the                      
          corporation.  Kligfeld received only additional Corporation stock           
          in the exchange, and since he was the sole shareholder in                   
          Corporation both before and after the transfer, he easily met the           
          “in control” requirement.                                                   

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