Contract analysis

I. Executive Summary This memorandum analyzes the treatment of built-in gain ("BIG") and built-in loss ("BIL") accounts under Section 704(c) of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"),1 in connection with the proposed multi-step reorganization of Solara Digital Infrastructure LP's cross-border fund platform (the "Reorganization"). This analysis has been prepared in anticipation of the subm

II. Statement of Facts A. Background — Existing Fund Structure Solara Digital Infrastructure LP ("Solara" or "SDILP") is a Delaware limited partnership, organized and existing under the Delaware Revised Uniform Limited Partnership Act, originally formed on March 17, 2014. Solara's principal offices are located at 1200 Market Street, Suite 3400, Wilmington, Delaware 19801. As of March 31, 2025, Solara manages approxim

III. Issues Presented This memorandum addresses the following four issues:

1. Carryover of § 704(c) Accounts. Whether the built-in gain and loss accounts tracked under IRC § 704(c) by the Legacy Offshore Vehicles with respect to contributed properties carry over to the Consolidated Master Fund LP when the Legacy Offshore Vehicles contribute their portfolio company interests to the Master Fund in exchange for partnership interests under IRC § 721(a) in Steps 2 through 4 of the Reorganization

2. Establishment and Interaction of § 704(c) Layers. Whether the Master Fund is required to establish new § 704(c) layers upon receipt of the contributed properties, and how those new layers interact with pre-existing § 704(c) layers (including reverse § 704(c) layers) maintained at the Legacy Offshore Vehicle level.

3. Continuation of Remedial Allocation Method. Whether the Master Fund may continue to use the remedial allocation method under Treas. Reg. § 1.704-3(d) for each contributed property, consistent with the method previously elected and consistently applied by the Legacy Offshore Vehicles.

4. Impact of Step 5 Dissolution on § 704(c) Obligations. How the § 704(c) accounts are maintained and the allocation obligations are preserved when the Legacy Offshore Vehicles dissolve in Step 5 of the Reorganization and distribute their Master Fund partnership interests to their respective LPs, who then hold interests in the Master Fund either directly or through the Int'l Feeder or TE Feeder vehicles.

IV. Summary of Conclusions Based on the analysis set forth in Section V below, we reach the following conclusions with respect to each of the issues presented:

1. Carryover of § 704(c) Accounts. The § 704(c) BIG and BIL accounts maintained by the Legacy Offshore Vehicles carry over and must be preserved in the Master Fund upon contribution of the portfolio company interests under IRC § 721(a). Each contribution creates a new § 704(c) layer at the Master Fund level reflecting the difference between the FMV of the contributed property at the time of contribution and the carry

2. Establishment and Interaction of § 704(c) Layers. The Master Fund must maintain § 704(c) accounts that reflect both the "outer" BIG arising from the contribution to the Master Fund and, to the extent applicable in the tiered partnership context, the allocation obligations inherited from the Legacy Offshore Vehicles. Under Treas. Reg. § 1.704-3(a)(6)(i), the contribution of § 704(c) property by a Legacy Offshore Ve

3. Continuation of Remedial Allocation Method. The Master Fund may continue to use the remedial allocation method under Treas. Reg. § 1.704-3(d) for each contributed property. Because the contribution to the Master Fund creates new § 704(c) layers, the Master Fund has the right to elect a § 704(c) method for each contributed property at the time it receives them. We recommend that the Master Fund elect the remedial a

4. Impact of Step 5 Dissolution. Upon dissolution of the Legacy Offshore Vehicles in Step 5 and distribution of Master Fund interests to LPs (intended as tax-free distributions under IRC § 731(a)), the § 704(c) allocation obligations flow through to the successor holders via the tiered partnership structure and the feeder vehicles (Int'l Feeder and TE Feeder). The distributed Master Fund partnership interests carry w

V. Legal Analysis A. Overview of IRC § 704(c) — Statutory Framework

Section 704(c)(1)(A) of the Code provides: "Under regulations prescribed by the Secretary, income, gain, loss, and deduction with respect to property contributed to the partnership by a partner shall be shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution." The purpose of § 704(c) is to prevent the s

2. Reverse § 704(c) Allocations In addition to its application to contributed property, § 704(c) principles apply whenever partnership property is revalued under Treas. Reg. § 1.704-1(b)(2)(iv)(f) — commonly referred to as a "book-up" or "book-down." When a revaluation event occurs (e.g., admission of a new partner, additional capital contribution, or distribution of property in partial liquidation), the partnership'

3. The Ceiling Rule and Methods of Allocation The Treasury Regulations under § 704(c) establish three permissible methods for making § 704(c) allocations, each of which addresses the "ceiling rule" limitation in a different manner: The Ceiling Rule. As a threshold matter, Treas. Reg. § 1.704-3(b)(1) provides that the total income, gain, loss, or deduction allocated to the partners with respect to a contributed proper

4. Anti-Abuse Rule Treas. Reg. § 1.704-3(a)(9) provides a broad anti-abuse rule under which the Commissioner may recast the tax consequences of a transaction involving § 704(c) property if the allocation method chosen, or the transaction structure, has the effect of shifting the tax consequences of § 704(c) property away from the contributing partner in a manner inconsistent with the purpose of § 704(c). This provisi

1. Creation of New § 704(c) Layer at the Master Fund Level When Fund IV-A Cayman, Fund IV-B Lux, Fund V-A Cayman, and Fund V-B Lux each contribute their portfolio company interests to the Master Fund in Steps 2 through 4, each contribution is intended to qualify as a tax-free contribution to a partnership under IRC § 721(a). The analysis supporting the § 721(a) qualification is set forth in a separate memorandum (Rul

2. Carryover of Pre-Existing "Inner" § 704(c) Layers As discussed in Section II.C, each Legacy Offshore Vehicle may have pre-existing § 704(c) layers — specifically, reverse § 704(c) layers arising from partnership revaluations at the time of subsequent closings. The treatment of these inner layers in the tiered partnership context is governed by Treas. Reg. § 1.704-3(a)(6)(i). Treas. Reg. § 1.704-3(a)(6)(i) provides

3. Tiered Partnership Considerations Post-Reorganization, the fund structure will be tiered, with the following chain of ownership: LPs → Feeder Vehicles (Int'l Feeder and TE Feeder, both Cayman Islands exempted LPs classified as partnerships for U.S. federal income tax purposes) → Master Fund (Delaware LP) U.S. taxable investors will not participate in the tiered structure; they will remain directly in Fund IV LP an

1. Current Practice of the Legacy Offshore Vehicles Each Legacy Offshore Vehicle currently uses the remedial allocation method under Treas. Reg. § 1.704-3(d) for all § 704(c) properties. This election was made at the inception of each Legacy Offshore Vehicle and has been consistently applied. The remedial method was chosen for the Legacy Offshore Vehicles because it is the most economically accurate method for alloca

2. Application of the Remedial Method at the Master Fund Level Under the remedial allocation method, the partnership creates notional tax items to offset any ceiling rule limitations, ensuring that the non-contributing partner is allocated its full economic share of tax items and that the contributing partner bears the full tax consequences of the built-in gain. Specifically, under Treas. Reg. § 1.704-3(d)(1), the pa

3. Election of the Remedial Method by the Master Fund Because the contributions to the Master Fund create new § 704(c) layers, the Master Fund has the right — and indeed the obligation — to elect a § 704(c) method for each contributed property at the time it receives them. Under Treas. Reg. § 1.704-3(a)(2), the partnership may adopt any of the three permissible methods on a property-by-property basis, provided the me

4. Notional Asset Creation Under the Remedial Method Upon receiving the contributed properties, the Master Fund will create notional assets under Treas. Reg. § 1.704-3(d)(2) for purposes of computing remedial allocations. For each contributed property, the Master Fund will treat the property as consisting of two components: (i) A tax component equal to the property's carryover basis (under § 723), which will be depre

1. Distribution of Master Fund Interests When the Legacy Offshore Vehicles dissolve in Step 5 and distribute their Master Fund partnership interests to their respective LPs, the distributions are intended to qualify as tax-free distributions under IRC § 731(a). Under § 731(a)(1), no gain is recognized by a partner upon a distribution from a partnership, except to the extent that any money distributed exceeds the adju

2. Carryover of § 704(c) Obligations The critical question for purposes of this memorandum is whether the § 704(c) obligations associated with the contributed properties survive the dissolution of the Legacy Offshore Vehicles and attach to the successor holders of the Master Fund interests. We conclude that the § 704(c) obligations do survive and must be tracked by the Master Fund and the feeder vehicles. The basis f

3. Tracking and Administrative Requirements The preservation of § 704(c) obligations through the dissolution and LP migration process creates significant administrative complexity. The Master Fund must maintain records sufficient to: (i) Identify each contributed property and its associated § 704(c) layer (FMV, carryover basis, BIG/BIL, and remedial allocation notional asset); (ii) Track the contributing Legacy Offsh

1. Impact on § 704(c) Layer Computation Under Treas. Reg. § 1.704-3(a)(7), if a partner's share of liabilities increases or decreases in connection with a contribution of § 704(c) property, the deemed contribution or distribution under § 752(a) or § 752(b) does not independently trigger gain recognition if the § 721(a) contribution is otherwise tax-free. However, the liability shift must be considered in computing th

2. Minimum Gain Chargeback Provisions The Master Fund's allocation of liabilities under Treas. Reg. §§ 1.752-1, 1.752-2, and 1.752-3 (distinguishing between recourse and nonrecourse liabilities) will affect the operation of the § 704(c) minimum gain chargeback and partner nonrecourse debt minimum gain chargeback provisions under Treas. Reg. §§ 1.704-2(f) and 1.704-2(i). To the extent that contributed properties are e

1. NovaBright Data Systems Inc. NovaBright Data Systems Inc. is a Delaware corporation operating as a data center operator and developer. The company operates 14 data center facilities across the United States and Western Europe, with aggregate capacity of approximately 285 megawatts. Ownership and Contribution. NovaBright is held 60% by Fund IV-A Cayman and 40% by Fund IV LP. Only the Fund IV-A Cayman 60% interest i

§ 704(c) Treatment at Master Fund Level. The Master Fund takes a carryover basis of approximately $312 million in the NovaBright 60% interest under § 723 and establishes a § 704(c) layer of approximately $222 million. Because NovaBright is a corporation, the contributed interest is stock for § 704(c) purposes. Stock is not depreciable or amortizable, so the remedial allocation method will principally operate upon a s

2. Veridian Edge Computing Corp. Veridian Edge Computing Corp. is a Delaware corporation operating an edge computing infrastructure platform with 47 micro-data center nodes deployed across 22 metropolitan areas in North America. Ownership and Contribution. Veridian is held 55% by Fund V-A Cayman and 45% by Fund V LP. Only the Fund V-A Cayman 55% interest is contributed to the Master Fund in Step 4 (November 1, 2025).

§ 704(c) Treatment at Master Fund Level. The analysis parallels NovaBright: the Master Fund takes a carryover basis of approximately $429 million, establishes a § 704(c) layer of approximately $187 million, and creates a notional asset under the remedial method. As with NovaBright, the Veridian interest is corporate stock and is non-depreciable, so the remedial method will principally operate upon disposition.

3. Thorngate Fiber Networks LP Thorngate Fiber Networks LP is a Delaware limited partnership operating approximately 18,000 miles of metro and long-haul fiber-optic network across the eastern seaboard and Gulf Coast regions. Ownership and Contribution. Thorngate is held 100% by Fund IV-A Cayman. The entire interest is contributed to the Master Fund in Step 2 (October 1, 2025). Built-In Gain Computation. The FMV of th