1041-00005 · Client 1041 · PLR Request Drafting

lpac-comment-summary-response-memo.docx DOCUMENT M&A / Corporate

60 / 86 ← → ✕

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM

FROM: Leonard Cross, Partner, and Robert Jansen, Associate Calderwood & Harkness LLP 1900 K Street NW, Suite 1100 Washington, DC 20006

TO: Stefan Dalmqvist, Head of Tax, and Priya Narasimhan, General Counsel Solara Digital Infrastructure LP

CC: Sylvia Hartwell, Partner, Calderwood & Harkness LLP (600 Lexington Avenue, 38th Floor, New York, NY 10022) Garrett Simmons, Associate, Calderwood & Harkness LLP (600 Lexington Avenue, 38th Floor, New York, NY 10022) Viktor Raines, Managing Partner & Founder, Solara Digital Infrastructure LP

DATE: July 18, 2025

RE: Summary of and Responses to LP Advisory Committee Counsel Comments on Draft Private Letter Ruling Request (Version 3.0) — Cross-Border Fund-Platform Reorganization of Solara Digital Infrastructure LP

ENGAGEMENT NO.: 20250527-SDILP-PLR

Right-click to update Table of Contents

I. Purpose and Executive Summary

This memorandum summarizes and responds to the comments received from Diana Carruthers, Partner (Fund Formation & Tax) at Whitfield, Carruthers & Doyle LLP, 200 South Biscayne Boulevard, Suite 4000, Miami, FL 33131, acting in her capacity as outside counsel to the LP Advisory Committee ("LPAC") of Solara Digital Partners Fund IV LP ("Fund IV") and Solara Digital Partners Fund V LP ("Fund V"), regarding Draft Private Letter Ruling Request Version 3.0 (the "Draft" or "Draft v3.0"). The Draft was circulated to LPAC counsel on or about July 1, 2025, with a requested comment deadline of July 15, 2025. LPAC counsel's comments were received by email on or about July 14, 2025, one day prior to the stated deadline.

As discussed in prior correspondence and at the April 22, 2025 LPAC meeting, the LPAC previously provided preliminary consent, representing approximately 78% in interest of the aggregate limited partner commitments across Fund IV and Fund V, for the proposed cross-border fund-platform reorganization (the "Reorganization"). That preliminary consent was granted subject to the LPAC's right to review and comment on the draft PLR request and the related LP Tax Impact Summary Letter prior to final submission to the Internal Revenue Service.

LPAC counsel's comments, which are summarized in detail in Section III below and indexed in Appendix A, focus on three principal areas of concern:

1. IRC § 731(c) — Marketable Securities Characterization. Whether the interests in Solara Consolidated Master Fund LP (the "Consolidated Master Fund" or "Master Fund") distributed to limited partners of the Legacy Offshore Vehicles in Step 5 of the Reorganization could be characterized as "marketable securities" within the meaning of IRC § 731(c)(2), potentially triggering gain recognition on distributions exceeding adjusted basis.

2. IRC § 752 — Liability Shifting Analysis. Whether the consolidation of $1.34 billion in aggregate liabilities from four separate offshore vehicle partnerships into a single Master Fund could result in shifts in individual limited partner liability allocations under IRC § 752 that would produce deemed cash distributions under § 752(b), and the related netting and tiered partnership allocation mechanics.

3. FIRPTA / IRC § 897 — Non-U.S. Investor Exposure. Whether certain portfolio company interests — particularly NovaBright Data Systems Inc. and Thorngate Fiber Networks LP — constitute "United States real property interests" ("USRPIs") under IRC § 897(c)(1)(A)(i), potentially exposing non-U.S. investors (including Nordhaven Sovereign Wealth Fund and Kestrel Pacific Insurance Group) to FIRPTA gain recognition, and the interaction between FIRPTA and the § 721(a) nonrecognition treatment sought in the PLR request.

This memorandum addresses each comment in order, sets forth Calderwood & Harkness's proposed response or revision to the Draft, and recommends specific changes to be incorporated into Draft PLR Request Version 4.0 (the "Final Circulated Draft" or "Draft v4.0"). In addition, this memorandum addresses certain ancillary observations and general drafting comments provided by LPAC counsel that do not fall within the three principal categories.

Summary of Recommendations. Calderwood & Harkness recommends accepting or partially accepting LPAC counsel's suggestions on all three principal topics, with certain modifications as described herein, and proposes additional representations and factual detail in the PLR request to address LPAC concerns. Specifically:

• With respect to the § 731(c) analysis, we recommend expanding the factual representations regarding the absence of a secondary trading market for Master Fund interests and adding an explicit alternative-basis analysis under the § 731(c)(3)(A)(iii) exception. We accept LPAC counsel's suggestion in full on this point.

• With respect to the § 752 analysis, we recommend providing a category-level (rather than individual partner-level) impact analysis supplementing PLR Exhibit E, expanding the discussion of the Treas. Reg. § 1.752-1(f) netting rules and the Treas. Reg. § 1.752-4 tiered partnership rules, and adding a representation that the five-step Reorganization constitutes an integrated transaction for § 752 netting purposes. We partially accept LPAC counsel's suggestion on this point.

• With respect to the FIRPTA / § 897 analysis, we recommend expanding the structural FIRPTA analysis to specifically address the USRPI characterization of NovaBright and Thorngate, adding a detailed § 897(e) nonrecognition analysis, and coordinating with Bramhall & Quelwick LLP on the Nordhaven SWF-specific analysis. However, we decline to include an investor-specific § 897(l) ruling request in the PLR submission. We partially accept LPAC counsel's suggestion on this point.

None of the comments received from LPAC counsel raise any issue that Calderwood & Harkness believes would prevent or materially delay the PLR submission. We request client authorization to proceed with the revisions described herein and to coordinate with Bramhall & Quelwick LLP on the FIRPTA analysis, subject to appropriate privilege protocols as described in Section VI below.

II. Background

A. The Reorganization

As described in detail in the Draft and in our prior memoranda to the client, the proposed Reorganization involves a five-step consolidation of Solara Digital Infrastructure LP's cross-border fund-platform architecture into a single Delaware-domiciled master fund structure. We provide a brief recap here for context.

The Reorganization involves the domestication and merger of four offshore fund vehicles (collectively, the "Legacy Offshore Vehicles") into the newly established Solara Consolidated Master Fund LP, a Delaware limited partnership. The Legacy Offshore Vehicles are:

(a) Fund IV-A (Cayman) LP, a Cayman Islands exempted limited partnership (EIN 98-6241503);

(b) Fund IV-B (Luxembourg) SCSp, a Luxembourg special limited partnership (société en commandite spéciale) (RCS B 248193; EIN 98-6241571);

(d) Fund V-B (Luxembourg) SCSp, a Luxembourg special limited partnership (société en commandite spéciale) (RCS B 271056; EIN 98-7891267).

The five steps of the Reorganization are sequenced as follows, with individual steps occurring between September 15 and December 1, 2025, and a target effective date of December 1, 2025:

Step 1 (September 15, 2025): Formation of the Consolidated Master Fund LP (a Delaware limited partnership) and its general partner, Solara Consolidated Master Fund GP LLC (a Delaware limited liability company), along with two new Cayman Islands exempted limited partnerships — Solara International Feeder (Cayman) LP (the "International Feeder") for non-U.S. investors and Solara Tax-Exempt Feeder (Cayman) LP (the "Tax-Exempt Feeder") for U.S. tax-exempt investors. All new entities will elect partnership classification under Treas. Reg. § 301.7701-3.

Step 2 (October 1, 2025): Contribution by Fund IV-A (Cayman) LP of its portfolio company interests and other assets to the Consolidated Master Fund LP in exchange for Master Fund LP interests, intended to qualify as a tax-free contribution under IRC § 721(a).

Step 3 (October 15, 2025): Contribution by Fund IV-B (Luxembourg) SCSp of its portfolio company interests and other assets to the Consolidated Master Fund LP in exchange for Master Fund LP interests, intended to qualify as a tax-free contribution under IRC § 721(a).

Step 4 (November 1, 2025): Contribution by Fund V-A (Cayman) LP and Fund V-B (Luxembourg) SCSp of their respective portfolio company interests and other assets to the Consolidated Master Fund LP in exchange for Master Fund LP interests, intended to qualify as tax-free contributions under IRC § 721(a).

Step 5 (December 1, 2025): Distribution of Master Fund LP interests by each Legacy Offshore Vehicle to its respective limited partners in complete liquidation of the Legacy Offshore Vehicles, intended to qualify as tax-free distributions under IRC § 731(a).

The total fair market value of assets to be transferred to the Consolidated Master Fund LP across Steps 2 through 4 is approximately $7.75 billion. The total adjusted tax basis of such assets is approximately $6.03 billion, resulting in aggregate built-in gain of approximately $1.72 billion. Aggregate liabilities to be assumed by or allocated to the Consolidated Master Fund LP in connection with the Reorganization total approximately $1.34 billion.

Following completion of the Reorganization, the post-reorganization structure will consist of: (i) two new Cayman feeder LPs — the International Feeder (for non-U.S. investors) and the Tax-Exempt Feeder (for U.S. tax-exempt investors) — each investing as a limited partner in the Consolidated Master Fund LP; and (ii) Fund IV LP and Fund V LP (the onshore U.S. vehicles), which will co-invest alongside the Master Fund through a co-investment arrangement. U.S. taxable investors will remain directly in Fund IV LP and Fund V LP and will not hold interests in the Master Fund directly.

B. The PLR Request and Eight Specific Rulings

The Draft PLR Request seeks eight specific rulings from the IRS Office of the Associate Chief Counsel (International) ("CC:INTL"), with secondary jurisdiction in the Office of the Associate Chief Counsel (Passthroughs & Special Industries) ("CC:PSI"). The eight requested rulings are as follows:

Ruling 1 — IRC § 721(a) Tax-Free Contributions (Steps 2–4). That the contributions of portfolio company interests and other assets by each Legacy Offshore Vehicle to the Consolidated Master Fund LP in exchange for Master Fund LP interests qualify as tax-free contributions under IRC § 721(a), and that no gain or loss is recognized by the contributing vehicles or their partners on account of such contributions.

Ruling 2 — IRC § 721(b) Investment Company Exception Inapplicability. That the contributions described in Ruling 1 do not constitute contributions to an "investment company" within the meaning of IRC § 721(b) and Treas. Reg. § 1.351-1(c)(1) (as applied to partnerships under § 721(b)), and therefore that the § 721(b) exception to nonrecognition treatment does not apply.

Ruling 3 — IRC § 367 Inapplicability to Partnership-to-Partnership Transfers. That IRC § 367 does not apply to the contributions described in Ruling 1 because those contributions involve transfers of assets between partnerships, not transfers of property to foreign corporations, and thus do not trigger the outbound transfer rules of § 367(a) or the inbound transfer rules of § 367(b).

Ruling 4 — IRC § 731(a) Tax-Free Distributions (Step 5). That the distributions of Master Fund LP interests by each Legacy Offshore Vehicle to its respective limited partners in complete liquidation qualify as tax-free distributions under IRC § 731(a), and that no gain is recognized by the distributee partners on account of such distributions (except to the extent, if any, that money distributed exceeds a partner's adjusted basis in its partnership interest, which the Fund does not anticipate will occur).

Ruling 5 — IRC § 752 Liability Shifting — No Gain Recognition. That the assumption of liabilities by the Consolidated Master Fund LP and the corresponding shifts in LP-level liability allocations resulting from the Reorganization do not give rise to gain recognition under IRC § 731(a) by reason of deemed cash distributions under IRC § 752(b), taking into account the netting rules of Treas. Reg. § 1.752-1(f).

Ruling 6 — IRC § 704(c) Built-In Gain Carryover and Remedial Allocation Method Continuation. That the built-in gain or loss with respect to contributed property carries over to the Consolidated Master Fund LP under IRC § 704(c), and that the remedial allocation method currently employed by the Legacy Offshore Vehicles with respect to such property may be continued by the Consolidated Master Fund LP.

Ruling 7 — IRC § 1446 Withholding Not Required. That the contributions in Steps 2 through 4 and the distributions in Step 5 do not give rise to withholding obligations under IRC § 1446(a) (withholding on effectively connected income allocated to foreign partners) or IRC § 1446(f) (withholding on transfers of partnership interests), because the underlying transactions are nonrecognition transactions that do not generate effectively connected taxable income or gain.

Ruling 8 — Entity Classification Under Treas. Reg. § 301.7701-3. That the Consolidated Master Fund LP, the International Feeder, and the Tax-Exempt Feeder will each be classified as a partnership for U.S. federal income tax purposes under the entity classification regulations at Treas. Reg. § 301.7701-3, and that the Master Fund GP will be disregarded as an entity separate from its sole owner for U.S. federal income tax purposes.

As noted above, LPAC counsel's comments relate principally to Rulings 4, 5, and 7, with ancillary observations touching on FIRPTA (IRC § 897), which is addressed as a supporting analysis within the PLR request though not the subject of a standalone ruling request.

C. LPAC Counsel Engagement

Whitfield, Carruthers & Doyle LLP serves as outside counsel to the LPAC of both Fund IV and Fund V. The firm was retained by the LPAC pursuant to the LPAC Counsel Retainer Agreement dated March 8, 2025, with fees and expenses reimbursed by the Fund as a fund-level expense under Section 7.3 of the respective limited partnership agreements. Diana Carruthers is the lead partner on the engagement and serves as the primary point of contact for all LPAC-related tax matters in connection with the Reorganization.

LPAC counsel's role is to review the proposed Reorganization on behalf of the limited partners for LP consent purposes. Their comments reflect concerns raised by or on behalf of the LPAC members, including concerns that may have been communicated to LPAC counsel by individual LPs or their independent advisors. LPAC counsel's comments are advisory in nature and do not constitute a consent or objection to the Reorganization; the formal consent mechanism is set forth in the LP Consent Solicitation Letter and Form of LP Consent, which will be circulated following completion of Draft v4.0.

We note an important coordination matter: Bramhall & Quelwick LLP (Jason Tremaine, Partner, International Tax; 44 Montgomery Street, Suite 3600, San Francisco, CA 94104) has been independently retained by Nordhaven Sovereign Wealth Fund (Anders Bjørkman, Head of Alternative Investments) to evaluate the U.S. withholding tax and treaty implications of the Reorganization as they apply specifically to Nordhaven SWF. Bramhall & Quelwick was not retained by the LPAC and does not serve as LPAC counsel; however, certain of LPAC counsel's comments — particularly those in Comment Category 3 (FIRPTA / IRC § 897) — reflect input from Bramhall & Quelwick that was shared with LPAC counsel through the LPAC process. Calderwood & Harkness has been in preliminary communication with Jason Tremaine regarding coordination of the FIRPTA and treaty analysis, as discussed further in Section III.C.2 below.

D. Representative LPs Referenced in Comments

LPAC counsel's comments reference, or were submitted on behalf of, the following representative limited partners. For ease of reference, we list each LP, its investor type, principal contact, and commitment levels across the relevant fund vehicles:

(i) Pinnacle State Employees' Retirement System. U.S. public pension fund. Chief Investment Officer: Margaret Faulkner. Fund IV LP commitment: $275 million. Fund V LP commitment: $340 million. As a U.S. tax-exempt public pension fund, Pinnacle invests directly in the onshore Fund IV LP and Fund V LP vehicles and utilizes the offshore parallel structures as UBTI blockers for certain debt-financed investments.

(ii) Grandview University Endowment. U.S. tax-exempt endowment. Director of Investments: Harold Kingsley. Fund IV LP commitment: $120 million. Fund V LP commitment: $185 million. Like Pinnacle, Grandview is a U.S. tax-exempt investor that utilizes the offshore parallel structures for UBTI blocker purposes.

(iii) Nordhaven Sovereign Wealth Fund. Non-U.S. sovereign wealth fund. Jurisdiction: Kingdom of Nordhaven. Head of Alternative Investments: Anders Bjørkman. Fund IV-A (Cayman) LP commitment: $380 million. Fund V-A (Cayman) LP commitment: $500 million. Nordhaven SWF is the largest single non-U.S. investor across the Fund IV and Fund V platform. As noted above, Nordhaven SWF has independently retained Bramhall & Quelwick LLP to evaluate U.S. withholding tax and treaty implications.

(iv) Kestrel Pacific Insurance Group. Non-U.S. insurance company. Jurisdiction: Singapore. Senior Portfolio Manager: Christine Leung. Fund IV-B (Luxembourg) SCSp commitment: €200 million. Fund V-B (Luxembourg) SCSp commitment: €275 million. Kestrel invests through the Luxembourg SCSp vehicles for regulatory and treaty efficiency purposes.

(v) Argyle Family Office Holdings LLC. U.S. taxable family office. Principal: Elliot Argyle. Fund IV LP commitment: $95 million. Fund V LP commitment: $130 million. As a U.S. taxable investor, Argyle invests directly in the onshore Fund IV LP and Fund V LP vehicles and is particularly sensitive to any potential gain recognition event that would accelerate capital gains taxes.

III. Summary of LPAC Counsel Comments and Calderwood & Harkness Responses

This Section III constitutes the core of this memorandum. It summarizes each of the three principal comment categories raised by LPAC counsel and sets forth Calderwood & Harkness's analysis and proposed response for each. A complete index of all discrete comments is provided in Appendix A.

Comment Category 1: IRC § 731(c) — Marketable Securities Characterization

A. LPAC Counsel's Comment

Diana Carruthers raised a concern that the interests in the Consolidated Master Fund LP distributed to limited partners of the Legacy Offshore Vehicles in Step 5 of the Reorganization could be characterized as "marketable securities" within the meaning of IRC § 731(c)(2). If such characterization were to apply, it would potentially trigger gain recognition on distributions to the extent the fair market value of the distributed marketable securities exceeds the distributee partner's adjusted basis in its partnership interest — an outcome that would fundamentally undermine the tax-free nature of the Step 5 distributions and contradict the nonrecognition treatment sought in Ruling 4.

Specifically, LPAC counsel's concern has three components:

First, LPAC counsel noted that IRC § 731(c)(2)(A) defines "marketable securities" to include "financial instruments (as defined in section 1092(d)(1)) . . . which are, as of the date of the distribution, actively traded (within the meaning of section 1092(d)(1))." LPAC counsel questioned whether the Consolidated Master Fund LP interests could be viewed as "readily tradable on a secondary market" or "the substantial equivalent thereof" if such a secondary market for LP interests currently exists or were to develop in the future. LPAC counsel cited the growth of the secondary market for private fund interests generally, including platforms such as those operated by major secondary market intermediaries, as a basis for this concern. LPAC counsel noted that the Draft v3.0 analysis addresses this issue but does so in a conclusory manner without sufficient factual support.

Second, LPAC counsel questioned whether the § 731(c)(3)(A)(iii) exception for certain partnership distributions of partnership interests might apply as a fallback position, independent of the primary "not actively traded" position. The § 731(c)(3)(A)(iii) exception provides that § 731(c) does not apply to a distribution of an interest in a partnership if, at the time of the distribution, such partnership is not an "investment partnership" as defined in § 731(c)(3)(C). LPAC counsel requested that Calderwood & Harkness address this exception explicitly in the PLR request as an alternative basis for nonrecognition treatment under Ruling 4, rather than relying solely on the position that the Master Fund LP interests are not "marketable securities."

Third, LPAC counsel noted that several LPs — particularly Pinnacle State Employees' Retirement System (with combined commitments of $615 million across Fund IV and Fund V) and Grandview University Endowment (with combined commitments of $305 million across Fund IV and Fund V) — have expressed concern about the potential for unexpected gain recognition in Step 5. These investors originally invested through the offshore parallel structures in part to achieve UBTI blocker benefits, and any gain recognition in Step 5 would undermine those benefits by creating taxable income at the investor level in the year of the Reorganization. LPAC counsel emphasized that these investors require a high degree of confidence that the Step 5 distributions will be tax-free before they will provide final consent to the Reorganization.

B. Calderwood & Harkness Response

Calderwood & Harkness agrees that a robust § 731(c) analysis is essential and that Draft v3.0 adequately concludes that the Consolidated Master Fund LP interests are not "marketable securities" under § 731(c)(2). However, we concur with LPAC counsel that the analysis can be significantly strengthened through additional factual representations and the inclusion of an explicit fallback analysis under § 731(c)(3)(A)(iii). We address each component of LPAC counsel's comment below.

Primary Position: The Master Fund LP Interests Are Not "Actively Traded."

Calderwood & Harkness's primary position, which is set forth in Draft v3.0 and which we continue to maintain, is that the Consolidated Master Fund LP interests are not "actively traded" on an established securities market, nor are they "readily tradable" on a secondary market or the substantial equivalent thereof, within the meaning of IRC § 1092(d)(1) as incorporated by reference in § 731(c)(2)(A). The interests will be privately placed and held by a limited number of institutional investors through the feeder structures and the onshore Fund vehicles. There is no public offering or registration of such interests, no listing on any securities exchange or automated quotation system, and no expectation that any market maker will hold itself out as standing ready to buy or sell such interests on a regular or continuous basis.

We acknowledge LPAC counsel's observation that secondary markets for private fund interests have grown in recent years. However, the existence of intermediaries that facilitate occasional, bilateral secondary transactions in private fund interests does not, in our view, render those interests "actively traded" within the meaning of § 1092(d)(1). The secondary market intermediaries to which LPAC counsel alludes facilitate negotiated, privately arranged transactions on a deal-by-deal basis, typically subject to GP consent and transfer restrictions, and do not provide the continuous, readily available pricing and liquidity that characterize "actively traded" financial instruments. This position is consistent with the IRS's application of the "actively traded" standard in the publicly traded partnership context under IRC § 7704, where the presence of occasional secondary transfers has not been treated as creating an established securities market absent qualifying market-maker activity. See Treas. Reg. § 1.7704-1(c) (defining "readily tradable on a secondary market or the substantial equivalent thereof" for § 7704 purposes).

Proposed Enhancement to the Draft. To strengthen the factual foundation for this position, we propose adding the following explicit representations to the PLR request:

(i) No market maker holds itself out, or will hold itself out, as standing ready to buy or sell Consolidated Master Fund LP interests on a regular or continuous basis.

(ii) No listing or registration of Consolidated Master Fund LP interests on any securities exchange, automated quotation system, or inter-dealer quotation system is contemplated, and the Master Fund GP has no current plan or intention to effect any such listing or registration.

(iii) The limited partnership agreement of the Consolidated Master Fund LP will include customary transfer restrictions requiring the prior written consent of the Master Fund GP (Solara Consolidated Master Fund GP LLC) for any transfer, assignment, or other disposition of Master Fund LP interests, and will prohibit transfers that would cause the Master Fund to be treated as a "publicly traded partnership" within the meaning of IRC § 7704.

(iv) The Master Fund LP interests have not been, and will not be, registered under the Securities Act of 1933, as amended, or any state securities laws, and transfers will be restricted to transactions that qualify for applicable exemptions from registration.

These representations, which are factually accurate and consistent with the terms being negotiated for the Consolidated Master Fund LP limited partnership agreement, will provide the IRS with the factual predicate necessary to confirm that the Master Fund LP interests are not "actively traded" within the meaning of § 731(c)(2)(A).

Fallback Position: The § 731(c)(3)(A)(iii) Exception.

Even if the Consolidated Master Fund LP interests were deemed to be "marketable securities" within the meaning of § 731(c)(2) (which Calderwood & Harkness does not believe to be the case), the § 731(c)(3)(A)(iii) exception would apply to exclude the Step 5 distributions from the gain recognition rule of § 731(c)(1). Under § 731(c)(3)(A)(iii), section 731(c) does not apply to a distribution by a partnership of an interest in another partnership, provided that the distributed partnership interest is not an interest in an "investment partnership" as defined in § 731(c)(3)(C). An "investment partnership" is any partnership that has never been engaged in a trade or business and substantially all of the assets of which have always consisted of money, stock in a corporation, notes, bonds, debentures or other evidences of indebtedness, interest rate, currency, or equity notional principal contracts, foreign currencies, interests in or derivative financial instruments in any such assets, and other specified investment-type assets.

The Consolidated Master Fund LP will hold operating company interests — specifically, equity interests in digital infrastructure and software-as-a-service ("SaaS") businesses, including but not limited to NovaBright Data Systems Inc. (data center operations), Crestline Cloud Solutions LLC (cloud computing services), Veridian Edge Computing Corp. (edge computing infrastructure), Thorngate Fiber Networks LP (fiber-optic network operations), Helix SaaS Holdings Ltd. (enterprise SaaS platform), and approximately eighteen other portfolio companies actively engaged in digital infrastructure, cloud computing, network operations, and related technology businesses. These portfolio companies are operating businesses engaged in trades or businesses, and the Consolidated Master Fund LP's assets will consist predominantly of equity interests in such operating businesses rather than the passive investment assets described in § 731(c)(3)(C)(ii).

Accordingly, the Consolidated Master Fund LP will not constitute an "investment partnership" within the meaning of § 731(c)(3)(C), and the § 731(c)(3)(A)(iii) exception will apply to exclude the Step 5 distributions from the gain recognition rule of § 731(c)(1). This analysis is consistent with, and cross-references, the § 721(b) investment company analysis supporting Ruling 2, which reaches the same conclusion — that the Consolidated Master Fund LP is not an "investment company" — under the parallel (though not identical) standard of Treas. Reg. § 1.351-1(c)(1) as applied to partnerships by § 721(b). We propose including an explicit cross-reference between the Ruling 4 (§ 731(c)) analysis and the Ruling 2 (§ 721(b)) analysis to demonstrate internal consistency within the PLR request.

Proposed Action for PLR Draft v4.0. We propose incorporating the following into PLR Draft v4.0:

(a) Expanded factual representations regarding the absence of a secondary trading market for Consolidated Master Fund LP interests, as described above.

(b) A full discussion of the § 731(c)(3)(A)(iii) exception as an alternative basis for the ruling sought in Ruling 4, including an analysis of why the Consolidated Master Fund LP does not constitute an "investment partnership" under § 731(c)(3)(C).

(c) An explicit cross-reference to the § 721(b) investment company analysis (Ruling 2) to support the conclusion that the Consolidated Master Fund LP is not an "investment partnership" and to demonstrate internal consistency within the eight-ruling framework.

Recommendation. Calderwood & Harkness recommends accepting LPAC counsel's suggestion to expand the § 731(c) discussion in the PLR request. The proposed enhancements strengthen the ruling request without introducing any inconsistency with the existing positions in Draft v3.0, and will provide additional comfort to Pinnacle State Employees' Retirement System, Grandview University Endowment, and other LPs that the Step 5 distributions will be tax-free.

Comment Category 2: IRC § 752 — Liability Shifts Affecting Individual LPs

A. LPAC Counsel's Comment

Diana Carruthers raised a concern regarding the impact of the Reorganization on individual LP-level liability allocations under IRC § 752. The Reorganization involves the assumption by (or allocation to) the Consolidated Master Fund LP of approximately $1.34 billion in aggregate liabilities currently borne by the four Legacy Offshore Vehicles. LPAC counsel's comment has four components.

First, LPAC counsel noted that under IRC § 752(b), a decrease in a partner's share of partnership liabilities is treated as a deemed cash distribution to that partner under IRC § 731. Conversely, under IRC § 752(a), an increase in a partner's share of partnership liabilities is treated as a deemed cash contribution by that partner under IRC § 722. If the deemed cash distribution under § 752(b) resulting from a decrease in a partner's liability share exceeds that partner's adjusted basis in its partnership interest, the excess is treated as gain from the sale or exchange of a partnership interest under IRC § 731(a)(1). LPAC counsel expressed concern that the Reorganization — which involves the consolidation of four separate offshore vehicle liability pools into a single Master Fund liability pool — could cause significant shifts in individual LP liability shares, potentially producing § 752(b) deemed distributions that exceed certain LPs' adjusted bases.

Second, LPAC counsel requested that Calderwood & Harkness prepare a detailed partner-by-partner analysis (or at minimum, a category-by-category analysis) showing the net effect of § 752(a) deemed contributions and § 752(b) deemed distributions for representative LPs. LPAC counsel specifically identified the following investors for whom the analysis was requested:

• Nordhaven Sovereign Wealth Fund ($380 million committed to Fund IV-A Cayman + $500 million committed to Fund V-A Cayman = $880 million aggregate);

• Kestrel Pacific Insurance Group (€200 million committed to Fund IV-B Luxembourg + €275 million committed to Fund V-B Luxembourg = €475 million aggregate);

• Pinnacle State Employees' Retirement System ($275 million committed to Fund IV + $340 million committed to Fund V = $615 million aggregate); and

• Grandview University Endowment ($120 million committed to Fund IV + $185 million committed to Fund V = $305 million aggregate).

Third, LPAC counsel asked Calderwood & Harkness to confirm that the netting rules under Treas. Reg. § 1.752-1(f) apply to treat offsetting deemed contributions and deemed distributions within the same transaction as netted, so that only the net increase or net decrease is treated as a contribution or distribution, respectively. LPAC counsel also requested an explanation of how tiered partnership liability allocations work for LPs who will hold their Master Fund interests through the Cayman feeder vehicles — i.e., the limited partners of the International Feeder and the Tax-Exempt Feeder — where the liability allocation must be traced through two tiers (the feeder level and the Master Fund level).

Fourth, LPAC counsel expressed particular concern regarding the five-step sequencing of the Reorganization. Steps 2 through 5 are currently scheduled to occur over approximately two months (October 1 through December 1, 2025), and LPAC counsel questioned whether the IRS might view each step as a separate transaction for § 752 purposes rather than as part of a single integrated transaction. If the steps are treated separately, transient liability allocation shifts occurring between steps (e.g., after the Step 2 contribution by Fund IV-A Cayman on October 1 but before the Step 4 contribution by Fund V-A Cayman on November 1) could produce temporary § 752(b) deemed distributions that are not offset by corresponding § 752(a) deemed contributions until a subsequent step. This could result in gain recognition at the individual LP level during the interim period, even if the net effect of the entire Reorganization would not produce gain recognition.

B. Calderwood & Harkness Response

Calderwood & Harkness acknowledges that the § 752 analysis is among the most complex aspects of the Reorganization and that the Draft v3.0 analysis, which addresses the liability shifts at the aggregate level, is sound but can benefit from additional granularity. We address each component of LPAC counsel's comment below.

Aggregate-Level Analysis.

The $1.34 billion in aggregate liabilities currently allocated among the four Legacy Offshore Vehicles will shift to the Consolidated Master Fund LP upon completion of the Reorganization. Under the general principles of IRC § 752, each LP's share of partnership liabilities will be reallocated based on the LP's proportionate interest in the Consolidated Master Fund LP (or, for LPs investing through feeder vehicles, the LP's proportionate interest in the feeder, which in turn holds a proportionate interest in the Master Fund). The fundamental question is whether the Reorganization produces, for any given LP, a net decrease in its share of partnership liabilities that, when treated as a deemed cash distribution under § 752(b), exceeds that LP's adjusted basis in its partnership interest.

Under Treas. Reg. § 1.752-1(f), when a single transaction involves both a deemed contribution under § 752(a) (from an increase in a partner's liability share) and a deemed distribution under § 752(b) (from a decrease in a partner's liability share), the two are netted so that only the net increase is treated as a contribution under § 722 and only the net decrease is treated as a distribution under § 731. This netting rule is critical to the § 752 analysis because the Reorganization simultaneously involves the assumption of liabilities by the Consolidated Master Fund LP (which increases each LP's share of Master Fund-level liabilities) and the relief of liabilities by the Legacy Offshore Vehicles (which decreases each LP's share of Legacy Offshore Vehicle-level liabilities). For most LPs, the net effect will be approximately neutral or will result in a net increase in liability share, because the same liabilities are simply being reallocated from four vehicles to one vehicle, and each LP's proportionate economic interest in the underlying assets and liabilities is preserved.

Proposed Enhancement: Category-Level Analysis.

LPAC counsel requested a partner-by-partner analysis showing the net § 752 effect for each representative LP. While we understand the motivation for this request, we note that a partner-by-partner analysis requires access to each individual LP's adjusted basis in its partnership interest — information that is not within Calderwood & Harkness's possession and that each LP maintains independently based on its own tax reporting and capital account records. The PLR request, which addresses the structural tax treatment of the Reorganization at the entity level, does not and should not opine on whether any individual LP will recognize gain, as this is inherently a fact-specific determination that depends on each LP's own adjusted basis.

We therefore propose providing a category-level analysis (rather than a partner-by-partner analysis) showing the net § 752 effect for each of the three principal investor categories:

(a) Non-U.S. Investors Routing Through the International Feeder. These investors currently hold interests in Fund IV-A (Cayman) LP and/or Fund V-A (Cayman) LP, and will hold interests in the International Feeder post-Reorganization. Their liability allocation will shift from the Cayman fund vehicles to the Master Fund (allocated through the feeder). This category includes Nordhaven Sovereign Wealth Fund and other non-U.S. investors.

(b) U.S. Tax-Exempt Investors Routing Through the Tax-Exempt Feeder. These investors currently hold interests in the offshore parallel vehicles for UBTI blocker purposes, and will hold interests in the Tax-Exempt Feeder post-Reorganization. Their liability allocation will shift in the same manner as Category (a). This category includes investors such as Pinnacle State Employees' Retirement System and Grandview University Endowment, to the extent they hold interests in the offshore parallel structures.

(c) U.S. Taxable Investors Remaining in Fund IV LP and Fund V LP. These investors, including Argyle Family Office Holdings LLC, are not directly affected by the Legacy Offshore Vehicle reorganization because they do not hold interests in the offshore vehicles being consolidated. However, their proportionate liability shares may shift indirectly through the co-investment structure, as the co-investment arrangement between the onshore Fund vehicles and the Master Fund may alter the allocation of certain fund-level liabilities. This category requires a separate sub-analysis.

For each category, the analysis will show: (i) the aggregate liability share before the Reorganization; (ii) the aggregate liability share after the Reorganization; (iii) the net increase or decrease in liability share; and (iv) the resulting treatment under § 752(a) or § 752(b), as applicable, taking into account the Treas. Reg. § 1.752-1(f) netting rules.

Tiered Partnership Analysis.

For LPs investing through the Cayman feeder vehicles (i.e., the International Feeder and the Tax-Exempt Feeder), the § 752 liability allocation must be traced through two tiers. At the bottom tier, the Consolidated Master Fund LP is the partnership that directly holds the liabilities; the feeder vehicles are partners of the Master Fund and are allocated their proportionate share of Master Fund-level liabilities under Treas. Reg. § 1.752-4 (which addresses the allocation of liabilities in tiered partnership structures). At the top tier, each feeder vehicle is itself a partnership whose partners — the individual LPs — are allocated their proportionate share of feeder-level liabilities, which include the feeder's share of Master Fund-level liabilities allocated to the feeder as a partner.

Under Treas. Reg. § 1.752-4(a), a partner's share of the liabilities of a lower-tier partnership includes the partner's share of such liabilities as determined under the general § 752 allocation rules, traced through the tiered structure. In the case of recourse liabilities (which we expect will constitute a relatively small portion of the $1.34 billion in aggregate liabilities, with the majority being nonrecourse liabilities secured by portfolio company assets and fund-level credit facilities), the allocation follows the economic risk of loss analysis under Treas. Reg. § 1.752-2. In the case of nonrecourse liabilities, the allocation follows the three-tier system of Treas. Reg. § 1.752-3 (partnership minimum gain, § 704(c) minimum gain, and profits-sharing ratios).

Calderwood & Harkness confirms that the Draft v4.0 will include an explanation of this tiered allocation methodology and will apply it to the category-level analysis described above.

Integrated Transaction Argument.

Calderwood & Harkness will include a representation in the PLR request that Steps 1 through 5 of the Reorganization constitute a single integrated transaction for purposes of § 752 netting under Treas. Reg. § 1.752-1(f). This representation is supported by the step transaction doctrine, which applies favorably here — i.e., the five steps are mutually interdependent and would not be undertaken independently. No step of the Reorganization has independent economic significance apart from the overall goal of consolidating the Legacy Offshore Vehicles into the Consolidated Master Fund LP. The step transaction doctrine, as articulated by the Supreme Court in Commissioner v. Clark, 489 U.S. 726 (1989), and applied in partnership contexts by the Tax Court and the IRS in numerous rulings and technical advice memoranda, supports the treatment of the five steps as a single integrated transaction.

We will request that the IRS confirm in its ruling on Ruling 5 that Treas. Reg. § 1.752-1(f) netting applies across all five steps, viewed as a single integrated transaction, so that transient liability allocation shifts occurring between individual steps do not produce unintended gain recognition. This is a critical point, as it directly addresses LPAC counsel's concern about the two-month sequencing period from October 1 to December 1, 2025.

Caveat Regarding Individual LP Basis.

As noted above, the PLR request addresses the structural, entity-level § 752 treatment of the Reorganization and does not opine on whether any individual LP will recognize gain, which depends on each LP's own adjusted basis in its partnership interest. Calderwood & Harkness will include a caveat to this effect in the PLR request and in the LP Tax Impact Summary Letter. Each LP should evaluate the potential gain recognition impact of the § 752 liability shifts with its own tax advisors, using its own adjusted basis information.

Proposed Action for PLR Draft v4.0. We propose incorporating the following into PLR Draft v4.0:

(a) A category-level § 752 impact analysis, to be included as a supplement to PLR Exhibit E (Schedule of Liabilities and § 752 Analysis), showing the net § 752 effect for each of the three investor categories described above.

(b) An expanded legal discussion of the Treas. Reg. § 1.752-1(f) netting rules, including their application to multi-step transactions.

(c) An expanded legal discussion of the Treas. Reg. § 1.752-4 tiered partnership allocation rules, explaining how Master Fund-level liabilities flow up to feeder-level partners.

(d) A representation that Steps 1 through 5 constitute a single integrated transaction for purposes of § 752 netting, supported by the step transaction doctrine.

(e) Coordination with Caldwell Pierce & Co. LLP (Helen Okamoto, Partner, Financial Services Tax; 400 Renaissance Center, Suite 2500, Detroit, MI 48243) to obtain aggregate liability data by investor category for the enhanced category-level analysis. We note that Caldwell Pierce serves as the fund's tax compliance and reporting advisor and maintains the relevant liability allocation schedules.

Recommendation. Calderwood & Harkness recommends partially accepting LPAC counsel's suggestion. We will provide a category-level analysis with appropriate caveats, rather than a partner-by-partner analysis that would require individual LP basis information outside our possession and that falls outside the proper scope of the PLR request. This approach balances LPAC counsel's legitimate interest in additional granularity with the practical and structural constraints of the PLR process.

Comment Category 3: FIRPTA / IRC § 897 — Non-U.S. Investor Exposure, Particularly Nordhaven Sovereign Wealth Fund

A. LPAC Counsel's Comment

Diana Carruthers raised a concern on behalf of the LPAC, specifically reflecting input from Bramhall & Quelwick LLP (Jason Tremaine, Partner, International Tax), regarding the FIRPTA (Foreign Investment in Real Property Tax Act) / IRC § 897 implications of the Reorganization for non-U.S. investors. The comment has three principal components.

First, the concern centers on whether certain portfolio company interests held by the Legacy Offshore Vehicles — particularly interests in NovaBright Data Systems Inc. and Thorngate Fiber Networks LP — constitute "United States real property interests" (USRPIs) under IRC § 897(c)(1)(A)(i). LPAC counsel observed that data centers and fiber-optic network infrastructure may include significant interests in U.S. real property, including owned or leased land and buildings (in the case of data centers) and easements, rights-of-way, and physical conduit infrastructure (in the case of fiber-optic networks). If these portfolio company interests are USRPIs, the contributions of such interests to the Consolidated Master Fund LP in Steps 2 through 4 could potentially trigger FIRPTA gain recognition for non-U.S. partners of the contributing Legacy Offshore Vehicles.

LPAC counsel provided the following specific data points in support of this concern:

• NovaBright Data Systems Inc. has a fair market value of approximately $890 million and an adjusted tax basis of approximately $520 million, reflecting built-in gain of approximately $370 million. NovaBright is held 60% by Fund IV-A (Cayman) LP and 40% by Fund IV LP. NovaBright operates twelve data centers across six states, with significant owned and leased real estate.

• Thorngate Fiber Networks LP has a fair market value of approximately $670 million and an adjusted tax basis of approximately $490 million, reflecting built-in gain of approximately $180 million. Thorngate is held 100% by Fund IV-A (Cayman) LP. Thorngate operates approximately 14,000 route miles of fiber-optic network infrastructure, including owned and leased fiber, conduit, easements, and rights-of-way.

Second, if any transferred portfolio company interests are USRPIs, the § 1446 withholding analysis addressed in Ruling 7 would need to account for FIRPTA withholding under IRC § 1446(f) on transfers of partnership interests. Section 1446(f) imposes a 10% withholding obligation on the transferee of a partnership interest if any portion of the gain on the transfer would be treated as effectively connected income ("ECI") under § 864(c)(8) by reason of the partnership's holding of USRPIs. LPAC counsel questioned whether the nonrecognition treatment under § 721(a) eliminates the § 1446(f) withholding obligation, or whether a withholding obligation nevertheless arises that must be specifically excepted.

Third, LPAC counsel requested that Calderwood & Harkness address whether Nordhaven Sovereign Wealth Fund qualifies for the sovereign wealth fund FIRPTA exemption under IRC § 897(l). Section 897(l), added by the Protecting Americans from Tax Hikes (PATH) Act of 2015, exempts "qualified foreign pension funds" and their wholly owned subsidiaries from the application of § 897. If Nordhaven SWF qualifies as a "qualified foreign pension fund" within the meaning of § 897(l)(2), it would be exempt from FIRPTA regardless of whether the portfolio company interests constitute USRPIs. LPAC counsel requested that, if applicable, representations regarding Nordhaven SWF's § 897(l) eligibility be included in the PLR request to provide additional comfort. LPAC counsel noted that this request reflects input from Bramhall & Quelwick LLP, which intends to provide a separate opinion letter to Nordhaven SWF on the § 897(l) issue and has requested coordination between Calderwood & Harkness and Bramhall & Quelwick on the FIRPTA and § 1446 positions.

B. Calderwood & Harkness Response

Calderwood & Harkness acknowledges the importance of the FIRPTA analysis for non-U.S. investors and agrees that the Draft v3.0 FIRPTA discussion, which addresses FIRPTA at a relatively high level of generality, can and should be expanded. We address each component of LPAC counsel's comment below.

Analysis of USRPI Status: NovaBright Data Systems Inc. and Thorngate Fiber Networks LP.

Calderwood & Harkness's internal analysis (Tax Memorandum — FIRPTA / IRC § 897 Analysis, dated June 10, 2025, Engagement Work Product Ref. WP-2025-037) has evaluated whether interests in NovaBright Data Systems Inc. and Thorngate Fiber Networks LP constitute USRPIs under IRC § 897(c)(1)(A)(i).

Under IRC § 897(c)(1)(A)(i), a USRPI includes any interest in real property located in the United States or the Virgin Islands. Under IRC § 897(c)(1)(A)(ii), a USRPI also includes any interest (other than an interest solely as a creditor) in any domestic corporation that is a "United States real property holding corporation" ("USRPHC"). Under IRC § 897(c)(2), a corporation is a USRPHC if the fair market value of its USRPIs equals or exceeds 50% of the sum of (A) the fair market value of its USRPIs, (B) the fair market value of its interests in real property located outside the United States, and (C) the fair market value of its other assets used or held for use in a trade or business.

Our analysis considers each entity separately:

(a) NovaBright Data Systems Inc. NovaBright is a Delaware corporation that operates twelve data centers across six states. Data center operations are inherently real-estate-intensive: NovaBright owns or holds long-term leases on the land and buildings housing its data center facilities, and these real property interests constitute a significant portion of NovaBright's total assets. Based on the preliminary asset valuation data provided by the Fund (as of June 30, 2025), the fair market value of NovaBright's U.S. real property interests (owned and leased real estate, including data center buildings, land, and associated improvements) is approximately $510 million, while the fair market value of NovaBright's total assets (including real property, personal property, and intangible assets such as customer contracts, software, and goodwill) is approximately $890 million. The USRPI ratio (USRPIs ÷ total assets) is therefore approximately 57%, which exceeds the 50% threshold. Preliminary conclusion: NovaBright likely is a USRPHC, and interests in NovaBright stock likely constitute USRPIs.

(b) Thorngate Fiber Networks LP. Thorngate is a Delaware limited partnership that operates approximately 14,000 route miles of fiber-optic network infrastructure. The USRPI analysis for Thorngate is more nuanced than for NovaBright, because fiber-optic network infrastructure includes a mix of assets: (i) real property interests, including easements, rights-of-way, and certain physical conduit that is permanently affixed to real property; and (ii) personal property, including the fiber-optic cable itself (which may be treated as tangible personal property rather than real property, depending on the jurisdiction and the manner of installation), electronic equipment, network switches, and related technology assets. Thorngate also holds significant intangible assets, including customer contracts, dark fiber lease agreements, and IRU (indefeasible right of use) agreements.

The characterization of fiber-optic infrastructure components as "real property" or "personal property" for FIRPTA purposes is not entirely settled. While the IRS has indicated in certain contexts (e.g., the REIT context under Treas. Reg. § 1.856-10) that certain infrastructure assets, including fiber conduit, may constitute "real property" if they are inherent permanent structures or structural components thereof, the FIRPTA regulations do not contain a separate definition of "real property" and instead rely on general tax law principles of fixture classification.

Based on our preliminary analysis, the fair market value of Thorngate's assets that clearly constitute U.S. real property interests (easements, rights-of-way, and owned conduit infrastructure) is approximately $250 million, while the fair market value of Thorngate's total assets is approximately $670 million. The USRPI ratio is therefore approximately 37%, which is below the 50% threshold. However, if certain additional infrastructure components (such as fiber-optic cable that is permanently affixed to conduit, which in turn is affixed to real property) are classified as real property, the USRPI ratio could approach or exceed 50%. Preliminary conclusion: Thorngate's USRPI/USRPHC status is uncertain and depends on the classification of its fiber-optic infrastructure components. We note that Thorngate is a partnership (not a corporation), and therefore the USRPHC analysis under § 897(c)(2) does not apply directly; instead, the analysis focuses on whether Thorngate's underlying assets include USRPIs that would be attributed to the Legacy Offshore Vehicles and their partners under the look-through rules of § 897(g) and Treas. Reg. § 1.897-7T.

Section 721(a) Override: Application of IRC § 897(e).

Calderwood & Harkness's position is that, even if portfolio company interests constitute USRPIs, the § 721(a) nonrecognition provision applies to the contributions in Steps 2 through 4, and the FIRPTA rules of § 897 do not override that nonrecognition treatment.

The interaction between FIRPTA and nonrecognition provisions is governed by IRC § 897(e). Under § 897(e)(1), the nonrecognition provisions of the Code (including § 721) apply to the disposition of a USRPI only if the transferee's basis in the property received is determined in whole or in part by reference to the transferor's basis in the property transferred. In the case of a § 721(a) contribution to a partnership, the partnership's basis in the contributed property is determined under IRC § 723 by reference to the transferor partner's basis — i.e., the partnership takes a carryover basis in the contributed property. Accordingly, the § 897(e) condition is satisfied, and the nonrecognition treatment of § 721(a) is preserved notwithstanding the USRPI status of the contributed property.

The effect of § 897(e) is that the USRPI characterization carries over to the Consolidated Master Fund LP's interest in the portfolio companies. The deferred built-in gain attributable to the USRPIs is preserved and will be recognized under FIRPTA when the Master Fund ultimately disposes of the USRPI assets in a taxable transaction. This is the correct structural result: FIRPTA gain is deferred, not eliminated, consistent with the general policy of § 897(e) that nonrecognition transactions should not be used to permanently escape FIRPTA.

Calderwood & Harkness will add an explicit representation and analysis of § 897(e) in the PLR request to support Rulings 1 and 7, confirming that the § 721(a) nonrecognition treatment applies to contributions of USRPI assets to the Consolidated Master Fund LP and that the USRPI characterization carries over to the Master Fund level.

Section 1446(f) Withholding.

With respect to LPAC counsel's question regarding IRC § 1446(f) withholding, Calderwood & Harkness's position is that § 1446(f) withholding does not apply to the Steps 2 through 4 contributions or the Step 5 distributions because these are nonrecognition transactions that do not generate gain. Section 1446(f) imposes a withholding obligation on the "transferee" of a partnership interest if any portion of the gain on the transfer would be treated as ECI under § 864(c)(8). If there is no gain by reason of § 721(a) or § 731(a), there is no ECI, and no withholding obligation arises. This conclusion is further supported by the temporary and proposed regulations under § 1446(f), which provide exceptions for certain nonrecognition transactions. See Treas. Reg. § 1.1446(f)-2(b) (providing rules for determining the amount subject to withholding, which is based on the amount realized less the transferor's adjusted basis — resulting in zero withholding when no gain is recognized).

We will add a note in the Ruling 7 analysis addressing the § 1446(f) FIRPTA withholding overlay to confirm that the nonrecognition treatment eliminates any withholding obligation.

Nordhaven SWF Exemption Under IRC § 897(l).

Calderwood & Harkness notes that the § 897(l) exemption applies specifically to "qualified foreign pension funds" ("QFPFs") and their wholly owned subsidiaries, not to sovereign wealth funds generally. The availability of the § 897(l) exemption for Nordhaven Sovereign Wealth Fund depends on whether Nordhaven SWF meets the specific definitional requirements of § 897(l)(2), which provides that a QFPF is any trust, corporation, or other organization or arrangement that satisfies all of the following criteria:

(i) It is created or organized under the law of a country other than the United States;

(ii) It is established by such country (or one or more political subdivisions thereof) to provide retirement or pension benefits to participants or beneficiaries that are current or former employees (including self-employed individuals) or persons designated by such employees;

(iii) It does not have a single participant or beneficiary with a right to more than five percent of its assets or income;

(iv) It is subject to government regulation and provides annual information reporting about its beneficiaries to the relevant tax authorities of the country in which it is established or operates; and

(v) Under the laws of the country in which it is established or operates, either (A) contributions to such trust, corporation, organization, or arrangement that would otherwise be subject to tax under such laws are deductible or excluded from the gross income of such entity or taxed at a reduced rate, or (B) taxation of any investment income of such trust, corporation, organization, or arrangement is deferred or such income is taxed at a reduced rate.

Calderwood & Harkness does not have sufficient factual information regarding Nordhaven SWF's organizational structure, constitutive documents, regulatory status under Kingdom of Nordhaven law, beneficiary structure, or tax treatment under Nordhaven domestic law to determine whether Nordhaven SWF satisfies these requirements. This is inherently a fact-specific inquiry that requires detailed knowledge of Nordhaven SWF's legal and regulatory framework — knowledge that resides with Nordhaven SWF itself and its independent counsel, Bramhall & Quelwick LLP.

Moreover, even if Nordhaven SWF does qualify as a QFPF under § 897(l), we do not believe it is appropriate to include a § 897(l) ruling request in the PLR submission for the Reorganization. The PLR request addresses the structural tax treatment of the Reorganization at the entity and transaction level — it is not designed to opine on the individual tax attributes or exemptions applicable to any single limited partner. Including a § 897(l) ruling request for Nordhaven SWF would fundamentally change the character of

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: Leonard Cross, Partner, and Robert Jansen, Associate Calderwood & Harkness LLP 1900 K Street NW, Suite 1100 Washington, DC 20006
TO: Stefan Dalmqvist, Head of Tax, and Priya Narasimhan, General Counsel Solara Digital Infrastructure LP
CC: Sylvia Hartwell, Partner, Calderwood & Harkness LLP (600 Lexington Avenue, 38th Floor, New York, NY 10022) Garrett Simmons, Associate, Calderwood & Harkness LLP (600 Lexington Avenue, 38th Floor, New York, NY 10022) Viktor Raines, Managing Partner & Founder, Solara Digital Infrastructure LP
DATE: July 18, 2025
RE: Summary of and Responses to LP Advisory Committee Counsel Comments on Draft Private Letter Ruling Request (Version 3.0) — Cross-Border Fund-Platform Reorganization of Solara Digital Infrastructure LP
ENGAGEMENT NO.: 20250527-SDILP-PLR
Right-click to update Table of Contents
I. Purpose and Executive Summary
This memorandum summarizes and responds to the comments received from Diana Carruthers, Partner (Fund Formation & Tax) at Whitfield, Carruthers & Doyle LLP, 200 South Biscayne Boulevard, Suite 4000, Miami, FL 33131, acting in her capacity as outside counsel to the LP Advisory Committee ("LPAC") of Solara Digital Partners Fund IV LP ("Fund IV") and Solara Digital Partners Fund V LP ("Fund V"), regarding Draft Private Letter Ruling Request Version 3.0 (the "Draft" or "Draft v3.0"). The Draft was circulated to LPAC counsel on or about July 1, 2025, with a requested comment deadline of July 15, 2025. LPAC counsel's comments were received by email on or about July 14, 2025, one day prior to the stated deadline.
As discussed in prior correspondence and at the April 22, 2025 LPAC meeting, the LPAC previously provided preliminary consent, representing approximately 78% in interest of the aggregate limited partner commitments across Fund IV and Fund V, for the proposed cross-border fund-platform reorganization (the "Reorganization"). That preliminary consent was granted subject to the LPAC's right to review and comment on the draft PLR request and the related LP Tax Impact Summary Letter prior to final submission to the Internal Revenue Service.
LPAC counsel's comments, which are summarized in detail in Section III below and indexed in Appendix A, focus on three principal areas of concern:
1. IRC § 731(c) — Marketable Securities Characterization. Whether the interests in Solara Consolidated Master Fund LP (the "Consolidated Master Fund" or "Master Fund") distributed to limited partners of the Legacy Offshore Vehicles in Step 5 of the Reorganization could be characterized as "marketable securities" within the meaning of IRC § 731(c)(2), potentially triggering gain recognition on distributions exceeding adjusted basis.
2. IRC § 752 — Liability Shifting Analysis. Whether the consolidation of $1.34 billion in aggregate liabilities from four separate offshore vehicle partnerships into a single Master Fund could result in shifts in individual limited partner liability allocations under IRC § 752 that would produce deemed cash distributions under § 752(b), and the related netting and tiered partnership allocation mechanics.
3. FIRPTA / IRC § 897 — Non-U.S. Investor Exposure. Whether certain portfolio company interests — particularly NovaBright Data Systems Inc. and Thorngate Fiber Networks LP — constitute "United States real property interests" ("USRPIs") under IRC § 897(c)(1)(A)(i), potentially exposing non-U.S. investors (including Nordhaven Sovereign Wealth Fund and Kestrel Pacific Insurance Group) to FIRPTA gain recognition, and the interaction between FIRPTA and the § 721(a) nonrecognition treatment sought in the PLR request.
This memorandum addresses each comment in order, sets forth Calderwood & Harkness's proposed response or revision to the Draft, and recommends specific changes to be incorporated into Draft PLR Request Version 4.0 (the "Final Circulated Draft" or "Draft v4.0"). In addition, this memorandum addresses certain ancillary observations and general drafting comments provided by LPAC counsel that do not fall within the three principal categories.
Summary of Recommendations. Calderwood & Harkness recommends accepting or partially accepting LPAC counsel's suggestions on all three principal topics, with certain modifications as described herein, and proposes additional representations and factual detail in the PLR request to address LPAC concerns. Specifically:
• With respect to the § 731(c) analysis, we recommend expanding the factual representations regarding the absence of a secondary trading market for Master Fund interests and adding an explicit alternative-basis analysis under the § 731(c)(3)(A)(iii) exception. We accept LPAC counsel's suggestion in full on this point.
• With respect to the § 752 analysis, we recommend providing a category-level (rather than individual partner-level) impact analysis supplementing PLR Exhibit E, expanding the discussion of the Treas. Reg. § 1.752-1(f) netting rules and the Treas. Reg. § 1.752-4 tiered partnership rules, and adding a representation that the five-step Reorganization constitutes an integrated transaction for § 752 netting purposes. We partially accept LPAC counsel's suggestion on this point.
• With respect to the FIRPTA / § 897 analysis, we recommend expanding the structural FIRPTA analysis to specifically address the USRPI characterization of NovaBright and Thorngate, adding a detailed § 897(e) nonrecognition analysis, and coordinating with Bramhall & Quelwick LLP on the Nordhaven SWF-specific analysis. However, we decline to include an investor-specific § 897(l) ruling request in the PLR submission. We partially accept LPAC counsel's suggestion on this point.
None of the comments received from LPAC counsel raise any issue that Calderwood & Harkness believes would prevent or materially delay the PLR submission. We request client authorization to proceed with the revisions described herein and to coordinate with Bramhall & Quelwick LLP on the FIRPTA analysis, subject to appropriate privilege protocols as described in Section VI below.
II. Background
A. The Reorganization
As described in detail in the Draft and in our prior memoranda to the client, the proposed Reorganization involves a five-step consolidation of Solara Digital Infrastructure LP's cross-border fund-platform architecture into a single Delaware-domiciled master fund structure. We provide a brief recap here for context.
The Reorganization involves the domestication and merger of four offshore fund vehicles (collectively, the "Legacy Offshore Vehicles") into the newly established Solara Consolidated Master Fund LP, a Delaware limited partnership. The Legacy Offshore Vehicles are:
(a) Fund IV-A (Cayman) LP, a Cayman Islands exempted limited partnership (EIN 98-6241503);
(b) Fund IV-B (Luxembourg) SCSp, a Luxembourg special limited partnership (société en commandite spéciale) (RCS B 248193; EIN 98-6241571);
(c) Fund V-A (Cayman) LP, a Cayman Islands exempted limited partnership (EIN 98-7891234); and
(d) Fund V-B (Luxembourg) SCSp, a Luxembourg special limited partnership (société en commandite spéciale) (RCS B 271056; EIN 98-7891267).
The five steps of the Reorganization are sequenced as follows, with individual steps occurring between September 15 and December 1, 2025, and a target effective date of December 1, 2025:
Step 1 (September 15, 2025): Formation of the Consolidated Master Fund LP (a Delaware limited partnership) and its general partner, Solara Consolidated Master Fund GP LLC (a Delaware limited liability company), along with two new Cayman Islands exempted limited partnerships — Solara International Feeder (Cayman) LP (the "International Feeder") for non-U.S. investors and Solara Tax-Exempt Feeder (Cayman) LP (the "Tax-Exempt Feeder") for U.S. tax-exempt investors. All new entities will elect partnership classification under Treas. Reg. § 301.7701-3.
Step 2 (October 1, 2025): Contribution by Fund IV-A (Cayman) LP of its portfolio company interests and other assets to the Consolidated Master Fund LP in exchange for Master Fund LP interests, intended to qualify as a tax-free contribution under IRC § 721(a).
Step 3 (October 15, 2025): Contribution by Fund IV-B (Luxembourg) SCSp of its portfolio company interests and other assets to the Consolidated Master Fund LP in exchange for Master Fund LP interests, intended to qualify as a tax-free contribution under IRC § 721(a).
Step 4 (November 1, 2025): Contribution by Fund V-A (Cayman) LP and Fund V-B (Luxembourg) SCSp of their respective portfolio company interests and other assets to the Consolidated Master Fund LP in exchange for Master Fund LP interests, intended to qualify as tax-free contributions under IRC § 721(a).
Step 5 (December 1, 2025): Distribution of Master Fund LP interests by each Legacy Offshore Vehicle to its respective limited partners in complete liquidation of the Legacy Offshore Vehicles, intended to qualify as tax-free distributions under IRC § 731(a).
The total fair market value of assets to be transferred to the Consolidated Master Fund LP across Steps 2 through 4 is approximately $7.75 billion. The total adjusted tax basis of such assets is approximately $6.03 billion, resulting in aggregate built-in gain of approximately $1.72 billion. Aggregate liabilities to be assumed by or allocated to the Consolidated Master Fund LP in connection with the Reorganization total approximately $1.34 billion.
Following completion of the Reorganization, the post-reorganization structure will consist of: (i) two new Cayman feeder LPs — the International Feeder (for non-U.S. investors) and the Tax-Exempt Feeder (for U.S. tax-exempt investors) — each investing as a limited partner in the Consolidated Master Fund LP; and (ii) Fund IV LP and Fund V LP (the onshore U.S. vehicles), which will co-invest alongside the Master Fund through a co-investment arrangement. U.S. taxable investors will remain directly in Fund IV LP and Fund V LP and will not hold interests in the Master Fund directly.
B. The PLR Request and Eight Specific Rulings
The Draft PLR Request seeks eight specific rulings from the IRS Office of the Associate Chief Counsel (International) ("CC:INTL"), with secondary jurisdiction in the Office of the Associate Chief Counsel (Passthroughs & Special Industries) ("CC:PSI"). The eight requested rulings are as follows:
Ruling 1 — IRC § 721(a) Tax-Free Contributions (Steps 2–4). That the contributions of portfolio company interests and other assets by each Legacy Offshore Vehicle to the Consolidated Master Fund LP in exchange for Master Fund LP interests qualify as tax-free contributions under IRC § 721(a), and that no gain or loss is recognized by the contributing vehicles or their partners on account of such contributions.
Ruling 2 — IRC § 721(b) Investment Company Exception Inapplicability. That the contributions described in Ruling 1 do not constitute contributions to an "investment company" within the meaning of IRC § 721(b) and Treas. Reg. § 1.351-1(c)(1) (as applied to partnerships under § 721(b)), and therefore that the § 721(b) exception to nonrecognition treatment does not apply.
Ruling 3 — IRC § 367 Inapplicability to Partnership-to-Partnership Transfers. That IRC § 367 does not apply to the contributions described in Ruling 1 because those contributions involve transfers of assets between partnerships, not transfers of property to foreign corporations, and thus do not trigger the outbound transfer rules of § 367(a) or the inbound transfer rules of § 367(b).
Ruling 4 — IRC § 731(a) Tax-Free Distributions (Step 5). That the distributions of Master Fund LP interests by each Legacy Offshore Vehicle to its respective limited partners in complete liquidation qualify as tax-free distributions under IRC § 731(a), and that no gain is recognized by the distributee partners on account of such distributions (except to the extent, if any, that money distributed exceeds a partner's adjusted basis in its partnership interest, which the Fund does not anticipate will occur).
Ruling 5 — IRC § 752 Liability Shifting — No Gain Recognition. That the assumption of liabilities by the Consolidated Master Fund LP and the corresponding shifts in LP-level liability allocations resulting from the Reorganization do not give rise to gain recognition under IRC § 731(a) by reason of deemed cash distributions under IRC § 752(b), taking into account the netting rules of Treas. Reg. § 1.752-1(f).
Ruling 6 — IRC § 704(c) Built-In Gain Carryover and Remedial Allocation Method Continuation. That the built-in gain or loss with respect to contributed property carries over to the Consolidated Master Fund LP under IRC § 704(c), and that the remedial allocation method currently employed by the Legacy Offshore Vehicles with respect to such property may be continued by the Consolidated Master Fund LP.
Ruling 7 — IRC § 1446 Withholding Not Required. That the contributions in Steps 2 through 4 and the distributions in Step 5 do not give rise to withholding obligations under IRC § 1446(a) (withholding on effectively connected income allocated to foreign partners) or IRC § 1446(f) (withholding on transfers of partnership interests), because the underlying transactions are nonrecognition transactions that do not generate effectively connected taxable income or gain.
Ruling 8 — Entity Classification Under Treas. Reg. § 301.7701-3. That the Consolidated Master Fund LP, the International Feeder, and the Tax-Exempt Feeder will each be classified as a partnership for U.S. federal income tax purposes under the entity classification regulations at Treas. Reg. § 301.7701-3, and that the Master Fund GP will be disregarded as an entity separate from its sole owner for U.S. federal income tax purposes.
As noted above, LPAC counsel's comments relate principally to Rulings 4, 5, and 7, with ancillary observations touching on FIRPTA (IRC § 897), which is addressed as a supporting analysis within the PLR request though not the subject of a standalone ruling request.
C. LPAC Counsel Engagement
Whitfield, Carruthers & Doyle LLP serves as outside counsel to the LPAC of both Fund IV and Fund V. The firm was retained by the LPAC pursuant to the LPAC Counsel Retainer Agreement dated March 8, 2025, with fees and expenses reimbursed by the Fund as a fund-level expense under Section 7.3 of the respective limited partnership agreements. Diana Carruthers is the lead partner on the engagement and serves as the primary point of contact for all LPAC-related tax matters in connection with the Reorganization.
LPAC counsel's role is to review the proposed Reorganization on behalf of the limited partners for LP consent purposes. Their comments reflect concerns raised by or on behalf of the LPAC members, including concerns that may have been communicated to LPAC counsel by individual LPs or their independent advisors. LPAC counsel's comments are advisory in nature and do not constitute a consent or objection to the Reorganization; the formal consent mechanism is set forth in the LP Consent Solicitation Letter and Form of LP Consent, which will be circulated following completion of Draft v4.0.
We note an important coordination matter: Bramhall & Quelwick LLP (Jason Tremaine, Partner, International Tax; 44 Montgomery Street, Suite 3600, San Francisco, CA 94104) has been independently retained by Nordhaven Sovereign Wealth Fund (Anders Bjørkman, Head of Alternative Investments) to evaluate the U.S. withholding tax and treaty implications of the Reorganization as they apply specifically to Nordhaven SWF. Bramhall & Quelwick was not retained by the LPAC and does not serve as LPAC counsel; however, certain of LPAC counsel's comments — particularly those in Comment Category 3 (FIRPTA / IRC § 897) — reflect input from Bramhall & Quelwick that was shared with LPAC counsel through the LPAC process. Calderwood & Harkness has been in preliminary communication with Jason Tremaine regarding coordination of the FIRPTA and treaty analysis, as discussed further in Section III.C.2 below.
D. Representative LPs Referenced in Comments
LPAC counsel's comments reference, or were submitted on behalf of, the following representative limited partners. For ease of reference, we list each LP, its investor type, principal contact, and commitment levels across the relevant fund vehicles:
(i) Pinnacle State Employees' Retirement System. U.S. public pension fund. Chief Investment Officer: Margaret Faulkner. Fund IV LP commitment: $275 million. Fund V LP commitment: $340 million. As a U.S. tax-exempt public pension fund, Pinnacle invests directly in the onshore Fund IV LP and Fund V LP vehicles and utilizes the offshore parallel structures as UBTI blockers for certain debt-financed investments.
(ii) Grandview University Endowment. U.S. tax-exempt endowment. Director of Investments: Harold Kingsley. Fund IV LP commitment: $120 million. Fund V LP commitment: $185 million. Like Pinnacle, Grandview is a U.S. tax-exempt investor that utilizes the offshore parallel structures for UBTI blocker purposes.
(iii) Nordhaven Sovereign Wealth Fund. Non-U.S. sovereign wealth fund. Jurisdiction: Kingdom of Nordhaven. Head of Alternative Investments: Anders Bjørkman. Fund IV-A (Cayman) LP commitment: $380 million. Fund V-A (Cayman) LP commitment: $500 million. Nordhaven SWF is the largest single non-U.S. investor across the Fund IV and Fund V platform. As noted above, Nordhaven SWF has independently retained Bramhall & Quelwick LLP to evaluate U.S. withholding tax and treaty implications.
(iv) Kestrel Pacific Insurance Group. Non-U.S. insurance company. Jurisdiction: Singapore. Senior Portfolio Manager: Christine Leung. Fund IV-B (Luxembourg) SCSp commitment: €200 million. Fund V-B (Luxembourg) SCSp commitment: €275 million. Kestrel invests through the Luxembourg SCSp vehicles for regulatory and treaty efficiency purposes.
(v) Argyle Family Office Holdings LLC. U.S. taxable family office. Principal: Elliot Argyle. Fund IV LP commitment: $95 million. Fund V LP commitment: $130 million. As a U.S. taxable investor, Argyle invests directly in the onshore Fund IV LP and Fund V LP vehicles and is particularly sensitive to any potential gain recognition event that would accelerate capital gains taxes.
III. Summary of LPAC Counsel Comments and Calderwood & Harkness Responses
This Section III constitutes the core of this memorandum. It summarizes each of the three principal comment categories raised by LPAC counsel and sets forth Calderwood & Harkness's analysis and proposed response for each. A complete index of all discrete comments is provided in Appendix A.
Comment Category 1: IRC § 731(c) — Marketable Securities Characterization
A. LPAC Counsel's Comment
Diana Carruthers raised a concern that the interests in the Consolidated Master Fund LP distributed to limited partners of the Legacy Offshore Vehicles in Step 5 of the Reorganization could be characterized as "marketable securities" within the meaning of IRC § 731(c)(2). If such characterization were to apply, it would potentially trigger gain recognition on distributions to the extent the fair market value of the distributed marketable securities exceeds the distributee partner's adjusted basis in its partnership interest — an outcome that would fundamentally undermine the tax-free nature of the Step 5 distributions and contradict the nonrecognition treatment sought in Ruling 4.
Specifically, LPAC counsel's concern has three components:
First, LPAC counsel noted that IRC § 731(c)(2)(A) defines "marketable securities" to include "financial instruments (as defined in section 1092(d)(1)) . . . which are, as of the date of the distribution, actively traded (within the meaning of section 1092(d)(1))." LPAC counsel questioned whether the Consolidated Master Fund LP interests could be viewed as "readily tradable on a secondary market" or "the substantial equivalent thereof" if such a secondary market for LP interests currently exists or were to develop in the future. LPAC counsel cited the growth of the secondary market for private fund interests generally, including platforms such as those operated by major secondary market intermediaries, as a basis for this concern. LPAC counsel noted that the Draft v3.0 analysis addresses this issue but does so in a conclusory manner without sufficient factual support.
Second, LPAC counsel questioned whether the § 731(c)(3)(A)(iii) exception for certain partnership distributions of partnership interests might apply as a fallback position, independent of the primary "not actively traded" position. The § 731(c)(3)(A)(iii) exception provides that § 731(c) does not apply to a distribution of an interest in a partnership if, at the time of the distribution, such partnership is not an "investment partnership" as defined in § 731(c)(3)(C). LPAC counsel requested that Calderwood & Harkness address this exception explicitly in the PLR request as an alternative basis for nonrecognition treatment under Ruling 4, rather than relying solely on the position that the Master Fund LP interests are not "marketable securities."
Third, LPAC counsel noted that several LPs — particularly Pinnacle State Employees' Retirement System (with combined commitments of $615 million across Fund IV and Fund V) and Grandview University Endowment (with combined commitments of $305 million across Fund IV and Fund V) — have expressed concern about the potential for unexpected gain recognition in Step 5. These investors originally invested through the offshore parallel structures in part to achieve UBTI blocker benefits, and any gain recognition in Step 5 would undermine those benefits by creating taxable income at the investor level in the year of the Reorganization. LPAC counsel emphasized that these investors require a high degree of confidence that the Step 5 distributions will be tax-free before they will provide final consent to the Reorganization.
B. Calderwood & Harkness Response
Calderwood & Harkness agrees that a robust § 731(c) analysis is essential and that Draft v3.0 adequately concludes that the Consolidated Master Fund LP interests are not "marketable securities" under § 731(c)(2). However, we concur with LPAC counsel that the analysis can be significantly strengthened through additional factual representations and the inclusion of an explicit fallback analysis under § 731(c)(3)(A)(iii). We address each component of LPAC counsel's comment below.
Primary Position: The Master Fund LP Interests Are Not "Actively Traded."
Calderwood & Harkness's primary position, which is set forth in Draft v3.0 and which we continue to maintain, is that the Consolidated Master Fund LP interests are not "actively traded" on an established securities market, nor are they "readily tradable" on a secondary market or the substantial equivalent thereof, within the meaning of IRC § 1092(d)(1) as incorporated by reference in § 731(c)(2)(A). The interests will be privately placed and held by a limited number of institutional investors through the feeder structures and the onshore Fund vehicles. There is no public offering or registration of such interests, no listing on any securities exchange or automated quotation system, and no expectation that any market maker will hold itself out as standing ready to buy or sell such interests on a regular or continuous basis.
We acknowledge LPAC counsel's observation that secondary markets for private fund interests have grown in recent years. However, the existence of intermediaries that facilitate occasional, bilateral secondary transactions in private fund interests does not, in our view, render those interests "actively traded" within the meaning of § 1092(d)(1). The secondary market intermediaries to which LPAC counsel alludes facilitate negotiated, privately arranged transactions on a deal-by-deal basis, typically subject to GP consent and transfer restrictions, and do not provide the continuous, readily available pricing and liquidity that characterize "actively traded" financial instruments. This position is consistent with the IRS's application of the "actively traded" standard in the publicly traded partnership context under IRC § 7704, where the presence of occasional secondary transfers has not been treated as creating an established securities market absent qualifying market-maker activity. See Treas. Reg. § 1.7704-1(c) (defining "readily tradable on a secondary market or the substantial equivalent thereof" for § 7704 purposes).
Proposed Enhancement to the Draft. To strengthen the factual foundation for this position, we propose adding the following explicit representations to the PLR request:
(i) No market maker holds itself out, or will hold itself out, as standing ready to buy or sell Consolidated Master Fund LP interests on a regular or continuous basis.
(ii) No listing or registration of Consolidated Master Fund LP interests on any securities exchange, automated quotation system, or inter-dealer quotation system is contemplated, and the Master Fund GP has no current plan or intention to effect any such listing or registration.
(iii) The limited partnership agreement of the Consolidated Master Fund LP will include customary transfer restrictions requiring the prior written consent of the Master Fund GP (Solara Consolidated Master Fund GP LLC) for any transfer, assignment, or other disposition of Master Fund LP interests, and will prohibit transfers that would cause the Master Fund to be treated as a "publicly traded partnership" within the meaning of IRC § 7704.
(iv) The Master Fund LP interests have not been, and will not be, registered under the Securities Act of 1933, as amended, or any state securities laws, and transfers will be restricted to transactions that qualify for applicable exemptions from registration.
These representations, which are factually accurate and consistent with the terms being negotiated for the Consolidated Master Fund LP limited partnership agreement, will provide the IRS with the factual predicate necessary to confirm that the Master Fund LP interests are not "actively traded" within the meaning of § 731(c)(2)(A).
Fallback Position: The § 731(c)(3)(A)(iii) Exception.
Even if the Consolidated Master Fund LP interests were deemed to be "marketable securities" within the meaning of § 731(c)(2) (which Calderwood & Harkness does not believe to be the case), the § 731(c)(3)(A)(iii) exception would apply to exclude the Step 5 distributions from the gain recognition rule of § 731(c)(1). Under § 731(c)(3)(A)(iii), section 731(c) does not apply to a distribution by a partnership of an interest in another partnership, provided that the distributed partnership interest is not an interest in an "investment partnership" as defined in § 731(c)(3)(C). An "investment partnership" is any partnership that has never been engaged in a trade or business and substantially all of the assets of which have always consisted of money, stock in a corporation, notes, bonds, debentures or other evidences of indebtedness, interest rate, currency, or equity notional principal contracts, foreign currencies, interests in or derivative financial instruments in any such assets, and other specified investment-type assets.
The Consolidated Master Fund LP will hold operating company interests — specifically, equity interests in digital infrastructure and software-as-a-service ("SaaS") businesses, including but not limited to NovaBright Data Systems Inc. (data center operations), Crestline Cloud Solutions LLC (cloud computing services), Veridian Edge Computing Corp. (edge computing infrastructure), Thorngate Fiber Networks LP (fiber-optic network operations), Helix SaaS Holdings Ltd. (enterprise SaaS platform), and approximately eighteen other portfolio companies actively engaged in digital infrastructure, cloud computing, network operations, and related technology businesses. These portfolio companies are operating businesses engaged in trades or businesses, and the Consolidated Master Fund LP's assets will consist predominantly of equity interests in such operating businesses rather than the passive investment assets described in § 731(c)(3)(C)(ii).
Accordingly, the Consolidated Master Fund LP will not constitute an "investment partnership" within the meaning of § 731(c)(3)(C), and the § 731(c)(3)(A)(iii) exception will apply to exclude the Step 5 distributions from the gain recognition rule of § 731(c)(1). This analysis is consistent with, and cross-references, the § 721(b) investment company analysis supporting Ruling 2, which reaches the same conclusion — that the Consolidated Master Fund LP is not an "investment company" — under the parallel (though not identical) standard of Treas. Reg. § 1.351-1(c)(1) as applied to partnerships by § 721(b). We propose including an explicit cross-reference between the Ruling 4 (§ 731(c)) analysis and the Ruling 2 (§ 721(b)) analysis to demonstrate internal consistency within the PLR request.
Proposed Action for PLR Draft v4.0. We propose incorporating the following into PLR Draft v4.0:
(a) Expanded factual representations regarding the absence of a secondary trading market for Consolidated Master Fund LP interests, as described above.
(b) A full discussion of the § 731(c)(3)(A)(iii) exception as an alternative basis for the ruling sought in Ruling 4, including an analysis of why the Consolidated Master Fund LP does not constitute an "investment partnership" under § 731(c)(3)(C).
(c) An explicit cross-reference to the § 721(b) investment company analysis (Ruling 2) to support the conclusion that the Consolidated Master Fund LP is not an "investment partnership" and to demonstrate internal consistency within the eight-ruling framework.
Recommendation. Calderwood & Harkness recommends accepting LPAC counsel's suggestion to expand the § 731(c) discussion in the PLR request. The proposed enhancements strengthen the ruling request without introducing any inconsistency with the existing positions in Draft v3.0, and will provide additional comfort to Pinnacle State Employees' Retirement System, Grandview University Endowment, and other LPs that the Step 5 distributions will be tax-free.
Comment Category 2: IRC § 752 — Liability Shifts Affecting Individual LPs
A. LPAC Counsel's Comment
Diana Carruthers raised a concern regarding the impact of the Reorganization on individual LP-level liability allocations under IRC § 752. The Reorganization involves the assumption by (or allocation to) the Consolidated Master Fund LP of approximately $1.34 billion in aggregate liabilities currently borne by the four Legacy Offshore Vehicles. LPAC counsel's comment has four components.
First, LPAC counsel noted that under IRC § 752(b), a decrease in a partner's share of partnership liabilities is treated as a deemed cash distribution to that partner under IRC § 731. Conversely, under IRC § 752(a), an increase in a partner's share of partnership liabilities is treated as a deemed cash contribution by that partner under IRC § 722. If the deemed cash distribution under § 752(b) resulting from a decrease in a partner's liability share exceeds that partner's adjusted basis in its partnership interest, the excess is treated as gain from the sale or exchange of a partnership interest under IRC § 731(a)(1). LPAC counsel expressed concern that the Reorganization — which involves the consolidation of four separate offshore vehicle liability pools into a single Master Fund liability pool — could cause significant shifts in individual LP liability shares, potentially producing § 752(b) deemed distributions that exceed certain LPs' adjusted bases.
Second, LPAC counsel requested that Calderwood & Harkness prepare a detailed partner-by-partner analysis (or at minimum, a category-by-category analysis) showing the net effect of § 752(a) deemed contributions and § 752(b) deemed distributions for representative LPs. LPAC counsel specifically identified the following investors for whom the analysis was requested:
• Nordhaven Sovereign Wealth Fund ($380 million committed to Fund IV-A Cayman + $500 million committed to Fund V-A Cayman = $880 million aggregate);
• Kestrel Pacific Insurance Group (€200 million committed to Fund IV-B Luxembourg + €275 million committed to Fund V-B Luxembourg = €475 million aggregate);
• Pinnacle State Employees' Retirement System ($275 million committed to Fund IV + $340 million committed to Fund V = $615 million aggregate); and
• Grandview University Endowment ($120 million committed to Fund IV + $185 million committed to Fund V = $305 million aggregate).
Third, LPAC counsel asked Calderwood & Harkness to confirm that the netting rules under Treas. Reg. § 1.752-1(f) apply to treat offsetting deemed contributions and deemed distributions within the same transaction as netted, so that only the net increase or net decrease is treated as a contribution or distribution, respectively. LPAC counsel also requested an explanation of how tiered partnership liability allocations work for LPs who will hold their Master Fund interests through the Cayman feeder vehicles — i.e., the limited partners of the International Feeder and the Tax-Exempt Feeder — where the liability allocation must be traced through two tiers (the feeder level and the Master Fund level).
Fourth, LPAC counsel expressed particular concern regarding the five-step sequencing of the Reorganization. Steps 2 through 5 are currently scheduled to occur over approximately two months (October 1 through December 1, 2025), and LPAC counsel questioned whether the IRS might view each step as a separate transaction for § 752 purposes rather than as part of a single integrated transaction. If the steps are treated separately, transient liability allocation shifts occurring between steps (e.g., after the Step 2 contribution by Fund IV-A Cayman on October 1 but before the Step 4 contribution by Fund V-A Cayman on November 1) could produce temporary § 752(b) deemed distributions that are not offset by corresponding § 752(a) deemed contributions until a subsequent step. This could result in gain recognition at the individual LP level during the interim period, even if the net effect of the entire Reorganization would not produce gain recognition.
B. Calderwood & Harkness Response
Calderwood & Harkness acknowledges that the § 752 analysis is among the most complex aspects of the Reorganization and that the Draft v3.0 analysis, which addresses the liability shifts at the aggregate level, is sound but can benefit from additional granularity. We address each component of LPAC counsel's comment below.
Aggregate-Level Analysis.
The $1.34 billion in aggregate liabilities currently allocated among the four Legacy Offshore Vehicles will shift to the Consolidated Master Fund LP upon completion of the Reorganization. Under the general principles of IRC § 752, each LP's share of partnership liabilities will be reallocated based on the LP's proportionate interest in the Consolidated Master Fund LP (or, for LPs investing through feeder vehicles, the LP's proportionate interest in the feeder, which in turn holds a proportionate interest in the Master Fund). The fundamental question is whether the Reorganization produces, for any given LP, a net decrease in its share of partnership liabilities that, when treated as a deemed cash distribution under § 752(b), exceeds that LP's adjusted basis in its partnership interest.
Under Treas. Reg. § 1.752-1(f), when a single transaction involves both a deemed contribution under § 752(a) (from an increase in a partner's liability share) and a deemed distribution under § 752(b) (from a decrease in a partner's liability share), the two are netted so that only the net increase is treated as a contribution under § 722 and only the net decrease is treated as a distribution under § 731. This netting rule is critical to the § 752 analysis because the Reorganization simultaneously involves the assumption of liabilities by the Consolidated Master Fund LP (which increases each LP's share of Master Fund-level liabilities) and the relief of liabilities by the Legacy Offshore Vehicles (which decreases each LP's share of Legacy Offshore Vehicle-level liabilities). For most LPs, the net effect will be approximately neutral or will result in a net increase in liability share, because the same liabilities are simply being reallocated from four vehicles to one vehicle, and each LP's proportionate economic interest in the underlying assets and liabilities is preserved.
Proposed Enhancement: Category-Level Analysis.
LPAC counsel requested a partner-by-partner analysis showing the net § 752 effect for each representative LP. While we understand the motivation for this request, we note that a partner-by-partner analysis requires access to each individual LP's adjusted basis in its partnership interest — information that is not within Calderwood & Harkness's possession and that each LP maintains independently based on its own tax reporting and capital account records. The PLR request, which addresses the structural tax treatment of the Reorganization at the entity level, does not and should not opine on whether any individual LP will recognize gain, as this is inherently a fact-specific determination that depends on each LP's own adjusted basis.
We therefore propose providing a category-level analysis (rather than a partner-by-partner analysis) showing the net § 752 effect for each of the three principal investor categories:
(a) Non-U.S. Investors Routing Through the International Feeder. These investors currently hold interests in Fund IV-A (Cayman) LP and/or Fund V-A (Cayman) LP, and will hold interests in the International Feeder post-Reorganization. Their liability allocation will shift from the Cayman fund vehicles to the Master Fund (allocated through the feeder). This category includes Nordhaven Sovereign Wealth Fund and other non-U.S. investors.
(b) U.S. Tax-Exempt Investors Routing Through the Tax-Exempt Feeder. These investors currently hold interests in the offshore parallel vehicles for UBTI blocker purposes, and will hold interests in the Tax-Exempt Feeder post-Reorganization. Their liability allocation will shift in the same manner as Category (a). This category includes investors such as Pinnacle State Employees' Retirement System and Grandview University Endowment, to the extent they hold interests in the offshore parallel structures.
(c) U.S. Taxable Investors Remaining in Fund IV LP and Fund V LP. These investors, including Argyle Family Office Holdings LLC, are not directly affected by the Legacy Offshore Vehicle reorganization because they do not hold interests in the offshore vehicles being consolidated. However, their proportionate liability shares may shift indirectly through the co-investment structure, as the co-investment arrangement between the onshore Fund vehicles and the Master Fund may alter the allocation of certain fund-level liabilities. This category requires a separate sub-analysis.
For each category, the analysis will show: (i) the aggregate liability share before the Reorganization; (ii) the aggregate liability share after the Reorganization; (iii) the net increase or decrease in liability share; and (iv) the resulting treatment under § 752(a) or § 752(b), as applicable, taking into account the Treas. Reg. § 1.752-1(f) netting rules.
Tiered Partnership Analysis.
For LPs investing through the Cayman feeder vehicles (i.e., the International Feeder and the Tax-Exempt Feeder), the § 752 liability allocation must be traced through two tiers. At the bottom tier, the Consolidated Master Fund LP is the partnership that directly holds the liabilities; the feeder vehicles are partners of the Master Fund and are allocated their proportionate share of Master Fund-level liabilities under Treas. Reg. § 1.752-4 (which addresses the allocation of liabilities in tiered partnership structures). At the top tier, each feeder vehicle is itself a partnership whose partners — the individual LPs — are allocated their proportionate share of feeder-level liabilities, which include the feeder's share of Master Fund-level liabilities allocated to the feeder as a partner.
Under Treas. Reg. § 1.752-4(a), a partner's share of the liabilities of a lower-tier partnership includes the partner's share of such liabilities as determined under the general § 752 allocation rules, traced through the tiered structure. In the case of recourse liabilities (which we expect will constitute a relatively small portion of the $1.34 billion in aggregate liabilities, with the majority being nonrecourse liabilities secured by portfolio company assets and fund-level credit facilities), the allocation follows the economic risk of loss analysis under Treas. Reg. § 1.752-2. In the case of nonrecourse liabilities, the allocation follows the three-tier system of Treas. Reg. § 1.752-3 (partnership minimum gain, § 704(c) minimum gain, and profits-sharing ratios).
Calderwood & Harkness confirms that the Draft v4.0 will include an explanation of this tiered allocation methodology and will apply it to the category-level analysis described above.
Integrated Transaction Argument.
Calderwood & Harkness will include a representation in the PLR request that Steps 1 through 5 of the Reorganization constitute a single integrated transaction for purposes of § 752 netting under Treas. Reg. § 1.752-1(f). This representation is supported by the step transaction doctrine, which applies favorably here — i.e., the five steps are mutually interdependent and would not be undertaken independently. No step of the Reorganization has independent economic significance apart from the overall goal of consolidating the Legacy Offshore Vehicles into the Consolidated Master Fund LP. The step transaction doctrine, as articulated by the Supreme Court in Commissioner v. Clark, 489 U.S. 726 (1989), and applied in partnership contexts by the Tax Court and the IRS in numerous rulings and technical advice memoranda, supports the treatment of the five steps as a single integrated transaction.
We will request that the IRS confirm in its ruling on Ruling 5 that Treas. Reg. § 1.752-1(f) netting applies across all five steps, viewed as a single integrated transaction, so that transient liability allocation shifts occurring between individual steps do not produce unintended gain recognition. This is a critical point, as it directly addresses LPAC counsel's concern about the two-month sequencing period from October 1 to December 1, 2025.
Caveat Regarding Individual LP Basis.
As noted above, the PLR request addresses the structural, entity-level § 752 treatment of the Reorganization and does not opine on whether any individual LP will recognize gain, which depends on each LP's own adjusted basis in its partnership interest. Calderwood & Harkness will include a caveat to this effect in the PLR request and in the LP Tax Impact Summary Letter. Each LP should evaluate the potential gain recognition impact of the § 752 liability shifts with its own tax advisors, using its own adjusted basis information.
Proposed Action for PLR Draft v4.0. We propose incorporating the following into PLR Draft v4.0:
(a) A category-level § 752 impact analysis, to be included as a supplement to PLR Exhibit E (Schedule of Liabilities and § 752 Analysis), showing the net § 752 effect for each of the three investor categories described above.
(b) An expanded legal discussion of the Treas. Reg. § 1.752-1(f) netting rules, including their application to multi-step transactions.
(c) An expanded legal discussion of the Treas. Reg. § 1.752-4 tiered partnership allocation rules, explaining how Master Fund-level liabilities flow up to feeder-level partners.
(d) A representation that Steps 1 through 5 constitute a single integrated transaction for purposes of § 752 netting, supported by the step transaction doctrine.
(e) Coordination with Caldwell Pierce & Co. LLP (Helen Okamoto, Partner, Financial Services Tax; 400 Renaissance Center, Suite 2500, Detroit, MI 48243) to obtain aggregate liability data by investor category for the enhanced category-level analysis. We note that Caldwell Pierce serves as the fund's tax compliance and reporting advisor and maintains the relevant liability allocation schedules.
Recommendation. Calderwood & Harkness recommends partially accepting LPAC counsel's suggestion. We will provide a category-level analysis with appropriate caveats, rather than a partner-by-partner analysis that would require individual LP basis information outside our possession and that falls outside the proper scope of the PLR request. This approach balances LPAC counsel's legitimate interest in additional granularity with the practical and structural constraints of the PLR process.
Comment Category 3: FIRPTA / IRC § 897 — Non-U.S. Investor Exposure, Particularly Nordhaven Sovereign Wealth Fund
A. LPAC Counsel's Comment
Diana Carruthers raised a concern on behalf of the LPAC, specifically reflecting input from Bramhall & Quelwick LLP (Jason Tremaine, Partner, International Tax), regarding the FIRPTA (Foreign Investment in Real Property Tax Act) / IRC § 897 implications of the Reorganization for non-U.S. investors. The comment has three principal components.
First, the concern centers on whether certain portfolio company interests held by the Legacy Offshore Vehicles — particularly interests in NovaBright Data Systems Inc. and Thorngate Fiber Networks LP — constitute "United States real property interests" (USRPIs) under IRC § 897(c)(1)(A)(i). LPAC counsel observed that data centers and fiber-optic network infrastructure may include significant interests in U.S. real property, including owned or leased land and buildings (in the case of data centers) and easements, rights-of-way, and physical conduit infrastructure (in the case of fiber-optic networks). If these portfolio company interests are USRPIs, the contributions of such interests to the Consolidated Master Fund LP in Steps 2 through 4 could potentially trigger FIRPTA gain recognition for non-U.S. partners of the contributing Legacy Offshore Vehicles.
LPAC counsel provided the following specific data points in support of this concern:
• NovaBright Data Systems Inc. has a fair market value of approximately $890 million and an adjusted tax basis of approximately $520 million, reflecting built-in gain of approximately $370 million. NovaBright is held 60% by Fund IV-A (Cayman) LP and 40% by Fund IV LP. NovaBright operates twelve data centers across six states, with significant owned and leased real estate.
• Thorngate Fiber Networks LP has a fair market value of approximately $670 million and an adjusted tax basis of approximately $490 million, reflecting built-in gain of approximately $180 million. Thorngate is held 100% by Fund IV-A (Cayman) LP. Thorngate operates approximately 14,000 route miles of fiber-optic network infrastructure, including owned and leased fiber, conduit, easements, and rights-of-way.
Second, if any transferred portfolio company interests are USRPIs, the § 1446 withholding analysis addressed in Ruling 7 would need to account for FIRPTA withholding under IRC § 1446(f) on transfers of partnership interests. Section 1446(f) imposes a 10% withholding obligation on the transferee of a partnership interest if any portion of the gain on the transfer would be treated as effectively connected income ("ECI") under § 864(c)(8) by reason of the partnership's holding of USRPIs. LPAC counsel questioned whether the nonrecognition treatment under § 721(a) eliminates the § 1446(f) withholding obligation, or whether a withholding obligation nevertheless arises that must be specifically excepted.
Third, LPAC counsel requested that Calderwood & Harkness address whether Nordhaven Sovereign Wealth Fund qualifies for the sovereign wealth fund FIRPTA exemption under IRC § 897(l). Section 897(l), added by the Protecting Americans from Tax Hikes (PATH) Act of 2015, exempts "qualified foreign pension funds" and their wholly owned subsidiaries from the application of § 897. If Nordhaven SWF qualifies as a "qualified foreign pension fund" within the meaning of § 897(l)(2), it would be exempt from FIRPTA regardless of whether the portfolio company interests constitute USRPIs. LPAC counsel requested that, if applicable, representations regarding Nordhaven SWF's § 897(l) eligibility be included in the PLR request to provide additional comfort. LPAC counsel noted that this request reflects input from Bramhall & Quelwick LLP, which intends to provide a separate opinion letter to Nordhaven SWF on the § 897(l) issue and has requested coordination between Calderwood & Harkness and Bramhall & Quelwick on the FIRPTA and § 1446 positions.
B. Calderwood & Harkness Response
Calderwood & Harkness acknowledges the importance of the FIRPTA analysis for non-U.S. investors and agrees that the Draft v3.0 FIRPTA discussion, which addresses FIRPTA at a relatively high level of generality, can and should be expanded. We address each component of LPAC counsel's comment below.
Analysis of USRPI Status: NovaBright Data Systems Inc. and Thorngate Fiber Networks LP.
Calderwood & Harkness's internal analysis (Tax Memorandum — FIRPTA / IRC § 897 Analysis, dated June 10, 2025, Engagement Work Product Ref. WP-2025-037) has evaluated whether interests in NovaBright Data Systems Inc. and Thorngate Fiber Networks LP constitute USRPIs under IRC § 897(c)(1)(A)(i).
Under IRC § 897(c)(1)(A)(i), a USRPI includes any interest in real property located in the United States or the Virgin Islands. Under IRC § 897(c)(1)(A)(ii), a USRPI also includes any interest (other than an interest solely as a creditor) in any domestic corporation that is a "United States real property holding corporation" ("USRPHC"). Under IRC § 897(c)(2), a corporation is a USRPHC if the fair market value of its USRPIs equals or exceeds 50% of the sum of (A) the fair market value of its USRPIs, (B) the fair market value of its interests in real property located outside the United States, and (C) the fair market value of its other assets used or held for use in a trade or business.
Our analysis considers each entity separately:
(a) NovaBright Data Systems Inc. NovaBright is a Delaware corporation that operates twelve data centers across six states. Data center operations are inherently real-estate-intensive: NovaBright owns or holds long-term leases on the land and buildings housing its data center facilities, and these real property interests constitute a significant portion of NovaBright's total assets. Based on the preliminary asset valuation data provided by the Fund (as of June 30, 2025), the fair market value of NovaBright's U.S. real property interests (owned and leased real estate, including data center buildings, land, and associated improvements) is approximately $510 million, while the fair market value of NovaBright's total assets (including real property, personal property, and intangible assets such as customer contracts, software, and goodwill) is approximately $890 million. The USRPI ratio (USRPIs ÷ total assets) is therefore approximately 57%, which exceeds the 50% threshold. Preliminary conclusion: NovaBright likely is a USRPHC, and interests in NovaBright stock likely constitute USRPIs.
(b) Thorngate Fiber Networks LP. Thorngate is a Delaware limited partnership that operates approximately 14,000 route miles of fiber-optic network infrastructure. The USRPI analysis for Thorngate is more nuanced than for NovaBright, because fiber-optic network infrastructure includes a mix of assets: (i) real property interests, including easements, rights-of-way, and certain physical conduit that is permanently affixed to real property; and (ii) personal property, including the fiber-optic cable itself (which may be treated as tangible personal property rather than real property, depending on the jurisdiction and the manner of installation), electronic equipment, network switches, and related technology assets. Thorngate also holds significant intangible assets, including customer contracts, dark fiber lease agreements, and IRU (indefeasible right of use) agreements.
The characterization of fiber-optic infrastructure components as "real property" or "personal property" for FIRPTA purposes is not entirely settled. While the IRS has indicated in certain contexts (e.g., the REIT context under Treas. Reg. § 1.856-10) that certain infrastructure assets, including fiber conduit, may constitute "real property" if they are inherent permanent structures or structural components thereof, the FIRPTA regulations do not contain a separate definition of "real property" and instead rely on general tax law principles of fixture classification.
Based on our preliminary analysis, the fair market value of Thorngate's assets that clearly constitute U.S. real property interests (easements, rights-of-way, and owned conduit infrastructure) is approximately $250 million, while the fair market value of Thorngate's total assets is approximately $670 million. The USRPI ratio is therefore approximately 37%, which is below the 50% threshold. However, if certain additional infrastructure components (such as fiber-optic cable that is permanently affixed to conduit, which in turn is affixed to real property) are classified as real property, the USRPI ratio could approach or exceed 50%. Preliminary conclusion: Thorngate's USRPI/USRPHC status is uncertain and depends on the classification of its fiber-optic infrastructure components. We note that Thorngate is a partnership (not a corporation), and therefore the USRPHC analysis under § 897(c)(2) does not apply directly; instead, the analysis focuses on whether Thorngate's underlying assets include USRPIs that would be attributed to the Legacy Offshore Vehicles and their partners under the look-through rules of § 897(g) and Treas. Reg. § 1.897-7T.
Section 721(a) Override: Application of IRC § 897(e).
Calderwood & Harkness's position is that, even if portfolio company interests constitute USRPIs, the § 721(a) nonrecognition provision applies to the contributions in Steps 2 through 4, and the FIRPTA rules of § 897 do not override that nonrecognition treatment.
The interaction between FIRPTA and nonrecognition provisions is governed by IRC § 897(e). Under § 897(e)(1), the nonrecognition provisions of the Code (including § 721) apply to the disposition of a USRPI only if the transferee's basis in the property received is determined in whole or in part by reference to the transferor's basis in the property transferred. In the case of a § 721(a) contribution to a partnership, the partnership's basis in the contributed property is determined under IRC § 723 by reference to the transferor partner's basis — i.e., the partnership takes a carryover basis in the contributed property. Accordingly, the § 897(e) condition is satisfied, and the nonrecognition treatment of § 721(a) is preserved notwithstanding the USRPI status of the contributed property.
The effect of § 897(e) is that the USRPI characterization carries over to the Consolidated Master Fund LP's interest in the portfolio companies. The deferred built-in gain attributable to the USRPIs is preserved and will be recognized under FIRPTA when the Master Fund ultimately disposes of the USRPI assets in a taxable transaction. This is the correct structural result: FIRPTA gain is deferred, not eliminated, consistent with the general policy of § 897(e) that nonrecognition transactions should not be used to permanently escape FIRPTA.
Calderwood & Harkness will add an explicit representation and analysis of § 897(e) in the PLR request to support Rulings 1 and 7, confirming that the § 721(a) nonrecognition treatment applies to contributions of USRPI assets to the Consolidated Master Fund LP and that the USRPI characterization carries over to the Master Fund level.
Section 1446(f) Withholding.
With respect to LPAC counsel's question regarding IRC § 1446(f) withholding, Calderwood & Harkness's position is that § 1446(f) withholding does not apply to the Steps 2 through 4 contributions or the Step 5 distributions because these are nonrecognition transactions that do not generate gain. Section 1446(f) imposes a withholding obligation on the "transferee" of a partnership interest if any portion of the gain on the transfer would be treated as ECI under § 864(c)(8). If there is no gain by reason of § 721(a) or § 731(a), there is no ECI, and no withholding obligation arises. This conclusion is further supported by the temporary and proposed regulations under § 1446(f), which provide exceptions for certain nonrecognition transactions. See Treas. Reg. § 1.1446(f)-2(b) (providing rules for determining the amount subject to withholding, which is based on the amount realized less the transferor's adjusted basis — resulting in zero withholding when no gain is recognized).
We will add a note in the Ruling 7 analysis addressing the § 1446(f) FIRPTA withholding overlay to confirm that the nonrecognition treatment eliminates any withholding obligation.
Nordhaven SWF Exemption Under IRC § 897(l).
Calderwood & Harkness notes that the § 897(l) exemption applies specifically to "qualified foreign pension funds" ("QFPFs") and their wholly owned subsidiaries, not to sovereign wealth funds generally. The availability of the § 897(l) exemption for Nordhaven Sovereign Wealth Fund depends on whether Nordhaven SWF meets the specific definitional requirements of § 897(l)(2), which provides that a QFPF is any trust, corporation, or other organization or arrangement that satisfies all of the following criteria:
(i) It is created or organized under the law of a country other than the United States;
(ii) It is established by such country (or one or more political subdivisions thereof) to provide retirement or pension benefits to participants or beneficiaries that are current or former employees (including self-employed individuals) or persons designated by such employees;
(iii) It does not have a single participant or beneficiary with a right to more than five percent of its assets or income;
(iv) It is subject to government regulation and provides annual information reporting about its beneficiaries to the relevant tax authorities of the country in which it is established or operates; and
(v) Under the laws of the country in which it is established or operates, either (A) contributions to such trust, corporation, organization, or arrangement that would otherwise be subject to tax under such laws are deductible or excluded from the gross income of such entity or taxed at a reduced rate, or (B) taxation of any investment income of such trust, corporation, organization, or arrangement is deferred or such income is taxed at a reduced rate.
Calderwood & Harkness does not have sufficient factual information regarding Nordhaven SWF's organizational structure, constitutive documents, regulatory status under Kingdom of Nordhaven law, beneficiary structure, or tax treatment under Nordhaven domestic law to determine whether Nordhaven SWF satisfies these requirements. This is inherently a fact-specific inquiry that requires detailed knowledge of Nordhaven SWF's legal and regulatory framework — knowledge that resides with Nordhaven SWF itself and its independent counsel, Bramhall & Quelwick LLP.
Moreover, even if Nordhaven SWF does qualify as a QFPF under § 897(l), we do not believe it is appropriate to include a § 897(l) ruling request in the PLR submission for the Reorganization. The PLR request addresses the structural tax treatment of the Reorganization at the entity and transaction level — it is not designed to opine on the individual tax attributes or exemptions applicable to any single limited partner. Including a § 897(l) ruling request for Nordhaven SWF would fundamentally change the character of

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM

ENGAGEMENT NO.: 20250527-SDILP-PLR

Record

Parties

Dates

Amounts