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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

TAX MEMORANDUM

June 16, 2025

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I. Executive Summary

This memorandum analyzes whether the distribution by the Legacy Offshore Vehicles (as defined in Section II.B below) of their respective limited partnership interests in Solara Consolidated Master Fund LP ("Consolidated Master Fund" or "Master Fund") to their existing limited partners in Step 5 of the proposed cross-border fund-platform reorganization (target effective date: December 1, 2025) triggers gain recognition under Section 731(c) of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC").

IRC § 731(c)(1) provides that, for purposes of § 731(a)(1) and § 737, the term "money" includes the fair market value of any "marketable securities" distributed by a partnership to a partner. If the limited partnership interests in the Consolidated Master Fund were classified as "marketable securities" under § 731(c)(2), the fair market value of such interests would be treated as money for purposes of determining gain recognition under § 731(a)(1). This reclassification could result in substantial gain recognition to the limited partners of the Legacy Offshore Vehicles upon receipt of those interests in Step 5, potentially triggering gain on approximately $1.72 billion of aggregate built-in gain across the fund platform. Accordingly, the characterization of the Consolidated Master Fund LP interests for purposes of § 731(c) is a threshold issue for the tax-free treatment of Step 5 of the reorganization.

Conclusion. Based on the analysis set forth herein, we conclude that the limited partnership interests in the Consolidated Master Fund LP do not constitute "marketable securities" as defined in IRC § 731(c)(2). Specifically, the interests are not (i) actively traded on an established securities market within the meaning of § 731(c)(2)(A) and § 1092(d)(1), (ii) readily tradable on a secondary market or the substantial equivalent thereof within the meaning of § 731(c)(2)(C), or (iii) substantially similar to interests that are so traded. Furthermore, the interests are not, by their terms or any other arrangement, readily convertible into or exchangeable for money or marketable securities within the meaning of § 731(c)(2)(B). The Consolidated Master Fund LP is a closed-end private equity master fund vehicle whose interests are privately issued, not registered under the Securities Act of 1933, and subject to extensive transfer restrictions under the limited partnership agreement.

Additionally, even if the Consolidated Master Fund LP interests were considered marketable securities — a characterization we believe is not supportable — we have analyzed the exceptions under § 731(c)(3) and conclude that, while the contributed securities exception under § 731(c)(3)(B) is unavailable on the present facts, the investment partnership exception under § 731(c)(3)(A) would not apply in any event because the Consolidated Master Fund LP does not satisfy the definition of an "investment partnership" under § 731(c)(3)(C). The Master Fund's assets consist of interests in 23 operating companies in digital infrastructure and enterprise SaaS — not passive investment assets. This fact, while rendering the § 731(c)(3)(A) exception unavailable, affirmatively supports our primary conclusion that the Master Fund's interests are not the type of interests that Congress intended § 731(c) to capture.

We recommend that the private letter ruling ("PLR") request include Ruling 4, which would request IRS confirmation that § 731(c) does not apply to the Step 5 distributions. Draft ruling language and recommended representations are set forth in Section VII below.

II. Statement of Facts

A. Overview of the Reorganization

Solara Digital Infrastructure LP ("Solara" or the "Sponsor") is a Delaware limited partnership that serves as the sponsor and investment manager of a family of private equity funds focused on digital infrastructure and enterprise software-as-a-service ("SaaS") investments. As of March 31, 2025, Solara manages approximately $14.7 billion in assets under management ("AUM") across its fund platform.

Solara currently operates through six parallel fund vehicles spanning three jurisdictions — Delaware, the Cayman Islands, and Luxembourg — to accommodate its diverse investor base, which includes U.S. taxable investors, U.S. tax-exempt investors (including public pension funds, university endowments, and charitable foundations), and non-U.S. investors (including sovereign wealth funds, insurance companies, and foreign pension plans). The use of parallel vehicles has historically been necessary to address divergent tax structuring requirements for each investor class, including the avoidance of effectively connected income ("ECI") for non-U.S. investors, the mitigation of unrelated business taxable income ("UBTI") for U.S. tax-exempt investors, and compliance with local regulatory requirements in the Cayman Islands and Luxembourg.

Solara is undertaking a comprehensive cross-border reorganization of its fund platform (the "Reorganization"), the primary structural component of which involves the domestication and consolidation of four offshore fund vehicles (collectively, the "Legacy Offshore Vehicles") into a newly established Delaware-domiciled master-feeder fund structure. The Reorganization involves a multi-step transaction sequence, of which Step 5 — the distribution by each Legacy Offshore Vehicle of its interest in the Consolidated Master Fund LP to its existing limited partners upon dissolution — is the subject of this memorandum.

The business rationale for the Reorganization is multi-faceted and has been documented in the engagement letter, the client's board materials, and the LPAC presentation. The principal drivers are as follows:

(i) Operational cost reduction. The maintenance of six parallel fund vehicles across three jurisdictions results in significant duplicative administrative, audit, legal, and regulatory compliance costs. Solara's finance team has estimated that the consolidation will yield approximately $3.8 million annually in direct cost savings from the elimination of duplicative offshore administration, audit, and regulatory fees. This figure was confirmed in the cost-benefit analysis prepared by Solara's Chief Financial Officer, Jonathan Werth, and provided to our team on May 4, 2025.

(ii) OECD Pillar Two GloBE rules. The forthcoming implementation of the OECD Pillar Two Global Anti-Base Erosion ("GloBE") rules, which are effective for Luxembourg entities from fiscal year 2025, creates new compliance obligations and potential top-up tax liabilities for the Luxembourg SCSp vehicles. The consolidation into a Delaware-domiciled structure simplifies the Pillar Two analysis and eliminates the need for separate GloBE compliance with respect to the Luxembourg vehicles.

(iii) FATCA/CRS compliance simplification. The current multi-jurisdictional structure requires separate compliance procedures under the Foreign Account Tax Compliance Act ("FATCA") and the Common Reporting Standard ("CRS") for each offshore vehicle. Consolidation into a master-feeder structure with Delaware as the primary jurisdiction simplifies the compliance architecture.

(iv) LP-requested governance simplification. Several of Solara's largest limited partners, including the Nordhaven Sovereign Wealth Fund and the Pinnacle State Employees' Retirement System, have requested that Solara simplify the fund governance structure to reduce the number of advisory committee seats, consent rights, and reporting streams that LPs must monitor across multiple parallel vehicles.

The GP board of Solara Digital Infrastructure LP approved the exploration of the Reorganization on March 14, 2025. The Limited Partner Advisory Committee ("LPAC") provided preliminary consent to the Reorganization (with 78% of committed capital voting in favor) on April 22, 2025. Final LPAC consent and LP consent (to the extent required under the respective limited partnership agreements) are expected to be obtained in August 2025, following completion of the PLR process.

B. Existing Fund Vehicles Being Reorganized (Legacy Offshore Vehicles)

The Reorganization involves the consolidation of four offshore fund vehicles (the "Legacy Offshore Vehicles") into the Consolidated Master Fund LP. The Legacy Offshore Vehicles are as follows:

1. Solara Digital Partners Fund IV-A (Cayman) LP. This entity is a Cayman Islands exempted limited partnership formed under the Cayman Islands Exempted Limited Partnership Act (as revised). The fund has a total fund size of $1.85 billion in committed capital. The general partner is Solara Offshore GP Ltd., a Cayman Islands exempted company. The registered office is Harborstone Corporate Services Ltd., P.O. Box 2714, 94 Solaris Avenue, George Town, Grand Cayman KY1-1111. The entity holds CIMA registration number MF-72491 and has been assigned EIN 98-6241503 for U.S. federal income tax purposes. Fund IV-A (Cayman) is classified as a partnership for U.S. federal income tax purposes.

2. Solara Digital Partners Fund IV-B (Luxembourg) SCSp. This entity is a Luxembourg société en commandite spéciale (special limited partnership) formed under the Luxembourg Law of 10 August 1915, as amended, and the Luxembourg Law of 12 July 2013. The fund has a total fund size of €1.15 billion (approximately $1.24 billion at a 1.08 EUR/USD exchange rate). The general partner is Solara Luxembourg Management S.à r.l. (RCS B 248194). The registered office is 14, rue Jean-Pierre Brasseur, L-1258 Luxembourg. The entity is registered with the Luxembourg Registre de Commerce et des Sociétés under RCS B 248193 and has been assigned EIN 98-6241571 for U.S. federal income tax purposes. Fund IV-B (Luxembourg) SCSp is classified as a partnership for U.S. federal income tax purposes.

3. Solara Digital Partners Fund V-A (Cayman) LP. This entity is a Cayman Islands exempted limited partnership with a total fund size of $2.45 billion in committed capital. It holds CIMA registration number MF-89103 and has been assigned EIN 98-7891234 for U.S. federal income tax purposes. Fund V-A (Cayman) is classified as a partnership for U.S. federal income tax purposes. The general partner is Solara Offshore GP Ltd., the same entity that serves as general partner of Fund IV-A (Cayman).

4. Solara Digital Partners Fund V-B (Luxembourg) SCSp. This entity is a Luxembourg SCSp with a total fund size of €1.38 billion (approximately $1.49 billion at a 1.08 EUR/USD exchange rate). It is registered with the Luxembourg Registre de Commerce et des Sociétés under RCS B 271056 and has been assigned EIN 98-7891267 for U.S. federal income tax purposes. Fund V-B (Luxembourg) SCSp is classified as a partnership for U.S. federal income tax purposes. The general partner is Solara Luxembourg Management S.à r.l.

Each of the Legacy Offshore Vehicles is a closed-end private equity fund vehicle with a finite term and limited investor base. None of the Legacy Offshore Vehicles has interests that are listed, registered, or traded on any securities exchange or interdealer quotation system. Each vehicle is subject to transfer restrictions under its respective limited partnership agreement or equivalent organizational document, requiring GP consent for any transfer and prohibiting transfers that would cause the vehicle to be treated as a "publicly traded partnership" within the meaning of IRC § 7704.

C. Newly Formed Entities

The Reorganization contemplates the formation of the following new entities:

1. Solara Consolidated Master Fund LP. This entity will be a Delaware limited partnership formed under the Delaware Revised Uniform Limited Partnership Act (6 Del. C. § 17-101 et seq.). Formation is targeted for September 15, 2025. Solara intends to file a Form 8832 (Entity Classification Election) under Treas. Reg. § 301.7701-3 to elect partnership classification for U.S. federal income tax purposes. The Consolidated Master Fund will serve as the primary investment vehicle through which all portfolio investments will be held following the Reorganization.

2. Solara Consolidated Master Fund GP LLC. This entity will be a Delaware limited liability company formed to serve as the sole general partner of the Consolidated Master Fund LP. It will be wholly owned by Solara Digital Infrastructure LP (or its designated affiliate) and will be classified as a disregarded entity for U.S. federal income tax purposes.

3. Solara International Feeder (Cayman) LP. This entity will be a Cayman Islands exempted limited partnership formed to serve as the feeder vehicle for non-U.S. investors in the master-feeder structure. Solara intends to file a Form 8832 to elect partnership classification for U.S. federal income tax purposes. The International Feeder will invest as a limited partner in the Consolidated Master Fund LP.

4. Solara Tax-Exempt Feeder (Cayman) LP. This entity will be a Cayman Islands exempted limited partnership formed to serve as the feeder vehicle for U.S. tax-exempt investors (including public pension funds, university endowments, and charitable foundations) in order to mitigate concerns regarding UBTI from debt-financed income and trade or business activities. Solara intends to file a Form 8832 to elect partnership classification for U.S. federal income tax purposes. The Tax-Exempt Feeder will invest as a limited partner in the Consolidated Master Fund LP.

D. The Relevant Transaction Step: Step 5

Step 5 of the Reorganization is the transaction step that is the subject of this memorandum. The target effective date for Step 5 is December 1, 2025. In Step 5, each of the four Legacy Offshore Vehicles dissolves and distributes its respective limited partnership interest in Solara Consolidated Master Fund LP to its existing limited partners in complete liquidation of such limited partners' interests in the Legacy Offshore Vehicle.

The mechanics of Step 5 are as follows:

(a) Each Legacy Offshore Vehicle, having contributed all of its portfolio assets to the Consolidated Master Fund LP in Steps 2 through 4 of the Reorganization, holds, at the time of Step 5, only its limited partnership interest in the Consolidated Master Fund LP as its sole remaining asset.

(b) Each Legacy Offshore Vehicle dissolves in accordance with the terms of its respective limited partnership agreement (or equivalent organizational document) and the laws of its jurisdiction of formation.

(c) Upon dissolution, each Legacy Offshore Vehicle distributes its limited partnership interest in the Consolidated Master Fund LP to its existing limited partners, pro rata in accordance with each limited partner's respective capital account balance and interest in the Legacy Offshore Vehicle.

(d) No cash or other property is distributed in Step 5 — the sole property distributed is partnership interests in the Consolidated Master Fund LP.

Following the Step 5 distributions:

(e) Non-U.S. limited partners (including the Nordhaven Sovereign Wealth Fund and Kestrel Pacific Insurance Group) will contribute their newly received Consolidated Master Fund LP interests to Solara International Feeder (Cayman) LP in exchange for limited partnership interests in the International Feeder.

(f) U.S. tax-exempt limited partners (including the Pinnacle State Employees' Retirement System and the Grandview University Endowment), to the extent they were previously invested through the offshore parallel vehicles, will contribute their newly received Consolidated Master Fund LP interests to Solara Tax-Exempt Feeder (Cayman) LP in exchange for limited partnership interests in the Tax-Exempt Feeder.

The subsequent contributions described in clauses (e) and (f) above are analyzed in separate memoranda and are not the subject of this memorandum. This memorandum is concerned solely with the tax treatment of the distributions in Step 5 under IRC § 731(c).

E. Representative Investor Base Receiving Distributions

The following investors are representative of the limited partners who will receive distributions of Consolidated Master Fund LP interests in Step 5:

1. Nordhaven Sovereign Wealth Fund. The Nordhaven SWF is a non-U.S. sovereign wealth fund established under the laws of the Kingdom of Nordhaven. The Nordhaven SWF has committed capital of $380 million in Fund IV-A (Cayman) and $500 million in Fund V-A (Cayman), for an aggregate commitment of $880 million across the fund platform. The primary contact for the Nordhaven SWF is Anders Bjørkman, Head of Alternative Investments. Following Step 5, the Nordhaven SWF will contribute its Consolidated Master Fund LP interests to the Solara International Feeder (Cayman) LP.

2. Kestrel Pacific Insurance Group. Kestrel Pacific is a non-U.S. insurance company domiciled in Singapore. Kestrel Pacific has committed capital of €200 million in Fund IV-B (Luxembourg) SCSp and €275 million in Fund V-B (Luxembourg) SCSp, for an aggregate commitment of €475 million (approximately $513 million at 1.08 EUR/USD). The primary contact for Kestrel Pacific is Christine Leung, Senior Portfolio Manager. Following Step 5, Kestrel Pacific will contribute its Consolidated Master Fund LP interests to the Solara International Feeder (Cayman) LP.

3. Pinnacle State Employees' Retirement System. Pinnacle SERS is a U.S. public pension fund. Pinnacle SERS has committed capital of $275 million in Fund IV and $340 million in Fund V, for an aggregate commitment of $615 million. To the extent Pinnacle SERS invested through the offshore parallel vehicles, it will receive Consolidated Master Fund LP interests in Step 5 and subsequently contribute those interests to the Solara Tax-Exempt Feeder (Cayman) LP. The primary contact for Pinnacle SERS is Margaret Faulkner, Chief Investment Officer.

4. Grandview University Endowment. The Grandview Endowment is a U.S. tax-exempt endowment organized under the laws of the Commonwealth of Massachusetts. The Grandview Endowment has committed capital of $120 million in Fund IV and $185 million in Fund V, for an aggregate commitment of $305 million. To the extent the Grandview Endowment invested through the offshore parallel vehicles, it will receive Consolidated Master Fund LP interests in Step 5 and subsequently contribute those interests to the Solara Tax-Exempt Feeder (Cayman) LP. The primary contact for the Grandview Endowment is Harold Kingsley, Director of Investments.

F. Aggregate Asset and Gain Data for Properties Held by the Consolidated Master Fund

Following the completion of Steps 2 through 4 (and prior to Step 5), the Consolidated Master Fund LP will hold the following aggregate assets:

All 23 portfolio companies are operating businesses engaged in digital infrastructure (data centers, fiber-optic networks, edge computing infrastructure) and enterprise SaaS. None of the portfolio companies is a passive investment vehicle, a mutual fund, a money market fund, a common trust fund, or any other type of pooled investment vehicle. None of the portfolio companies is publicly traded. The portfolio companies are held as control and significant minority interests acquired through negotiated private transactions, and the Sponsor exercises significant governance rights (including board representation, consent rights over major decisions, and protective covenant enforcement) with respect to each portfolio company.

G. Representative Portfolio Companies (Underlying Assets of Master Fund)

The following portfolio companies are representative of the Consolidated Master Fund LP's asset base and are referenced in the analysis set forth in Section VI below:

1. NovaBright Data Systems Inc. NovaBright is a Delaware corporation that operates a portfolio of hyperscale data center facilities across the United States and Western Europe. NovaBright's current fair market value is approximately $890 million, with an adjusted tax basis of $520 million and built-in gain of $370 million. NovaBright is held 60% by Fund IV-A (Cayman) and 40% by Solara Digital Partners Fund IV LP (the domestic parallel vehicle). NovaBright is a private corporation; its shares are not listed, registered, or traded on any securities exchange or interdealer quotation system.

2. Crestline Cloud Solutions LLC. Crestline is a Delaware limited liability company classified as a disregarded entity for U.S. federal income tax purposes. Crestline operates a SaaS platform providing cloud-based infrastructure management solutions to enterprise customers. Crestline's current fair market value is approximately €340 million ($367 million at 1.08 EUR/USD), with an adjusted tax basis of €195 million ($211 million) and built-in gain of €145 million ($156 million). Crestline is held 100% by Fund IV-B (Luxembourg) SCSp. Crestline is a private entity; it is not publicly traded.

3. Veridian Edge Computing Corp. Veridian is a Delaware corporation that designs, deploys, and operates edge computing infrastructure for telecommunications providers and cloud service platforms. Veridian's current fair market value is approximately $1.12 billion, with an adjusted tax basis of $780 million and built-in gain of $340 million. Veridian is held 55% by Fund V-A (Cayman) and 45% by Solara Digital Partners Fund V LP (the domestic parallel vehicle). Veridian is a private corporation; its shares are not publicly traded.

4. Thorngate Fiber Networks LP. Thorngate is a Delaware limited partnership that owns and operates fiber-optic network infrastructure in the mid-Atlantic and southeastern United States. Thorngate's current fair market value is approximately $670 million, with an adjusted tax basis of $490 million and built-in gain of $180 million. Thorngate is held 100% by Fund IV-A (Cayman). Thorngate is a private limited partnership; its interests are not publicly traded.

5. Helix SaaS Holdings Ltd. Helix is a Cayman Islands exempted company that serves as a holding company for a portfolio of enterprise SaaS businesses. Helix's current fair market value is approximately $445 million, with an adjusted tax basis of $310 million and built-in gain of $135 million. Helix is held 100% by Fund V-A (Cayman). Helix is a private exempted company; its shares are not listed or traded on any securities exchange.

III. Issue Presented

Whether the limited partnership interests in Solara Consolidated Master Fund LP that will be distributed by the Legacy Offshore Vehicles to their respective limited partners in Step 5 of the proposed Reorganization constitute "marketable securities" within the meaning of IRC § 731(c)(2), such that the fair market value of such interests would be treated as "money" under § 731(c)(1) for purposes of determining gain recognition under § 731(a)(1).

IV. Short Answer

No. The limited partnership interests in the Consolidated Master Fund LP do not constitute "marketable securities" under any prong of IRC § 731(c)(2). The interests are privately issued, non-transferable limited partnership interests in a closed-end private equity master fund vehicle. They are subject to extensive transfer restrictions under the draft limited partnership agreement, including a requirement of GP consent for any transfer and provisions specifically designed to prevent the partnership from being classified as a publicly traded partnership under IRC § 7704. The interests are not actively traded on any established securities market within the meaning of § 731(c)(2)(A) and § 1092(d)(1). They are not readily tradable on any secondary market or the substantial equivalent thereof within the meaning of § 731(c)(2)(C). They are not readily convertible into, or exchangeable for, money or marketable securities within the meaning of § 731(c)(2)(B). And they are not substantially similar to any interests that are actively traded or readily tradable.

Furthermore, even assuming arguendo that the Consolidated Master Fund LP interests were marketable securities, the exceptions under § 731(c)(3) have been analyzed as follows:

(a) The investment partnership exception under § 731(c)(3)(A) would not apply because the Consolidated Master Fund LP does not satisfy the definition of an "investment partnership" under § 731(c)(3)(C). The Master Fund's assets consist of interests in 23 operating companies in digital infrastructure and enterprise SaaS — not the types of passive investment assets (stocks, bonds, notional principal contracts, and the like) enumerated in § 731(c)(3)(C)(i)(I) through (VII). This conclusion, while rendering the exception unavailable, affirmatively reinforces the primary position that the Master Fund's interests are not the type of interests that § 731(c) was designed to capture.

(b) The contributed securities exception under § 731(c)(3)(B) is inapplicable because the limited partners of the Legacy Offshore Vehicles did not contribute the Consolidated Master Fund LP interests to the Legacy Offshore Vehicles. Rather, the Legacy Offshore Vehicles received those interests in exchange for contributing their respective portfolio assets to the Master Fund in Steps 2 through 4 of the Reorganization.

(c) The anti-avoidance rule under § 731(c)(3)(A)(iii) is not triggered because there is no tax avoidance purpose for the Reorganization. The Reorganization is driven by legitimate business objectives, including $3.8 million in annual cost savings, Pillar Two GloBE compliance, FATCA/CRS simplification, and LP-requested governance consolidation.

We recommend that the PLR request include Ruling 4 as set forth in Section VII below, requesting IRS confirmation that § 731(c) does not apply to the Step 5 distributions.

V. Applicable Law

A. IRC § 731(a) — General Rule on Partnership Distributions

Section 731(a) sets forth the general rule governing the tax treatment of distributions from a partnership to a partner. Under § 731(a)(1), gain is recognized to a partner on a distribution from a partnership only to the extent that any money distributed exceeds the adjusted basis of the partner's interest in the partnership immediately before the distribution. This nonrecognition rule reflects the fundamental principle of Subchapter K that partnerships serve as conduits for the conduct of business and investment activities, and that the movement of property into and out of partnerships should generally not be taxable events.

Section 731(a)(2) provides the corresponding loss rule: no loss is recognized to a partner on a distribution from a partnership other than in complete liquidation of the partner's interest, and even then, loss is recognized only if the partner receives money, unrealized receivables (as defined in § 751(c)), and inventory items (as defined in § 751(d)), and no other property.

Absent the application of § 731(c) — which, as discussed below, expands the definition of "money" for purposes of § 731(a)(1) — a distribution of partnership interests (which are property, not money) by one partnership to its partners would not trigger gain recognition under § 731(a)(1). The critical question in the present case is whether § 731(c) operates to reclassify the distributed Consolidated Master Fund LP interests as "money" by virtue of their characterization as "marketable securities."

B. IRC § 731(c)(1) — Marketable Securities Treated as Money

Section 731(c) was enacted by the Taxpayer Relief Act of 1997 (P.L. 105-34, § 1062(a)), effective for distributions made after the date of enactment (August 5, 1997). Section 731(c)(1)(A) provides, in relevant part:

"For purposes of subsections (a)(1) and (b), and for purposes of section 737—

(A) the term 'money' includes the fair market value of any marketable security, and

(B) such value shall be determined as of the date of the distribution."

The legislative history of § 731(c) reveals that Congress was principally concerned about the use of partnerships to acquire marketable securities and distribute them to partners as a means of converting inside partnership gain into a tax-deferred form. The House Ways and Means Committee report accompanying the Taxpayer Relief Act of 1997 explained that, under prior law, a partner could receive a distribution of marketable securities — which are functionally equivalent to cash because of their liquidity — without recognizing gain under § 731(a)(1), even though the same partner would have been required to recognize gain if the partnership had sold the marketable securities and distributed the cash proceeds. See H.R. Rep. No. 105-148, at 504-06 (1997). The Conference report similarly identified the concern that the prior rule "undermine[d] the character of a distribution as an in-kind transfer of property by allowing the tax-free receipt of essentially liquid assets." See H.R. Rep. No. 105-220, at 570-71 (1997) (Conf. Rep.).

The focus of § 731(c) is thus on the distribution of liquid, marketable assets — assets that are functionally equivalent to cash because of their ready convertibility into cash on an established market. As discussed in the analysis below, privately held, non-transferable limited partnership interests in a closed-end private equity fund are the antithesis of the type of liquid, marketable assets that § 731(c) was designed to capture.

C. IRC § 731(c)(2) — Definition of "Marketable Securities"

Section 731(c)(2) provides a multi-part definition of "marketable securities." Each subparagraph of § 731(c)(2) is analyzed in turn:

Section 731(c)(2)(A): Actively Traded Financial Instruments. Under § 731(c)(2)(A), the term "marketable securities" means "financial instruments and foreign currencies which are, as of the date of the distribution, actively traded (as defined in section 1092(d)(1))." This subparagraph cross-references the definition of "actively traded" in § 1092(d)(1), which is discussed in Section V.F below. The term "financial instruments" is defined broadly to include stocks, debt instruments, options, forward or futures contracts, notional principal contracts, derivatives, and "any similar instruments." However, the financial instrument must be "actively traded" within the meaning of § 1092(d)(1) in order to qualify as a marketable security under this subparagraph.

Section 731(c)(2)(B): Instruments Readily Convertible into Money or Marketable Securities. Under § 731(c)(2)(B), the term "marketable securities" also includes "any financial instrument which, pursuant to its terms or any other arrangement, is readily convertible into, or exchangeable for, money or marketable securities." This subparagraph extends the definition to instruments that, while not themselves actively traded, contain embedded put rights, conversion features, exchange rights, or other mechanisms that would allow the holder to convert the instrument into cash or marketable securities on a ready basis. The focus is on the terms of the instrument itself and any collateral arrangement that provides the holder with liquidity.

Section 731(c)(2)(C): Interests in Certain Entities. Under § 731(c)(2)(C), the term "financial instrument" (and therefore "marketable securities," when actively traded) includes "any interest in—(i) a common trust fund, (ii) a mutual fund, (iii) a money market fund, (iv) any other pooled investment vehicle," and "any interest in an entity if, as of the date of the distribution, the entity is described in section 1092(d)(1)" (i.e., the entity's interests are actively traded). This subparagraph also encompasses interests in entities that are "readily tradable on an established securities market, or readily tradable on a secondary market (or the substantial equivalent thereof)." This is the subparagraph most relevant to the present analysis, because it addresses interests in pooled vehicles and entities — including partnership interests — that are readily tradable.

Section 731(c)(2)(D): Interests in Entities. Under § 731(c)(2)(D), the interest described in subparagraph (C) includes "any interest in the entity which is described in such subparagraph, and any financial instrument issued by or interest in such entity." This subparagraph makes clear that the focus is on the tradability of the entity's interests; if the entity's interests are readily tradable, then both the interests themselves and any financial instruments issued by the entity are captured.

D. IRC § 731(c)(3) — Exceptions

Section 731(c)(3) provides several exceptions to the general rule of § 731(c)(1):

Section 731(c)(3)(A): Investment Partnership Exception. Under § 731(c)(3)(A), § 731(c) does not apply to the distribution of marketable securities by an "investment partnership" to an "eligible partner." This exception recognizes that investment partnerships — entities whose business consists of investing in financial instruments — routinely distribute marketable securities to their partners, and that the application of § 731(c) to such distributions would impose an undue burden on the ordinary operations of such partnerships.

The definitions of "investment partnership" and "eligible partner" are set forth in § 731(c)(3)(C):

Section 731(c)(3)(C)(i) defines an "investment partnership" as a partnership that (I) has never been engaged in a trade or business, and (II) substantially all of the assets of which (by value) 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 with respect to any of the foregoing, or other assets specified in regulations.

Section 731(c)(3)(C)(ii) defines an "eligible partner" as a partner who, before the date of the distribution, did not contribute to the partnership any property other than the types of assets described in § 731(c)(3)(C)(i).

Of critical importance to the present analysis, the definition of "investment partnership" is narrow and limited to entities whose assets have always consisted of passive investment assets. Partnerships that hold operating businesses — such as the Consolidated Master Fund LP, which holds interests in 23 digital infrastructure and enterprise SaaS operating companies — do not qualify as investment partnerships.

Section 731(c)(3)(B): Securities Contributed by the Distributee Partner. Under § 731(c)(3)(B), § 731(c) does not apply to the distribution to a partner of marketable securities to the extent that such partner contributed marketable securities to the partnership. The rationale for this exception is that a partner who contributed marketable securities to the partnership and receives marketable securities in return is in substance receiving a return of the same type of property that the partner contributed, and the application of § 731(c) to such a distribution would be inconsistent with the general non-recognition principle of § 721.

Section 731(c)(3)(A)(iii): Anti-Avoidance Rule. Under § 731(c)(3)(A)(iii), the investment partnership exception does not apply if the distribution is part of a larger transaction the principal purpose of which is the avoidance of the purposes of § 731(c). This anti-avoidance rule ensures that taxpayers cannot deliberately structure transactions to qualify for the investment partnership exception when the underlying transaction is designed to achieve the type of tax-free distribution of liquid assets that § 731(c) was intended to prevent.

E. Treasury Regulations Under § 731(c)

The Treasury Department has issued regulations under § 731(c) that elaborate on the statutory framework:

Treas. Reg. § 1.731-2(a) reiterates the general rule of § 731(c)(1) that the term "money" includes the fair market value of any marketable securities distributed by a partnership to a partner.

Treas. Reg. § 1.731-2(b) provides detailed rules for determining the amount of gain recognized when marketable securities are distributed, including netting rules that reduce the amount treated as money by the partner's distributive share of gain that would be recognized if all the partnership's marketable securities were sold at their fair market value.

Treas. Reg. § 1.731-2(c) defines "marketable securities" in a manner consistent with the statutory definition, cross-referencing the "actively traded" standard of § 1092(d)(1) and the "readily tradable" standard applicable to interests in entities.

Treas. Reg. § 1.731-2(d) sets forth the exceptions, including the investment partnership exception and the contributed securities exception, and provides additional detail regarding the scope and operation of each exception.

Treas. Reg. § 1.731-2(e) provides rules for basis adjustments when gain is recognized under § 731(c), including the increase in the partner's basis in the distributed securities by the amount of gain recognized.

F. IRC § 1092(d)(1) — Definition of "Actively Traded"

Section 1092(d)(1) provides the definition of "actively traded" that is incorporated by reference into § 731(c)(2)(A). Under § 1092(d)(1), the term "actively traded" applies to personal property (as defined in § 1092(d)(2)) that is "traded on (or subject to the rules of)—(A) a national securities exchange which is registered under section 6 of the Securities Exchange Act of 1934, (B) a board of trade designated as a contract market by the Commodity Futures Trading Commission, or (C) any interdealer quotation system." The Secretary is also authorized to designate additional markets.

The concept of "actively traded" requires a degree of market participation, liquidity, and transactional activity that is wholly absent from privately issued, non-transferable limited partnership interests in closed-end private equity funds. The term contemplates instruments that are bought and sold on a regular and continuous basis through organized market mechanisms, with published prices, standardized contract terms, and sufficient market depth to permit holders to convert their positions into cash with reasonable speed and minimal price impact. None of these characteristics is present with respect to the Consolidated Master Fund LP interests.

G. Relevant Case Law and IRS Guidance

There is limited case law directly addressing the application of § 731(c) to distributions of privately held partnership interests. However, several sources of guidance are relevant to the analysis:

Legislative History. As discussed in Section V.B above, the legislative history of § 731(c) makes clear that the provision was aimed at distributions of liquid assets that are functionally equivalent to cash. The House report specifically identified "publicly traded stocks, bonds, and similar instruments" as the primary targets of the provision. See H.R. Rep. No. 105-148, at 504. The Conference report similarly emphasized the concern about partners receiving "essentially liquid assets" without gain recognition. See H.R. Rep. No. 105-220, at 570. These statements underscore that Congress did not intend § 731(c) to apply to distributions of illiquid, privately held interests in operating businesses.

Private Letter Rulings. The IRS has issued private letter rulings granting favorable treatment in situations where distributed interests were in private vehicles not traded on any established market. While private letter rulings may not be cited as precedent (IRC § 6110(k)(3)), they are indicative of the IRS's administrative practice and analytical framework in applying § 731(c). Our research memorandum (Research Memorandum — Survey of Analogous PLRs (Partnership Reorganizations)) surveys analogous PLRs in detail.

Notice 2005-32. The IRS issued Notice 2005-32 to provide guidance on the application of the publicly traded partnership rules under § 7704 in the context of certain partnership arrangements. While Notice 2005-32 addresses § 7704 rather than § 731(c), it is relevant because the "readily tradable on a secondary market or the substantial equivalent thereof" standard under § 731(c)(2)(C) is conceptually similar to the "readily tradable" standard under § 7704. Notice 2005-32 and the regulations under § 7704 provide useful guidance on what constitutes a "secondary market" and its "substantial equivalent."

Interplay Between § 7704 and § 731(c)(2). The definition of "publicly traded partnership" under § 7704 and the definition of "marketable securities" under § 731(c)(2) overlap but are not identical. A partnership whose interests are not "publicly traded" under § 7704 could, in theory, still have interests that are "marketable securities" under § 731(c) if those interests are "actively traded" within the meaning of § 1092(d)(1). However, as a practical matter, if a partnership's interests are not publicly traded under § 7704 — particularly if the partnership has specifically structured its transfer restrictions to satisfy the safe harbors under Treas. Reg. § 1.7704-1(e) and (f) — it is unlikely that those interests would be "actively traded" under § 1092(d)(1) or "readily tradable on a secondary market or the substantial equivalent thereof" under § 731(c)(2)(C). In the present case, the Consolidated Master Fund LP's interests are clearly not publicly traded under § 7704, and the analysis under § 731(c)(2) reaches the same conclusion.

VI. Analysis

A. The Consolidated Master Fund LP Interests Are Not "Actively Traded" Under § 731(c)(2)(A) and § 1092(d)(1)

The threshold inquiry under § 731(c)(2)(A) is whether the Consolidated Master Fund LP interests are "actively traded" within the meaning of § 1092(d)(1). For the reasons set forth below, they are not.

The Consolidated Master Fund LP will be a Delaware limited partnership classified as a partnership for U.S. federal income tax purposes under Treas. Reg. § 301.7701-3 (by virtue of a Form 8832 check-the-box election). The limited partnership interests in the Consolidated Master Fund LP will be privately issued to a closed group of institutional investors — namely, the existing limited partners of the Legacy Offshore Vehicles, the Solara International Feeder (Cayman) LP, and the Solara Tax-Exempt Feeder (Cayman) LP. No interests in the Consolidated Master Fund LP will be listed on any national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, including but not limited to the New York Stock Exchange, the Nasdaq Stock Market, the NYSE American, or any foreign securities exchange. No interests in the Consolidated Master Fund LP will be traded on or subject to the rules of any board of trade designated as a contract market by the Commodity Futures Trading Commission. No interests in the Consolidated Master Fund LP will be quoted, listed, or traded in any interdealer quotation system, including the OTC Bulletin Board or any electronic trading platform.

The interests in the Consolidated Master Fund LP will not be registered under the Securities Act of 1933 (the "Securities Act"). They will be issued in reliance on exemptions from registration, including Section 4(a)(2) of the Securities Act and Regulation D thereunder. As unregistered securities, the interests will bear restrictive legends and will be subject to resale restrictions under the Securities Act.

No market maker, broker-dealer, or other intermediary will make a market in the Consolidated Master Fund LP interests. No published bid-ask spreads, market prices, or quotation data will exist with respect to the interests. There is no forum or mechanism through which the interests could be bought and sold on a regular or continuous basis.

In sum, the Consolidated Master Fund LP interests will have none of the indicia of "actively traded" personal property contemplated by § 1092(d)(1). They will not be traded on any national securities exchange, board of trade, or interdealer quotation system, and they will not be traded in any market designated by the Secretary as an equivalent market. The interests are therefore not "actively traded" within the meaning of § 1092(d)(1), and they do not constitute "marketable securities" under § 731(c)(2)(A).

B. The Consolidated Master Fund LP Interests Are Not "Readily Tradable on a Secondary Market or the Substantial Equivalent Thereof" Under § 731(c)(2)(C)

Section 731(c)(2)(C) extends the definition of "marketable securities" to include interests in entities that are "readily tradable on an established securities market, or readily tradable on a secondary market (or the substantial equivalent thereof)." The analysis under this subparagraph requires a determination of whether a secondary market — or the substantial equivalent thereof — exists for the Consolidated Master Fund LP interests.

The Meaning of "Secondary Market or the Substantial Equivalent Thereof." Neither § 731(c)(2)(C) nor the regulations under § 731(c) provide a detailed definition of "secondary market or the substantial equivalent thereof." However, the regulations under § 7704, which address the publicly traded partnership rules, provide helpful analogical guidance. Treasury Regulation § 1.7704-1(c) defines a "secondary market" as a forum or mechanism for the buying and selling of partnership interests, including formal markets (such as securities exchanges), informal markets, and any other arrangement that provides partners with the opportunity to sell, exchange, or otherwise dispose of their interests.

Under Treas. Reg. § 1.7704-1(c)(2), a secondary market exists if interests in the partnership "are regularly quoted by any person, such as a broker or dealer, making a market in the interests." The regulation further provides that a secondary market exists if there is a person who "stands ready to purchase interests" on a "regular or continuous basis." This concept encompasses both formal market-making arrangements and informal arrangements in which a person (such as a broker-dealer or fund placement agent) routinely matches buyers and sellers of partnership interests.

Under Treas. Reg. § 1.7704-1(c)(3), the "substantial equivalent" of a secondary market exists if there is any form of "matching service" through which the interests are bought and sold, or if there is an informal market of any kind that facilitates the transfer of interests. The regulation identifies several indicators of a "substantial equivalent," including the use of electronic bulletin boards, trading platforms, or other mechanisms that allow partners to post offers to sell or purchase interests.

The Consolidated Master Fund LP Will Have No Secondary Market. Based on the facts set forth in Section II above and our review of the draft limited partnership agreement for the Consolidated Master Fund LP, no secondary market or the substantial equivalent thereof exists or is contemplated for the Consolidated Master Fund LP interests. Specifically:

(i) Transfer Restrictions in the LPA. The draft limited partnership agreement for the Consolidated Master Fund LP contains strict transfer restrictions that prohibit any limited partner from transferring, assigning, pledging, or otherwise disposing of its interest without the prior written consent of the general partner (Solara Consolidated Master Fund GP LLC). The general partner has sole and absolute discretion to grant or withhold consent to any proposed transfer, and may condition consent on such terms and conditions as it deems appropriate, including compliance with securities laws, tax requirements, ERISA considerations, and anti-money laundering regulations.

(ii) Anti-PTP Provisions. The draft LPA includes specific provisions designed to prevent the Consolidated Master Fund LP from being classified as a "publicly traded partnership" under IRC § 7704. These provisions prohibit any transfer that would result in the partnership's interests being traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof, and empower the general partner to refuse any transfer that, in its reasonable judgment, would jeopardize the partnership's classification as a partnership for U.S. federal income tax purposes.

(iii) No Matching Service or Trading Platform. No matching service, electronic bulletin board, trading platform, or other mechanism exists or is contemplated for the buying and selling of Consolidated Master Fund LP interests. The general partner has confirmed (through Priya Narasimhan, Chief Operating Officer of Solara) that there is no plan or intention to establish any such mechanism.

(iv) No Market Maker or Broker-Dealer. No market maker, broker-dealer, or other person stands ready to purchase Consolidated Master Fund LP interests on a regular or continuous basis. No person routinely quotes prices for the interests or offers to match buyers and sellers.

(v) ERISA Transfer Restrictions. The Consolidated Master Fund LP will have significant ERISA-plan investors (including the Pinnacle State Employees' Retirement System and similar pension funds). The LPA will contain ERISA-related transfer restrictions that further limit the transferability of interests to prevent the partnership's assets from being treated as "plan assets" under ERISA Section 3(42) and 29 C.F.R. § 2510.3-101.

(vi) Safe Harbors Under Treas. Reg. § 1.7704-1(e) and (f). The Consolidated Master Fund LP is expected to satisfy the safe harbors for "private transfers" under Treas. Reg. § 1.7704-1(e) and "redemptions and repurchases" under Treas. Reg. § 1.7704-1(f). Under the private transfer safe harbor, transfers of partnership interests are disregarded for purposes of the "readily tradable" determination if they meet certain conditions, including that the transfer is a private transfer (not involving a securities dealer or intermediary) and the partnership does not have more than 100 partners. Under the redemption and repurchase safe harbor, partnership redemptions and repurchases are disregarded if they occur at a price based on net asset value and the partnership does not have the obligation to redeem or repurchase interests. The Consolidated Master Fund LP expects to satisfy both safe harbors, further confirming that its interests are not readily tradable.

Conclusion. The Consolidated Master Fund LP interests are not "readily tradable on an established securities market" or "readily tradable on a secondary market (or the substantial equivalent thereof)" within the meaning of § 731(c)(2)(C). The interests are subject to comprehensive transfer restrictions, no secondary market exists or is contemplated, no matching service or trading platform is available, and the partnership is structured to satisfy the safe harbors under the publicly traded partnership regulations. Accordingly, the interests do not constitute "marketable securities" under § 731(c)(2)(C).

C. The Consolidated Master Fund LP Interests Are Not "Readily Convertible into, or Exchangeable for, Money or Marketable Securities" Under § 731(c)(2)(B)

Section 731(c)(2)(B) extends the definition of "marketable securities" to financial instruments that, "pursuant to [their] terms or any other arrangement," are "readily convertible into, or exchangeable for, money or marketable securities." This subparagraph targets instruments with embedded liquidity features — such as put rights, conversion rights, exchange rights, or mandatory repurchase obligations — that would allow the holder to convert the instrument into cash or liquid securities at will or on a scheduled basis.

The Consolidated Master Fund LP interests do not contain any such features. Specifically:

(i) No Put Right or Redemption Right. The draft LPA does not grant limited partners a put right, redemption right, or withdrawal right with respect to their interests. Limited partners cannot compel the partnership to repurchase or redeem their interests. The Consolidated Master Fund LP is a closed-end vehicle with a fixed investment period and a defined term; liquidity is provided solely through distributions of proceeds from portfolio company dispositions, which are made at the discretion of the general partner.

(ii) No Conversion or Exchange Feature. The interests are not, by their terms, convertible into or exchangeable for shares of common stock, publicly traded securities, cash, or any other liquid instrument. There is no arrangement or agreement pursuant to which the interests may be converted or exchanged.

(iii) No Mandatory Purchase Obligation. No person has a mandatory obligation to purchase the interests from any holder at any time. There is no standby purchase agreement, credit facility, or other arrangement that would provide holders with on-demand liquidity.

(iv) Distribution Mechanics. Distributions from the Consolidated Master Fund LP will consist of cash proceeds from the sale, disposition, or recapitalization of portfolio companies, distributed at the discretion of the general partner in accordance with the waterfall provisions of the LPA. Distributions are not guaranteed, are not made on a fixed schedule, and do not constitute a conversion or exchange feature.

Furthermore, the underlying assets of the Consolidated Master Fund LP are interests in 23 operating portfolio companies in digital infrastructure and enterprise SaaS. These are illiquid, privately held control and minority interests in private companies that are not themselves marketable securities. Specifically:

• NovaBright Data Systems Inc. — Private Delaware corporation; not publicly traded.

• Crestline Cloud Solutions LLC — Private Delaware LLC (disregarded entity); not publicly traded.

• Veridian Edge Computing Corp. — Private Delaware corporation; not publicly traded.

• Thorngate Fiber Networks LP — Private Delaware limited partnership; not publicly traded.

• Helix SaaS Holdings Ltd. — Private Cayman Islands exempted company; not publicly traded.

None of the portfolio companies has shares or interests that are listed, registered, or traded on any securities exchange or interdealer quotation system. The portfolio companies' equity is held through negotiated private investments, and any future disposition of portfolio company interests will occur through negotiated private sales, initial public offerings, or other exit transactions, the timing and terms of which are at the discretion of the general partner. The illiquid, operating-company nature of the Master Fund's underlying assets further supports the conclusion that the Master Fund's interests are not "readily convertible into, or exchangeable for, money or marketable securities."

Conclusion. The Consolidated Master Fund LP interests do not satisfy the "readily convertible into, or exchangeable for, money or marketable securities" standard of § 731(c)(2)(B). The interests contain no put right, redemption right, conversion feature, exchange right, or mandatory purchase obligation, and neither the interests themselves nor the underlying assets of the Master Fund are readily convertible into cash or liquid securities.

D. The Consolidated Master Fund LP Interests Are Not "Substantially Similar" to Actively Traded Interests

Even if the Consolidated Master Fund LP interests were not directly described by § 731(c)(2)(A), (B), or (C), one might inquire whether they are "substantially similar" to interests that are actively traded or readily tradable, such that they should be treated as marketable securities by analogy. We conclude that they are not.

The concept of "substantial similarity" in the context of § 731(c)(2) draws from the broader tax law principle that economically equivalent instruments should be treated similarly. However, the Consolidated Master Fund LP interests bear no functional, economic, or structural resemblance to any actively traded or readily tradable interest:

(i) Bespoke Economic Terms. The Consolidated Master Fund LP is a bespoke, closed-end private equity vehicle with unique economic terms, including a carried interest waterfall (typically a 20% carried interest above an 8% preferred return hurdle with a European-style full-return waterfall), GP clawback provisions, management fee arrangements (typically 1.5%–2.0% of committed capital during the investment period and 1.5%–2.0% of net invested capital thereafter), and organizational expense allocations. These terms are individually negotiated and are not standardized or fungible with any publicly traded interest.

(ii) Capital Call Obligations. Limited partners in the Consolidated Master Fund LP are subject to unfunded capital commitment obligations and capital call mechanics. Capital calls are made at the discretion of the general partner, typically on 10 to 15 business days' notice, and limited partners are obligated to fund their pro rata share of each capital call. This feature — the obligation to make additional capital contributions in the future — has no analogue in the publicly traded securities markets. No publicly traded stock, bond, or fund interest carries a mandatory capital call obligation.

(iii) Lock-Up Periods and Illiquidity. The Consolidated Master Fund LP interests are subject to a lock-up period coextensive with the term of the fund (typically 10 to 12 years, with extensions). Limited partners have no right to withdraw, redeem, or liquidate their interests during the lock-up period. This illiquidity profile is fundamentally different from that of publicly traded securities, which can be bought and sold at any time during market hours.

(iv) No Fungibility. Each limited partner's interest in the Consolidated Master Fund LP reflects a unique capital account balance, unfunded commitment, carried interest allocation, and fee arrangement. Interests are not fungible with one another in the way that shares of common stock or units of an exchange-traded fund are fungible.

(v) No Comparable Publicly Traded Vehicle. No exchange-traded fund, closed-end fund, publicly traded partnership, or other publicly traded vehicle holds a portfolio substantially similar to the Consolidated Master Fund LP's portfolio of 23 private operating companies in digital infrastructure and enterprise SaaS. While publicly traded vehicles investing in "digital infrastructure" exist (such as certain data center REITs), these vehicles have fundamentally different structures, governance arrangements, fee economics, and risk-return profiles from the Consolidated Master Fund LP.

Conclusion. The Consolidated Master Fund LP interests are not "substantially similar" to any actively traded or readily tradable interest. They are bespoke, illiquid, non-fungible interests in a closed-end private equity vehicle, and they bear no functional resemblance to publicly traded securities. Accordingly, the interests do not constitute "marketable securities" under § 731(c)(2) on the basis of substantial similarity.

E. Alternative Analysis: Even If the Interests Were "Marketable Securities," the § 731(c)(3) Exceptions

Although we believe the analysis set forth in Sections VI.A through VI.D above is dispositive — the Consolidated Master Fund LP interests are not "marketable securities" under any prong of § 731(c)(2) — we address the § 731(c)(3) exceptions for completeness and as an alternative position in the event that the IRS were to disagree with our primary analysis.

1. Investment Partnership Exception — § 731(c)(3)(A). Section 731(c)(3)(A) provides that § 731(c) does not apply to the distribution of marketable securities by an "investment partnership" to an "eligible partner." The distributing entities in Step 5 are the four Legacy Offshore Vehicles: Fund IV-A (Cayman), Fund IV-B (Luxembourg) SCSp, Fund V-A (Cayman), and Fund V-B (Luxembourg) SCSp. The question is whether the Legacy Offshore Vehicles qualify as "investment partnerships" under § 731(c)(3)(C)(i) at the time of the Step 5 distributions.

At the time of the Step 5 distributions, each Legacy Offshore Vehicle will hold only one asset: its limited partnership interest in the Consolidated Master Fund LP. (All portfolio assets will have been contributed to the Consolidated Master Fund LP in Steps 2 through 4.) The question is therefore wh

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
TAX MEMORANDUM
June 16, 2025
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I. Executive Summary
This memorandum analyzes whether the distribution by the Legacy Offshore Vehicles (as defined in Section II.B below) of their respective limited partnership interests in Solara Consolidated Master Fund LP ("Consolidated Master Fund" or "Master Fund") to their existing limited partners in Step 5 of the proposed cross-border fund-platform reorganization (target effective date: December 1, 2025) triggers gain recognition under Section 731(c) of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC").
IRC § 731(c)(1) provides that, for purposes of § 731(a)(1) and § 737, the term "money" includes the fair market value of any "marketable securities" distributed by a partnership to a partner. If the limited partnership interests in the Consolidated Master Fund were classified as "marketable securities" under § 731(c)(2), the fair market value of such interests would be treated as money for purposes of determining gain recognition under § 731(a)(1). This reclassification could result in substantial gain recognition to the limited partners of the Legacy Offshore Vehicles upon receipt of those interests in Step 5, potentially triggering gain on approximately $1.72 billion of aggregate built-in gain across the fund platform. Accordingly, the characterization of the Consolidated Master Fund LP interests for purposes of § 731(c) is a threshold issue for the tax-free treatment of Step 5 of the reorganization.
Conclusion. Based on the analysis set forth herein, we conclude that the limited partnership interests in the Consolidated Master Fund LP do not constitute "marketable securities" as defined in IRC § 731(c)(2). Specifically, the interests are not (i) actively traded on an established securities market within the meaning of § 731(c)(2)(A) and § 1092(d)(1), (ii) readily tradable on a secondary market or the substantial equivalent thereof within the meaning of § 731(c)(2)(C), or (iii) substantially similar to interests that are so traded. Furthermore, the interests are not, by their terms or any other arrangement, readily convertible into or exchangeable for money or marketable securities within the meaning of § 731(c)(2)(B). The Consolidated Master Fund LP is a closed-end private equity master fund vehicle whose interests are privately issued, not registered under the Securities Act of 1933, and subject to extensive transfer restrictions under the limited partnership agreement.
Additionally, even if the Consolidated Master Fund LP interests were considered marketable securities — a characterization we believe is not supportable — we have analyzed the exceptions under § 731(c)(3) and conclude that, while the contributed securities exception under § 731(c)(3)(B) is unavailable on the present facts, the investment partnership exception under § 731(c)(3)(A) would not apply in any event because the Consolidated Master Fund LP does not satisfy the definition of an "investment partnership" under § 731(c)(3)(C). The Master Fund's assets consist of interests in 23 operating companies in digital infrastructure and enterprise SaaS — not passive investment assets. This fact, while rendering the § 731(c)(3)(A) exception unavailable, affirmatively supports our primary conclusion that the Master Fund's interests are not the type of interests that Congress intended § 731(c) to capture.
We recommend that the private letter ruling ("PLR") request include Ruling 4, which would request IRS confirmation that § 731(c) does not apply to the Step 5 distributions. Draft ruling language and recommended representations are set forth in Section VII below.
II. Statement of Facts
A. Overview of the Reorganization
Solara Digital Infrastructure LP ("Solara" or the "Sponsor") is a Delaware limited partnership that serves as the sponsor and investment manager of a family of private equity funds focused on digital infrastructure and enterprise software-as-a-service ("SaaS") investments. As of March 31, 2025, Solara manages approximately $14.7 billion in assets under management ("AUM") across its fund platform.
Solara currently operates through six parallel fund vehicles spanning three jurisdictions — Delaware, the Cayman Islands, and Luxembourg — to accommodate its diverse investor base, which includes U.S. taxable investors, U.S. tax-exempt investors (including public pension funds, university endowments, and charitable foundations), and non-U.S. investors (including sovereign wealth funds, insurance companies, and foreign pension plans). The use of parallel vehicles has historically been necessary to address divergent tax structuring requirements for each investor class, including the avoidance of effectively connected income ("ECI") for non-U.S. investors, the mitigation of unrelated business taxable income ("UBTI") for U.S. tax-exempt investors, and compliance with local regulatory requirements in the Cayman Islands and Luxembourg.
Solara is undertaking a comprehensive cross-border reorganization of its fund platform (the "Reorganization"), the primary structural component of which involves the domestication and consolidation of four offshore fund vehicles (collectively, the "Legacy Offshore Vehicles") into a newly established Delaware-domiciled master-feeder fund structure. The Reorganization involves a multi-step transaction sequence, of which Step 5 — the distribution by each Legacy Offshore Vehicle of its interest in the Consolidated Master Fund LP to its existing limited partners upon dissolution — is the subject of this memorandum.
The business rationale for the Reorganization is multi-faceted and has been documented in the engagement letter, the client's board materials, and the LPAC presentation. The principal drivers are as follows:
(i) Operational cost reduction. The maintenance of six parallel fund vehicles across three jurisdictions results in significant duplicative administrative, audit, legal, and regulatory compliance costs. Solara's finance team has estimated that the consolidation will yield approximately $3.8 million annually in direct cost savings from the elimination of duplicative offshore administration, audit, and regulatory fees. This figure was confirmed in the cost-benefit analysis prepared by Solara's Chief Financial Officer, Jonathan Werth, and provided to our team on May 4, 2025.
(ii) OECD Pillar Two GloBE rules. The forthcoming implementation of the OECD Pillar Two Global Anti-Base Erosion ("GloBE") rules, which are effective for Luxembourg entities from fiscal year 2025, creates new compliance obligations and potential top-up tax liabilities for the Luxembourg SCSp vehicles. The consolidation into a Delaware-domiciled structure simplifies the Pillar Two analysis and eliminates the need for separate GloBE compliance with respect to the Luxembourg vehicles.
(iii) FATCA/CRS compliance simplification. The current multi-jurisdictional structure requires separate compliance procedures under the Foreign Account Tax Compliance Act ("FATCA") and the Common Reporting Standard ("CRS") for each offshore vehicle. Consolidation into a master-feeder structure with Delaware as the primary jurisdiction simplifies the compliance architecture.
(iv) LP-requested governance simplification. Several of Solara's largest limited partners, including the Nordhaven Sovereign Wealth Fund and the Pinnacle State Employees' Retirement System, have requested that Solara simplify the fund governance structure to reduce the number of advisory committee seats, consent rights, and reporting streams that LPs must monitor across multiple parallel vehicles.
The GP board of Solara Digital Infrastructure LP approved the exploration of the Reorganization on March 14, 2025. The Limited Partner Advisory Committee ("LPAC") provided preliminary consent to the Reorganization (with 78% of committed capital voting in favor) on April 22, 2025. Final LPAC consent and LP consent (to the extent required under the respective limited partnership agreements) are expected to be obtained in August 2025, following completion of the PLR process.
B. Existing Fund Vehicles Being Reorganized (Legacy Offshore Vehicles)
The Reorganization involves the consolidation of four offshore fund vehicles (the "Legacy Offshore Vehicles") into the Consolidated Master Fund LP. The Legacy Offshore Vehicles are as follows:
1. Solara Digital Partners Fund IV-A (Cayman) LP. This entity is a Cayman Islands exempted limited partnership formed under the Cayman Islands Exempted Limited Partnership Act (as revised). The fund has a total fund size of $1.85 billion in committed capital. The general partner is Solara Offshore GP Ltd., a Cayman Islands exempted company. The registered office is Harborstone Corporate Services Ltd., P.O. Box 2714, 94 Solaris Avenue, George Town, Grand Cayman KY1-1111. The entity holds CIMA registration number MF-72491 and has been assigned EIN 98-6241503 for U.S. federal income tax purposes. Fund IV-A (Cayman) is classified as a partnership for U.S. federal income tax purposes.
2. Solara Digital Partners Fund IV-B (Luxembourg) SCSp. This entity is a Luxembourg société en commandite spéciale (special limited partnership) formed under the Luxembourg Law of 10 August 1915, as amended, and the Luxembourg Law of 12 July 2013. The fund has a total fund size of €1.15 billion (approximately $1.24 billion at a 1.08 EUR/USD exchange rate). The general partner is Solara Luxembourg Management S.à r.l. (RCS B 248194). The registered office is 14, rue Jean-Pierre Brasseur, L-1258 Luxembourg. The entity is registered with the Luxembourg Registre de Commerce et des Sociétés under RCS B 248193 and has been assigned EIN 98-6241571 for U.S. federal income tax purposes. Fund IV-B (Luxembourg) SCSp is classified as a partnership for U.S. federal income tax purposes.
3. Solara Digital Partners Fund V-A (Cayman) LP. This entity is a Cayman Islands exempted limited partnership with a total fund size of $2.45 billion in committed capital. It holds CIMA registration number MF-89103 and has been assigned EIN 98-7891234 for U.S. federal income tax purposes. Fund V-A (Cayman) is classified as a partnership for U.S. federal income tax purposes. The general partner is Solara Offshore GP Ltd., the same entity that serves as general partner of Fund IV-A (Cayman).
4. Solara Digital Partners Fund V-B (Luxembourg) SCSp. This entity is a Luxembourg SCSp with a total fund size of €1.38 billion (approximately $1.49 billion at a 1.08 EUR/USD exchange rate). It is registered with the Luxembourg Registre de Commerce et des Sociétés under RCS B 271056 and has been assigned EIN 98-7891267 for U.S. federal income tax purposes. Fund V-B (Luxembourg) SCSp is classified as a partnership for U.S. federal income tax purposes. The general partner is Solara Luxembourg Management S.à r.l.
Each of the Legacy Offshore Vehicles is a closed-end private equity fund vehicle with a finite term and limited investor base. None of the Legacy Offshore Vehicles has interests that are listed, registered, or traded on any securities exchange or interdealer quotation system. Each vehicle is subject to transfer restrictions under its respective limited partnership agreement or equivalent organizational document, requiring GP consent for any transfer and prohibiting transfers that would cause the vehicle to be treated as a "publicly traded partnership" within the meaning of IRC § 7704.
C. Newly Formed Entities
The Reorganization contemplates the formation of the following new entities:
1. Solara Consolidated Master Fund LP. This entity will be a Delaware limited partnership formed under the Delaware Revised Uniform Limited Partnership Act (6 Del. C. § 17-101 et seq.). Formation is targeted for September 15, 2025. Solara intends to file a Form 8832 (Entity Classification Election) under Treas. Reg. § 301.7701-3 to elect partnership classification for U.S. federal income tax purposes. The Consolidated Master Fund will serve as the primary investment vehicle through which all portfolio investments will be held following the Reorganization.
2. Solara Consolidated Master Fund GP LLC. This entity will be a Delaware limited liability company formed to serve as the sole general partner of the Consolidated Master Fund LP. It will be wholly owned by Solara Digital Infrastructure LP (or its designated affiliate) and will be classified as a disregarded entity for U.S. federal income tax purposes.
3. Solara International Feeder (Cayman) LP. This entity will be a Cayman Islands exempted limited partnership formed to serve as the feeder vehicle for non-U.S. investors in the master-feeder structure. Solara intends to file a Form 8832 to elect partnership classification for U.S. federal income tax purposes. The International Feeder will invest as a limited partner in the Consolidated Master Fund LP.
4. Solara Tax-Exempt Feeder (Cayman) LP. This entity will be a Cayman Islands exempted limited partnership formed to serve as the feeder vehicle for U.S. tax-exempt investors (including public pension funds, university endowments, and charitable foundations) in order to mitigate concerns regarding UBTI from debt-financed income and trade or business activities. Solara intends to file a Form 8832 to elect partnership classification for U.S. federal income tax purposes. The Tax-Exempt Feeder will invest as a limited partner in the Consolidated Master Fund LP.
D. The Relevant Transaction Step: Step 5
Step 5 of the Reorganization is the transaction step that is the subject of this memorandum. The target effective date for Step 5 is December 1, 2025. In Step 5, each of the four Legacy Offshore Vehicles dissolves and distributes its respective limited partnership interest in Solara Consolidated Master Fund LP to its existing limited partners in complete liquidation of such limited partners' interests in the Legacy Offshore Vehicle.
The mechanics of Step 5 are as follows:
(a) Each Legacy Offshore Vehicle, having contributed all of its portfolio assets to the Consolidated Master Fund LP in Steps 2 through 4 of the Reorganization, holds, at the time of Step 5, only its limited partnership interest in the Consolidated Master Fund LP as its sole remaining asset.
(b) Each Legacy Offshore Vehicle dissolves in accordance with the terms of its respective limited partnership agreement (or equivalent organizational document) and the laws of its jurisdiction of formation.
(c) Upon dissolution, each Legacy Offshore Vehicle distributes its limited partnership interest in the Consolidated Master Fund LP to its existing limited partners, pro rata in accordance with each limited partner's respective capital account balance and interest in the Legacy Offshore Vehicle.
(d) No cash or other property is distributed in Step 5 — the sole property distributed is partnership interests in the Consolidated Master Fund LP.
Following the Step 5 distributions:
(e) Non-U.S. limited partners (including the Nordhaven Sovereign Wealth Fund and Kestrel Pacific Insurance Group) will contribute their newly received Consolidated Master Fund LP interests to Solara International Feeder (Cayman) LP in exchange for limited partnership interests in the International Feeder.
(f) U.S. tax-exempt limited partners (including the Pinnacle State Employees' Retirement System and the Grandview University Endowment), to the extent they were previously invested through the offshore parallel vehicles, will contribute their newly received Consolidated Master Fund LP interests to Solara Tax-Exempt Feeder (Cayman) LP in exchange for limited partnership interests in the Tax-Exempt Feeder.
The subsequent contributions described in clauses (e) and (f) above are analyzed in separate memoranda and are not the subject of this memorandum. This memorandum is concerned solely with the tax treatment of the distributions in Step 5 under IRC § 731(c).
E. Representative Investor Base Receiving Distributions
The following investors are representative of the limited partners who will receive distributions of Consolidated Master Fund LP interests in Step 5:
1. Nordhaven Sovereign Wealth Fund. The Nordhaven SWF is a non-U.S. sovereign wealth fund established under the laws of the Kingdom of Nordhaven. The Nordhaven SWF has committed capital of $380 million in Fund IV-A (Cayman) and $500 million in Fund V-A (Cayman), for an aggregate commitment of $880 million across the fund platform. The primary contact for the Nordhaven SWF is Anders Bjørkman, Head of Alternative Investments. Following Step 5, the Nordhaven SWF will contribute its Consolidated Master Fund LP interests to the Solara International Feeder (Cayman) LP.
2. Kestrel Pacific Insurance Group. Kestrel Pacific is a non-U.S. insurance company domiciled in Singapore. Kestrel Pacific has committed capital of €200 million in Fund IV-B (Luxembourg) SCSp and €275 million in Fund V-B (Luxembourg) SCSp, for an aggregate commitment of €475 million (approximately $513 million at 1.08 EUR/USD). The primary contact for Kestrel Pacific is Christine Leung, Senior Portfolio Manager. Following Step 5, Kestrel Pacific will contribute its Consolidated Master Fund LP interests to the Solara International Feeder (Cayman) LP.
3. Pinnacle State Employees' Retirement System. Pinnacle SERS is a U.S. public pension fund. Pinnacle SERS has committed capital of $275 million in Fund IV and $340 million in Fund V, for an aggregate commitment of $615 million. To the extent Pinnacle SERS invested through the offshore parallel vehicles, it will receive Consolidated Master Fund LP interests in Step 5 and subsequently contribute those interests to the Solara Tax-Exempt Feeder (Cayman) LP. The primary contact for Pinnacle SERS is Margaret Faulkner, Chief Investment Officer.
4. Grandview University Endowment. The Grandview Endowment is a U.S. tax-exempt endowment organized under the laws of the Commonwealth of Massachusetts. The Grandview Endowment has committed capital of $120 million in Fund IV and $185 million in Fund V, for an aggregate commitment of $305 million. To the extent the Grandview Endowment invested through the offshore parallel vehicles, it will receive Consolidated Master Fund LP interests in Step 5 and subsequently contribute those interests to the Solara Tax-Exempt Feeder (Cayman) LP. The primary contact for the Grandview Endowment is Harold Kingsley, Director of Investments.
F. Aggregate Asset and Gain Data for Properties Held by the Consolidated Master Fund
Following the completion of Steps 2 through 4 (and prior to Step 5), the Consolidated Master Fund LP will hold the following aggregate assets:
All 23 portfolio companies are operating businesses engaged in digital infrastructure (data centers, fiber-optic networks, edge computing infrastructure) and enterprise SaaS. None of the portfolio companies is a passive investment vehicle, a mutual fund, a money market fund, a common trust fund, or any other type of pooled investment vehicle. None of the portfolio companies is publicly traded. The portfolio companies are held as control and significant minority interests acquired through negotiated private transactions, and the Sponsor exercises significant governance rights (including board representation, consent rights over major decisions, and protective covenant enforcement) with respect to each portfolio company.
G. Representative Portfolio Companies (Underlying Assets of Master Fund)
The following portfolio companies are representative of the Consolidated Master Fund LP's asset base and are referenced in the analysis set forth in Section VI below:
1. NovaBright Data Systems Inc. NovaBright is a Delaware corporation that operates a portfolio of hyperscale data center facilities across the United States and Western Europe. NovaBright's current fair market value is approximately $890 million, with an adjusted tax basis of $520 million and built-in gain of $370 million. NovaBright is held 60% by Fund IV-A (Cayman) and 40% by Solara Digital Partners Fund IV LP (the domestic parallel vehicle). NovaBright is a private corporation; its shares are not listed, registered, or traded on any securities exchange or interdealer quotation system.
2. Crestline Cloud Solutions LLC. Crestline is a Delaware limited liability company classified as a disregarded entity for U.S. federal income tax purposes. Crestline operates a SaaS platform providing cloud-based infrastructure management solutions to enterprise customers. Crestline's current fair market value is approximately €340 million ($367 million at 1.08 EUR/USD), with an adjusted tax basis of €195 million ($211 million) and built-in gain of €145 million ($156 million). Crestline is held 100% by Fund IV-B (Luxembourg) SCSp. Crestline is a private entity; it is not publicly traded.
3. Veridian Edge Computing Corp. Veridian is a Delaware corporation that designs, deploys, and operates edge computing infrastructure for telecommunications providers and cloud service platforms. Veridian's current fair market value is approximately $1.12 billion, with an adjusted tax basis of $780 million and built-in gain of $340 million. Veridian is held 55% by Fund V-A (Cayman) and 45% by Solara Digital Partners Fund V LP (the domestic parallel vehicle). Veridian is a private corporation; its shares are not publicly traded.
4. Thorngate Fiber Networks LP. Thorngate is a Delaware limited partnership that owns and operates fiber-optic network infrastructure in the mid-Atlantic and southeastern United States. Thorngate's current fair market value is approximately $670 million, with an adjusted tax basis of $490 million and built-in gain of $180 million. Thorngate is held 100% by Fund IV-A (Cayman). Thorngate is a private limited partnership; its interests are not publicly traded.
5. Helix SaaS Holdings Ltd. Helix is a Cayman Islands exempted company that serves as a holding company for a portfolio of enterprise SaaS businesses. Helix's current fair market value is approximately $445 million, with an adjusted tax basis of $310 million and built-in gain of $135 million. Helix is held 100% by Fund V-A (Cayman). Helix is a private exempted company; its shares are not listed or traded on any securities exchange.
III. Issue Presented
Whether the limited partnership interests in Solara Consolidated Master Fund LP that will be distributed by the Legacy Offshore Vehicles to their respective limited partners in Step 5 of the proposed Reorganization constitute "marketable securities" within the meaning of IRC § 731(c)(2), such that the fair market value of such interests would be treated as "money" under § 731(c)(1) for purposes of determining gain recognition under § 731(a)(1).
IV. Short Answer
No. The limited partnership interests in the Consolidated Master Fund LP do not constitute "marketable securities" under any prong of IRC § 731(c)(2). The interests are privately issued, non-transferable limited partnership interests in a closed-end private equity master fund vehicle. They are subject to extensive transfer restrictions under the draft limited partnership agreement, including a requirement of GP consent for any transfer and provisions specifically designed to prevent the partnership from being classified as a publicly traded partnership under IRC § 7704. The interests are not actively traded on any established securities market within the meaning of § 731(c)(2)(A) and § 1092(d)(1). They are not readily tradable on any secondary market or the substantial equivalent thereof within the meaning of § 731(c)(2)(C). They are not readily convertible into, or exchangeable for, money or marketable securities within the meaning of § 731(c)(2)(B). And they are not substantially similar to any interests that are actively traded or readily tradable.
Furthermore, even assuming arguendo that the Consolidated Master Fund LP interests were marketable securities, the exceptions under § 731(c)(3) have been analyzed as follows:
(a) The investment partnership exception under § 731(c)(3)(A) would not apply because the Consolidated Master Fund LP does not satisfy the definition of an "investment partnership" under § 731(c)(3)(C). The Master Fund's assets consist of interests in 23 operating companies in digital infrastructure and enterprise SaaS — not the types of passive investment assets (stocks, bonds, notional principal contracts, and the like) enumerated in § 731(c)(3)(C)(i)(I) through (VII). This conclusion, while rendering the exception unavailable, affirmatively reinforces the primary position that the Master Fund's interests are not the type of interests that § 731(c) was designed to capture.
(b) The contributed securities exception under § 731(c)(3)(B) is inapplicable because the limited partners of the Legacy Offshore Vehicles did not contribute the Consolidated Master Fund LP interests to the Legacy Offshore Vehicles. Rather, the Legacy Offshore Vehicles received those interests in exchange for contributing their respective portfolio assets to the Master Fund in Steps 2 through 4 of the Reorganization.
(c) The anti-avoidance rule under § 731(c)(3)(A)(iii) is not triggered because there is no tax avoidance purpose for the Reorganization. The Reorganization is driven by legitimate business objectives, including $3.8 million in annual cost savings, Pillar Two GloBE compliance, FATCA/CRS simplification, and LP-requested governance consolidation.
We recommend that the PLR request include Ruling 4 as set forth in Section VII below, requesting IRS confirmation that § 731(c) does not apply to the Step 5 distributions.
V. Applicable Law
A. IRC § 731(a) — General Rule on Partnership Distributions
Section 731(a) sets forth the general rule governing the tax treatment of distributions from a partnership to a partner. Under § 731(a)(1), gain is recognized to a partner on a distribution from a partnership only to the extent that any money distributed exceeds the adjusted basis of the partner's interest in the partnership immediately before the distribution. This nonrecognition rule reflects the fundamental principle of Subchapter K that partnerships serve as conduits for the conduct of business and investment activities, and that the movement of property into and out of partnerships should generally not be taxable events.
Section 731(a)(2) provides the corresponding loss rule: no loss is recognized to a partner on a distribution from a partnership other than in complete liquidation of the partner's interest, and even then, loss is recognized only if the partner receives money, unrealized receivables (as defined in § 751(c)), and inventory items (as defined in § 751(d)), and no other property.
Absent the application of § 731(c) — which, as discussed below, expands the definition of "money" for purposes of § 731(a)(1) — a distribution of partnership interests (which are property, not money) by one partnership to its partners would not trigger gain recognition under § 731(a)(1). The critical question in the present case is whether § 731(c) operates to reclassify the distributed Consolidated Master Fund LP interests as "money" by virtue of their characterization as "marketable securities."
B. IRC § 731(c)(1) — Marketable Securities Treated as Money
Section 731(c) was enacted by the Taxpayer Relief Act of 1997 (P.L. 105-34, § 1062(a)), effective for distributions made after the date of enactment (August 5, 1997). Section 731(c)(1)(A) provides, in relevant part:
"For purposes of subsections (a)(1) and (b), and for purposes of section 737—
(A) the term 'money' includes the fair market value of any marketable security, and
(B) such value shall be determined as of the date of the distribution."
The legislative history of § 731(c) reveals that Congress was principally concerned about the use of partnerships to acquire marketable securities and distribute them to partners as a means of converting inside partnership gain into a tax-deferred form. The House Ways and Means Committee report accompanying the Taxpayer Relief Act of 1997 explained that, under prior law, a partner could receive a distribution of marketable securities — which are functionally equivalent to cash because of their liquidity — without recognizing gain under § 731(a)(1), even though the same partner would have been required to recognize gain if the partnership had sold the marketable securities and distributed the cash proceeds. See H.R. Rep. No. 105-148, at 504-06 (1997). The Conference report similarly identified the concern that the prior rule "undermine[d] the character of a distribution as an in-kind transfer of property by allowing the tax-free receipt of essentially liquid assets." See H.R. Rep. No. 105-220, at 570-71 (1997) (Conf. Rep.).
The focus of § 731(c) is thus on the distribution of liquid, marketable assets — assets that are functionally equivalent to cash because of their ready convertibility into cash on an established market. As discussed in the analysis below, privately held, non-transferable limited partnership interests in a closed-end private equity fund are the antithesis of the type of liquid, marketable assets that § 731(c) was designed to capture.
C. IRC § 731(c)(2) — Definition of "Marketable Securities"
Section 731(c)(2) provides a multi-part definition of "marketable securities." Each subparagraph of § 731(c)(2) is analyzed in turn:
Section 731(c)(2)(A): Actively Traded Financial Instruments. Under § 731(c)(2)(A), the term "marketable securities" means "financial instruments and foreign currencies which are, as of the date of the distribution, actively traded (as defined in section 1092(d)(1))." This subparagraph cross-references the definition of "actively traded" in § 1092(d)(1), which is discussed in Section V.F below. The term "financial instruments" is defined broadly to include stocks, debt instruments, options, forward or futures contracts, notional principal contracts, derivatives, and "any similar instruments." However, the financial instrument must be "actively traded" within the meaning of § 1092(d)(1) in order to qualify as a marketable security under this subparagraph.
Section 731(c)(2)(B): Instruments Readily Convertible into Money or Marketable Securities. Under § 731(c)(2)(B), the term "marketable securities" also includes "any financial instrument which, pursuant to its terms or any other arrangement, is readily convertible into, or exchangeable for, money or marketable securities." This subparagraph extends the definition to instruments that, while not themselves actively traded, contain embedded put rights, conversion features, exchange rights, or other mechanisms that would allow the holder to convert the instrument into cash or marketable securities on a ready basis. The focus is on the terms of the instrument itself and any collateral arrangement that provides the holder with liquidity.
Section 731(c)(2)(C): Interests in Certain Entities. Under § 731(c)(2)(C), the term "financial instrument" (and therefore "marketable securities," when actively traded) includes "any interest in—(i) a common trust fund, (ii) a mutual fund, (iii) a money market fund, (iv) any other pooled investment vehicle," and "any interest in an entity if, as of the date of the distribution, the entity is described in section 1092(d)(1)" (i.e., the entity's interests are actively traded). This subparagraph also encompasses interests in entities that are "readily tradable on an established securities market, or readily tradable on a secondary market (or the substantial equivalent thereof)." This is the subparagraph most relevant to the present analysis, because it addresses interests in pooled vehicles and entities — including partnership interests — that are readily tradable.
Section 731(c)(2)(D): Interests in Entities. Under § 731(c)(2)(D), the interest described in subparagraph (C) includes "any interest in the entity which is described in such subparagraph, and any financial instrument issued by or interest in such entity." This subparagraph makes clear that the focus is on the tradability of the entity's interests; if the entity's interests are readily tradable, then both the interests themselves and any financial instruments issued by the entity are captured.
D. IRC § 731(c)(3) — Exceptions
Section 731(c)(3) provides several exceptions to the general rule of § 731(c)(1):
Section 731(c)(3)(A): Investment Partnership Exception. Under § 731(c)(3)(A), § 731(c) does not apply to the distribution of marketable securities by an "investment partnership" to an "eligible partner." This exception recognizes that investment partnerships — entities whose business consists of investing in financial instruments — routinely distribute marketable securities to their partners, and that the application of § 731(c) to such distributions would impose an undue burden on the ordinary operations of such partnerships.
The definitions of "investment partnership" and "eligible partner" are set forth in § 731(c)(3)(C):
Section 731(c)(3)(C)(i) defines an "investment partnership" as a partnership that (I) has never been engaged in a trade or business, and (II) substantially all of the assets of which (by value) 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 with respect to any of the foregoing, or other assets specified in regulations.
Section 731(c)(3)(C)(ii) defines an "eligible partner" as a partner who, before the date of the distribution, did not contribute to the partnership any property other than the types of assets described in § 731(c)(3)(C)(i).
Of critical importance to the present analysis, the definition of "investment partnership" is narrow and limited to entities whose assets have always consisted of passive investment assets. Partnerships that hold operating businesses — such as the Consolidated Master Fund LP, which holds interests in 23 digital infrastructure and enterprise SaaS operating companies — do not qualify as investment partnerships.
Section 731(c)(3)(B): Securities Contributed by the Distributee Partner. Under § 731(c)(3)(B), § 731(c) does not apply to the distribution to a partner of marketable securities to the extent that such partner contributed marketable securities to the partnership. The rationale for this exception is that a partner who contributed marketable securities to the partnership and receives marketable securities in return is in substance receiving a return of the same type of property that the partner contributed, and the application of § 731(c) to such a distribution would be inconsistent with the general non-recognition principle of § 721.
Section 731(c)(3)(A)(iii): Anti-Avoidance Rule. Under § 731(c)(3)(A)(iii), the investment partnership exception does not apply if the distribution is part of a larger transaction the principal purpose of which is the avoidance of the purposes of § 731(c). This anti-avoidance rule ensures that taxpayers cannot deliberately structure transactions to qualify for the investment partnership exception when the underlying transaction is designed to achieve the type of tax-free distribution of liquid assets that § 731(c) was intended to prevent.
E. Treasury Regulations Under § 731(c)
The Treasury Department has issued regulations under § 731(c) that elaborate on the statutory framework:
Treas. Reg. § 1.731-2(a) reiterates the general rule of § 731(c)(1) that the term "money" includes the fair market value of any marketable securities distributed by a partnership to a partner.
Treas. Reg. § 1.731-2(b) provides detailed rules for determining the amount of gain recognized when marketable securities are distributed, including netting rules that reduce the amount treated as money by the partner's distributive share of gain that would be recognized if all the partnership's marketable securities were sold at their fair market value.
Treas. Reg. § 1.731-2(c) defines "marketable securities" in a manner consistent with the statutory definition, cross-referencing the "actively traded" standard of § 1092(d)(1) and the "readily tradable" standard applicable to interests in entities.
Treas. Reg. § 1.731-2(d) sets forth the exceptions, including the investment partnership exception and the contributed securities exception, and provides additional detail regarding the scope and operation of each exception.
Treas. Reg. § 1.731-2(e) provides rules for basis adjustments when gain is recognized under § 731(c), including the increase in the partner's basis in the distributed securities by the amount of gain recognized.
F. IRC § 1092(d)(1) — Definition of "Actively Traded"
Section 1092(d)(1) provides the definition of "actively traded" that is incorporated by reference into § 731(c)(2)(A). Under § 1092(d)(1), the term "actively traded" applies to personal property (as defined in § 1092(d)(2)) that is "traded on (or subject to the rules of)—(A) a national securities exchange which is registered under section 6 of the Securities Exchange Act of 1934, (B) a board of trade designated as a contract market by the Commodity Futures Trading Commission, or (C) any interdealer quotation system." The Secretary is also authorized to designate additional markets.
The concept of "actively traded" requires a degree of market participation, liquidity, and transactional activity that is wholly absent from privately issued, non-transferable limited partnership interests in closed-end private equity funds. The term contemplates instruments that are bought and sold on a regular and continuous basis through organized market mechanisms, with published prices, standardized contract terms, and sufficient market depth to permit holders to convert their positions into cash with reasonable speed and minimal price impact. None of these characteristics is present with respect to the Consolidated Master Fund LP interests.
G. Relevant Case Law and IRS Guidance
There is limited case law directly addressing the application of § 731(c) to distributions of privately held partnership interests. However, several sources of guidance are relevant to the analysis:
Legislative History. As discussed in Section V.B above, the legislative history of § 731(c) makes clear that the provision was aimed at distributions of liquid assets that are functionally equivalent to cash. The House report specifically identified "publicly traded stocks, bonds, and similar instruments" as the primary targets of the provision. See H.R. Rep. No. 105-148, at 504. The Conference report similarly emphasized the concern about partners receiving "essentially liquid assets" without gain recognition. See H.R. Rep. No. 105-220, at 570. These statements underscore that Congress did not intend § 731(c) to apply to distributions of illiquid, privately held interests in operating businesses.
Private Letter Rulings. The IRS has issued private letter rulings granting favorable treatment in situations where distributed interests were in private vehicles not traded on any established market. While private letter rulings may not be cited as precedent (IRC § 6110(k)(3)), they are indicative of the IRS's administrative practice and analytical framework in applying § 731(c). Our research memorandum (Research Memorandum — Survey of Analogous PLRs (Partnership Reorganizations)) surveys analogous PLRs in detail.
Notice 2005-32. The IRS issued Notice 2005-32 to provide guidance on the application of the publicly traded partnership rules under § 7704 in the context of certain partnership arrangements. While Notice 2005-32 addresses § 7704 rather than § 731(c), it is relevant because the "readily tradable on a secondary market or the substantial equivalent thereof" standard under § 731(c)(2)(C) is conceptually similar to the "readily tradable" standard under § 7704. Notice 2005-32 and the regulations under § 7704 provide useful guidance on what constitutes a "secondary market" and its "substantial equivalent."
Interplay Between § 7704 and § 731(c)(2). The definition of "publicly traded partnership" under § 7704 and the definition of "marketable securities" under § 731(c)(2) overlap but are not identical. A partnership whose interests are not "publicly traded" under § 7704 could, in theory, still have interests that are "marketable securities" under § 731(c) if those interests are "actively traded" within the meaning of § 1092(d)(1). However, as a practical matter, if a partnership's interests are not publicly traded under § 7704 — particularly if the partnership has specifically structured its transfer restrictions to satisfy the safe harbors under Treas. Reg. § 1.7704-1(e) and (f) — it is unlikely that those interests would be "actively traded" under § 1092(d)(1) or "readily tradable on a secondary market or the substantial equivalent thereof" under § 731(c)(2)(C). In the present case, the Consolidated Master Fund LP's interests are clearly not publicly traded under § 7704, and the analysis under § 731(c)(2) reaches the same conclusion.
VI. Analysis
A. The Consolidated Master Fund LP Interests Are Not "Actively Traded" Under § 731(c)(2)(A) and § 1092(d)(1)
The threshold inquiry under § 731(c)(2)(A) is whether the Consolidated Master Fund LP interests are "actively traded" within the meaning of § 1092(d)(1). For the reasons set forth below, they are not.
The Consolidated Master Fund LP will be a Delaware limited partnership classified as a partnership for U.S. federal income tax purposes under Treas. Reg. § 301.7701-3 (by virtue of a Form 8832 check-the-box election). The limited partnership interests in the Consolidated Master Fund LP will be privately issued to a closed group of institutional investors — namely, the existing limited partners of the Legacy Offshore Vehicles, the Solara International Feeder (Cayman) LP, and the Solara Tax-Exempt Feeder (Cayman) LP. No interests in the Consolidated Master Fund LP will be listed on any national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, including but not limited to the New York Stock Exchange, the Nasdaq Stock Market, the NYSE American, or any foreign securities exchange. No interests in the Consolidated Master Fund LP will be traded on or subject to the rules of any board of trade designated as a contract market by the Commodity Futures Trading Commission. No interests in the Consolidated Master Fund LP will be quoted, listed, or traded in any interdealer quotation system, including the OTC Bulletin Board or any electronic trading platform.
The interests in the Consolidated Master Fund LP will not be registered under the Securities Act of 1933 (the "Securities Act"). They will be issued in reliance on exemptions from registration, including Section 4(a)(2) of the Securities Act and Regulation D thereunder. As unregistered securities, the interests will bear restrictive legends and will be subject to resale restrictions under the Securities Act.
No market maker, broker-dealer, or other intermediary will make a market in the Consolidated Master Fund LP interests. No published bid-ask spreads, market prices, or quotation data will exist with respect to the interests. There is no forum or mechanism through which the interests could be bought and sold on a regular or continuous basis.
In sum, the Consolidated Master Fund LP interests will have none of the indicia of "actively traded" personal property contemplated by § 1092(d)(1). They will not be traded on any national securities exchange, board of trade, or interdealer quotation system, and they will not be traded in any market designated by the Secretary as an equivalent market. The interests are therefore not "actively traded" within the meaning of § 1092(d)(1), and they do not constitute "marketable securities" under § 731(c)(2)(A).
B. The Consolidated Master Fund LP Interests Are Not "Readily Tradable on a Secondary Market or the Substantial Equivalent Thereof" Under § 731(c)(2)(C)
Section 731(c)(2)(C) extends the definition of "marketable securities" to include interests in entities that are "readily tradable on an established securities market, or readily tradable on a secondary market (or the substantial equivalent thereof)." The analysis under this subparagraph requires a determination of whether a secondary market — or the substantial equivalent thereof — exists for the Consolidated Master Fund LP interests.
The Meaning of "Secondary Market or the Substantial Equivalent Thereof." Neither § 731(c)(2)(C) nor the regulations under § 731(c) provide a detailed definition of "secondary market or the substantial equivalent thereof." However, the regulations under § 7704, which address the publicly traded partnership rules, provide helpful analogical guidance. Treasury Regulation § 1.7704-1(c) defines a "secondary market" as a forum or mechanism for the buying and selling of partnership interests, including formal markets (such as securities exchanges), informal markets, and any other arrangement that provides partners with the opportunity to sell, exchange, or otherwise dispose of their interests.
Under Treas. Reg. § 1.7704-1(c)(2), a secondary market exists if interests in the partnership "are regularly quoted by any person, such as a broker or dealer, making a market in the interests." The regulation further provides that a secondary market exists if there is a person who "stands ready to purchase interests" on a "regular or continuous basis." This concept encompasses both formal market-making arrangements and informal arrangements in which a person (such as a broker-dealer or fund placement agent) routinely matches buyers and sellers of partnership interests.
Under Treas. Reg. § 1.7704-1(c)(3), the "substantial equivalent" of a secondary market exists if there is any form of "matching service" through which the interests are bought and sold, or if there is an informal market of any kind that facilitates the transfer of interests. The regulation identifies several indicators of a "substantial equivalent," including the use of electronic bulletin boards, trading platforms, or other mechanisms that allow partners to post offers to sell or purchase interests.
The Consolidated Master Fund LP Will Have No Secondary Market. Based on the facts set forth in Section II above and our review of the draft limited partnership agreement for the Consolidated Master Fund LP, no secondary market or the substantial equivalent thereof exists or is contemplated for the Consolidated Master Fund LP interests. Specifically:
(i) Transfer Restrictions in the LPA. The draft limited partnership agreement for the Consolidated Master Fund LP contains strict transfer restrictions that prohibit any limited partner from transferring, assigning, pledging, or otherwise disposing of its interest without the prior written consent of the general partner (Solara Consolidated Master Fund GP LLC). The general partner has sole and absolute discretion to grant or withhold consent to any proposed transfer, and may condition consent on such terms and conditions as it deems appropriate, including compliance with securities laws, tax requirements, ERISA considerations, and anti-money laundering regulations.
(ii) Anti-PTP Provisions. The draft LPA includes specific provisions designed to prevent the Consolidated Master Fund LP from being classified as a "publicly traded partnership" under IRC § 7704. These provisions prohibit any transfer that would result in the partnership's interests being traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof, and empower the general partner to refuse any transfer that, in its reasonable judgment, would jeopardize the partnership's classification as a partnership for U.S. federal income tax purposes.
(iii) No Matching Service or Trading Platform. No matching service, electronic bulletin board, trading platform, or other mechanism exists or is contemplated for the buying and selling of Consolidated Master Fund LP interests. The general partner has confirmed (through Priya Narasimhan, Chief Operating Officer of Solara) that there is no plan or intention to establish any such mechanism.
(iv) No Market Maker or Broker-Dealer. No market maker, broker-dealer, or other person stands ready to purchase Consolidated Master Fund LP interests on a regular or continuous basis. No person routinely quotes prices for the interests or offers to match buyers and sellers.
(v) ERISA Transfer Restrictions. The Consolidated Master Fund LP will have significant ERISA-plan investors (including the Pinnacle State Employees' Retirement System and similar pension funds). The LPA will contain ERISA-related transfer restrictions that further limit the transferability of interests to prevent the partnership's assets from being treated as "plan assets" under ERISA Section 3(42) and 29 C.F.R. § 2510.3-101.
(vi) Safe Harbors Under Treas. Reg. § 1.7704-1(e) and (f). The Consolidated Master Fund LP is expected to satisfy the safe harbors for "private transfers" under Treas. Reg. § 1.7704-1(e) and "redemptions and repurchases" under Treas. Reg. § 1.7704-1(f). Under the private transfer safe harbor, transfers of partnership interests are disregarded for purposes of the "readily tradable" determination if they meet certain conditions, including that the transfer is a private transfer (not involving a securities dealer or intermediary) and the partnership does not have more than 100 partners. Under the redemption and repurchase safe harbor, partnership redemptions and repurchases are disregarded if they occur at a price based on net asset value and the partnership does not have the obligation to redeem or repurchase interests. The Consolidated Master Fund LP expects to satisfy both safe harbors, further confirming that its interests are not readily tradable.
Conclusion. The Consolidated Master Fund LP interests are not "readily tradable on an established securities market" or "readily tradable on a secondary market (or the substantial equivalent thereof)" within the meaning of § 731(c)(2)(C). The interests are subject to comprehensive transfer restrictions, no secondary market exists or is contemplated, no matching service or trading platform is available, and the partnership is structured to satisfy the safe harbors under the publicly traded partnership regulations. Accordingly, the interests do not constitute "marketable securities" under § 731(c)(2)(C).
C. The Consolidated Master Fund LP Interests Are Not "Readily Convertible into, or Exchangeable for, Money or Marketable Securities" Under § 731(c)(2)(B)
Section 731(c)(2)(B) extends the definition of "marketable securities" to financial instruments that, "pursuant to [their] terms or any other arrangement," are "readily convertible into, or exchangeable for, money or marketable securities." This subparagraph targets instruments with embedded liquidity features — such as put rights, conversion rights, exchange rights, or mandatory repurchase obligations — that would allow the holder to convert the instrument into cash or liquid securities at will or on a scheduled basis.
The Consolidated Master Fund LP interests do not contain any such features. Specifically:
(i) No Put Right or Redemption Right. The draft LPA does not grant limited partners a put right, redemption right, or withdrawal right with respect to their interests. Limited partners cannot compel the partnership to repurchase or redeem their interests. The Consolidated Master Fund LP is a closed-end vehicle with a fixed investment period and a defined term; liquidity is provided solely through distributions of proceeds from portfolio company dispositions, which are made at the discretion of the general partner.
(ii) No Conversion or Exchange Feature. The interests are not, by their terms, convertible into or exchangeable for shares of common stock, publicly traded securities, cash, or any other liquid instrument. There is no arrangement or agreement pursuant to which the interests may be converted or exchanged.
(iii) No Mandatory Purchase Obligation. No person has a mandatory obligation to purchase the interests from any holder at any time. There is no standby purchase agreement, credit facility, or other arrangement that would provide holders with on-demand liquidity.
(iv) Distribution Mechanics. Distributions from the Consolidated Master Fund LP will consist of cash proceeds from the sale, disposition, or recapitalization of portfolio companies, distributed at the discretion of the general partner in accordance with the waterfall provisions of the LPA. Distributions are not guaranteed, are not made on a fixed schedule, and do not constitute a conversion or exchange feature.
Furthermore, the underlying assets of the Consolidated Master Fund LP are interests in 23 operating portfolio companies in digital infrastructure and enterprise SaaS. These are illiquid, privately held control and minority interests in private companies that are not themselves marketable securities. Specifically:
•  NovaBright Data Systems Inc. — Private Delaware corporation; not publicly traded.
•  Crestline Cloud Solutions LLC — Private Delaware LLC (disregarded entity); not publicly traded.
•  Veridian Edge Computing Corp. — Private Delaware corporation; not publicly traded.
•  Thorngate Fiber Networks LP — Private Delaware limited partnership; not publicly traded.
•  Helix SaaS Holdings Ltd. — Private Cayman Islands exempted company; not publicly traded.
None of the portfolio companies has shares or interests that are listed, registered, or traded on any securities exchange or interdealer quotation system. The portfolio companies' equity is held through negotiated private investments, and any future disposition of portfolio company interests will occur through negotiated private sales, initial public offerings, or other exit transactions, the timing and terms of which are at the discretion of the general partner. The illiquid, operating-company nature of the Master Fund's underlying assets further supports the conclusion that the Master Fund's interests are not "readily convertible into, or exchangeable for, money or marketable securities."
Conclusion. The Consolidated Master Fund LP interests do not satisfy the "readily convertible into, or exchangeable for, money or marketable securities" standard of § 731(c)(2)(B). The interests contain no put right, redemption right, conversion feature, exchange right, or mandatory purchase obligation, and neither the interests themselves nor the underlying assets of the Master Fund are readily convertible into cash or liquid securities.
D. The Consolidated Master Fund LP Interests Are Not "Substantially Similar" to Actively Traded Interests
Even if the Consolidated Master Fund LP interests were not directly described by § 731(c)(2)(A), (B), or (C), one might inquire whether they are "substantially similar" to interests that are actively traded or readily tradable, such that they should be treated as marketable securities by analogy. We conclude that they are not.
The concept of "substantial similarity" in the context of § 731(c)(2) draws from the broader tax law principle that economically equivalent instruments should be treated similarly. However, the Consolidated Master Fund LP interests bear no functional, economic, or structural resemblance to any actively traded or readily tradable interest:
(i) Bespoke Economic Terms. The Consolidated Master Fund LP is a bespoke, closed-end private equity vehicle with unique economic terms, including a carried interest waterfall (typically a 20% carried interest above an 8% preferred return hurdle with a European-style full-return waterfall), GP clawback provisions, management fee arrangements (typically 1.5%–2.0% of committed capital during the investment period and 1.5%–2.0% of net invested capital thereafter), and organizational expense allocations. These terms are individually negotiated and are not standardized or fungible with any publicly traded interest.
(ii) Capital Call Obligations. Limited partners in the Consolidated Master Fund LP are subject to unfunded capital commitment obligations and capital call mechanics. Capital calls are made at the discretion of the general partner, typically on 10 to 15 business days' notice, and limited partners are obligated to fund their pro rata share of each capital call. This feature — the obligation to make additional capital contributions in the future — has no analogue in the publicly traded securities markets. No publicly traded stock, bond, or fund interest carries a mandatory capital call obligation.
(iii) Lock-Up Periods and Illiquidity. The Consolidated Master Fund LP interests are subject to a lock-up period coextensive with the term of the fund (typically 10 to 12 years, with extensions). Limited partners have no right to withdraw, redeem, or liquidate their interests during the lock-up period. This illiquidity profile is fundamentally different from that of publicly traded securities, which can be bought and sold at any time during market hours.
(iv) No Fungibility. Each limited partner's interest in the Consolidated Master Fund LP reflects a unique capital account balance, unfunded commitment, carried interest allocation, and fee arrangement. Interests are not fungible with one another in the way that shares of common stock or units of an exchange-traded fund are fungible.
(v) No Comparable Publicly Traded Vehicle. No exchange-traded fund, closed-end fund, publicly traded partnership, or other publicly traded vehicle holds a portfolio substantially similar to the Consolidated Master Fund LP's portfolio of 23 private operating companies in digital infrastructure and enterprise SaaS. While publicly traded vehicles investing in "digital infrastructure" exist (such as certain data center REITs), these vehicles have fundamentally different structures, governance arrangements, fee economics, and risk-return profiles from the Consolidated Master Fund LP.
Conclusion. The Consolidated Master Fund LP interests are not "substantially similar" to any actively traded or readily tradable interest. They are bespoke, illiquid, non-fungible interests in a closed-end private equity vehicle, and they bear no functional resemblance to publicly traded securities. Accordingly, the interests do not constitute "marketable securities" under § 731(c)(2) on the basis of substantial similarity.
E. Alternative Analysis: Even If the Interests Were "Marketable Securities," the § 731(c)(3) Exceptions
Although we believe the analysis set forth in Sections VI.A through VI.D above is dispositive — the Consolidated Master Fund LP interests are not "marketable securities" under any prong of § 731(c)(2) — we address the § 731(c)(3) exceptions for completeness and as an alternative position in the event that the IRS were to disagree with our primary analysis.
1. Investment Partnership Exception — § 731(c)(3)(A).  Section 731(c)(3)(A) provides that § 731(c) does not apply to the distribution of marketable securities by an "investment partnership" to an "eligible partner." The distributing entities in Step 5 are the four Legacy Offshore Vehicles: Fund IV-A (Cayman), Fund IV-B (Luxembourg) SCSp, Fund V-A (Cayman), and Fund V-B (Luxembourg) SCSp. The question is whether the Legacy Offshore Vehicles qualify as "investment partnerships" under § 731(c)(3)(C)(i) at the time of the Step 5 distributions.
At the time of the Step 5 distributions, each Legacy Offshore Vehicle will hold only one asset: its limited partnership interest in the Consolidated Master Fund LP. (All portfolio assets will have been contributed to the Consolidated Master Fund LP in Steps 2 through 4.) The question is therefore wh

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