Contract analysis

I. Executive Summary This memorandum analyzes whether Internal Revenue Code ("IRC" or "Code") § 367(a) or § 367(b) applies to the contributions of portfolio assets by four foreign partnerships to a newly formed domestic partnership in connection with the proposed cross-border reorganization of Solara Digital Infrastructure LP's fund platform (the "Reorganization"). Specifically, this memorandum addresses the contribu

II. Statement of Facts A. Background — Solara Digital Infrastructure LP Solara Digital Infrastructure LP ("Solara" or "SDILP") is a Delaware limited partnership (EIN 82-4917366) founded on March 17, 2014, and headquartered at 1200 Market Street, Suite 3400, Wilmington, Delaware 19801. Solara is a global digital infrastructure investment platform focused on data center facilities, fiber-optic networks, edge computing

III. Issues Presented This memorandum addresses the following four issues: Issue 1. Does IRC § 367(a)(1) apply to the contribution of property by a foreign partnership to a domestic partnership, such that the contributing foreign partnership (or its partners) must recognize gain on the transfer? Issue 2. Does IRC § 367(b) apply to an exchange in which a foreign partnership transfers property to a domestic partnership

IV. Short Answer Issue 1 — § 367(a). Section 367(a) does not apply. By its express terms, § 367(a)(1) is triggered only by a transfer of property "by a United States person . . . to a foreign corporation" in connection with an exchange described in §§ 332, 351, 354, 355, 356, or 361. In the Solara Reorganization, none of these three required elements is satisfied. First, the transferors (Fund IV-A Cayman, Fund IV-B L

V. Analysis A. Statutory Text of IRC § 367(a)

1. The Statutory Language IRC § 367(a)(1) provides, in relevant part: "If, in connection with any exchange described in section 332, 351, 354, 355, 356, or 361, a United States person transfers property to a foreign corporation, such foreign corporation shall not, for purposes of determining the extent to which gain shall be recognized on such transfer, be considered to be a corporation." The operative effect of § 36

2. The Three Textual Prerequisites

Section 367(a)(1) contains three textual elements, each of which must be satisfied for the provision to apply: First, the transfer must occur "in connection with any exchange described in section 332, 351, 354, 355, 356, or 361." These provisions are the corporate nonrecognition provisions of Subchapter C. Section 332 addresses liquidations of subsidiaries. Section 351 addresses transfers to controlled corporations.

3. Application to the Solara Reorganization Applying these three textual prerequisites to the Solara Reorganization demonstrates that § 367(a)(1) is inapplicable to the contributions described in Steps 2 through 4. The contributing entities are not United States persons. Fund IV-A (Cayman) LP and Fund V-A (Cayman) LP are Cayman Islands exempted limited partnerships. Fund IV-B (Luxembourg) SCSp and Fund V-B (Luxembour

1. The Statutory Language IRC § 367(b)(1) provides: "In the case of any exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer of property described in subsection (a), a foreign corporation shall be considered to be a corporation except to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of F

2. The Two Textual Prerequisites

Section 367(b)(1) contains two key textual elements: First, the exchange must be "described in section 332, 351, 354, 355, 356, or 361." This is the identical list of corporate nonrecognition provisions referenced in § 367(a)(1). As with § 367(a), § 721 is not among the enumerated sections. Second, the provision must involve a "foreign corporation" — specifically, the statute provides that "a foreign corporation shal

3. Application to the Solara Reorganization

Section 367(b) is inapplicable to the Solara Reorganization for the same structural reasons that render § 367(a) inapplicable. The contributions are described in § 721, not in the enumerated corporate nonrecognition provisions. As discussed above, § 721 is not listed among the exchange provisions in § 367(b)(1). The legislative choice to reference only §§ 332, 351, 354, 355, 356, and 361 — all of which are Subchapter

Section 367 was originally enacted as part of the Internal Revenue Code of 1954. The original version of § 367 required a United States person to obtain an advance ruling from the IRS before transferring property to a foreign corporation in a nonrecognition transaction. The advance-ruling requirement was designed to give the IRS the opportunity to impose conditions on the transfer — such as gain-recognition agreement

2. Tax Reform Act of 1976 Congress significantly amended § 367 in the Tax Reform Act of 1976, Pub. L. No. 94-455, 90 Stat. 1520 (1976). The 1976 amendments replaced the advance-ruling requirement with the self-executing toll-charge mechanism now found in § 367(a)(1), while simultaneously adding § 367(b) to address inbound and other exchanges involving foreign corporations. The Senate Finance Committee Report (S. Rep.

3. Tax Reform Act of 1986 The Tax Reform Act of 1986, Pub. L. No. 99-514, 100 Stat. 2085 (1986), further tightened the outbound transfer rules under § 367. The 1986 amendments expanded the scope of § 367(d) to address transfers of intangible property to foreign corporations, imposing a deemed-royalty regime to prevent the expatriation of valuable intellectual property. The Joint Committee on Taxation's General Explan

4. Tax Cuts and Jobs Act of 2017 — Enactment of § 721(c) Perhaps the most significant legislative development for purposes of the present analysis is the enactment of IRC § 721(c) as part of the Tax Cuts and Jobs Act of 2017 ("TCJA"), Pub. L. No. 115-97, 131 Stat. 2054 (2017). Section 721(c) provides a separate gain-recognition rule for contributions of appreciated property to a "Section 721(c) partnership" — general

5. Summary. Throughout the entire legislative history of § 367 — from its original enactment in 1954 through the most recent amendments in 2017 — Congress focused exclusively on transfers involving corporations. The Subchapter K provisions (§§ 721–761) operate as a separate and distinct nonrecognition regime. Congress chose not to enact a § 367 analogue for partnerships; instead, when it perceived a need to address t

1. Regulations Under § 367(a) The Treasury regulations under § 367(a) — Treas. Reg. §§ 1.367(a)-1 through 1.367(a)-8 — provide detailed guidance on the application of the outbound transfer toll charge. These regulations define "transfer" (Treas. Reg. § 1.367(a)-1(b)), identify the categories of property subject to the toll charge and the exceptions thereto (Treas. Reg. §§ 1.367(a)-2 through -4), and establish the gai

2. Regulations Under § 367(b) The Treasury regulations under § 367(b) — Treas. Reg. §§ 1.367(b)-1 through 1.367(b)-13 — provide comprehensive guidance on the adjustments required in connection with exchanges involving foreign corporations. These regulations address topics including: • The "all-earnings-and-profits" inclusion required in certain inbound corporate reorganizations (Treas. Reg. § 1.367(b)-3); • The recog

3. Summary. The comprehensive body of regulations under § 367 — spanning dozens of regulatory sections and hundreds of pages of regulatory text — is directed exclusively at corporate transactions. The Treasury Department, in exercising its regulatory authority under both § 367(a) and § 367(b), has never promulgated a regulation that addresses or purports to address partnership contributions under § 721. This consiste

1. Published Revenue Rulings A comprehensive survey of published revenue rulings reveals no ruling that applies § 367 to a partnership-to-partnership transfer under § 721. The published rulings under § 367 uniformly address corporate transactions — including outbound transfers of property to foreign corporations under § 351, liquidations of foreign subsidiaries under § 332, and corporate reorganizations under §§ 354,

2. Private Letter Rulings A survey of publicly available private letter rulings, prepared by Garrett Simmons in a companion Research Memorandum — Survey of Analogous PLRs (Engagement 20250527-SDILP-PLR, dated June 12, 2025), identified no PLR that has applied § 367 to a contribution of property by a foreign partnership to a domestic partnership. While private letter rulings do not constitute binding precedent and may

3. IRS Notice 2015-54 and the § 721(c) Regulations IRS Notice 2015-54, 2015-34 I.R.B. 210, is a pivotal piece of IRS guidance for purposes of this analysis. Notice 2015-54 announced the Treasury Department's and the IRS's intention to issue regulations under new § 721(c) addressing contributions of appreciated property to partnerships with related foreign partners. The Notice was promulgated precisely because § 367 d

1. Absence of Case Law Applying § 367 to Partnerships No reported case has applied § 367 to a transfer between partnerships or to a contribution under § 721. This absence of case law is significant because § 367 has been the subject of substantial litigation over the decades, and the Tax Court, the Court of Federal Claims, and the federal circuit courts have addressed numerous issues under § 367 — including the scope

2. Decisions Confirming the Textual Limits of § 367 Courts that have addressed the scope of § 367 have consistently applied the statute according to its terms, requiring the presence of a corporation and an exchange described in the enumerated provisions. Decisions have emphasized that § 367 is a specific anti-avoidance provision targeted at corporate nonrecognition transactions, not a general anti-abuse rule of broa

3. Hybrid Entity Decisions A potential counterargument might draw on cases involving "hybrid" entities — entities that are classified as corporations for U.S. tax purposes but as partnerships or other transparent entities under foreign law. In such cases, § 367 has been applied because the entity's U.S. tax classification as a corporation brings the transaction within the statute's textual requirements. However, thes

1. The § 721(c) Regime IRC § 721(c), enacted as part of the TCJA in 2017, provides a gain-recognition rule for contributions of appreciated property to a "Section 721(c) partnership." A Section 721(c) partnership is generally defined as a partnership in which (i) a U.S. transferor contributes appreciated property, and (ii) a related foreign person is a direct or indirect partner. Under § 721(c), the U.S. transferor m

2. Significance for the § 367 Analysis The analysis of whether § 721(c) itself applies to the Solara Reorganization is addressed in a separate companion memorandum (Tax Memorandum — IRC § 721(a) Contribution Analysis, Engagement 20250527-SDILP-PLR). For purposes of this § 367 memorandum, the key point is that Congress enacted § 721(c) as a gap-filler — a targeted statutory response to the specific concern that apprec

3. Directional and Structural Distinction An important analytical distinction must be drawn between the type of transaction that § 721(c) addresses and the type of transaction involved in the Solara Reorganization. Section 721(c) addresses contributions by U.S. persons to partnerships with related foreign partners — an outbound-type concern at the partner level, where the worry is that appreciated property will be sh

1. The Importance of Entity Classification The § 367 inapplicability analysis set forth in this memorandum is predicated on the classification of all entities involved — both the contributing entities and the receiving entity — as partnerships for U.S. federal income tax purposes. If any entity were reclassified as a corporation (whether through an IRS challenge to the check-the-box elections, a retroactive reclassif

2. Cayman Islands Exempted Limited Partnerships Fund IV-A (Cayman) LP, Fund V-A (Cayman) LP, and the other Cayman-domiciled vehicles in the Solara platform are organized as Cayman Islands exempted limited partnerships under the Exempted Limited Partnership Act (2021 Revision) of the Cayman Islands. The Cayman Islands exempted limited partnership is not listed on the IRS per se corporation list under Treas. Reg. § 301

3. Luxembourg SCSps Fund IV-B (Luxembourg) SCSp and Fund V-B (Luxembourg) SCSp are organized as Luxembourg sociétés en commandite spéciale under the Luxembourg law of July 12, 2013 (as amended). The Luxembourg SCSp is not listed on the IRS per se corporation list for Luxembourg under Treas. Reg. § 301.7701-2(b)(8)(i). As foreign eligible entities with two or more members that have not elected corporate classification

4. Solara Consolidated Master Fund LP The Consolidated Master Fund LP will be organized as a Delaware limited partnership under the Delaware Revised Uniform Limited Partnership Act (6 Del. C. §§ 17-101 et seq.). As a domestic eligible entity with two or more members, it will default to partnership classification under Treas. Reg. § 301.7701-3(b)(1)(i). The entity will also file a Form 8832 election confirming partner

5. Cross-Reference and Risk Assessment The detailed entity classification analysis is set forth in the companion Tax Memorandum — Entity Classification Under Treas. Reg. § 301.7701-3 (Engagement 20250527-SDILP-PLR). The risk that any entity involved in the Reorganization could be reclassified as a corporation is assessed as remote, given the regulatory framework and the clear partnership characteristics of all entiti

I. Anti-Abuse and Policy Considerations

1. Partnership Anti-Abuse Rule — Treas. Reg. § 1.701-2 Treas. Reg. § 1.701-2 provides a general anti-abuse rule for partnership transactions. Under this regulation, the Commissioner may recharacterize a partnership transaction if the transaction is carried out in a manner that is "inconsistent with the intent of subchapter K" and a "principal purpose" of the transaction is to reduce the present value of the partners'