2004 Ruling 2004-0065921R3 - Conversion of corporations into LLCs

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether the conversions of corporations incorporated under the laws of Delaware and California into limited liability corporations result in dispositions at the shareholder or at the entity level.

Position: No.

Reasons: This is similar to corporate continuance in Canada and should be a non-taxable event.

XXXXXXXXXX 		2004-006592

XXXXXXXXXX, 2004

Dear XXXXXXXXXX:

Re: XXXXXXXXXX ("Canco 1")

This is in reply to your letters of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer.

To the best of your knowledge and that of Canco 1, none of the issues involved in this ruling request , as they specifically apply to Canco 1 and related corporations:

(i) is in an earlier return;

(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return;

(iii) is under objection; or

(iv) is before the courts.

Except as otherwise noted, all statutory references are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c.1, as amended (the "Act").

Definitions

In this letter the following terms have the meanings specified:

(a) "Canco 1" means XXXXXXXXXX;

(b) "Canco 2" means XXXXXXXXXX;

(c) "CBCA" means the Canada Business Corporations Act;

(d) "CGCL" means the General Corporation Law, being Division 1 of Title 1 of the California Corporations Code;

(e) "CLLCA" means the Beverly-Killea Limited Liability Company Act, being Title 2.5 of the California Corporations Code;

(f) "controlled foreign affiliate" has the meaning given to that term in subsection 95(1) of the Act;

(g) "DGCL" means the General Corporation Law, being Title 8 of the Delaware Code;

(h) "DLLCA" means the Limited Liability Company Act, being Chapter 18 of Title 6 of the Delaware Code;

(i) "foreign affiliate" has the meaning given to that term in subsection 95(1) of the Act;

(j) "IRC" means the Internal Revenue Code of the United States of America;

(k) "LLC" means a limited liability company;

(l) "LLC 2" means USco 2 following its conversion to an LLC as described below;

(m) "LLC 3" means USco 3 following its conversion to an LLC as described below;

(n) "LLC 4" means USco 4 following its conversion to an LLC as described below;

(o) "LLC 5" means USco 5 following its conversion to an LLC as described below;

(p) "LLC 6" means USco 6 following its conversion to an LLC as described below;

(q) "LLC 7" means USco 7 following its conversion to an LLC as described below;

(r) "LLC 8" means USco 8 following its conversion to an LLC as described below;

(s) "LLC 9" means USco 9 following its conversion to an LLC as described below;

(t) "LLC 10" means USco 10 following its conversion to an LLC as described below;

(u) "LLC 11" means USco 11 following its conversion to an LLC as described below;

(v) "LLC 12" means USco 12 following its conversion to an LLC as described below;

(w) "LLC 13" means USco 13 following its conversion to an LLC as described below;

(x) "LLC Agreement" means an operating agreement or limited liability company agreement of an LLC;

(y) "LLC 2 Agreement" means the LLC Agreement for LLC 2;

(z) "LLC 3 Agreement" means the LLC Agreement for LLC 3;

(aa) "LLC 4 Agreement" means the LLC Agreement for LLC 4;

(bb) "LLC 5 Agreement" means the LLC Agreement for LLC 5;

(cc) "LLC 6 Agreement" means the LLC Agreement for LLC 6;

(dd) "LLC 7 Agreement" means the LLC Agreement for LLC 7;

(ee) "LLC 8 Agreement" means the LLC Agreement for LLC 8;

(ff) "LLC 9 Agreement" means the LLC Agreement for LLC 9;

(gg) "LLC 10 Agreement" means the LLC Agreement for LLC 10;

(hh) "LLC 11 Agreement" means the LLC Agreement for LLC 11;

(ii) "LLC 12 Agreement" means the LLC Agreement for LLC 12;

(jj) "LLC 13 Agreement" means the LLC Agreement for LLC 13;

(kk) XXXXXXXXXX;

(ll) XXXXXXXXXX;

(mm) XXXXXXXXXX;

(nn) "public corporation" has the meaning given to that term in subsection 89(1) of the Act;

(oo) "taxable Canadian corporation" has the meaning given to that term in subsection 89(1) of the Act;

(pp) "USco 1" means XXXXXXXXXX;

(qq) "USco 2" means XXXXXXXXXX;

(rr) "USco 3" means XXXXXXXXXX;

(ss) "USco 4" means XXXXXXXXXX;

(tt) "USco 5" means XXXXXXXXXX;

(uu) "USco 6" means XXXXXXXXXX;

(vv) "USco 7" means XXXXXXXXXX;

(ww) "USco 8" means XXXXXXXXXX;

(xx) "USco 9" means XXXXXXXXXX;

(yy) "USco 10" means XXXXXXXXXX;

(zz) "USco 11" means XXXXXXXXXX;

(aaa) "USco 12" means XXXXXXXXXX;

(bbb) "USco 13" means XXXXXXXXXX; and

(ccc) "UScos" means USco 2, USco 3, USco 4, USco 5, USco 6, USco 7, USco 8, USco 9, USco 10, USco 11, USco 12 and USco 13, collectively.

Our understanding of the facts, proposed transactions and purposes of the proposed transactions is as follows:

Facts

1. Canco 1 is a corporation governed by the XXXXXXXXXX and is a taxable Canadian corporation. XXXXXXXXXX . Canco 1 is an indirect wholly owned subsidiary of Canco 2. Canco 1's Business Number is XXXXXXXXXX. Its affairs are administered by CCRA's XXXXXXXXXX Tax Services Office, and it files its returns with the XXXXXXXXXX Taxation Centre.

2. Canco 2 is a corporation governed by the CBCA and is a taxable Canadian corporation XXXXXXXXXX.

3. The current mailing address for each of Canco 1 and Canco 2 is:

XXXXXXXXXX.

4. USco 1 is a corporation governed by the DGCL. USco 1 is resident and carries on business in the United States of America. XXXXXXXXXX. USco 1 is a foreign affiliate and a controlled foreign affiliate of Canco 1. USco 1's principal asset is shares in the capital stock of USco 2. USco 1 has elected to be treated as a "real estate investment trust", or "REIT", for purposes of the IRC.

5. USco 2 is a corporation governed by the DGCL. USco 2 is resident and carries on business in the United States of America. USco 2 is a wholly owned direct subsidiary of USco 1 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and a controlled foreign affiliate of Canco 1. The assets of USco 2 consist principally of U.S. real estate operating assets, shares in the capital stock of USco 3 and majority interests in U.S. resident partnerships and LLCs that in turn hold primarily U.S. real estate operating assets.

6. USco 3 is a corporation governed by the CGCL. USco 3 is resident and carries on business in the United States of America. USco 3 is a wholly owned direct subsidiary of USco 2 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and a controlled foreign affiliate of Canco 1. The assets of USco 3 consist principally of U.S. real estate operating assets, majority interests in U.S. resident partnerships and LLCs that in turn hold primarily U.S. real estate operating assets.

7. USco 4 is a corporation governed by the DGCL. USco 4 is resident and carries on business in the United States of America. USco 4 is a wholly owned direct subsidiary of USco 1 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and controlled foreign affiliate of Canco 1.

8. USco 5 is a corporation governed by the DGCL. USco 5 is resident and carries on business in the United States of America. USco 5 is a wholly owned direct subsidiary of USco 1 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and controlled foreign affiliate of Canco 1.

9. USco 6 is a corporation governed by the CGCL. USco 6 is resident and carries on business in the United States of America. USco 6 is a wholly owned direct subsidiary of USco 5 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and controlled foreign affiliate of Canco 1.

10. USco 7 is a corporation governed by the DGCL. USco 7 is resident and carries on business in the United States of America. USco 7 is a wholly owned direct subsidiary of USco 5 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and controlled foreign affiliate of Canco 1.

11. USco 8 is a corporation governed by the DGCL. USco 8 is resident and carries on business in the United States of America. USco 8 is a wholly owned direct subsidiary of USco 5 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and controlled foreign affiliate of Canco 1.

12. USco 9 is a corporation governed by the DGCL. USco 9 is resident and carries on business in the United States of America. USco 9 is a wholly owned direct subsidiary of USco 5 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and controlled foreign affiliate of Canco 1.

13. USco 10 is a corporation governed by the DGCL. USco 10 is resident and carries on business in the United States of America. USco 10 is a wholly owned direct subsidiary of USco 5 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and controlled foreign affiliate of Canco 1.

14. USco 11 is a corporation governed by the DGCL. USco 11 is resident and carries on business in the United States of America. USco 11 is a wholly owned direct subsidiary of USco 5 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and controlled foreign affiliate of Canco 1.

15. USco 12 is a corporation governed by the DGCL. USco 12 is resident and carries on business in the United States of America. USco 12 is a wholly owned direct subsidiary of USco 11 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and controlled foreign affiliate of Canco 1.

16. USco 13 is a corporation governed by the DGCL. USco 13 is resident and carries on business in the United States of America. USco 13 is a wholly owned direct subsidiary of USco 2 with XXXXXXXXXX shares of common stock issued and outstanding and is a foreign affiliate and controlled foreign affiliate of Canco 1.

17. The assets of USco 4 through 13 consist principally of intercompany receivables and interest in U.S. partnerships and LLCs. Generally, each of USco 4 through 13 and/or their subsidiary entities previously held U.S. real estate operating assets.

18. Section 266 of the DGCL provides for a domestic corporation to convert to other entities. Paragraph (a) of that section provides that a corporation may convert to an LLC of the State of Delaware. Paragraph (d) of that section provides that the conversion shall not be deemed to affect any obligations or liabilities of the corporation incurred prior to the conversion. Paragraph (e) of that section provides that, after the time the certificate of conversion becomes effective, the corporation shall continue to exist as an LLC of the State of Delaware, and the laws of that State shall apply to the entity to the same extent as prior to such time. Paragraph (f) of that section provides that, unless otherwise provided in a resolution of conversion, the converting corporation shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and the conversion shall not constitute a dissolution of such corporation and shall constitute a continuation of the existence of the converting corporation in the form of the applicable other entity of that State.

19. Section 18-214 of the DLLCA provides for the conversion of certain entities to an LLC. These entities, as described in paragraph (a) of that section, include a corporation. Paragraph (d) of that section provides that the existence of the LLC shall be deemed to have commenced on the date the converting entity commenced its existence in the jurisdiction in which the converting entity was first created, formed, incorporated or otherwise came into being. Paragraph (e) of that section provides that the conversion of the entity into an LLC shall not be deemed to affect any obligations or liabilities of the entity incurred prior to its conversion to an LLC. Paragraph (f) of that section provides that when any conversion shall have become effective under that section, for all purposes of the laws of the State of Delaware, all of the rights, privileges and powers of the entity that has converted, and all property, real, personal and mixed, and all debts due to such entity, as well as all other things and causes of action belonging to such entity, shall remain vested in the LLC into which such entity has converted and shall thereafter be the property of the LLC. Paragraph (g) of that section provides that unless otherwise agreed, or as required under applicable non-Delaware law, the converting entity shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and the conversion shall not be deemed to constitute a dissolution of such entity and shall constitute a continuation of the existence of the converting entity in the form of an LLC. It further provides that when an entity has been converted to an LLC pursuant to that section, the LLC shall, for all purposes of the laws of the Sate of Delaware, be deemed to be the same entity as the converting entity.

20. Section 18-101(7) of the DLLCA provides that an LLC Agreement of an LLC having only one member shall not be unenforceable by reason of there being only one person who is a party to the LLC Agreement. Under section 18-1101(b) of the DLLCA, the maximum effect is given both to the principle of freedom of contract and to the enforceability of LLC Agreements. The DLLCA refers to economic interests in an LLC to which it applies as "interests" and provides that voting and certain other rights reside in "members". The DLLCA does not require the ownership interests in an LLC to be divided into shares. However, an LLC Agreement that establishes that the capital of an LLC is divided into shares is legally effective for such purpose and enforceable in accordance with its terms. Accordingly, subject to the DLLCA, the capital of an LLC organized in such a way will consist of "shares" with the attributes established in the LLC Agreement.

21. Section 17003 of the CLLCA provides that, subject to any limitations in its articles of organization, an LLC established under that statute has all the powers of a natural person in carrying out its business activities, including the power to sue and be sued, complain and defend any action (paragraph (b)); make contracts and incur liabilities (paragraph (d)); and the power to acquire, own and otherwise deal with real and personal property (paragraph (f)). Section 17101(a) provides that a member of an LLC governed by the CLLCA is not liable for the debts or obligations of the LLC as such. Exceptions to this limitation arise only where the organizational documents of the LLC provide that the members are liable for the debts of the LLC, or in cases where distributions to members are made in violation of the CLLCA's limitations on distributions that may affect the solvency of the entity (which is consistent with disgorgement obligations in various corporate statutes). Section 17300 provides that an interest in an LLC governed by the CLLCA is personal property, and that the holder has no interest in specific property of the LLC. An LLC governed by the CLLCA has a legal existence separate from its members.

22. Section 1151 of the CGCL provides for a corporation to convert to other entities, provided the law under which the converted entity will exist expressly permits the formation of that entity pursuant to a conversion and the corporation complies with any and all other requirements of any other law that applies to the conversion.

23. Section 1152 of the CGCL provides in paragraph (a) that a corporation that is converting to another entity shall approve a plan of conversion stating the terms and conditions of the conversion, the jurisdiction and name of the converted entity, the manner of converting the shares of the corporation into shares of or interests in the converted entity, the provisions of the governing documents of the converted entity, including LLC articles of organization where relevant, and any other details or provisions required by law. Paragraph (b) of that section provides that the plan is to be approved by the board of the corporation, and the principal terms of the plan are to be approved by each class of outstanding shares. Paragraph (c) of that section provides that on a conversion to an LLC each shareholder who will become a manager of the LLC must approve the plan. Paragraph (d) of that section provides that upon the effectiveness of the conversion all shareholders (except those dissenting) shall be deemed parties to any agreement or agreements constituting the governing documents for the converted entity.

24. Section 1158(a) of the CGCL provides that any entity that converts into another entity pursuant to these provisions is, for all purposes other than certain U.S. state taxation purposes, the same entity that existed before the conversion. Paragraph (b) of that section provides that upon the conversion taking effect all of the rights and property, whether real, personal, or mixed, of the converting entity are vested in the converted entity; all debts, liabilities and obligations of the converting entity continue as debts, liabilities and obligations of the converted entity; all rights of creditors and liens upon the property of the converting entity shall be preserved unimpaired and remain enforceable against the converted entity to the same extent as against the converting entity; any action or proceeding pending by or against the converting entity may be continued against the converted entity.

25. Section 1155 of the CGCL provides, in paragraph (d), that the filing of a statement of conversion has the effect of the filing of a certificate of dissolution by the converting corporation.

26. Section 17540.8 of the CLLCA provides, in paragraph (a), that another business entity (defined to include a corporation governed by the CGCL) may be converted into an LLC governed by the CLLCA, but only if the laws under which it is organized so permit. Paragraph (b) of that section provides that an entity converting into a domestic LLC shall approve a plan of conversion or other instrument as is required under the laws by which it is governed.

27. Section 17540.9 of the CLLCA provides that an entity that converts into an LLC is for all purposes the same entity that existed before the conversion. Paragraph (b) of that section provides that upon the conversion taking effect all of the rights and property, whether real, personal, or mixed, of the converting entity are vested in the converted entity; all debts, liabilities and obligations of the converting entity continue as debts, liabilities and obligations of the converted entity; all rights of creditors and liens upon the property of the converting entity shall be preserved unimpaired and remain enforceable against the converted entity to the same extent as against the converting entity; any action or proceeding pending by or against the converting entity may be continued against the converted entity.

28. The CLLCA refers to economic interests in an LLC to which it applies as "membership interests" and provides that voting and certain other rights reside in "members". The CLLCA does not require the ownership interests in an LLC to be divided into shares. However, an LLC Agreement that establishes that the capital of an LLC is divided into shares is legally effective for such purpose and enforceable in accordance with its terms. Accordingly, subject to the CLLCA, the capital of an LLC organized in such a way will consist of "shares" with the attributes established in the LLC Agreement.

29. Under the IRC, the conversions described below will be considered non-recognition transactions with no immediate tax consequences to USco 1 or any of the UScos. Under the IRC no fiscal periods will end as a result of the conversions.

Proposed Transactions

30. Under the statutory provisions described in paragraphs 21 to 28 above, USco 3 will convert from a corporation governed by the CGCL to an LLC governed by the CLLCA. To effect this, both the board of directors and the sole shareholder of USco 3 will approve a plan of conversion in accordance with sections 1152(b) of the CGCL and 17540.8(b) and (c) of the CLLCA. USco 3 will then file with the California Secretary of State articles of organization containing a statement of conversion in accordance with section 1155(a)(3) of the CGCL and section 17540.9(d) of the CLLCA. The conversion will be effective upon the filing of the articles of organization. In connection with the organization of LLC 3, no limitations will be imposed on the powers of LLC 3 in its articles and the organizing documents of LLC 3 will provide that the member(s) of the LLC will not as such be liable for the debts or obligations of LLC 3. USco 2 will enter into the LLC 3 Agreement specifying, among other things, the following:

(a) LLC 3 is a continuation of the existence of USco 3, which converted to an LLC in accordance with the provisions of section 1151 of the CGCL and section 17540.8 of the CLLCA. All the rights, privileges and powers of USco 3 and all property, real, personal, and mixed, of USco 3 and all debts due to USco 3 as well as all other things and causes of action belonging to USco 3 shall be vested in LLC 3 and shall be the property of LLC 3 as they were of USco 3, and title to any real property vested by deed or otherwise in USco 3 shall not revert by reason of such conversion.

(b) "Share" means a membership interest in LLC 3;

(c) "Stockholder" means each person signing the LLC 3 Agreement and any person who subsequently obtains a Share in LLC 3, in each case in its capacity as a Stockholder of LLC 3;

(d) "Capital" of Shares is the aggregate of all amounts paid to LLC 3 and the monetary value at the time of contribution of property contributed to LLC 3 (in each case including amounts paid or contributed prior to USco 3's conversion to LLC 3) in consideration for the issuance of Shares together with any amounts added thereto by the Board of Managers or the Stockholders in accordance with the provisions of the LLC 3 Agreement, less the aggregate of all amounts by which such capital has been reduced by the Stockholders or the Board of Managers in accordance with the LLC 3 Agreement. The capital of each Share can be determined at any time by dividing the capital of all Shares by the number of issued and outstanding Shares at that time; and

(e) "Capital Contribution" means the initial capital contribution and any additional capital contributions made by a Stockholder to LLC 3. The existing balance of the capital for the shares outstanding in USco 3 shall be and constitute the initial capital contribution for the initial Stockholder's Shares in LLC 3.

The procedures and terms described in this paragraph are referred to as the "California Conversion Procedures and Terms".

31. Subject to the CLLCA and in accordance with the LLC 3 Agreement, immediately following the conversion USco 2's ownership interest in LLC 3 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 3 and to share rateably in the assets of LLC 3 on its liquidation.

32. Thereafter, under the statutory provisions described in paragraphs 18 to 20 above, USco 2 will convert from a corporation governed by the DGCL to an LLC governed by the DLLCA. To effect this, with the approval of its sole stockholder, USco 1, USco 2 will file with the Delaware Secretary of State a certificate of formation in accordance with the requirements of section 18-214(b) of the DLLCA and a certificate of conversion in accordance with section 266 of the DGCL and section 18-214(b) of the DLLCA. The terms of USco 1's approval of the conversion of USco 2 into LLC 2 will not require the winding up of USco 2. USco 1 will enter into the LLC 2 Agreement specifying, among other things, the following:

(a) LLC 2 is a continuation of the existence of USco 2, which converted to an LLC in accordance with the provisions of section 266 of the DGCL and section 18-214 of the DLLCA. All the rights, privileges and powers of USco 2, and all property, real, personal, and mixed, of USco 2 and all debts due to USco 2, as well as all other things and causes of action belonging to USco 2, shall be vested in LLC 2 and shall be the property of LLC 2 as they were of USco 2, and title to any real property vested by deed or otherwise in USco 2 shall not revert by reason of such conversion.

(b) "Share" means a limited liability company interest in LLC 2;

(c) "Stockholder" means each person signing the LLC 2 Agreement and any person who subsequently obtains Shares in LLC 2, in each case in its capacity as a Stockholder of LLC 2;

(d) "Capital" of Shares is the aggregate of all amounts paid to LLC 2 and the monetary value at the time of contribution of property contributed to LLC 2 (in each case including amounts paid or contributed prior to USco 2's conversion to LLC 2) in consideration for the issuance of Shares together with any amounts added thereto by the Board of Managers or the Stockholders in accordance with the provisions of the LLC 2 Agreement, less the aggregate of all amounts by which such capital has been reduced by the Stockholders or the Board of Managers in accordance with the LLC 2 Agreement. The capital of each Share can be determined at any time by dividing the capital of all Shares by the number of issued and outstanding Shares at that time; and

(e) "Capital Contribution" means the initial capital contribution and any additional capital contributions made by a Stockholder to LLC 2. The existing balance of the capital for the shares outstanding in USco 2 shall be and constitute the initial capital contribution for the initial Stockholder's Shares in LLC 2.

The procedures and terms described in this paragraph are referred to as the "Delaware Conversion Procedures and Terms".

33. Subject to the DLLCA and in accordance with the LLC 2 Agreement, immediately following the conversion USco 1's ownership interest in LLC 2 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 2 and to share rateably in the assets of LLC 2 on its liquidation.

34. In accordance with the California Conversion Procedures and Terms, USco 6 will convert from a corporation governed by the CGCL to an LLC governed by the CLLCA.

35. Subject to the CLLCA and in accordance with the LLC 6 Agreement, immediately following the conversion USco 5's ownership interest in LLC 6 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 6 and to share rateably in the assets of LLC 6 on its liquidation.

36. In accordance with the Delaware Conversion Procedures and Terms, each of USco 4, USco 5, USco 7, USco 8, USco 9, USco 10, USco 11, USco 12 and USco 13 will convert from a corporation governed by the DGCL to an LLC governed by the DLLCA.

37. The conversions described in paragraphs 34 and 36 will occur essentially simultaneously, and the precise order will be an administrative matter. They may precede or follow the conversions of USco 2 and USco 3. For purposes of this paragraph, paragraph 35 and the rulings below, the Stockholder of a converted LLC is referred to as a corporation although at the time of particular conversions the Stockholder may itself already have converted into an LLC. Where this has happened, the references to "USco" should be read as references to "LLC". Subject to the DLLCA and in accordance with the relevant LLC Agreement, immediately following the conversions:

(a) USco 1's ownership interest in LLC 4 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 4 and to share rateably in the assets of LLC 4 on its liquidation;

(b) USco 1's ownership interest in LLC 5 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 5 and to share rateably in the assets of LLC 5 on its liquidation;

(c) USco 5's ownership interest in LLC 7 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 7 and to share rateably in the assets of LLC 7 on its liquidation;

(d) USco 5's ownership interest in LLC 8 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 8 and to share rateably in the assets of LLC 8 on its liquidation;

(e) USco 5's ownership interest in LLC 9 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 9 and to share rateably in the assets of LLC 9 on its liquidation;

(f) USco 5's ownership interest in LLC 10 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 5 and to share rateably in the assets of LLC 5 on its liquidation;

(g) USco 5's ownership interest in LLC 11 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 11 and to share rateably in the assets of LLC 11 on its liquidation;

(h) USco 11's ownership interest in LLC 12 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 12 and to share rateably in the assets of LLC 12 on its liquidation;

(i) USco 2's ownership interest in LLC 13 will consist of XXXXXXXXXX Shares, each of which is entitled to one vote, to share rateably in dividends as and when declared by LLC 13 and to share rateably in the assets of LLC 13 on its liquidation;

Purpose of Proposed Transaction

The conversion transactions described herein are intended to allow USco 1 to implement a structure known as an "umbrella partnership real estate investment trust", or "UPREIT." As indicated above, USco 1 is a REIT. A REIT is a corporation, business trust or limited liability company that has elected and qualifies as a "Real Estate Investment Trust" pursuant to section 856 of the IRC. REIT status is a U.S. federal income tax concept and does not affect an entity's status for non-tax-law purposes. An UPREIT is not a form of legal entity; rather, "UPREIT" is a term of art referring to a REIT that is structured to hold substantially all of its assets through a subsidiary that is treated as a partnership for U.S. federal income tax purposes upon the admission of an additional member. UPREITs are commonly used, well-recognized structures for US REITs. As an UPREIT, USco 1 would own substantially all of its assets and conduct substantially all of its operations through a newly formed subsidiary LLC ("OP LLC") which will either be disregarded as an entity separate from its owner or be treated as a partnership for U.S. federal income tax purposes. Although the transactions to implement such a structure are presently being considered, it is anticipated that all the Shares of LLC 2, LLC 4 and LLC 5 will be transferred to OP LLC in exchange for shares of OP LLC pursuant to paragraph 95(2)(c).

OP LLC would be able to acquire assets from vendors in exchange for shares of OP LLC in a manner that would permit the vendor to defer the taxation of any gain associated with the sale of such properties for U.S. federal income tax purposes. The vendor's gain attributable to the appreciation in the asset generally can be deferred for U.S. federal income tax purposes until the vendor disposes of its OP LLC shares. Accordingly, vendors who seek to sell property in a U.S. tax-deferred transaction will consider USco 1 to be a more attractive purchaser if it is organized in an UPREIT structure. In order for an UPREIT structure to be effective for U.S. federal income tax purposes, the subsidiaries of the entity that is to be treated as a partnership for U.S. federal income tax purposes (OP LLC) must not be organized as state law corporations, and it is to achieve this result that the proposed transactions will convert existing state law corporations into LLCs.

Rulings

Provided that the above statements constitute a complete and accurate disclosure of the facts, proposed transactions and the purposes of the proposed transactions, we rule as follows:

A. None of the UScos will be considered to have disposed of its assets as a result of its conversion from a corporation to an LLC in the manner described above.

B. USco 1 will not be considered to have disposed of its shares of USco 2, USco 4 or USco 5 as a result of the conversion of USco 2, USco 4 or USco 5, respectively, from a corporation to an LLC in the manner described above.

C. USco 2 will not be considered to have disposed of its shares of USco 3 or USco 13 as a result of the conversion of USco 3 or USco 13, respectively, from a corporation to an LLC in the manner described above.

D. USco 5 will not be considered to have disposed of its shares of USco 6, USco 7, USco 8, USco 9, USco 10 or USco 11 as a result of the conversion of USco 6, USco 7, USco 8, USco 9, USco 10 or USco 11, respectively, from a corporation to an LLC in the manner described above.

E. USco 11 will not be considered to have disposed of its shares of USco 12 as a result of the conversion of USco 12 from a corporation to an LLC in the manner described above.

F. No amount will be included in the income of Canco 1 pursuant to subsection 91(1) solely by virtue of the conversion, in and of itself, of each of the UScos from a corporation to an LLC in the manner described above.

G. Following its conversion in the manner described above, for the purposes of the Act, each of LLC 2, LLC 3, LLC 4, LLC 5, LLC 6, LLC 7, LLC 8, LLC 9, LLC 10, LLC 11, LLC 12 and LLC 13 will be considered to be the same corporation that it was prior to the conversion.

H. Each of LLC 3 and LLC 6, as an LLC organized under the CLLCA, will be considered to be a corporation for purposes of the Act.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 29, 2002, and are binding on the Canada Revenue Agency provided that the proposed transactions are completed before XXXXXXXXXX.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments which, if enacted, could have an effect on the rulings given.

Comments

Nothing in this letter should be construed as implying that the Canada Revenue Agency has reviewed, accepted or otherwise agreed to:

(a) the determination of the adjusted cost base, the fair market value or the paid-up capital of any shares referred to herein; or

(b) any tax consequences relating to any transaction described herein other than those specifically described in the rulings given above.

Yours truly,

XXXXXXXXXX
Manager
Corporate Reorganizations Section 1
Income Tax Rulings Directorate
Policy and Planning Branch