The IRS ruled on April 25 (PLR 201230008) that certain warrants
issued by a corporation were treated as stock. In PLR 201230008, a
corporation (Distributing) had warrants outstanding that were
issued in connection with, and on the same date as, debt related to
a "note and warrant purchase agreement."
The warrants provided that (i) if Distributing paid a dividend
or distribution on its stock in cash or property, Distributing
would pay the warrant holders as if their respective warrant was
exercised immediately prior to the record date of such dividend
declaration (the dividend right); (ii) and if Distributing made a
liquidating distribution to its shareholders, the warrant holders
would receive property as if they had exercised their warrants
before the date of such liquidating distribution (the liquidation
In addition to the dividend right and the liquidation right, the
warrants provided that the number of Distributing shares for which
each warrant may be exchanged would be adjusted for various events
including (i) a stock split, (ii) a stock dividend, (iii) a
combination of shares, (iv) an issuance of additional Distributing
stock at a price below their fair market value or (v) an issuance
of additional Distributing convertible securities, warrants,
options or similar rights to subscribe to Distributing stock at a
price below fair market value.
In a prior letter ruling, the IRS ruled that Distributing's
distribution of the stock of a corporation (Controlled) that it
controls (as defined in Section 368(c)), immediately before such
distribution, qualified as a tax-free separation under Section
368(a)(1)(D) and Section 355 (the controlled distribution). As a
result of the controlled distribution, warrant holders received
stock of Controlled. The IRS ruled in PLR 201230008 that the
warrants were treated as stock and the controlled distribution to
warrant holders would be treated as a distribution related to
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