At your request, we have examined the issues concerning possible Treas. Reg.

MEMORANDUM TO: Senior Partner FROM: LL.M. Team Number DATE: November 8, 2013 SUBJECT: 2013-2014 Law Student Tax Challenge Problem At your request, we have examined the issues concerning possible Treas. Reg. 301.7701 check-the-box elections for GMG European Holdings S.á.r.l ( Holdings ) and Sure Thing, including the potential consequences of the Holdings election. Our analysis, along with some potential planning strategies and questions for the client, follow below. SUMMARY OF FACTS We noticed a discrepancy between the organizational chart provided by General Media Group ( GMG ) and the Table 1 GMG Corporate Structure From Email Facts facts provided in your email, and are assuming that the facts from the email are correct. The facts, as well as a corrected organizational chart, follow: GMG, a US corporation with a June 30 fiscal year end, formed a wholly-owned foreign subsidiary in 2011, Holdings, which is treated as a disregarded entity under U.S. federal income tax law. The same year, Holdings bought MyFace, an Irish corporation, for $35 million from an unrelated seller, using $25 million borrowed from a third-party lender as well as! GMG Corporate Structure from Chart Provided! $10 million borrowed from GMG. As of 2013, GMG believes its MyFace stock is worth $15 million with a basis of $20 million.!!

In January 2012, GMG formed Longshot Limited ( Longshot ), a UK limited company treated as a disregarded entity under US federal income tax law. Longshot entered into a Profit Participation Agreement ( Agreement ), with Gladblokes plc ( Gladblokes ) to collaborate on the development of software. In 2012, GMG contributed $5 million in expenses under the Agreement, mostly due to the salaries of its software engineers. GMG made no mention of the Sure Thing collaboration on its 2012 US federal tax return. GMG believes its current interest in the collaboration is worth $15 million. I. CAN SURE THING ELECT TO BE TREATED AS A CORPORATION UNDER THE CHECK-THE-BOX REGULATIONS? To elect a particular entity classification under Treas. Reg. 301.7701, it is necessary to first determine whether there is a separate entity solely as a matter of federal tax law. Treas. Reg. 301.7701-1(a)(1). Treas. Reg. 301.7701-1(a)(2) states that participants may create a separate legal entity for federal tax purposes if they engage in a trade or business, venture, or other profitsharing activities. A. IS SURE THING AN ENTITY? Courts and the Service conduct a multifactor analysis under Luna v. Comm r to determine whether the participants in a joint venture have created as separate entity, though no single factor is conclusive. 42 TC 1067, 1077-78 (1964). Some of the factors to consider include: the agreement of the parties and their conduct in executing its terms; the sharing of a mutual proprietary interest in the net profits and having an obligation to share losses; whether separate books are records are maintained for the venture; whether business was conducted in the joint names of the parties; whether the parties filed Federal partnership returns or otherwise represented to others that they were joint venturers; and whether the parties exercised mutual control over the enterprise. Id 2

Numerous portions of the Profit Participation Agreement strongly suggest that Longshot and Gladblokes have created a new entity. The Distribution of Proceeds provision in the Agreement allows for each member of the venture to share in the profits and losses derived from its operations. The provision titled Accounts, requires the keeping of separate books and records... in connection with the profit sharing arrangement. Distribution of Proceeds states that the distribution of profits may be allocated to the members capital account. Management and representation specifies that the two companies are mutually charged with responsibility for the management and finances of the project through committees with equal numbers of Longshot and Gladblokes members. Also, under a provision titled Termination, the Sure Thing project may only be terminated upon mutual consent of the parties. Some factors indicate the absence of a separate entity. The Legal Personality provision of the Agreement states there is no intention to create a separate juridical entity. Also, GMG did not file a form 1065, and in fact made no mention of the collaboration in its 2012 US federal tax return. Also, the software produced was displayed and marketed on Gladblokes own website to its own customers, who were charged an additional fee by Gladblokes. However, these facts, in the aggregate, are not conclusive as to whether Sure Thing is an entity separate from its owners. Though Longshot and Gladblokes stated they were not creating a separate juridical entity, in Wheeler v. Comm r, the United States Tax Court found the existence of a joint venture, and thus an entity separate from its participants, even though their agreement specifically stated that they did not intend to form a partnership. 37 TCM (CCH) 883, 890-91 (1978). Also, we know from the facts that GMG desired to wait for the true-up before taking 3

into account income from the project on its tax returns. Additionally, GMG considered the Sure Thing project to be risky, which is why the software was marketed on the Gladblokes web site. Given the above Luna factor analysis, Sure Thing should be treated as an entity separate from Longshot and Gladblokes for purposes of Treas. Reg. 301.7701-1. Despite the fact that it may not be cited as binding authority, I.R.S. Chief Couns. Adv. Mem. 201323015 (June 7, 2013) indicates that the Service will likely reach the same conclusion (concluding on similar facts that the joint venture between two US companies to develop and market a product was an entity separate from its owners for US federal tax purposes). B. WHAT IS SURE THING S CURRENT CLASSIFICATION? Under the Regulations, a business entity with two or more members is classified for federal tax purposes as either a corporation or a partnership. Treas. Reg. 301.7701-2(a) says that a business entity is any entity recognized for federal tax purposes that is not properly classified as a trust or otherwise subject to special treatment under the Internal Revenue Code. Treas. Reg. 301.7701-2(c)(1) states that a partnership is a business entity that is not a corporation under Treas. Reg. 301.7701-2(b), and has at least two members. Sure Thing is a business entity, has two members, and will not be classified as a trust. To determine whether Sure Thing shall be treated as a partnership under Treas. Reg. 301.7701-2(c)(1), we need to determine its default classification under the Regulations, as well as its default status under the Comm r v. Culbertson analysis. C. WHAT IS SURE THING S DEFAULT CLASSIFICATION? Treas. Reg. 301.7701-3 states that a business entity that is not classified as a corporation under Treas. Reg. 301.7701-2(b) is an eligible entity. Sure Thing does not fall into the list of entities treated as per se corporations under Treas. Reg. 301.7701-2(b), but we must 4

look to Treas. Reg. 301.7701-3 to be certain that it will not be treated as an association. An entity classified as an association under Treas. Reg. 301.7701-3 will be treated as a corporation for purposes of Treas. Reg. 301.7701-2(b). i. Is Sure Thing a Foreign Eligible Entity? Under Treas. Reg. 301.7701-3(b)(2)(i)(B), a foreign eligible entity will be classified as an association if all members have limited liability. Therefore, we must first decide if Sure Thing is a foreign entity. I.R.C. 7701(a)(5) states that the term foreign when applied to a corporation or partnership means a corporation or partnership that is not domestic. Sure Thing is not a domestic entity because it was not created or organized in the United States, or under the law of any state. I.R.C. 7701(a)(4). As the entity is not considered to be domestic, it is foreign. The next step of the analysis is to determine whether all members of Sure Thing have limited liability. The Regulations specify that limited liability means a member has no personal liability for the debts of or claims against the entity by reason of being a member. Treas. Reg. 301.7701-3(b)(2(ii) (stating that a member has personal liability if the creditors of the entity may seek satisfaction of all or any portion of the debts or claims against the entity from the member as such). This determination is based solely on the statute or law pursuant to which the entity is organized. Id. Given the terms of the Agreement, neither Longshot nor Gladblokes enjoys limited liability. The Liability provision of the Agreement specifies that the law of England & Whales applies, and that each member is jointly and severally liable for any liabilities arising to third parties in connection with the profit sharing agreement. Therefore, both members have unlimited liability under the Agreement. 5

Because at least one member does not have limited liability under the agreement, and because the joint venture is not a per se corporation under Treas. Reg. 301.7701-2(b), Sure Thing should not be treated as an association and thus is an eligible entity under Treas. Reg. 301.7701-3. Thus, the Sure Thing joint venture will default to partnership status because Sure Thing is a foreign eligible entity, and no election was made to treat it differently. Treas. Reg. 301.7701-3(b)(2). ii. Commissioner v. Culbertson Analysis Analysis under the applicable case law results in the same conclusion as under the Regulations. In Comm r v. Culbertson, the United States Supreme Court stated that when determining the existence of a partnership for US federal tax purposes, the relevant inquiry is whether, considering all the facts... the parties in good faith and acting with a business purpose intended to join together in the present conduct of the enterprise. 337 US 733, 742 (1949). Given the analysis of the Luna factors, and the existence of the Profit Participation Agreement, it is likely that Longshot and Gladblokes did intend in good faith and with a business purpose to jointly conduct the Sure Thing project. As the above analysis indicates, the Regulations, Culbertson analysis, and Luna factors suggest that the Sure Thing joint venture will be treated as a partnership for US federal tax purposes. D. CAN SURE THING ELECT TO BE TREATED AS A CORPORATION? Yes, Longshot may elect to treat Sure Thing as a corporation under the check-the-box Regulations. Under Treas. Reg. 301.7701-3(a), Sure Thing is an eligible entity with at least two members, and may elect to be classified as either an association, and thus a corporation, or a partnership. The election would be made using Form 8832 pursuant to the instructions provided in Treas. Reg. 301.7701-3(c), and failure to make an earlier election is not an issue. Treas. Reg. 6

301.7701-3(c)(1)(iv) (containing a 60-month limitation to change of classification applies to eligible entities that have already elected to change their classification). II. COULD GMG BE REQUIRED TO RECOGNIZE ANY INCOME AS A RESULT OF THE PROPOSED CHECK-THE-BOX ELECTION TO TREAT GMG HOLDINGS AS A CORPORATION? Under Treas. Reg. 301.7701-3(g)(iv), when GMG elects to treat Holdings as a corporation it will engage in a transaction deemed to occur under I.R.C. 351. GMG is deemed to transfer all of the assets and liabilities of Holdings to the newly formed corporation solely in exchange for stock of the corporation. While the I.R.C. 351 transaction is intended to qualify as a tax-free incorporation, providing for nonrecognition of gain or loss, there are two notable exceptions that may cause GMG to recognize gain as a result of its decision to check-the-box. First, the $10 million intra-corporate debt between GMG and Holdings, while not recognized for US tax purposes before the I.R.C. 351 transaction, might give rise to taxable boot under I.R.C. 351(b). Second, Holdings assumption of liabilities in the I.R.C. 351 transaction may give rise to gain under I.R.C. 357(c), resulting in gain recognition to the extent that liabilities exceed the total adjusted basis of the property transferred. A. SPRINGING BOOT UNDER I.R.C. 351(b) To qualify for nonrecognition under I.R.C. 351(a), a transferor corporation must contribute property solely in exchange for stock in the transferee corporation. However, GMG s transfer of the $10 million intra-corporate debt, while not recognized for US tax purposes before the I.R.C. 351 transaction, might be considered other property for purposes of I.R.C. 351(b), a concept known as springing boot. Springing boot refers to the possibility that an otherwise tax-free transaction may give rise to taxable boot, specifically where an intra-corporate debt becomes an inter-corporate debt. While positive authority exists for treating an intra- 7

corporate debt as non-boot for I.R.C. 351(b), reliance on such precedent is not advisable. Therefore, GMG could potentially risk recognizing $10 million of boot under I.R.C. 351(b) as a result of its check-the-box election. Although such an outcome is not favorable for GMG, some planning options provided below may mitigate, and even prevent, any gain recognition. In Wham Construction Company, Inc. v. United States, 600 F.2d 1052 (4th Cir. 1979), the Fourth Circuit held when a corporation incorporated one of its divisions, in a transaction governed by I.R.C. 351, the intra-corporate debt transferred was not considered other property for purposes of 351(b); therefore, the transferor was not deemed to receive boot in the I.R.C. 351 exchange. The Court, citing Portland Oil Co. v. Comm r, 109 F.2d 479 (1st Cir. 1946), reasoned that the transferor received nothing in the transaction that it did not own before. Id. In contrast, Rev. Rul. 80-228, 1980-2 C.B. 115 (1980) considered a nearly identical fact pattern to Wham. The Service found that the intra-corporation loan between transferor, X Corp., and transferee, Y Corp., did constitute other property for 351(b) purposes, and as such sprang to life when the intra-company debt was converted to inter-company debt. The Service reasoned that the pre-incorporation indebtedness could not merely carryover to the books of Y because prior to the incorporation the debt was disregarded for US tax purposes. Applying the facts from Rev. Rul. 80-228 to the facts provided, upon incorporation of Holdings, GMG would recognize $10 million of gain under I.R.C. 351(b). If GMG were located within the Fourth Circuit s jurisdiction, a potential avenue that GMG could take is to rely on Wham exclusively as it is still good law. Essentially, GMG would be asserting that the $10-million intra-corporation debt is not boot for I.R.C. 351(b) purposes. While this option is available, it would not be advisable for GMG to lean heavily on Wham. The 8

Service s critical stance toward Wham, as seen in Rev. Rul. 80-228 and the Field Service Advice 5693-93 (1993), is not unfounded, and may lead them to challenge GMG s position. Thus, reliance on Wham could result in increased costs and potential gain recognition. For this reason, we should not advise GMG to consider such an aggressive course of action. Another planning option, if conceivable by GMG, would be for GMG to cancel the debt entirely before the I.R.C. 351 transaction occurs. The cancellation would alleviate the I.R.C. 351(b) springing boot problem. According to Rev. Rul. 80-228, the Service noted that an intracorporate debt is disregarded for US tax purposes. Following this reasoning, if GMG cancelled the debt, prior to the I.R.C. 351 transaction, it would be as if the debt never existed; thereby, GMG would not receive an account receivable constituting other property for I.R.C. 351(b) purposes. Since the debt was disregarded for federal tax purposes, the termination of such debt would not result in any cancellation of indebtedness income under I.R.C. 61(a)(12). While this option is advisable to prevent GMG from recognizing gain under I.R.C. 351(b), we need to consult with the client to ascertain whether such an option is even feasible. GMG may not be willing to cancel this intra-corporate debt due to other domestic or foreign tax or non-tax factors. While cancelling the debt prior to the I.R.C. 351 transaction is the most advisable way for GMG to cure the potential I.R.C. 351(b) problem, other options may be available to mitigate boot if GMG determines that it is unwilling or unable to part with the $10 million debt, however, such options may still lend themselves to some gain recognition. See also I.R.S. Priv. Ltr. Rul. 200031039 (Aug. 4, 2000); Rev. Rul. 80-228 (comments near the end of the Ruling could be read to imply that certain preventative steps taken by the Taxpayer would not be challenged). 9

B. ASSUMPTION OF LIABILITIES UNDER I.R.C 357(c) When GMG transfers the assets and liabilities to the newly incorporated Holdings, in the I.R.C. 351 transaction, it will recognize $5 million of gain. See I.R.C. 357(c). While I.R.C. 357(a) generally allows a transferor to offset liabilities against basis, I.R.C. 357(c) provides that if the liabilities exceed the total adjusted basis of the contributed property, such excess shall be considered gain from the sale or exchange of a capital asset. From the facts, GMG will contribute the MyFace stock with an adjusted basis of $20 million. GMG will also be transferring the $25 million liability Holdings assumed when it acquired MyFace. According to I.R.C. 357(c), this would result in an excess of $5 million of liabilities. Therefore, such a result would yield a $5 million gain recognizable to GMG under I.R.C. 357(c). Additionally, I.R.C. 362(a) generally allows for a basis increase for the transferee corporation by the amount of gain realized by the shareholder as a result of the I.R.C. 357(c) assumption. However, I.R.C. 362(d) prevents the basis of any property to be increased above the fair market value. From the facts, GMG contributed property with a built-in loss; as a result Holdings will not get to increase its basis after GMG recognizes the $5 million gain. i. Planning Options to Mitigate or Eliminate the I.R.C. 357(c) Gain A potential planning option would be for GMG to contribute the Longshot stock, and thus ownership of the Sure Thing partnership interest, to Holdings prior to the I.R.C. 351 transaction. Additional facts would be required from the client in order to accurately analyze the potential value of Longshot s partnership interest in the Sure Thing venture. Since a partnership interest constitutes property for an I.R.C. 351 transaction, contribution of Longshot s interest to Holdings could avoid I.R.C. 357(c) gain if Longshot s basis is at least $5 million. See I.R.C. 357(a). Additionally, such contribution would conform the tiered structure of GMG to that 10

indicated by the client. This hub and spoke structure would be ideal given GMG s desire to achieve deferral by electing to treat Holdings as a corporation for US tax purposes. From the facts, GMG estimates that its current interest in Sure Thing is $15 million, however, it has never filed a US federal tax return recognizing this amount. If GMG were to file an amended return recognizing gain under I.R.C. 61 and 83(a), the amount could be added to its outside basis in the Sure Thing venture. Assuming no distributions have been made by Sure Thing, and GMG recognizes gain by filing amended returns, GMG could potentially have a basis of $15 million. Thus, in the I.R.C. 351 transaction, the estimated total adjusted basis of the property transferred would be $35 million with a liability of $25 million, resulting in no excess for I.R.C. 357(c) purposes. Therefore, GMG could rely on I.R.C. 357(a), which would allow it to apply the $25 million liability first against its basis in contributed property, preventing the application of I.R.C. 357(c). III. DISCUSSION OF FACTUAL DISCREPANCY & OPTIMUM TAX STRUCTURE A. THE FACTS FROM THE EMAIL ARE CONSISTENT WITH GMG S DESIRE TO CHECK-THE-BOX FOR SURE THING From the facts, GMG, and not Holdings, was stated to form Longshot. Such a discrepancy not only indicates a different tiered structure of GMG s foreign operations (depicted in Table 1 above), but also is consistent with GMG s desire to check-the-box to treat Sure Thing as a corporation. GMG s goal to obtain deferral benefits would only be achieved through the use of a check-the-box election at either the Longshot or Sure Thing level. Without such an election, all of the income and gain from the Sure Thing venture would merely pass-through to GMG, defeating its goal of deferral. If the chart provided by the client is correct, Holdings formed Longshot, the election to treat Sure Thing as a corporation would not be necessary. By electing to treat Holdings as a 11

corporation, GMG would have established a sufficient blocker to insulate foreign income from US taxation. Since both Longshot and Sure Thing would be pass through entities, all income would flow directly to Holdings where the income would accumulate awaiting potential repatriation. B. MORE FACTS ARE NECESSARY TO DETERMINE WHETHER CONTRIBUTION OF THE SURE THING PARTNERSHIP INTEREST COULD ELIMINATE ANY I.R.C. 357(C) GAIN As it pertains to our discussion above, regarding our solution to GMG s potential I.R.C. 357(c) gain, it is tough to know whether GMG should have recognized any I.R.C. 83 income for Longshot s receipt of a 50% capital interest. I.R.C. 83(a) provides for inclusion in gross income if the value of the transferred property exceeds the amount the service provider, GMG, paid for the property. Additionally, I.R.C. 83(a) provides that such inclusion occurs at the time such property right vests, meaning when Longshot could readily transfer its interest. While it is clear that Longshot s partnership interest vested at the time of the Agreement, what remains unclear is what the fair market value of the interest was at the time of receipt. See Treas. Reg. 1.721-1(b)(1). Thus, further facts are required from the client concerning the initial valuation of its software and copyrights, whether any contributions of property were made, and whether Longshot paid anything for its interest. If, upon receiving further information, we could show that GMG should have recognized gain, GMG could file an amended return recognizing this amount as income; thereby, allowing it to increase its basis in the Sure Thing interest. I.R.C. 705. While GMG will have to recognize gain as a result of this option, the resulting basis increase in Longshot s partnership interest may reduce or eliminate the I.R.C. 357(c) gain in the I.R.C. 351 transaction. Such analysis would likewise be required if the client s chart proves to be accurate. 12

LAW OFFICES OF LL.M. TEAM NUMBER Tax Town, ABA State, 10000 Client Tax Town, ABA State, 10000 Dear Client, Re: 2013-2014 Law Student Tax Challenge Problem This letter is in response to your request for advice on whether you can elect to treat Sure Thing, as well as GMG European Holdings S.á.r.l. ( GMG Holdings ), as corporations for tax law purposes. You also asked us to determine any potential tax consequences from the election to treat holdings as a corporation for tax purposes. Our findings, along with our recommendations and questions to you, follow below. To the extent that any of our assumptions are incorrect, please notify us as soon as possible. To the extent you have access to such information, please forward it to our office at your earliest convenience. I. Can You Elect to Treat Sure Thing as a Corporation for Tax Law Purposes? Yes, you may elect to treat Sure Thing as a corporation under the US federal tax law. However, while conducting our research we discovered that Sure Thing likely has the status of a partnership under US tax law currently. When an owner forms a business entity, but does not file a Form 8832 to choose a particular entity classification, the tax law will classify the entity by default. The default rules ensure that the entity has a status under the tax law so that its owners know how to treat it for tax purposes. Under the IRS Regulations, if a foreign collaboration is recognized as a joint venture, there is a chance it will be treated as a separate entity. If under the terms of the joint venture neither member has limited liability, the joint venture will default to the status of a partnership under the tax law. Courts also apply a factor analysis to determine whether the members of a particular joint venture have created a separate entity for tax law purposes.

After conducting research on this issue, it appears that by the terms of your Profit Participation Agreement with Gladblokes plc, both courts and the IRS would likely conclude that you have formed a partnership for tax law purposes. While this will allow greater flexibility in allocation of income and loss in Sure Thing, it also means that you should be reporting the income from the Sure Thing joint venture. As a result, you should file an amended return recognizing this income, which may have beneficial consequences as discussed below. II. Can You Elect to Treat GMG Holdings as a Corporation for Tax Law Purpose? Yes, you can elect to treat GMG Holdings as a corporation for US federal tax law purposes. In coming to this determination, we assumed that you filed an initial election to treat GMG Holdings as a disregarded entity on its initial date of formation. We need you to confirm this assumption, as it will ensure your ability to check-the-box for GMG Holdings. III. Consequences of An Election to Treat GMG Holdings as a Corporation Before we discuss the potential tax consequences stemming from your decision to elect to treat GMG Holdings as a corporation, it is important to quickly provide the general process that ensues when a disregarded entity is converted to a corporation for US federal tax purposes. After an election is made, you will be considered to transfer all of the assets and liabilities currently held by GMG Holdings to the newly incorporated GMG Holdings. From the facts provided, this would include the MyFace stock, as well as the $10 million note between you and GMG Holdings. While this process is generally afforded tax-free treatment, there are two notable exceptions that may cause you to recognize gain as a result of the election. First, your intra-corporate debt of $10 million, while not currently recognized as a liability under federal tax law, would likely be recharacterized as an account receivable after the transfer, resulting in taxable gain of $10 million. For purposes of federal tax law, this result 2

occurs because your pre-incorporation note does not give rise to a debtor-creditor relationship. After the election, when GMG Holdings becomes a separate entity, the debt will be recognized and you will receive an asset worth $10 million, thereby triggering gain. While positive case law exists to prevent such a result, reliance upon this precedent may subject you to challenge by the IRS resulting in potential tax liability and increased legal costs. A more prudent approach would be to cancel this debt entirely prior to your election. This approach would spare you from recognizing any tax liability as it relates to the $10 million note. While we consider this to be the best option to avoid unwanted tax liability, we understand that you may have business reasons for retaining it. If this is the case, our firm could provide additional options designed to mitigate tax liability stemming from the $10 million note. Second, there is a potential $5 million tax liability due to the $25 million third party loan obtained by GMG Holdings. There is a special provision in the federal tax law that requires a person receiving an interest in a corporation to recognize gain to the extent that the liability transferred exceeds the total basis of property transferred. From the facts, GMG Holdings MyFace stock, having a basis of $20 million, is less than the $25 million liability; therefore, the excess $5 million amount must be recognized as gain. There is a potential planning option to avoid recognizing gain as a result of transferring liabilities in excess of basis. You could, prior to the election, transfer Longshot Limited s ( Longshot ) stock to GMG Holdings. Assuming that Longshot s interest in Sure Thing has sufficient basis, this contribution could potentially mitigate or eliminate the $5 million gain. IV. Clarification Questions and Potential Planning Options In answering the questions you have presented our firm, we encountered a few issues requiring clarification. First, we noticed that the organizational chart you provided differs from 3

the facts provided to our Firm during our initial consultation. Specifically, did GMG Holdings form Longshot, or did you, GMG, form Longshot directly? The answer to this question will affect the desirability of the election to treat Sure Thing as a corporation. If the chart you provided is accurate, Holdings formed Longshot, the election to treat Sure Thing as a corporation would not be necessary to achieve deferral. If you elect to treat Holdings as a corporation, you will have established a sufficient blocker to insulate foreign income from US federal taxation. Since both Longshot and Sure Thing would be pass through entities, all income would flow directly to Holdings where the income would accumulate awaiting potential repatriation. Thus, your goal of deferral would be achieved. Secondly, in order to provide a more accurate assessment of potential tax liability as a result of your election, further facts are required concerning the initial valuation of Sure Thing. Such facts include: its software and copyrights; contributions of property; and whether Longshot paid anything for its interest in the joint venture. If the value of the assets held by Sure Thing, including the software, is sufficiently high, you may owe tax due to the your provision of services under the Agreement. While this may lead to gain recognition, it may allow you to take basis in your interest in Sure Thing. This may allow you to mitigate or even eliminate gain as a result of the $25 million liability once the Longshot stock is contributed to Holdings. If the chart you provided is correct, our analysis pertaining to Sure Thing and Holdings will be the same. The only difference is that the transfer of Longshot s shares would be unnecessary. Thus, the sufficiency of our evaluation of your tax liability would still depend upon an adequate valuation of your Sure Thing partnership interest. Please feel free to contact us should you have any additional questions or concerns. Sincerely, LL.M. TEAM NUMBER 4