SECTION 10. PAPERWORK

REDUCTION ACT

The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. § 3507) under control number 1545–1801. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB number.

The collection of information in this revenue procedure is in the sections titled APPLICATION PROCESS, FIXED CONCESSION PROCEDURE and FAST TRACK DISPUTE RESOLUTION PROCEDURE — CONTINGENT LIABILITY CASES. This information is required to apply the terms of the settlements set forth in this revenue procedure and determine the appropriate amount of penalties due, if any. The information will be used to determine

2002–43 I.R.B. 739 October 28, 2002

Exhibit 1

Agreement to Participate and Selection of Settlement Option

1) Agreement to Participate and Selection of Settlement Option. The undersigned desire(s) to participate in a settlement initiative described in Rev. Proc. 2002–67 for resolving cases involving Notice 2001–17 contingent liability transactions. This settlement procedure is available to any taxpayer that has engaged in a contingent liability transaction, satisfies the requirements of Section 3.02 of Rev. Proc. 2002–67 and elects to resolve the issues in dispute using this procedure.

By signing this agreement to participate under the settlement initiative described in Rev. Proc. 2002–67, the undersigned acknowledges that the decision to participate is irrevocable and that, if the taxpayer fails to provide all of the information and documents specified in Rev. Proc. 2002–67, the contingent liability transaction issue will be subject to the full range of Internal Revenue Service audit and deficiency procedures. The undersigned acknowledges that the contingent liability transaction issue will not be considered under the settlement, mediation or arbitration procedures under Notice 2001–67 (LMSB/Appeals Fast Track Dispute Resolution Program), 2001–2 C.B. 544; Announcement 2002–60 (Extension of Test of Arbitration Procedure for Appeals), 2002–26 I.R.B. 28; and Rev. Proc. 2002-44 (Mediation Procedure for Appeals), 2002–26 I.R.B. 10.

The following is the option selected for this process:

____ Fixed Concession Procedure

____ Fast Track Dispute Resolution Procedure - Contingent Liability Cases

By choosing the Fast Track Dispute Resolution Procedure - Contingent Liability Cases, the undersigned agree(s) to participate in Binding Arbitration, as set forth in Section 7 of Rev. Proc. 2002–67, if the Fast Track Dispute Resolution Procedure - Contingent Liability Cases is unsuccessful. Those taxpayers selecting the Fast Track Dispute Resolution Procedure — Contingent Liability Cases must also submit with this form a completed Arbitration Agreement. See Section 7 and Exhibit 2 of Rev. Proc. 2002–67.

All requirements and provisions set forth in Rev. Proc. 2002–67 are incorporated herein by reference.

2) Application Process. The undersigned will be notified in writing within 15 calendar days of the receipt of this completed form as to whether its election has been accepted.

If a taxpayer is denied participation under the Fixed Concession Procedure, its application may be amended in writing within 10 calendar days of receipt of the notice described above to elect the Fast Track Dispute Resolution Procedure - Contingent Liability Cases, as set forth in Section 6 of Rev. Proc. 2002–67. See Section 4.05 of Rev. Proc. 2002–67.

Denial of a taxpayer’s request to participate in either resolution method is not subject to judicial review.

3) Waiver of Prohibition on Ex Parte Communications. In accordance with the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105–226, 112 Stat. 685 (RRA ’98), and Rev. Proc. 2000–43, 2000–2 C.B. 404, it has been determined that ex parte communications may occur during the course of the settlement process. As defined in Rev. Proc. 2000–43, “ex-parte communications” are “communications that take place between Appeals and another Service function without the participation of the taxpayer or the taxpayer’s representative.”

The undersigned acknowledge(s) that waiver of this prohibition is voluntary. By signing this agreement, the undersigned further acknowledge(s) that the concerns regarding ex parte communications are understood, but in the interest of facilitating resolution of this case, the undersigned agree(s) to waive the prohibition between Appeals and other Service personnel who are involved in pursuing settlement under the initiative described in Rev. Proc. 2002–67. This waiver covers all communications in the entire settlement process. This waiver will expire upon the date the settlement process with respect to this case is completed or ends.

October 28, 2002 740 2002–43 I.R.B.

4) Location of Settlement Conference. The undersigned requests that all meetings between the undersigned and the Service relating to the settlement proceedings take place at [Insert City, State].

5) Participants. The persons listed in this paragraph below are the primary participants in this settlement process on behalf of the taxpayers. Additional persons who will participate will be listed at the end of this agreement.

Taxpayer Name: Taxpayer EIN: Address Corporate Officer: Title: Telephone: Fax: Email:

Taxpayer Representative: Name of Firm: Address: Telephone: Fax: Email:

If the Taxpayer identifies a representative, the Taxpayer must attach a power of attorney to this agreement that authorizes the representative to participate in the settlement and arbitration process.

6) Case status.

a) Is the case open in Compliance or Appeals? b) If so, who is the Service contact? c) Was the contingent liability transaction disclosed under Announcement 2002–2, 2002–2 I.R.B. 304?

7) Certification of Compliance. Under penalties of perjury, the undersigned certifies:

a) that each transferor involved in the contingent liability transaction carried out the purported section 351 exchanges and subsequent sales in accordance with the applicable operating documents; b) that one or more persons transferred property to the transferee corporation solely in exchange for stock in such corporation (or such stock and other property or money) and immediately after the exchange such person (or persons) was in control (as defined in section 368(c)) of the transferee corporation; and, c) that the transferee is not an investment company within the meaning of section 351(e).

8) Attachments. With this form, the undersigned must also submit the following, as specified in Section 4.02 of Rev. Proc. 2002–67:

a) A statement identifying the total capital loss reported on the taxpayer’s income tax return(s) for the sale(s) of any stock issued by the transferee corporation in the contingent liability transaction, including the tax years affected and the amount of the capital loss used in each year (including any carryback and carryforward periods); b) A description of each class of stock issued and outstanding by the transferee corporation at the completion of the purported section 351 exchanges, including the number of shares issued in each class in the exchanges, to whom the stock was issued, the issuing prices of the stock, the par values and any voting rights; c) A statement identifying any shares issued in the purported section 351 exchanges in connection with the assumption of the contingent liability that have not been sold or otherwise disposed of by the taxpayer; d) A statement indicating the average selling price per share of any stock issued by the transferee corporation in the contingent liability transaction; e) A description of the type and bases of the assets transferred by the taxpayer in the contingent liability transaction; and f) A description of the type and amount of the liability assumed by the transferee corporation in the contingent liability transaction.

2002–43 I.R.B. 741 October 28, 2002

9) Statement of Agreement. By signing this Agreement to Participate and Selection of Settlement Option, the undersigned certifies that it has read and agrees to the terms of this document.

s/Taxpayer, Date

s/Taxpayer Representative, Date

Exhibit 2

Arbitration Agreement

1. THE ARBITRATION PROCESS. Arbitration is mandatory as part of the procedures outlined in Rev. Proc. 2002–67 and will be used to assist________________________ (hereinafter “Taxpayer”) and the Commissioner of the Internal Revenue Service (collectively the “Parties”) in resolving certain issues relating to the Taxpayer’s participation in a Contingent Liability Transaction, a transaction designated by the Commissioner and Treasury as a “listed transaction” in Notice 2001–17, 2001–1 C.B. 730. The applicable provisions and requirements of Rev. Proc. 2002–67 are hereby incorporated in this Agreement by reference.

The Parties have agreed to use Final Offer Arbitration, also known as baseball arbitration. The Final Offers of both Parties shall reflect the following:

a) The amount of capital loss permitted on the sale of stock received in the Contingent Liability Transaction, which amount will reflect a concession by the Taxpayer of between 50% and 90% of the capital loss reported by the Taxpayer on the sale of the stock received in the Contingent Liability Transaction.

b) The identity of the corporation that is entitled to the tax benefits associated with the deduction resulting from the liability assumed in the Contingent Liability Transaction, including whether such corporation is or has been a member of the Taxpayer’s consolidated group (including any successor to such group).

c) With respect to the Electing Taxpayer or an entity that was a member of the Electing Taxpayer’s consolidated group (including any successor to such group) at any time, the manner and timing of the reduction in the tax benefits necessary to eliminate any duplication in the tax benefits associated with the Contingent Liability Transaction in amounts that, in the aggregate, equal the capital loss permitted under (a) above.

d) The amount of any penalty under section 6662.

The Arbitrator, after reviewing the Final Offers and the accompanying information, will choose one Final Offer. Each Party’s Final Offer shall state an amount that reflects the above, including the effect of any present value calculation, as appropriate.

The Parties to this Agreement (see section 2 below) agree to be bound by the Arbitrator’s determination. There can be no ex parte communications between the Arbitrator and any Party, third party, witness, agent, or other person regarding the issues for arbitration. All communications between the Arbitrator and either Party, unless otherwise stated, including requesting and transferring documentation and information, will be made through an Administrator. The Administrator for this Arbitration Session will be an Appeals employee to be assigned by Appeals. The Administrator will inform and discuss with the Parties the rules and procedures pertaining to the Arbitration process.

October 28, 2002 742 2002–43 I.R.B.

2. PARTICIPANTS. The Parties to the arbitration will be the Taxpayer and the Commissioner. The Taxpayer may elect to have the representation of counsel or an authorized representative to assist in preparing for and conducting the arbitration proceeding. The Office of Chief Counsel will represent the Commissioner in the arbitration proceeding. The specific participants on behalf of the Taxpayer in the Arbitration Session will be:

Taxpayer:

For Taxpayer:

No later than two weeks before commencement of the Arbitration Session, each Party will submit, to the Administrator and the other Party by facsimile, a complete and final list of participants who will attend the Arbitration Session. The list must identify, for each participant, their position with the Party or other affiliation (e.g., a member of the XYZ law firm, counsel to the Taxpayer), and their address, telephone and fax numbers.

3. SELECTION OF ARBITRATOR. The Parties have agreed to select an Arbitrator from a qualified list of eligible persons prepared by the Service, as described in Section 7.05 of Rev. Proc. 2002–67. Within 15 days of the date that the Service notifies the Electing Taxpayer that the Service has determined that the Fast Track Dispute Resolution Procedure - Contingent Liability Cases was unsuccessful, the Taxpayer must select three names from the qualified list and rank them in order of preference. If the first candidate is unavailable, the Administrator will contact the other candidates in the order indicated by the Taxpayer. The fees and costs of the Arbitrator will be shared equally by the Parties. The Administrator will arrange for the hiring of the Arbitrator, subject to applicable rules and regulations for Government procurement.

A selected Arbitrator who has represented or currently represents a promoter or investor in a Contingent Liability Transaction, or whose firm has done so, is not neutral and, therefore, will be ineligible to serve as an arbitrator in a proceeding under this revenue procedure. The selected Arbitrator will be disqualified from representing the Taxpayer in any pending or future action that involves the transactions or issues that are the particular subject matter of the arbitration. This disqualification extends to representing any other parties involved in transactions or issues that are the particular subject matter of the arbitration. Members or employees of the Arbitrator’s firm will also be disqualified from representing the Electing Taxpayer or any other parties involved in the transactions or issues that are the particular subject matter of the arbitration in an action that involves the transactions or issues that are the particular subject matter of the arbitration, unless: (i) the Arbitrator disclosed the potential of such representation prior to the parties’ acceptance of the Arbitrator; (ii) such action relates to a taxable year that is different from the taxable year(s) under arbitration; (iii) the firm’s internal controls preclude the Arbitrator from any form of participation in the matter; and (iv) the firm does not allocate to the Arbitrator any part of the fee therefrom.

The Arbitrator will not be prohibited from receiving a salary, partnership share, or corporate distribution established by prior independent agreement. The Arbitrator and the firm are not disqualified from representing the Electing Taxpayer or any other parties involved in the arbitration in any matter unrelated to the transactions or issues that are the particular subject matter of the arbitration.

The Arbitrator shall have no official, financial or personal conflict of interest with respect to the Parties, unless such interest is fully disclosed in writing to the Parties and the Parties agree to the continued participation of the Arbitrator. See 5 U.S.C. § 573(a).

4. ISSUE TO BE ARBITRATED. The Parties agree that only the following issue will be submitted to the Arbitrator:

Which of the two Final Offers presented by the Parties best reflects the hazards of litigating the Taxpayer’s entitlement to a capital loss deduction from the sale of stock received as part of the Contingent Liability Transaction?

In reaching a determination on the issue submitted, the Arbitrator may only consider the legal and factual arguments made in the Fast Track Dispute Resolution Procedure - Contingent Liability Cases, including the facts developed under Section 7.02 of Rev. Proc. 2002–67.

2002–43 I.R.B. 743 October 28, 2002

5. BURDEN OF PROOF. In choosing between the Final Offers, the Arbitrator shall consider that the Taxpayer has the burden of proving the facts by a preponderance of the evidence. To the extent the Taxpayer, in support of its Final Offer, argues under section 357(b) that the liabilities assumed by the transferee in the Contingent Liability Transaction should not be considered as money received by the Taxpayer on the exchange, the Arbitrator must take into account the burden of proof standard as stated in section 357(b)(2).

6. GUIDANCE FOR ARBITRATOR. Legal guidance for the Arbitrator shall be provided by the parties for purposes of establishing context, limited to guidance on the specific arguments presented in the Fast Track Dispute Resolution Procedure - Contingent Liability Cases. The legal guidance will consist of a list of citations or copies of relevant cases and legal authority. With respect to factual information, the Taxpayer may only submit to the Arbitrator for consideration material that was previously provided to LMSB and Appeals in the Fast Track Dispute Resolution Procedure — Contingent Liability Cases. The Service is permitted to include additional factual information developed pursuant to Section 7.02 of Rev. Proc. 2002–67. All material for the Arbitrator will be provided through the Administrator.

The Arbitrator is not permitted to make any conclusions of law or provide reasoning that represents an interpretation of the law; however, it is necessary for the Arbitrator to refer to the existing applicable law in considering the submitted issue. The Arbitrator shall look solely to the legal guidance provided by the Parties in determining the issue presented and conducting the Arbitration Session. The Arbitrator is not permitted to make any findings of fact, except for resolving the issue stated in section 4 of this Agreement.

If any legal guidance for the Arbitrator was overlooked, at the sole request of the Arbitrator, made through the Administrator, the Parties may agree upon further legal guidance and the manner in which it is to be communicated to the Arbitrator.

7. SUBMISSION OF MATERIALS. Within 60 days of the date the proposed Arbitrator is selected, the Parties will submit to the Administrator for submission to the Arbitrator, the administrative record developed prior to and during the Fast Track Dispute Resolution Procedure - Contingent Liability Cases, any additional factual information developed by the Service pursuant to Section 7.02 of Rev. Proc. 2002–67, a stipulation of facts based on the record and the legal guidance set forth in Section 6 of this Agreement. In addition, each Party will submit a memorandum supporting its respective positions, not to exceed 30 pages. The memorandum shall be typed only on one side of opaque unglazed paper, 8 1/2 inches wide by 11 inches long. All pages shall have margins on both sides of each page that are no less than 1 inch wide, and margins on the top and bottom of each page that are no less than 3/4 inch wide. Text and footnotes shall appear in consistent typeface no smaller than 12 characters per inch, with double spacing between each line of text and single spacing between each line of indented quotations and footnotes. Quotations in excess of five lines shall be set off from the surrounding text and indented. Not more than 10 days after submission of its memorandum, each Party shall submit its Final Offer. No additional factual information may be submitted by either Party after their Final Offer has been made.

Any and all information and materials that a Party provides throughout the Arbitration Session shall be submitted to the Administrator. The Administrator will ensure that each Party receives the materials submitted by the opposing Party. Any objections to statements of fact, not previously presented, will be submitted to the Administrator within 10 days. If there are no objections, the Administrator will forward the submissions to the Arbitrator no earlier than the date the employment contract with the Arbitrator has been approved.

a. The Parties shall have no right to offer witnesses at the Arbitration Session. The Arbitrator has the sole power to request the testimony of witnesses during the Arbitration Session and to direct the questioning of such witnesses.

b. The Arbitrator may order a Party to produce other documents, exhibits or evidence deemed necessary or appropriate.

c. At the Arbitrator’s sole discretion, oral arguments may be requested at the Arbitration Session. In the absence of such a request, there will be no oral presentation by the Parties at the Arbitration Session.

October 28, 2002 744 2002–43 I.R.B.

d. The Parties agree to clarify issues that may arise in calculating any deficiency or overpayment resulting from the Arbitrator’s decision.

e. The Arbitrator’s decision will be used by the Parties to determine the Taxpayer’s tax liability and penalties, if applicable.

f. The Parties agree that statutory interest will apply to any deficiency, including penalties, resulting from the Arbitrator’s decision.

8. CONTACT WITH ARBITRATOR. The Parties agree that there shall be no ex parte communications between the Arbitrator and either Party or agent for a Party. In addition, the Arbitrator may not have contact with any other individuals, including witnesses outside the Arbitration Session, concerning the arbitration matter without the express approval of the Parties. Any contact with the Arbitrator by either Party must be in the presence of the other Party and the Administrator. Should the Parties require additional information or clarification regarding the Arbitration process, they shall contact the Administrator.

9. TIME OF ARBITRATION SESSION. Within 45 days of the date the Arbitrator receives the information to be provided by the Parties under Section 7 of this Agreement, the Arbitrator will contact the parties and set the time for the Arbitration Session, if the Arbitrator decides that a hearing is necessary. The Arbitrator will decide on the necessity of oral arguments and presentation of witnesses during the Arbitration Session. If there are to be oral arguments during the Arbitration Session, the Arbitrator will decide the time allotted for the arguments. The Arbitrator is free to allocate time necessary for presentation of witnesses without regard for equal time between the Parties; however, any such hearing will not exceed 8 hours, including any oral arguments or the presentation of witnesses. Alternatively, the Arbitrator may elect to render a decision based on the written record alone, without a hearing.

10. PLACE OF ARBITRATION. The Taxpayer has selected [City, State] as the site for the Arbitration Session, subject to change by agreement among the Parties and the Arbitrator. The Service will provide the space and facilities for the Arbitration Session.

11. CONFIDENTIALITY. Service and Treasury employees who participate in any way in the arbitration process and any person under contract to the Service pursuant to section 6103(n) of the Internal Revenue Code of 1986, as amended, including the Arbitrator, that the Service invites to participate will be subject to the confidentiality and disclosure provisions of the Internal Revenue Code, including sections 6103, 7213, and 7431. Any dispute resolution communication related to the arbitration proceeding is confidential and may not be disclosed by any party, nonparty participant, or arbitrator except as provided under 5 U.S.C. § 574. A dispute resolution communication includes all oral or written communications prepared for purposes of a dispute resolution proceeding. See 5 U.S.C. § 571(5).

The Taxpayer consents to the disclosure by the Service of the Taxpayer’s returns and return information incident to the arbitration to any participant for the Taxpayer identified in the initial list of participants in section 2 of this Agreement, to any participant for the Taxpayer identified in writing by the Taxpayer subsequent to execution of this Agreement, and to any persons, including witnesses, who participate in this Arbitration Session on behalf of either Party. If the Arbitration Agreement is executed by a person pursuant to a power of attorney executed by the Taxpayer, that power of attorney must clearly express the grant of authority by the Taxpayer to consent to disclose the returns and return information of the Taxpayer by the Service to third parties, and a copy of that power of attorney must be attached to this Agreement.

12. I.R.C. SECTION 7214(a)(8) DISCLOSURE. The Parties acknowledge that employees of the Service and all other Treasury employees involved in this arbitration are bound by section 7214(a)(8) and must report information concerning violations of any revenue law to the Secretary.

13. RECORD. Neither the Taxpayer nor the Service shall make a stenographic record of the Arbitration Session, except that a transcript of the Arbitration Session may be provided to the Arbitrator, if requested. The Parties agree that any stenographic record or other recording of the Arbitration Session shall remain confidential and will be destroyed once the Arbitrator reaches a decision.

2002–43 I.R.B. 745 October 28, 2002

14. TERMINATIONS AND POSTPONEMENT. Due to the particular nature and scope of the Contingent Liability Transactions and the procedures outlined in Rev. Proc. 2002-67, the Taxpayer agrees to full participation in this Arbitration Process. Termination by the Service for any reason other than final settlement with the Service will subject the Taxpayer to the full range of Service audit and deficiency procedures. In addition, the Contingent Liability Transaction issue will not be considered under the settlement, mediation or arbitration procedures under Notice 2001–67 (LMSB/Appeals Fast Track Dispute Resolution Program), 2001–2 C.B. 544; Announcement 2002-60 (Extension of Test of Arbitration Procedure for Appeals), 2002–26 I.R.B. 28; and Rev. Proc. 2002–44 (Mediation Procedure for Appeals), 2002–26 I.R.B. 10.

If the Parties reach a settlement by agreement at any time prior to the date set for the arbitration hearing, or if no hearing is ordered, prior to the decision of the Arbitrator, the Parties may withdraw from the Arbitration Process. Any such settlement negotiations will be conducted by Appeals subject to the concurrence of Counsel. If settlement is reached, Appeals will effectuate the settlement of agreed issues using established issue or case closing procedures.

15. DECISION BY ARBITRATOR. Within 30 days after the hearing, the Arbitrator will select one of the Final Offers proposed by the Parties. After the Arbitrator renders a decision and advises the Administrator and the Parties of the decision, the case or issues will be closed using established procedures for case closing, including preparation of a Form 906, Specific Matters Closing Agreement. The closing agreement will include provisions reflecting the requirements of Section 7 of Rev. Proc. 2002–67.

16. ARBITRATOR’S DECISION IS FINAL. The Parties agree to be bound by the Arbitrator’s decision. Neither Party may appeal the decision of the Arbitrator nor contest the decision in any judicial proceeding, including but not limited to the Tax Court, the Court of Federal Claims, or a federal district or federal appellate court. Each Party enters into this agreement in reliance on the other Party’s agreement to be bound by the decision of the Arbitrator.

17. PRECEDENTIAL USE. The decision by the Arbitrator will not be binding on, or otherwise control, the Parties for Contingent Liability Transactions not covered by the Arbitration. Except as provided in this Agreement, the Arbitrator’s decision may not be used as precedent by any Party.

The Commissioner is not precluded or impeded under section 7605(b) or any administrative provisions adopted by the Commissioner from conducting a later examination or inspection of records with respect to any taxable year of a participating Taxpayer by inspecting information, documents and materials supplied in connection with the Arbitration Session.

18. JOINT COMMITTEE ON TAXATION . If applicable, a settlement entered into as a result of this Arbitration Proceeding will be reported to the Joint Committee on Taxation in accordance with section 6405.

INTERNAL REVENUE SERVICE

By:

Date:

[ Taxpayer ]

By:

Date:

October 28, 2002 746 2002–43 I.R.B.

Exhibit 3

Information Request

A . Fast Track Dispute Resolution Procedure — Contingent Liability Cases. During the ninety (90) day period following its election to participate in the Fast Track Dispute Resolution Procedure - Contingent Liability Cases, the taxpayer will submit to the LMSB examination team assigned to its case the following information and documents related to the purported Section 351 exchange(s), the liability company (“LC”), persons involved in the transactions, and the sale of the LC stock. The taxpayer may submit any additional information or documents it wishes the Internal Revenue Service to consider.

1. Basic Transaction and Organizational Structure: 1.1. Identify the transferor(s) and the transferee corporation(s) that participated in the purported Section 351 transaction or transactions that resulted in the transfer of liabilities by the taxpayer to the LC (“LC transaction”).

1.2. Describe the stock that was issued to each transferor, including its class, characteristics, rights, preferences, restrictions, and obligations of its holders.

1.3. Describe each step of the LC transaction in detail in the order of occurrence providing flowcharts or structural diagrams, if available (creation of such documents would facilitate an earlier understanding of the issue).

1.4. Describe the organizational structure of the LC before and after the transaction, providing supporting documentation including but not limited to: 1.4.1. Articles of Incorporation and Amended or Restated Articles. 1.4.2. Recapitalization documents. 1.4.3. All minutes or resolutions of the Board of Directors, Audit or Finance committees, or other approval committees pertaining to the planning, approval or implementation of the recapitalization and LC transaction, including all documents presented to the Board or committees. 1.4.4. Shareholders or Buy-Sell agreements, including amendments.

1.5. If the LC was in existence prior to the transaction, describe its business operations and identify its significant assets and shareholders. 1.5.1. Was the LC a member of the taxpayer’s consolidated group before the transaction? 1.5.2. Was the LC a member of the taxpayer’s consolidated group after the transaction?

1.6. State the purported business purpose of the LC transaction(s).

1.7. Describe the transactions for which the taxpayer reported a capital loss for the sale of the LC stock. 1.7.1. Identify the purchaser(s) and seller(s) of the stock. 1.7.2. Describe any prior or subsequent relationships of the purchaser(s) and the seller(s) or the taxpayer. 1.7.3. Identify the LC stock that was sold to the purchaser(s). 1.7.4. Identify the capital loss reported on the sale of the LC stock and the taxable years in which the loss is claimed, including amounts carried back and carried forward. 1.7.5. Describe how the taxpayer computed the basis of the LC stock sold.

1.8. State the business purpose for the sale of the LC stock by the taxpayer.

1.9. Copy of the General Ledger accounts of the taxpayer affected by any part of the contingent liability transaction. 1.9.1. Trace all identified items and amounts as line items on the taxpayer’s tax returns.

1.10. The names and job titles of officers and other employees of the taxpayer familiar with the LC transactions and subsequent events. 1.10.1. Identify the officers and other employees listed above who are available to meet with the audit team during the audit team’s 120-day review period.

2002–43 I.R.B. 747 October 28, 2002

2. Planning and Source of the Transaction: 2.1. Identify the source of the idea of an LC transaction and its structure. 2.1.1. Did the idea to engage in a LC transaction originate with an outside tax advisor to the taxpayer? 2.1.2. Did the idea to engage in a LC transaction originate with an outside business/non-tax advisor to the taxpayer? 2.1.3. Did the idea to engage in a LC transaction originate with the tax department of the taxpayer? 2.1.4. Did the idea to engage in a LC transaction originate in a business unit of the taxpayer? 2.1.5. Identify the principal persons within the taxpayer’s organization or outside the company who are the source of the idea. 2.1.6. Identify the principal persons who participated in planning the LC transaction and its structure, including their affiliation and role in the planning process.

2.2. Copies of any communications, brochures, memoranda or other materials received from or sent to the sources (internal or external to the taxpayer’s organization) of the idea of a LC transaction.

2.3. Describe any studies, analyses, forecasts, projections or other due diligence performed or prepared in connection with planning the LC transaction by any entity involved. 2.3.1. Copy of any reports or documents identified in 2.3.

2.4. Did the taxpayer receive any tax opinion(s) regarding the transaction? 2.4.1. Identify the author(s) of tax opinion(s). 2.4.2. Identify the source of the tax opinion(s). 2.4.3. Identify when the tax opinion(s) were received. 2.4.4. Who paid the author(s) of the tax opinion(s). 2.4.5. Copy of any engagement letter(s) pertaining to tax opinion(s) received. 2.4.6. Copy of the tax opinion(s).

2.5. Did the taxpayer receive outside legal, actuarial or other professional opinions or studies regarding non-tax aspects of the LC transaction? 2.5.1. Copies of such opinions or studies. 2.5.2. Copies of engagement agreements pertaining to the scope of the services performed and compensation arrangements.

2.6. Was the taxpayer subject to confidentiality agreement(s) with its outside tax advisor(s) within the meaning of section 6111(d)? 2.6.1. Copies of such agreement(s).

2.7. Identify the capital gains that were netted with the stock capital loss. 2.7.1. When were the capital gains transactions completed and gain amount known?

3 . Third-Party Shareholders of the LC: 3.1. How were the third-party shareholders identified or selected to participate in the LC transaction? 3.1.1. Copies of communications with the third party and other materials pertaining to the LC transaction provided to the third party. 3.1.2. Were any third-parties owned directly or indirectly by any person or entity involved in the source or planning of the LC transaction? Identify that ownership relationship.

3.2. Was a third-party shareholder organized for the purpose of the LC transaction? 3.2.1. If so, identify the shareholder and who organized it?

3.3. Describe the business activities of the third-party shareholders prior to becoming a shareholder of the LC.

October 28, 2002 748 2002–43 I.R.B.

3.4. Did a third-party shareholder, or any affiliate of a third-party shareholder, have any prior relationship with the taxpayer? 3.4.1. Describe the nature of that relationship? 3.4.2. Copy of any agreements pertaining to that relationship.

3.5. Did the taxpayer solicit other persons or entities to be shareholders of the LC that did not become shareholders? 3.5.1. Identify the other persons or entities. 3.5.2. Provide a copy of any correspondence or other solicitation materials.

3.6. Copy of agreements with a third-party shareholder, including but not limited to: 3.6.1. Subscription agreement or other purchase commitment. 3.6.2. Other documents evidencing the purchase of the LC shares, such as buy-sell, purchase or sale agreements. 3.6.3. Other formal or informal arrangements between taxpayer or LC and third party that might offset, in whole or in part, any risks or rights to profits that the third party had in the LC.

3.7. Did the taxpayer and third-party shareholders negotiate over the terms of the stock or the purchase price of the shares issued to them? 3.7.1. Identify the persons who engaged in such negotiations. 3.7.2. Did any third-party shareholder perform a due diligence study or investigation in connection with its purchase? Identify any such shareholders and describe the due diligence performed. 3.7.3. Copies of documents provided to the third party in connection with its due diligence efforts.

3.8. Why did the third party become a shareholder of the LC? 3.8.1. From the taxpayer’s perspective, what value did the third-party shareholder add to the LC?

3.9. Did any third-party shareholder have a nonshareholder relationship with the taxpayer or the LC after the transaction? 3.9.1. Describe the nature of that relationship. 3.9.2. Copy of agreements pertaining to that relationship.

3.10. Provide the name, current position, address and telephone number of a primary contact person for each thirdparty shareholder who has personal knowledge about the third party’s participation in the LC transactions or stock sale, and if such person is not currently an employee or representative of the third party, the name of a person who has access to third-party records. 3.11. Are there any restrictions on the ability of the third-party shareholder to sell the stock? 3.12. Did any agreement provide the third-party shareholder with a means of disposing of its stock? If so, provide such agreement or agreements. 3.13. If the price for resale of the stock was subject to some future contingency or valuation, provide any documents showing expectations at, or in advance of, the time of the LC transaction showing the projected sales price. 3.14. Who currently owns the LC stock? If it has been sold or transferred, supply the details of such sale or transfer.

4 . Assets Transferred: 4.1. Identify all the assets transferred to the LC by the transferors in the purported Section 351 exchange, including its basis in the hands of the transferor and its fair market value at the time of the transfer.

4.2. If the assets transferred consisted of intercompany account or note receivables: 4.2.1. Did the receivable exist prior to planning the LC transaction? If so, describe when and how it originated. 4.2.2. If not, did the taxpayer have a business purpose for the creation of the intercompany receivable? Describe the business purpose and provide documentation supporting that business purpose. 4.2.3. Were any payments made on the receivable to the LC after the LC transaction? 4.2.4. Identify the amounts paid, by whom and when. 4.2.5. Identify how the payments were made, e.g., cash or journal entries.

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4.2.6. Supply documentation demonstrating that the obligor was financially capable of making the payments due on any debt instrument contributed to the capital of the LC. 4.2.7. Were any assets transferred to the obligor on any debt instrument contributed to the capital of the LC within 60 days before or after the date on which the obligation was created?

4.3. If the assets transferred consisted of cash, describe how the LC utilized the cash. 4.3.1. Were there any side agreements associated with the transfer of cash? 4.3.2. If so, provide copies of any lending agreements, loans, notes, letters of credit or other documents between the LC, taxpayer, or other members of the taxpayer’s group.

4.4. Copy of documents evidencing the asset, such as 4.4.1. Promissory notes for receivables. 4.4.2. Purchase agreements for other assets owned by a transferor.

4.5. Copy of transfer documents, such as 4.5.1. Assignments. 4.5.2. Wire transfers for cash.

4.6. Document the basis of all assets transferred that affect the basis of the stock sold.

5. Nature of Liabilities Transferred: 5.1. Specifically identify the liabilities transferred.

5.2. How were the liabilities identified? 5.2.1. Who identified the type of liabilities to be transferred? 5.2.2. Who identified the specific liabilities transferred? 5.2.3. What criteria was used to select the liabilities transferred? 5.2.4. Were all liabilities of the taxpayer of the same nature or type transferred to the LC ( e.g., were all environmental liability risks transferred or only selected ones)? 5.2.5. How was the amount of the liabilities to be transferred determined and computed?

5.3. Did the taxpayer perform an in-house valuation of the liabilities? 5.3.1. Who performed the valuation? 5.3.2. Describe the person(s) qualifications to value the liabilities. 5.3.3. Copy of the valuation report, including assumptions, conclusions and worksheets or compilation of the results.

5.4. Did the taxpayer receive third-party valuation(s) of the liabilities to be transferred? 5.4.1. Who performed the valuation? 5.4.2. Describe the person(s) qualifications to value the liabilities. 5.4.3. Copy of the valuation report, including assumptions, conclusions and worksheets or compilation of the results.

5.5. Was the taxpayer studying ways to manage or reduce the liabilities transferred to the LC before considering whether to engage in the LC transaction? 5.5.1. Who was conducting the study? 5.5.2. Documentary evidence that such study was being performed and when.

5.6. Did the transferred liabilities relate directly to a core business activity of the taxpayer? 5.6.1. Identify the core business activity and the liabilities’ relationship to it. 5.6.2. How were the liabilities reported by the transferor for financial reporting purposes prior to the LC transaction?

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5.7. Did the taxpayer make subsequent transfers of similar liabilities to the LC? 5.7.1. Describe the subsequent transfers.

5.8. Was the taxpayer required to give notice to and/or obtain approval of a relevant Federal or State regulatory agency with respect to the transfer of the liability? 5.8.1. If so, was such notice given/approval obtained? 5.8.2. Provide copies of the notice(s) and approval(s).

5.9. Was the taxpayer required to give notice to and/or obtain approval of other third parties ( e.g., employees, banks, lenders or other creditors, particularly the creditors of the specific liability transferred) with respect to the transfer of the liability? 5.9.1. If so, was such notice given/approval obtained? 5.9.2. Provide copies of the notice(s) and approval(s).

6. Management of Liabilities Transferred: 6.1. Describe how the liabilities were managed or administered before the LC transaction, including the name and position of the person responsible for overseeing the daily management or administration activities.

6.2. Describe how the management or administration of the liabilities changed after the LC transaction, including the name and position of the person responsible for overseeing the daily management or administration activities.

6.3. Did any of the third-party shareholders play an active and ongoing role in the management and/or administration of the liabilities before or after the LC transaction? 6.3.1. Describe the role played. 6.3.2. Copy of any agreements with third-party shareholders related to the management and/or administration of the liabilities.

6.4. Did the LC engage the services of outside consultants or other professionals in connection with the management or administration of the liabilities? 6.4.1. Identify the consultants or professionals. 6.4.2. Describe the consultants’ experience or other qualifications in managing or administering the types of liabilities transferred to the LC. 6.4.3. Describe the services performed. 6.4.4. Copy of any agreements with such consultants or professionals.

6.5. If any liabilities have been paid since the LC transaction, identify the entity that made the actual payments to the creditor? 6.5.1. If any liabilities were actually paid by someone other than the LC, how did the LC record the payments?

7. Liability Company 7.1. Did the LC have any employees or officers? 7.1.1. How many and what services did they perform? 7.1.2. Who paid their compensation, including bonuses? 7.1.3. Were any of these individuals also employees or officers of the taxpayer’s affiliated group? 7.1.4. Identify the CEOs or CFOs of the LC since the LC transaction to current.

7.2. Did the LC have business operations that were separate from the management and/or administration of the liabilities transferred in the LC transaction? 7.2.1. Describe those operations.

7.3. Did the LC manage or administer liabilities of parties unrelated to the taxpayer? 7.3.1. Describe.

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7.4. Describe any specific activities of the LC that were intended to reduce or improve management of the liabilities.

7.5. Did the LC achieve cost savings with respect to the liabilities it assumed? 7.5.1. Identify those savings and provide a computation evidencing the savings.

7.6. Did the LC transaction confer any non-tax economic, accounting or financial statement benefits for the taxpayer? Describe.

7.7. Have any of the liabilities been paid, satisfied, written-off or eliminated since transferred to the LC? 7.7.1. Identify the liabilities and amounts, including the taxable year. 7.7.2. Describe how the liability was paid or otherwise satisfied. 7.7.3. If the liability has been written-off by a creditor or eliminated by the taxpayer or LC, explain the circumstances.

7.8. Did the LC claim deductions or capitalize the payment of any of the liabilities? 7.8.1. Identify the amounts claimed, including the taxable years reported and whether deducted or capitalized.

7.9. Provide the following documents: 7.9.1. Separate financial statements of the LC since the LC transaction (if such statements are not available, yearend trial balances of the LC). 7.9.2. If the LC was not a member of the taxpayer’s consolidated group for federal income tax purposes at any time since the LC transaction, a copy of the LC’s separate Forms 1120 for that period. 7.9.3. Copies of minutes of meetings of shareholders and/or board of directors of the LC since the LC transaction. 7.9.4. Copy of General Ledger accounts affected by the contingent liability transaction, payments of liabilities and collections on receivables transferred.

B. Disclaimer. In cases not governed by this settlement initiative, the IRS and the Department of Justice will not be limited to seeking the information set forth, described or requested in this Information Request.

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monthly statements that were required under Rev. Proc. 2002–16 but does not eliminate the requirements that a partnership file Form 1065, U.S. Return of Partnership In- come, and provide a Schedule K–1 (Form 1065) to each partner. Electing partnerships and consenting partners must keep adequate books and records of income, gain, loss, deduction, and credit relating to partnership items to enable the Service to determine each partner’s share of the partnership’s monthly income and expenses. Treasury and the Service request comments on additional simplified reporting procedures that may be appropriate. Finally, section 9 of this revenue procedure extends the transition period provided in Rev. Proc. 2002–16.