1043-00002 · Ironhaven Data Centers LLC · Tax

entity-structure-tax-elections-memo.docx DOCUMENT Real Estate

81 / 83 ← → ✕

PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION

MEMORANDUM

TO: Douglas Fairchild, Responsible Partner, Real Estate, Calderwood & Harkness LLP

FROM: Sylvia Hartwell, Specialist Partner, Tax, Calderwood & Harkness LLP

DATE: March 20, 2025

RE: Recommended Entity Structure and Tax Elections for Stonebridge Campus Holdings LLC — Stonebridge Data Center Campus Development

MATTER NO.: 1043-00002

CLIENT: Ironhaven Data Centers LLC

Right-click to update Table of Contents

I. Executive Summary

The purpose of this memorandum is to analyze and recommend the optimal tax classification, elections, and structural considerations for Stonebridge Campus Holdings LLC ("Stonebridge Holdings" or the "Borrower"), the to-be-formed Virginia single-purpose entity that will serve as the project-level borrower and property owner for the $600,000,000 Stonebridge Data Center Campus development located in Loudoun County, Virginia.

Stonebridge Holdings will be organized as a Virginia limited liability company wholly owned by Ironhaven Data Centers LLC ("IHDC"), a Delaware limited liability company that currently operates data center assets in the Northern Virginia market. As described in greater detail below, the entity is being formed to hold title to approximately 81.4 acres of land in Loudoun County and to serve as the borrower under a $390,000,000 senior secured construction loan facility. The single-purpose entity structure is dictated by both sound organizational practice and the express requirements of the construction lenders.

Our recommended approach is to accept the default disregarded entity classification for federal income tax purposes. Under Treasury Regulation § 301.7701-3, a domestic eligible entity with a single owner is by default classified as a disregarded entity — that is, it is not treated as an entity separate from its owner for federal income tax purposes. This default treatment ensures full pass-through of all items of income, deduction, gain, loss, and credit up the ownership chain, ultimately to Ridgeline Capital Partners Fund IV, LP ("Ridgeline Fund IV"), the institutional private equity fund that indirectly holds a 92% economic interest in IHDC. We recommend against filing Form 8832 (Entity Classification Election) to elect treatment as an association taxable as a corporation, as such an election would be inconsistent with the fund's investment thesis and detrimental to the economic returns of all equity participants.

This memorandum addresses the following interrelated subjects: (a) federal tax classification of Stonebridge Holdings under the check-the-box regulations; (b) Virginia state tax implications, including the Virginia pass-through entity tax ("PTET") election, withholding obligations, and Loudoun County-level taxes; (c) coordination with the existing fund ownership structure to ensure uninterrupted pass-through treatment from the project level to the ultimate investors; (d) single-purpose entity ("SPE") constraints imposed by the construction lenders and the interplay between SPE covenants and the recommended tax classification; and (e) timing recommendations for entity formation, tax elections, and related filings. The memorandum also addresses certain ancillary matters, including the treatment of the management incentive pool interests, cost segregation planning, and change of control provisions in the project's financing and construction documents.

Throughout this memorandum, cross-references are made to four companion memoranda that address, in greater detail, specific topics that intersect with the entity structure analysis: (1) Virginia Data Center Sales Tax Exemption — Qualification Analysis under Va. Code § 58.1-609.3(18); (2) Cost Segregation Study — Scope and Timing Recommendation; (3) Loudoun County Equipment Tax — Assessment Methodology and Projections; and (4) Change of Control Provisions Across Loan Documents — Coordination with EPC and LLSA. This memorandum should be read in conjunction with those companion analyses.

II. Ownership Structure Overview

A. Full Organizational Chain

A clear understanding of the complete ownership chain is essential to the tax classification analysis and to ensuring that the recommended structure achieves the intended pass-through treatment at every tier. The organizational chain, from the top-level fund vehicle down to the project-level entity, is as follows:

Ridgeline Capital Partners Fund IV, LP is a Delaware limited partnership with approximately $3.8 billion in committed capital across a diversified portfolio of digital infrastructure, logistics, and industrial real estate investments. The fund is managed by its general partner, Ridgeline Capital Management LLC, a Delaware limited liability company. Julian Hargrove serves as Managing Partner of Ridgeline Capital Management LLC and has primary responsibility for investment decisions related to the Stonebridge Campus project. Ridgeline Fund IV is classified as a partnership for federal income tax purposes and files Form 1065 (U.S. Return of Partnership Income) annually, issuing Schedule K-1s to its limited partners and general partner. The fund's limited partner base includes a diversified group of institutional investors, including public and private pension systems, university endowments, sovereign wealth funds, insurance company separate accounts, and family offices.

↓ (92% membership interest)

RCP Digital Holdings LLC is a Delaware limited liability company that serves as an intermediate holding company through which Ridgeline Fund IV holds its equity interest in IHDC. RCP Digital Holdings LLC is wholly owned by Ridgeline Fund IV and is classified as a disregarded entity for federal income tax purposes under the single-member LLC default rule of Treasury Regulation § 301.7701-3. The interposition of RCP Digital Holdings LLC between Ridgeline Fund IV and IHDC serves organizational and liability segregation purposes and is transparent for federal and state income tax purposes. All items of income, deduction, gain, loss, and credit attributable to RCP Digital Holdings LLC's 92% membership interest in IHDC pass through directly to Ridgeline Fund IV without any additional layer of taxation or reporting.

↓ (92% of IHDC membership interests held by RCP Digital Holdings LLC; remaining 8% held by Ironhaven Management Incentive Pool LLC)

Ironhaven Data Centers LLC ("IHDC") is a Delaware limited liability company headquartered at 44680 Prentice Drive, Suite 200, Ashburn, Virginia 20147. IHDC's Employer Identification Number is 84-3291057, and its Virginia State Corporation Commission Entity ID is S7491283. IHDC serves as the primary operating platform for data center development and operations in which Ridgeline Fund IV has invested. Marcus Thorne serves as Chief Executive Officer, Priya Dasgupta serves as Chief Financial Officer, and Leonard Castellano serves as Executive Vice President, Development. IHDC has two members: RCP Digital Holdings LLC (holding a 92% membership interest) and Ironhaven Management Incentive Pool LLC (holding an 8% membership interest structured as profits interests, as discussed in Section IX below). As a multi-member LLC that has not elected to be classified as a corporation, IHDC is treated as a partnership for federal income tax purposes under the default rules of Treasury Regulation § 301.7701-3. IHDC files Form 1065 (U.S. Return of Partnership Income) annually and issues Schedule K-1s to RCP Digital Holdings LLC and Ironhaven Management Incentive Pool LLC.

↓ (100% sole member)

Stonebridge Campus Holdings LLC is the to-be-formed Virginia limited liability company that is the subject of this memorandum. Upon formation, Stonebridge Holdings will be wholly owned by IHDC as its sole member. Stonebridge Holdings' EIN will be obtained upon formation through the filing of Form SS-4. The entity will serve as the single-purpose borrower entity and fee simple owner of the real property comprising the Stonebridge Data Center Campus, consisting of two parcels:

• Stonebridge Parcel: Approximately 62.0 acres, identified on the Loudoun County Tax Map as Reference /95-4A-1///.

• Meridian Parcel: Approximately 19.4 acres, identified on the Loudoun County Tax Map as Reference /95-4A-2///.

• Total Acreage: Approximately 81.4 acres.

The two parcels are currently under separate purchase and sale agreements (the "Stonebridge PSA" and the "Meridian PSA," respectively), each of which will be assigned from IHDC to Stonebridge Holdings prior to closing, as discussed in Section X below.

B. Ridgeline Fund IV's Investment Parameters

The Stonebridge Campus development has been assigned Ridgeline Fund IV Investment ID: RCP-IV-2025-DC-07. This identifier is used in the fund's internal tracking, reporting, and capital call documentation.

Ridgeline Fund IV is expected to fund approximately $210,000,000 in equity for the Stonebridge Campus project, representing approximately 35.0% of the total $600,000,000 project budget. This equity will be contributed through the ownership chain — from Ridgeline Fund IV to RCP Digital Holdings LLC, from RCP Digital Holdings LLC to IHDC (as capital contributions to the partnership), and from IHDC to Stonebridge Holdings (as contributions to the disregarded entity). Each contribution at each tier of the structure will be treated consistently with the applicable entity's tax classification: contributions to a partnership under Section 721 of the Internal Revenue Code at the IHDC level, and as a non-event for federal tax purposes at the disregarded entity level (both RCP Digital and Stonebridge Holdings).

The remaining 65.0% of the project budget, totaling $390,000,000, is expected to be funded through a senior secured construction loan facility. The loan syndicate will be led by Summit National Bank, N.A. as Administrative Agent, with participation from Cascade Commercial Lending Corp. and Harborview Trust Company. The commitment is referenced as Summit Loan Commitment Reference CL-2025-VA-04418. The construction loan is expected to convert to a permanent loan upon project stabilization, subject to separate terms and conditions currently under negotiation.

C. Existing IHDC Operations

For context, IHDC currently operates three existing data center facilities in the Northern Virginia market, collectively providing approximately 42 megawatts (MW) of critical IT load capacity. These facilities are located in Ashburn and Sterling, Virginia, and are substantially fully leased to a mix of hyperscale cloud computing providers and enterprise colocation tenants. The existing facilities generate positive operating cash flow and are held through separate single-purpose entities, each of which is organized in a manner consistent with the structure recommended herein for Stonebridge Holdings — that is, as a Virginia or Delaware LLC that is a disregarded entity for federal income tax purposes, wholly owned by IHDC.

The Stonebridge Data Center Campus will represent a significant expansion of IHDC's portfolio, adding approximately 96 MW of additional critical IT load capacity across four buildings (designated Buildings A through D), with each building designed to support 24 MW of critical load. The campus development is planned to be phased, with Building A expected to be delivered first (estimated certificate of occupancy in August 2027), followed by Buildings B, C, and D on a rolling basis as tenant commitments are secured. At full build-out and stabilization, the Stonebridge Campus is projected to approximately triple IHDC's total installed capacity.

III. Federal Tax Classification Analysis

A. Default Classification Under Check-the-box Regulations

The federal income tax classification of Stonebridge Holdings is governed by the entity classification regulations set forth in Treasury Regulation § 301.7701-1 through § 301.7701-3, commonly known as the "check-the-box" regulations. These regulations provide a framework under which an eligible entity — defined as a business entity that is not classified as a corporation under § 301.7701-2(b) — may elect its federal tax classification, subject to certain default rules that apply in the absence of an affirmative election.

Under Treasury Regulation § 301.7701-3(b)(1)(ii), a domestic eligible entity with a single owner is classified by default as a disregarded entity. A "disregarded entity" is an entity that is not treated as separate from its single owner for federal income tax purposes. This means that for purposes of the Internal Revenue Code, the entity's activities, assets, and liabilities are treated as those of its owner. The disregarded entity does not file a separate federal income tax return, and all items of income, deduction, gain, loss, and credit attributable to the entity are reported on the owner's federal tax return.

Stonebridge Holdings will be a Virginia limited liability company — a form of business entity that qualifies as an "eligible entity" under the check-the-box regulations. Because IHDC will be the sole member of Stonebridge Holdings, the entity will have a single owner and will therefore default to disregarded entity status for federal income tax purposes, without any affirmative action required.

Recommendation: We recommend that the firm accept the default disregarded entity classification for Stonebridge Holdings and that no Form 8832 (Entity Classification Election) be filed. Filing Form 8832 is only necessary if the entity's owner desires to change the classification from the default — for example, to elect treatment as an association taxable as a corporation. As discussed in Section III.D below, we have identified no reason to depart from the default classification, and an election to be classified as a corporation would be affirmatively harmful to the client's interests.

As a disregarded entity, Stonebridge Holdings will not file a separate federal income tax return. All items of income, deduction, gain, loss, and credit generated by the Stonebridge Campus — including rental income, interest expense, depreciation, and other operating items — will be reported on IHDC's Form 1065, as if IHDC directly owned and operated the campus assets.

B. Pass-Through Treatment Up the Ownership Chain

A central objective of the recommended entity structure is to ensure that the Stonebridge Campus investment generates pass-through tax treatment at every level of the organizational chain, from the project level to the ultimate investors in Ridgeline Fund IV. The following analysis traces the flow of tax items through each entity in the chain:

Stonebridge Campus Holdings LLC (Disregarded Entity). As a disregarded entity, Stonebridge Holdings is not a separate taxable entity. All items of income, deduction, gain, loss, and credit are attributed directly to its sole owner, IHDC, as if IHDC held the assets and conducted the operations directly. There is no entity-level tax, no separate return filing requirement, and no opportunity for items to be "trapped" at this level.

Ironhaven Data Centers LLC (Partnership). IHDC is a Delaware limited liability company with two members — RCP Digital Holdings LLC (92%) and Ironhaven Management Incentive Pool LLC (8%). Because IHDC has more than one member and has not elected to be classified as a corporation, it is classified as a partnership for federal income tax purposes under the default rule of Treasury Regulation § 301.7701-3(b)(1)(i). As a partnership, IHDC is generally not subject to entity-level federal income tax (subject to certain exceptions, such as the partnership audit rules under the Bipartisan Budget Act of 2015 and the potential application of Section 6225 imputed underpayment assessments). IHDC files Form 1065 (U.S. Return of Partnership Income) annually and issues Schedule K-1s to its two members, allocating items of income, deduction, gain, loss, and credit in accordance with the IHDC Operating Agreement.

RCP Digital Holdings LLC (Disregarded Entity). RCP Digital Holdings LLC is a Delaware limited liability company that is wholly owned by Ridgeline Fund IV. As a single-member LLC that has not elected corporate classification, RCP Digital is a disregarded entity for federal income tax purposes. All items allocated to RCP Digital on its Schedule K-1 from IHDC pass through directly to Ridgeline Fund IV, without any additional layer of taxation or filing.

Ridgeline Capital Partners Fund IV, LP (Partnership). Ridgeline Fund IV is a Delaware limited partnership and is classified as a partnership for federal income tax purposes. The fund files Form 1065 annually and issues Schedule K-1s to its limited partners and its general partner, Ridgeline Capital Management LLC. The fund's limited partners and general partner report their respective shares of the fund's income, deductions, gains, losses, and credits on their own federal income tax returns.

Net Effect. The chain of pass-through treatment operates as follows:

Stonebridge Holdings (disregarded) → IHDC (partnership, Form 1065) → RCP Digital (disregarded) → Ridgeline Fund IV (partnership, Form 1065) → Ultimate Investors (individual returns, corporate returns, tax-exempt returns, etc.)

This structure ensures that there is only a single layer of federal income taxation, imposed at the level of the ultimate investors. There are no entity-level federal income taxes at any point in the ownership chain. This is the standard structure employed by institutional private equity funds investing in real estate and infrastructure, and it is consistent with the expectations of Ridgeline Fund IV's limited partner base.

C. Advantages of Disregarded Entity Status

The disregarded entity classification for Stonebridge Holdings offers several significant advantages, each of which is summarized below:

Simplicity. No separate federal income tax return will be required for Stonebridge Holdings. This reduces administrative burden, reduces the risk of late-filing penalties, and simplifies the annual tax compliance process. Tax compliance will be consolidated at the IHDC level, where a single Form 1065 will report all of IHDC's activities, including those conducted through Stonebridge Holdings and the three existing data center facility entities.

Pass-Through of Losses. The Stonebridge Campus project is expected to generate significant losses during the construction and lease-up period, driven by depreciation deductions (including accelerated depreciation from the planned cost segregation study), construction-period interest expense, and startup costs. As a disregarded entity, Stonebridge Holdings allows these losses to flow through to IHDC and, in turn, to IHDC's members and ultimately to Ridgeline Fund IV's investors. This is a critical benefit for institutional fund investors, many of whom are able to utilize real estate losses to offset other taxable income, subject to applicable limitations at the partner level (including the passive activity loss rules of Section 469, the at-risk rules of Section 465, and the excess business loss rules of Section 461(l)).

No Entity-Level Tax. Disregarded entity classification avoids the double taxation inherent in C-corporation classification. A C-corporation pays federal income tax at the entity level (currently at a rate of 21%) and its shareholders pay a second layer of tax when earnings are distributed as dividends. The avoidance of double taxation is a fundamental structural requirement for the fund's investment.

Flexibility in Transfers. Disregarded entity status facilitates flexibility in the transfer and restructuring of the ownership interests. Because the disregarded entity is not treated as separate from its owner, transfers of assets into or out of Stonebridge Holdings (between IHDC and Stonebridge Holdings) generally do not trigger gain or loss recognition for federal income tax purposes. This is particularly relevant for the upcoming assignment of the purchase and sale agreements from IHDC to Stonebridge Holdings, which will be a non-event for tax purposes.

Cost Segregation Benefits. The Stonebridge Campus project is expected to benefit from a comprehensive cost segregation study, which is projected to reclassify approximately $45,000,000 of building costs from the 39-year nonresidential real property recovery period to shorter depreciable lives of 5, 7, and 15 years. These accelerated depreciation deductions flow directly from Stonebridge Holdings through to IHDC and its partners, maximizing the time-value-of-money benefit to the equity investors. If Stonebridge Holdings were instead classified as a C-corporation, these deductions would be trapped at the entity level and would offset only the corporation's own taxable income, significantly diminishing their value to the equity participants.

Consistency with Ridgeline Fund IV's Overall Investment Strategy. Private equity fund investors — including pension funds, endowments, and other tax-sensitive institutional allocators — expect and require pass-through treatment of their fund investments. A departure from pass-through treatment at any level of the ownership chain would be inconsistent with the fund's offering documents, side letter commitments, and the reasonable expectations of the limited partner base. Maintaining disregarded entity status at the project level ensures consistency with the fund's overall investment strategy and avoids potential disputes with limited partners.

D. Considerations Against Corporate Election

We have carefully considered whether there are any circumstances under which an election to classify Stonebridge Holdings as an association taxable as a corporation might be advantageous, and we have concluded that no such circumstances exist in the present case. The principal considerations against a corporate election are as follows:

Entity-Level Tax. An election to be classified as a corporation would subject Stonebridge Holdings to federal corporate income tax at the current rate of 21% on all taxable income generated by the Stonebridge Campus. Upon distribution of after-tax earnings to IHDC (as the sole shareholder), a second layer of tax would be imposed — either as a dividend (subject to tax at the applicable rate of the ultimate investor) or, in the case of a liquidating distribution, as gain on the deemed sale of the stock. This double taxation would significantly erode the after-tax returns to Ridgeline Fund IV's investors and would be directly contrary to the fund's investment objectives.

Impediment to Loss Flow-Through. Corporate classification would prevent the flow-through of construction-period losses to IHDC and its members. Losses generated by a C-corporation are trapped at the entity level and may only be used to offset the corporation's own income. Given the multi-year construction timeline and the substantial depreciation and interest deductions expected during the development phase, the inability to pass through these losses would represent a significant economic cost to the equity investors.

Complexity and Cost. Corporate classification would require Stonebridge Holdings to file a separate federal corporate income tax return (Form 1120) annually, increasing compliance costs and administrative burden. It would also complicate the capital stack, lender reporting, and the intercompany accounting between Stonebridge Holdings and IHDC.

No Offsetting Benefit. We have identified no offsetting tax benefit that would justify a corporate election. In certain circumstances, corporate classification can provide benefits such as access to lower marginal tax rates on modest levels of income, retention of earnings without current taxation to owners, or qualification for certain corporate-only tax incentives. None of these potential benefits is relevant or material in the context of a $600,000,000 data center campus development owned by an institutional private equity fund.

Recommendation: Do not elect corporate treatment. The default disregarded entity classification is the clearly superior approach in all respects.

E. EIN and Filing Requirements

Although Stonebridge Holdings will be a disregarded entity for federal income tax purposes, it will nonetheless need to obtain its own Employer Identification Number ("EIN"). The EIN will be required for the following purposes:

(a) Virginia State Corporation Commission filings and Virginia tax registrations;

(b) Opening segregated bank accounts in the entity's own name (required by the SPE covenants in the construction loan documents);

(c) Employment tax purposes, if Stonebridge Holdings directly employs any individuals (though the current expectation is that all employees will be employed by IHDC, with management services provided to Stonebridge Holdings under a management agreement);

(d) Vendor and contractor reporting (issuance of Forms 1099 and W-9 certifications); and

(e) Real property tax filings with Loudoun County.

As a disregarded entity, Stonebridge Holdings' activities for federal income tax purposes will be reported on IHDC's Form 1065 using IHDC's EIN (84-3291057). However, certain state and local filings, as well as third-party business requirements, necessitate that Stonebridge Holdings maintain its own EIN. There is no inconsistency between holding an EIN and being classified as a disregarded entity; the IRS routinely issues EINs to disregarded entities for the purposes described above.

IV. Virginia State Tax Implications

A. Virginia Pass-Through Entity Tax (PTET)

Virginia enacted a pass-through entity tax election effective for taxable years beginning on or after January 1, 2021, codified at Va. Code § 58.1-390.1 et seq. This provision permits eligible pass-through entities — including partnerships, S-corporations, and LLCs classified as partnerships for federal income tax purposes — to elect to pay Virginia income tax at the entity level at the applicable rate (currently 5.75%). When a PTET election is made, the entity's owners receive a corresponding credit against their individual Virginia income tax liability, and the entity-level tax payment is deductible on the entity's federal income tax return as a business expense, effectively circumventing the $10,000 federal cap on individual deductions for state and local taxes ("SALT") imposed by Section 164(b)(6) of the Internal Revenue Code, as amended by the Tax Cuts and Jobs Act of 2017.

Application to Stonebridge Holdings. Because Stonebridge Holdings will be classified as a disregarded entity for both federal and Virginia income tax purposes, it is not itself an "eligible pass-through entity" for purposes of the PTET election. An entity that is disregarded — that is, an entity that does not exist as a separate taxpayer — cannot make a PTET election because there is no entity-level taxpayer to make the election or to pay the entity-level tax.

Accordingly, if a PTET election is desired with respect to income derived from the Stonebridge Campus, the election must be made at the IHDC level, as IHDC is the first entity in the ownership chain that is recognized as a separate taxpayer (i.e., a partnership filing Form 1065). An IHDC-level PTET election would apply to all of IHDC's Virginia-source income — not just income attributable to the Stonebridge Campus, but also income from IHDC's three existing data center facilities in Northern Virginia.

The decision whether to make an IHDC-level PTET election requires careful analysis that goes beyond the scope of this memorandum. The election's desirability depends on the composition of Ridgeline Fund IV's investor base (specifically, the proportion of investors who are individuals subject to the SALT cap versus tax-exempt institutions, foreign investors, or corporations that may not benefit from the credit), as well as the income and loss profiles of all of IHDC's operations (not just the Stonebridge Campus). We recommend that this analysis be coordinated with Fielding & Associates, CPAs (Robert Fielding, CPA, engagement partner for IHDC's tax compliance) and with Ridgeline Capital Management LLC's tax team to determine whether an IHDC-level PTET election is advantageous for the fund's investors.

B. Virginia LLC Annual Registration Fee

Virginia imposes an annual registration fee of $50 on limited liability companies registered with the Virginia State Corporation Commission, pursuant to Va. Code § 13.1-1062. This fee is due annually on or before the last day of the month in which the entity's initial articles of organization were filed, and failure to pay the fee can result in the entity being placed in "not in good standing" status by the SCC.

While the $50 fee itself is de minimis, the maintenance of the entity's good standing with the Virginia SCC is of critical importance for several reasons. Good standing is typically a condition to closing under the construction loan documents, a requirement for the validity of deeds and other instruments recorded in the land records, and a prerequisite for the issuance of title insurance. The entity's registered agent and the individuals responsible for annual compliance at IHDC must calendar this filing obligation and ensure it is met without interruption.

C. Virginia Withholding on Nonresident Members

Under Va. Code § 58.1-486.1, a pass-through entity doing business in Virginia that has one or more nonresident owners is required to withhold Virginia income tax on each nonresident owner's distributive share of Virginia-source income. The withholding rate is the highest individual income tax rate applicable in Virginia, currently 5.75%. Alternatively, the entity may accept a nonresident owner's agreement to file a Virginia nonresident income tax return in lieu of withholding, though this is an administrative burden on the entity and its owners.

Because Stonebridge Holdings is a disregarded entity, it does not itself have "owners" for Virginia tax purposes. The withholding obligation instead falls on IHDC, the first entity in the chain that is treated as a separate taxpayer. IHDC's two members are RCP Digital Holdings LLC and Ironhaven Management Incentive Pool LLC. RCP Digital, in turn, is a disregarded entity owned by Ridgeline Fund IV. The ultimate question for Virginia withholding purposes is whether the beneficial owners of Ridgeline Fund IV — its limited partners and general partner — include nonresidents of Virginia.

Given that Ridgeline Fund IV is a large institutional fund with approximately $3.8 billion in committed capital and a geographically diverse limited partner base, it is virtually certain that a significant portion of the fund's investors are nonresidents of Virginia. We recommend that Fielding & Associates undertake a detailed analysis of the composition of Ridgeline Fund IV's investor base to determine the scope of IHDC's Virginia withholding obligations with respect to Virginia-source income attributable to the Stonebridge Campus and the existing data center facilities. This analysis should also consider whether any tiered withholding provisions or composite return filing mechanisms are available under Virginia law to simplify compliance.

D. Loudoun County Business, Professional and Occupational License (BPOL) Tax

Loudoun County imposes a Business, Professional and Occupational License ("BPOL") tax on persons engaged in business within the county, pursuant to the county's local ordinance and the enabling authority of Va. Code § 58.1-3700 et seq. The BPOL tax is an annual tax based on the gross receipts of the business, with rates that vary by business classification (e.g., professional services, retail, contracting). Data center operations may be subject to BPOL depending on whether the operator's activities are classified as a service business, a rental activity, or some other category.

The applicability and amount of BPOL tax on Stonebridge Campus operations requires a separate, detailed analysis that should be undertaken closer to the commencement of revenue-generating activities. The estimated target for initial stabilization of Building A is Q2 2028. At that time, the classification of the campus's activities — which may include a mix of direct leasing, colocation services, and managed hosting — will need to be analyzed under the applicable BPOL categories to determine the appropriate tax rate and reporting obligations. The entity classification of Stonebridge Holdings as a disregarded entity does not directly affect the BPOL analysis, as the BPOL tax is imposed on the "person" engaged in business, which may be construed as either the disregarded entity or its owner (IHDC) depending on the facts and circumstances.

E. Loudoun County Data Center Equipment Tax

Loudoun County imposes a tax on data center equipment — specifically, computer equipment and peripherals located within qualified data center facilities — at a rate of $1.25 per $100 of assessed value. This tax is authorized under Virginia's data center equipment taxation framework and represents a significant recurring cost for data center operators in Loudoun County.

The data center equipment tax will apply to IT equipment installed at the Stonebridge Campus following the issuance of the certificate of occupancy for each building. The tax is assessed on the owner of the equipment, which may be IHDC (or Stonebridge Holdings, as its disregarded entity) if IHDC owns the equipment directly, or IHDC's tenants if the equipment is owned by the tenants under the applicable lease structures. The entity classification of Stonebridge Holdings as a disregarded entity does not directly affect the incidence of the equipment tax, but the lease documentation should clearly delineate responsibility for the equipment tax between landlord and tenant to avoid ambiguity.

A separate, detailed analysis of the Loudoun County data center equipment tax — including assessment methodology, projected equipment values, estimated annual tax liability, and strategies for managing the tax burden through lease structuring — is provided in the companion memorandum referenced in Section I above.

V. Coordination with Lender Requirements — Single-Purpose Entity Covenants

A. Construction Loan SPE Requirements

The $390,000,000 senior secured construction loan from Summit National Bank, N.A. (as Administrative Agent), Cascade Commercial Lending Corp., and Harborview Trust Company requires that the Borrower — Stonebridge Holdings — be organized and operated as a "single-purpose entity" at all times during the term of the loan. The requirement for SPE status is referenced in the Summit Loan Commitment Reference CL-2025-VA-04418 and is a standard feature of construction lending and commercial real estate finance.

The purpose of SPE covenants is to insulate the lender's collateral (the Stonebridge Campus real property and related assets) from the risks associated with the borrower's affiliates, including the risk that the borrower could be substantively consolidated with an affiliate in a bankruptcy proceeding. By requiring the borrower to be a separate, single-purpose entity with restricted activities and independent governance, the lender enhances the likelihood that the borrower's assets will be available to satisfy the loan obligations in the event of a default, without interference from the claims of affiliate creditors.

The typical SPE covenants that are expected to be included in the construction loan documents for Stonebridge Holdings include the following:

(i) Stonebridge Holdings' sole purpose shall be to acquire, own, develop, finance, lease, and operate the Stonebridge Data Center Campus, and the entity shall not engage in any other business activity;

(ii) Stonebridge Holdings shall not commingle its assets, accounts, or funds with those of any other person or entity, including its sole member (IHDC) or any affiliate;

(iii) Stonebridge Holdings shall maintain its own separate books and records, distinct from those of any affiliate;

(iv) Stonebridge Holdings shall maintain adequate capitalization in light of its contemplated business operations, and shall not be rendered insolvent by reason of distributions or transfers to its member;

(v) Stonebridge Holdings shall conduct all business in its own name and shall not conduct business in the name of any affiliate or allow any affiliate to conduct business in its name;

(vi) Stonebridge Holdings shall hold itself out to the public and to all third parties as a legal entity separate and distinct from its member and any other affiliate, including by maintaining separate stationery, business cards, and signage (to the extent applicable);

(vii) Stonebridge Holdings shall not guarantee, become obligated for, or pledge its assets to secure the debts or obligations of any other person or entity, including its member and affiliates; and

(viii) Stonebridge Holdings shall have at least one independent manager or member (an "Independent Manager") whose affirmative consent is required for the filing of any voluntary bankruptcy petition, the consent to the filing of any involuntary bankruptcy petition, the dissolution of the entity, or the merger or consolidation of the entity with any other person.

These covenants will be incorporated into both the Stonebridge Holdings Operating Agreement and the construction loan documents themselves, and any amendment to these provisions will require the prior written consent of the Administrative Agent.

B. Tax Classification Consistency with SPE Structure

A critical point of this memorandum is that disregarded entity status for federal income tax purposes does not conflict with the SPE requirements imposed by the construction lenders. The SPE covenants relate to the operational separateness of Stonebridge Holdings as a legal entity — the maintenance of separate accounts, separate books, separate governance, and a limited purpose. These operational characteristics are independent of the entity's federal income tax classification. An entity can be operationally separate and legally distinct for purposes of state law, bankruptcy analysis, and commercial transactions while simultaneously being "disregarded" for federal income tax purposes.

This distinction is well-established in commercial real estate practice. Construction lenders and permanent lenders across the commercial mortgage market routinely accept disregarded entity borrowers, provided that the SPE covenants are properly drafted and incorporated into the borrower's organizational documents. There is no tension between being a "separate entity" for bankruptcy and commercial purposes and a "disregarded entity" for federal tax classification purposes; these are entirely different legal concepts that operate in distinct analytical frameworks.

We recommend confirming with Redmond & Calloway LLP (Victor Redmond, lender's counsel) that disregarded entity status is acceptable under the proposed credit agreement. Based on our extensive experience with construction loan documentation in the data center and commercial real estate sectors, we expect this to be a non-issue. No lender in a comparable transaction in our recent experience has required the borrower to elect corporate classification, and we are not aware of any lending institution that imposes such a requirement.

The Operating Agreement of Stonebridge Holdings should incorporate the full suite of SPE and separateness covenants required by the loan documents, and these covenants should be drafted to survive any future change in tax classification, ownership, or organizational restructuring. The Operating Agreement should also include a provision that the SPE covenants may not be amended without the prior written consent of the Administrative Agent.

C. Independent Manager Requirement

As noted above, the construction lenders will require Stonebridge Holdings to include at least one Independent Manager whose affirmative vote is required before the entity may take certain "springing" or fundamental actions — most critically, the filing of a voluntary bankruptcy petition, but also potentially including dissolution, merger, consolidation, or the transfer of all or substantially all of the entity's assets.

We recommend engaging a professional independent manager service provider, such as Pemberton Industries ("Fenmore Health IT"), Hollowell Technologies, or Cascade Systems ("NRAI"), to provide a qualified Independent Manager for Stonebridge Holdings. These service providers maintain a roster of individuals who are experienced in serving as independent managers of SPE borrower entities and who meet the independence criteria typically required by lenders — generally, an individual who is not an employee, officer, director, member, partner, or affiliate of the borrower or any of its affiliates and who has no material financial interest in or relationship with the borrower or its affiliates other than serving as Independent Manager.

The Independent Manager will hold a "special member" interest in Stonebridge Holdings. This interest will carry no economic rights whatsoever — specifically, no capital account, no right to allocations of income or loss, no right to distributions, and no economic participation in the entity's profits, losses, or capital. The Independent Manager's sole right will be the right (and obligation) to vote on the specified fundamental actions, and the Operating Agreement will require the Independent Manager's affirmative consent before any such action may be taken.

Tax Classification Impact. The inclusion of an Independent Manager holding a non-economic special member interest does not create a "second member" for federal tax classification purposes, provided the interest is properly structured. Under applicable Treasury guidance and established practice, a holder of a purely non-economic, non-participating interest in an LLC is not treated as a "member" or "owner" for purposes of the single-member versus multi-member classification analysis under Treasury Regulation § 301.7701-3. The Independent Manager has no capital account, no right to distributions, and no economic participation; the interest is, in substance, a governance right, not an ownership interest. Accordingly, Stonebridge Holdings will remain a single-member LLC treated as a disregarded entity, notwithstanding the inclusion of the Independent Manager.

To ensure clarity and certainty on this point, the Operating Agreement should include explicit provisions confirming that (a) the Independent Manager is not a "member" of the LLC for purposes of federal or state income tax classification, (b) the Independent Manager holds no economic interest of any kind, (c) the Independent Manager has no capital account and is not entitled to any allocation or distribution, and (d) the sole purpose of the Independent Manager's interest is to satisfy the governance requirements of the construction loan documents.

VI. Change of Control Considerations

The construction loan agreement for the Stonebridge Campus is expected to include a mandatory prepayment trigger upon any "change of control" of the Borrower (Stonebridge Holdings) or the Guarantor (IHDC). The change of control definition in the loan commitment term sheet is defined as any transfer, conveyance, assignment, or other disposition (whether direct or indirect, voluntary or involuntary, by operation of law or otherwise) resulting in Ridgeline Capital Partners Fund IV, LP ceasing to hold, directly or indirectly, at least 51% of the equity interests in the Borrower or the Guarantor.

This change of control threshold must be carefully monitored throughout the term of the construction loan and any subsequent permanent financing. Currently, Ridgeline Fund IV's indirect ownership of Stonebridge Holdings is as follows:

• Ridgeline Fund IV owns 100% of RCP Digital Holdings LLC;

• RCP Digital Holdings LLC owns 92% of IHDC;

• IHDC owns 100% of Stonebridge Holdings.

Ridgeline Fund IV's indirect interest in Stonebridge Holdings = 100% × 92% × 100% = 92%, which is well in excess of the 51% threshold.

The entity structure must be maintained such that any transfer analysis traces through each tier of the ownership chain — from Ridgeline Fund IV through RCP Digital Holdings LLC and IHDC to Stonebridge Holdings — to confirm ongoing compliance with the 51% indirect ownership threshold. This means that a disposition by Ridgeline Fund IV of its interest in RCP Digital, or a disposition by RCP Digital of a portion of its interest in IHDC, could trigger the change of control provision even though no direct transfer of Stonebridge Holdings membership interests occurs.

In addition to the construction loan change of control provisions, the EPC Agreement with Titan-McAllister Construction Group, LLC (the general contractor for the Stonebridge Campus development) includes a contractor consent right upon any change of control of the project owner entity. Under the EPC Agreement, a "Change of Control" of the Owner is defined to include any transaction or series of transactions resulting in a change in the identity of the Person that directly or indirectly Controls the Owner. The EPC Agreement requires that the Owner provide prior written notice to the Contractor of any proposed Change of Control and that the Contractor have a reasonable opportunity to consent (such consent not to be unreasonably withheld, conditioned, or delayed).

Any restructuring, recapitalization, or disposition of interests at any level of the ownership chain — including at the Ridgeline Fund IV, RCP Digital Holdings LLC, or IHDC level — must be evaluated for change of control triggers under both the construction loan documents and the EPC Agreement before any such transaction is consummated. This includes, without limitation, secondary sales of limited partnership interests in Ridgeline Fund IV, fundraising transactions involving RCP Digital or IHDC, management buy-in or buy-out transactions, and co-investment arrangements.

Furthermore, any tax-free restructuring transactions — such as mergers, conversions, or reorganizations involving entities in the ownership chain — must be analyzed not only for their federal and state income tax consequences but also for their compliance with these contractual change of control provisions. A transaction that is tax-neutral may nonetheless trigger a mandatory prepayment obligation or a contractor consent requirement if it alters the direct or indirect ownership percentages in a manner that crosses the applicable threshold.

A detailed cross-referencing analysis of the change of control provisions across the loan documents, the EPC Agreement, and the Landlord Load Serving Agreement ("LLSA") with Northgate Partners LLC is provided in the companion memorandum referenced in Section I above. That analysis maps each change of control definition, identifies the applicable thresholds and consent requirements, and provides a matrix of common transaction scenarios and their potential trigger effects.

VII. Tax Elections and Filings

A. Form 8832 — Entity Classification Election

Recommendation: Do not file. As discussed in Section III.A above, Stonebridge Holdings will default to disregarded entity classification for federal income tax purposes as a domestic single-member LLC under Treasury Regulation § 301.7701-3(b)(1)(ii). The filing of Form 8832 (Entity Classification Election) is unnecessary and would be appropriate only if a change from the default classification were desired. Because we recommend accepting the default classification, no Form 8832 should be filed.

B. EIN Application (Form SS-4)

Stonebridge Holdings should file Form SS-4 (Application for Employer Identification Number) with the Internal Revenue Service promptly upon formation. As discussed in Section III.E, the EIN is required for Virginia state filings, opening bank accounts, compliance with the construction loan documentation, vendor and contractor reporting, and real property tax filings with Loudoun County. The Form SS-4 can be filed online through the IRS Business & Specialty Tax Line, and the EIN should be available immediately or within a few business days of the application.

C. Virginia State Corporation Commission Registration

The Articles of Organization for Stonebridge Campus Holdings LLC should be filed with the Virginia State Corporation Commission to formally organize the entity as a domestic Virginia limited liability company. The Articles of Organization must include the entity's name, the name and address of its registered agent in Virginia, and other information required by the Virginia Limited Liability Company Act (Va. Code § 13.1-1000 et seq.). The filing fee for Articles of Organization is $100. Upon filing, the SCC will issue a certificate of organization confirming the entity's existence.

Following formation, Stonebridge Holdings will be subject to the annual registration fee of $50, as discussed in Section IV.B above. The entity's registered agent should be a professional registered agent service with a physical address in Virginia to ensure prompt receipt of service of process and official correspondence from the SCC and other governmental authorities.

D. Virginia Income Tax — No Separate Entity Filing

Because Virginia conforms to the federal check-the-box regulations for purposes of entity classification, Stonebridge Holdings will be treated as a disregarded entity for Virginia income tax purposes as well as for federal income tax purposes. Accordingly, Stonebridge Holdings will not file a separate Virginia income tax return.

All Virginia-source income and loss attributable to the Stonebridge Campus will be reported on IHDC's Virginia Form 502 (Virginia Pass-Through Entity Return of Income). IHDC will also issue Virginia Schedule VK-1s to its members, reporting each member's distributive share of Virginia-source income, deductions, and credits. As discussed in Section IV.C, IHDC will be responsible for Virginia withholding on any nonresident members' shares of Virginia-source income, to the extent required by Va. Code § 58.1-486.1.

E. Loudoun County Filings

Upon the commencement of business operations at the Stonebridge Campus, Stonebridge Holdings (or IHDC, as the disregarded entity's owner) may be required to obtain a Loudoun County business license and to file applicable BPOL tax returns. The specific filing requirements will depend on the nature and classification of the business activities conducted at the campus, as discussed in Section IV.D above. These filings should be evaluated and prepared in advance of the commencement of revenue-generating activities.

In addition, annual data center equipment tax returns will be required once IT equipment is placed in service at the campus. The first equipment tax filing is expected to coincide with the certificate of occupancy for Building A, which is currently estimated for August 2027. The equipment tax return will require a detailed inventory and valuation of all taxable computer equipment and peripherals located at the facility.

F. Virginia Data Center Sales Tax Exemption

Virginia provides a sales and use tax exemption for certain computer equipment and enabling software purchased for use in qualified data centers, codified at Va. Code § 58.1-609.3(18). This exemption is a significant economic incentive for data center development in Virginia and can generate substantial cost savings on equipment procurement.

A separate qualification analysis under Va. Code § 58.1-609.3(18) is currently being conducted by this office in coordination with Fielding & Associates. The exemption requires, among other things, that the applicant make a minimum capital investment of $150,000,000 over a five-year period and create a minimum of 50 new jobs at the data center facility. The Stonebridge Campus project, with a total budget of $600,000,000, is expected to comfortably exceed the minimum capital investment threshold, and IHDC's operational plans for the campus anticipate the creation of well in excess of 50 new full-time positions.

The entity through which the exemption is claimed must be identified in the exemption application filed with the Virginia Department of Taxation. Because Stonebridge Holdings is a disregarded entity, the exemption application should be filed in the name of IHDC (as the taxpayer of record), with Stonebridge Holdings identified as the site-level entity at which the qualifying equipment will be located and used. The application will need to include supporting documentation regarding the planned capital investment, job creation projections, and the nature of the qualifying equipment purchases.

The estimated sales tax savings from this exemption are substantial. Based on preliminary projections, approximately $300,000,000 in qualifying equipment purchases are anticipated for the Stonebridge Campus over the build-out period. At the combined Virginia state and local sales tax rate of 5.3%, this would generate estimated sales tax savings of approximately $15,900,000 — a material contribution to the project's overall economics.

A detailed analysis of the sales tax exemption qualification requirements, application process, compliance obligations, and clawback provisions is provided in the companion memorandum referenced in Section I above.

VIII. Coordination with Cost Segregation and Depreciation

A cost segregation study is a critical tax planning tool for the Stonebridge Campus project, and we recommend that the study be commissioned upon construction commencement. The Notice to Proceed ("NTP") under the EPC Agreement with Titan-McAllister Construction Group, LLC is currently targeted for November 1, 2025. The cost segregation study should be engaged in advance of, or concurrently with, NTP issuance to ensure that the study can be coordinated with the construction schedule and that the cost segregation engineer has access to the construction drawings, specifications, and cost breakdowns from the earliest stages of the project.

A cost segregation study involves a detailed engineering-based analysis of the construction costs of the Stonebridge Campus buildings and site improvements, with the objective of identifying and reclassifying components that qualify for shorter depreciable lives under the Modified Accelerated Cost Recovery System ("MACRS"). Under current law, nonresidential real property (including data center buildings) is generally depreciated over a 39-year recovery period using the straight-line method. However, certain building components — such as electrical systems dedicated to data center equipment, specialized cooling and HVAC systems, raised flooring, fire suppression systems, site improvements, and decorative or non-structural elements — may qualify for classification as 5-year, 7-year, or 15-year property, allowing for significantly accelerated depreciation deductions.

Based on preliminary estimates prepared by IHDC's development team and benchmarked against cost segregation studies for comparable data center projects, approximately $45,000,000 of building costs are expected to be reclassifiable from the 39-year nonresidential real property category to shorter depreciable lives. This reclassification will generate substantial accelerated depreciation deductions in the early years following the placed-in-service date of each building, enhancing the after-tax cash flow and internal rate of return for the equity investors.

Because Stonebridge Holdings is a disregarded entity, these depreciation deductions will not be reported on a separate return for Stonebridge Holdings. Instead, they will flow through to IHDC's partnership return (Form 1065) and will be allocated to IHDC's two members — RCP Digital Holdings LLC (92%) and Ironhaven Management Incentive Pool LLC (8%) — in accordance with the allocation provisions of the IHDC Operating Agreement. From RCP Digital (a disregarded entity), the deductions will flow through to Ridgeline Fund IV, which will in turn allocate them to its limited partners and general partner on their respective Schedule K-1s.

We recommend coordinating with Fielding & Associates, CPAs (Robert Fielding, engagement partner) on the engagement of a qualified cost segregation specialist firm. The specialist should be engaged sufficiently in advance of the NTP date to allow for the planning and scoping of the study, including the identification of the specific building components to be analyzed, the establishment of a site inspection schedule, and the coordination with the EPC contractor's cost accounting systems.

A detailed analysis of the cost segregation study's scope, timing, estimated benefits, and coordination with the construction schedule is provided in the companion memorandum referenced in Section I above.

IX. Management Incentive Pool Considerations

As noted in Section II.A above, 8% of the membership interests in IHDC are held by Ironhaven Management Incentive Pool LLC, a Delaware limited liability company that serves as a profits-interest vehicle for key members of IHDC's management team. The individuals who participate in the management incentive pool include Marcus Thorne (CEO), Priya Dasgupta (CFO), Leonard Castellano (EVP, Development), and certain other key employees of IHDC.

The profits interests held by Ironhaven Management Incentive Pool LLC are designed to qualify for favorable tax treatment under Revenue Procedure 93-27, 1993-2 C.B. 343, and Revenue Procedure 2001-43, 2001-2 C.B. 191. Under these revenue procedures, the receipt of a profits interest in a partnership (or an entity classified as a partnership for federal tax purposes) by a person in exchange for services is generally not a taxable event at the time of the grant, provided that the interest entitles the holder only to a share of future profits and appreciation and does not entitle the holder to any share of the partnership's existing capital (i.e., the interest has a "liquidation value" of zero at the time of grant). This treatment allows management participants to receive equity-like compensation in IHDC without immediate income recognition, with the expectation that they will be taxed on their share of income and gains only as and when such amounts are allocated and distributed.

The creation of Stonebridge Holdings as a disregarded subsidiary of IHDC is fully transparent from a tax perspective with respect to the management profits interests. Because Stonebridge Holdings is disregarded, all income, deductions, gains, losses, and credits generated by the Stonebridge Campus flow through to IHDC as if IHDC directly owned and operated the campus. There is no "trapping" of income or loss at the Stonebridge Holdings level, and there is no change in the manner in which partnership items are allocated among IHDC's members (including the management incentive pool). The economics and tax treatment of the management profits interests are unaffected by the formation of Stonebridge Holdings.

No additional tax elections or filings are required at the Stonebridge Holdings level in connection with the management incentive structure. The existing provisions of the IHDC Operating Agreement governing the allocation of income, gain, loss, deduction, and credit among its members — including the special allocation provisions applicable to the profits interests — will continue to apply to all of IHDC's activities, including those conducted through Stonebridge Holdings.

We note, however, that the significant increase in IHDC's asset base and income potential resulting from the Stonebridge Campus development may warrant a review of the existing IHDC Operating Agreement's allocation and distribution waterfall provisions to confirm that the profits interest thresholds and hurdle rates remain appropriate and accurately reflect the parties' intent. This review is beyond the scope of this memorandum but should be discussed with Douglas Fairchild and the client.

X. Timing and Action Items

A. Immediate Action Items

The follow

PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
MEMORANDUM
TO: Douglas Fairchild, Responsible Partner, Real Estate, Calderwood & Harkness LLP
FROM: Sylvia Hartwell, Specialist Partner, Tax, Calderwood & Harkness LLP
DATE: March 20, 2025
RE: Recommended Entity Structure and Tax Elections for Stonebridge Campus Holdings LLC — Stonebridge Data Center Campus Development
MATTER NO.: 1043-00002
CLIENT: Ironhaven Data Centers LLC
Right-click to update Table of Contents
I. Executive Summary
The purpose of this memorandum is to analyze and recommend the optimal tax classification, elections, and structural considerations for Stonebridge Campus Holdings LLC ("Stonebridge Holdings" or the "Borrower"), the to-be-formed Virginia single-purpose entity that will serve as the project-level borrower and property owner for the $600,000,000 Stonebridge Data Center Campus development located in Loudoun County, Virginia.
Stonebridge Holdings will be organized as a Virginia limited liability company wholly owned by Ironhaven Data Centers LLC ("IHDC"), a Delaware limited liability company that currently operates data center assets in the Northern Virginia market. As described in greater detail below, the entity is being formed to hold title to approximately 81.4 acres of land in Loudoun County and to serve as the borrower under a $390,000,000 senior secured construction loan facility. The single-purpose entity structure is dictated by both sound organizational practice and the express requirements of the construction lenders.
Our recommended approach is to accept the default disregarded entity classification for federal income tax purposes. Under Treasury Regulation § 301.7701-3, a domestic eligible entity with a single owner is by default classified as a disregarded entity — that is, it is not treated as an entity separate from its owner for federal income tax purposes. This default treatment ensures full pass-through of all items of income, deduction, gain, loss, and credit up the ownership chain, ultimately to Ridgeline Capital Partners Fund IV, LP ("Ridgeline Fund IV"), the institutional private equity fund that indirectly holds a 92% economic interest in IHDC. We recommend against filing Form 8832 (Entity Classification Election) to elect treatment as an association taxable as a corporation, as such an election would be inconsistent with the fund's investment thesis and detrimental to the economic returns of all equity participants.
This memorandum addresses the following interrelated subjects: (a) federal tax classification of Stonebridge Holdings under the check-the-box regulations; (b) Virginia state tax implications, including the Virginia pass-through entity tax ("PTET") election, withholding obligations, and Loudoun County-level taxes; (c) coordination with the existing fund ownership structure to ensure uninterrupted pass-through treatment from the project level to the ultimate investors; (d) single-purpose entity ("SPE") constraints imposed by the construction lenders and the interplay between SPE covenants and the recommended tax classification; and (e) timing recommendations for entity formation, tax elections, and related filings. The memorandum also addresses certain ancillary matters, including the treatment of the management incentive pool interests, cost segregation planning, and change of control provisions in the project's financing and construction documents.
Throughout this memorandum, cross-references are made to four companion memoranda that address, in greater detail, specific topics that intersect with the entity structure analysis: (1) Virginia Data Center Sales Tax Exemption — Qualification Analysis under Va. Code § 58.1-609.3(18); (2) Cost Segregation Study — Scope and Timing Recommendation; (3) Loudoun County Equipment Tax — Assessment Methodology and Projections; and (4) Change of Control Provisions Across Loan Documents — Coordination with EPC and LLSA. This memorandum should be read in conjunction with those companion analyses.
II. Ownership Structure Overview
A. Full Organizational Chain
A clear understanding of the complete ownership chain is essential to the tax classification analysis and to ensuring that the recommended structure achieves the intended pass-through treatment at every tier. The organizational chain, from the top-level fund vehicle down to the project-level entity, is as follows:
Ridgeline Capital Partners Fund IV, LP is a Delaware limited partnership with approximately $3.8 billion in committed capital across a diversified portfolio of digital infrastructure, logistics, and industrial real estate investments. The fund is managed by its general partner, Ridgeline Capital Management LLC, a Delaware limited liability company. Julian Hargrove serves as Managing Partner of Ridgeline Capital Management LLC and has primary responsibility for investment decisions related to the Stonebridge Campus project. Ridgeline Fund IV is classified as a partnership for federal income tax purposes and files Form 1065 (U.S. Return of Partnership Income) annually, issuing Schedule K-1s to its limited partners and general partner. The fund's limited partner base includes a diversified group of institutional investors, including public and private pension systems, university endowments, sovereign wealth funds, insurance company separate accounts, and family offices.
↓ (92% membership interest)
RCP Digital Holdings LLC is a Delaware limited liability company that serves as an intermediate holding company through which Ridgeline Fund IV holds its equity interest in IHDC. RCP Digital Holdings LLC is wholly owned by Ridgeline Fund IV and is classified as a disregarded entity for federal income tax purposes under the single-member LLC default rule of Treasury Regulation § 301.7701-3. The interposition of RCP Digital Holdings LLC between Ridgeline Fund IV and IHDC serves organizational and liability segregation purposes and is transparent for federal and state income tax purposes. All items of income, deduction, gain, loss, and credit attributable to RCP Digital Holdings LLC's 92% membership interest in IHDC pass through directly to Ridgeline Fund IV without any additional layer of taxation or reporting.
↓ (92% of IHDC membership interests held by RCP Digital Holdings LLC; remaining 8% held by Ironhaven Management Incentive Pool LLC)
Ironhaven Data Centers LLC ("IHDC") is a Delaware limited liability company headquartered at 44680 Prentice Drive, Suite 200, Ashburn, Virginia 20147. IHDC's Employer Identification Number is 84-3291057, and its Virginia State Corporation Commission Entity ID is S7491283. IHDC serves as the primary operating platform for data center development and operations in which Ridgeline Fund IV has invested. Marcus Thorne serves as Chief Executive Officer, Priya Dasgupta serves as Chief Financial Officer, and Leonard Castellano serves as Executive Vice President, Development. IHDC has two members: RCP Digital Holdings LLC (holding a 92% membership interest) and Ironhaven Management Incentive Pool LLC (holding an 8% membership interest structured as profits interests, as discussed in Section IX below). As a multi-member LLC that has not elected to be classified as a corporation, IHDC is treated as a partnership for federal income tax purposes under the default rules of Treasury Regulation § 301.7701-3. IHDC files Form 1065 (U.S. Return of Partnership Income) annually and issues Schedule K-1s to RCP Digital Holdings LLC and Ironhaven Management Incentive Pool LLC.
↓ (100% sole member)
Stonebridge Campus Holdings LLC is the to-be-formed Virginia limited liability company that is the subject of this memorandum. Upon formation, Stonebridge Holdings will be wholly owned by IHDC as its sole member. Stonebridge Holdings' EIN will be obtained upon formation through the filing of Form SS-4. The entity will serve as the single-purpose borrower entity and fee simple owner of the real property comprising the Stonebridge Data Center Campus, consisting of two parcels:
• Stonebridge Parcel: Approximately 62.0 acres, identified on the Loudoun County Tax Map as Reference /95-4A-1///.
• Meridian Parcel: Approximately 19.4 acres, identified on the Loudoun County Tax Map as Reference /95-4A-2///.
• Total Acreage: Approximately 81.4 acres.
The two parcels are currently under separate purchase and sale agreements (the "Stonebridge PSA" and the "Meridian PSA," respectively), each of which will be assigned from IHDC to Stonebridge Holdings prior to closing, as discussed in Section X below.
B. Ridgeline Fund IV's Investment Parameters
The Stonebridge Campus development has been assigned Ridgeline Fund IV Investment ID: RCP-IV-2025-DC-07. This identifier is used in the fund's internal tracking, reporting, and capital call documentation.
Ridgeline Fund IV is expected to fund approximately $210,000,000 in equity for the Stonebridge Campus project, representing approximately 35.0% of the total $600,000,000 project budget. This equity will be contributed through the ownership chain — from Ridgeline Fund IV to RCP Digital Holdings LLC, from RCP Digital Holdings LLC to IHDC (as capital contributions to the partnership), and from IHDC to Stonebridge Holdings (as contributions to the disregarded entity). Each contribution at each tier of the structure will be treated consistently with the applicable entity's tax classification: contributions to a partnership under Section 721 of the Internal Revenue Code at the IHDC level, and as a non-event for federal tax purposes at the disregarded entity level (both RCP Digital and Stonebridge Holdings).
The remaining 65.0% of the project budget, totaling $390,000,000, is expected to be funded through a senior secured construction loan facility. The loan syndicate will be led by Summit National Bank, N.A. as Administrative Agent, with participation from Cascade Commercial Lending Corp. and Harborview Trust Company. The commitment is referenced as Summit Loan Commitment Reference CL-2025-VA-04418. The construction loan is expected to convert to a permanent loan upon project stabilization, subject to separate terms and conditions currently under negotiation.
C. Existing IHDC Operations
For context, IHDC currently operates three existing data center facilities in the Northern Virginia market, collectively providing approximately 42 megawatts (MW) of critical IT load capacity. These facilities are located in Ashburn and Sterling, Virginia, and are substantially fully leased to a mix of hyperscale cloud computing providers and enterprise colocation tenants. The existing facilities generate positive operating cash flow and are held through separate single-purpose entities, each of which is organized in a manner consistent with the structure recommended herein for Stonebridge Holdings — that is, as a Virginia or Delaware LLC that is a disregarded entity for federal income tax purposes, wholly owned by IHDC.
The Stonebridge Data Center Campus will represent a significant expansion of IHDC's portfolio, adding approximately 96 MW of additional critical IT load capacity across four buildings (designated Buildings A through D), with each building designed to support 24 MW of critical load. The campus development is planned to be phased, with Building A expected to be delivered first (estimated certificate of occupancy in August 2027), followed by Buildings B, C, and D on a rolling basis as tenant commitments are secured. At full build-out and stabilization, the Stonebridge Campus is projected to approximately triple IHDC's total installed capacity.
III. Federal Tax Classification Analysis
A. Default Classification Under Check-the-box Regulations
The federal income tax classification of Stonebridge Holdings is governed by the entity classification regulations set forth in Treasury Regulation § 301.7701-1 through § 301.7701-3, commonly known as the "check-the-box" regulations. These regulations provide a framework under which an eligible entity — defined as a business entity that is not classified as a corporation under § 301.7701-2(b) — may elect its federal tax classification, subject to certain default rules that apply in the absence of an affirmative election.
Under Treasury Regulation § 301.7701-3(b)(1)(ii), a domestic eligible entity with a single owner is classified by default as a disregarded entity. A "disregarded entity" is an entity that is not treated as separate from its single owner for federal income tax purposes. This means that for purposes of the Internal Revenue Code, the entity's activities, assets, and liabilities are treated as those of its owner. The disregarded entity does not file a separate federal income tax return, and all items of income, deduction, gain, loss, and credit attributable to the entity are reported on the owner's federal tax return.
Stonebridge Holdings will be a Virginia limited liability company — a form of business entity that qualifies as an "eligible entity" under the check-the-box regulations. Because IHDC will be the sole member of Stonebridge Holdings, the entity will have a single owner and will therefore default to disregarded entity status for federal income tax purposes, without any affirmative action required.
Recommendation: We recommend that the firm accept the default disregarded entity classification for Stonebridge Holdings and that no Form 8832 (Entity Classification Election) be filed. Filing Form 8832 is only necessary if the entity's owner desires to change the classification from the default — for example, to elect treatment as an association taxable as a corporation. As discussed in Section III.D below, we have identified no reason to depart from the default classification, and an election to be classified as a corporation would be affirmatively harmful to the client's interests.
As a disregarded entity, Stonebridge Holdings will not file a separate federal income tax return. All items of income, deduction, gain, loss, and credit generated by the Stonebridge Campus — including rental income, interest expense, depreciation, and other operating items — will be reported on IHDC's Form 1065, as if IHDC directly owned and operated the campus assets.
B. Pass-Through Treatment Up the Ownership Chain
A central objective of the recommended entity structure is to ensure that the Stonebridge Campus investment generates pass-through tax treatment at every level of the organizational chain, from the project level to the ultimate investors in Ridgeline Fund IV. The following analysis traces the flow of tax items through each entity in the chain:
Stonebridge Campus Holdings LLC (Disregarded Entity). As a disregarded entity, Stonebridge Holdings is not a separate taxable entity. All items of income, deduction, gain, loss, and credit are attributed directly to its sole owner, IHDC, as if IHDC held the assets and conducted the operations directly. There is no entity-level tax, no separate return filing requirement, and no opportunity for items to be "trapped" at this level.
Ironhaven Data Centers LLC (Partnership). IHDC is a Delaware limited liability company with two members — RCP Digital Holdings LLC (92%) and Ironhaven Management Incentive Pool LLC (8%). Because IHDC has more than one member and has not elected to be classified as a corporation, it is classified as a partnership for federal income tax purposes under the default rule of Treasury Regulation § 301.7701-3(b)(1)(i). As a partnership, IHDC is generally not subject to entity-level federal income tax (subject to certain exceptions, such as the partnership audit rules under the Bipartisan Budget Act of 2015 and the potential application of Section 6225 imputed underpayment assessments). IHDC files Form 1065 (U.S. Return of Partnership Income) annually and issues Schedule K-1s to its two members, allocating items of income, deduction, gain, loss, and credit in accordance with the IHDC Operating Agreement.
RCP Digital Holdings LLC (Disregarded Entity). RCP Digital Holdings LLC is a Delaware limited liability company that is wholly owned by Ridgeline Fund IV. As a single-member LLC that has not elected corporate classification, RCP Digital is a disregarded entity for federal income tax purposes. All items allocated to RCP Digital on its Schedule K-1 from IHDC pass through directly to Ridgeline Fund IV, without any additional layer of taxation or filing.
Ridgeline Capital Partners Fund IV, LP (Partnership). Ridgeline Fund IV is a Delaware limited partnership and is classified as a partnership for federal income tax purposes. The fund files Form 1065 annually and issues Schedule K-1s to its limited partners and its general partner, Ridgeline Capital Management LLC. The fund's limited partners and general partner report their respective shares of the fund's income, deductions, gains, losses, and credits on their own federal income tax returns.
Net Effect. The chain of pass-through treatment operates as follows:
Stonebridge Holdings (disregarded) → IHDC (partnership, Form 1065) → RCP Digital (disregarded) → Ridgeline Fund IV (partnership, Form 1065) → Ultimate Investors (individual returns, corporate returns, tax-exempt returns, etc.)
This structure ensures that there is only a single layer of federal income taxation, imposed at the level of the ultimate investors. There are no entity-level federal income taxes at any point in the ownership chain. This is the standard structure employed by institutional private equity funds investing in real estate and infrastructure, and it is consistent with the expectations of Ridgeline Fund IV's limited partner base.
C. Advantages of Disregarded Entity Status
The disregarded entity classification for Stonebridge Holdings offers several significant advantages, each of which is summarized below:
Simplicity. No separate federal income tax return will be required for Stonebridge Holdings. This reduces administrative burden, reduces the risk of late-filing penalties, and simplifies the annual tax compliance process. Tax compliance will be consolidated at the IHDC level, where a single Form 1065 will report all of IHDC's activities, including those conducted through Stonebridge Holdings and the three existing data center facility entities.
Pass-Through of Losses. The Stonebridge Campus project is expected to generate significant losses during the construction and lease-up period, driven by depreciation deductions (including accelerated depreciation from the planned cost segregation study), construction-period interest expense, and startup costs. As a disregarded entity, Stonebridge Holdings allows these losses to flow through to IHDC and, in turn, to IHDC's members and ultimately to Ridgeline Fund IV's investors. This is a critical benefit for institutional fund investors, many of whom are able to utilize real estate losses to offset other taxable income, subject to applicable limitations at the partner level (including the passive activity loss rules of Section 469, the at-risk rules of Section 465, and the excess business loss rules of Section 461(l)).
No Entity-Level Tax. Disregarded entity classification avoids the double taxation inherent in C-corporation classification. A C-corporation pays federal income tax at the entity level (currently at a rate of 21%) and its shareholders pay a second layer of tax when earnings are distributed as dividends. The avoidance of double taxation is a fundamental structural requirement for the fund's investment.
Flexibility in Transfers. Disregarded entity status facilitates flexibility in the transfer and restructuring of the ownership interests. Because the disregarded entity is not treated as separate from its owner, transfers of assets into or out of Stonebridge Holdings (between IHDC and Stonebridge Holdings) generally do not trigger gain or loss recognition for federal income tax purposes. This is particularly relevant for the upcoming assignment of the purchase and sale agreements from IHDC to Stonebridge Holdings, which will be a non-event for tax purposes.
Cost Segregation Benefits. The Stonebridge Campus project is expected to benefit from a comprehensive cost segregation study, which is projected to reclassify approximately $45,000,000 of building costs from the 39-year nonresidential real property recovery period to shorter depreciable lives of 5, 7, and 15 years. These accelerated depreciation deductions flow directly from Stonebridge Holdings through to IHDC and its partners, maximizing the time-value-of-money benefit to the equity investors. If Stonebridge Holdings were instead classified as a C-corporation, these deductions would be trapped at the entity level and would offset only the corporation's own taxable income, significantly diminishing their value to the equity participants.
Consistency with Ridgeline Fund IV's Overall Investment Strategy. Private equity fund investors — including pension funds, endowments, and other tax-sensitive institutional allocators — expect and require pass-through treatment of their fund investments. A departure from pass-through treatment at any level of the ownership chain would be inconsistent with the fund's offering documents, side letter commitments, and the reasonable expectations of the limited partner base. Maintaining disregarded entity status at the project level ensures consistency with the fund's overall investment strategy and avoids potential disputes with limited partners.
D. Considerations Against Corporate Election
We have carefully considered whether there are any circumstances under which an election to classify Stonebridge Holdings as an association taxable as a corporation might be advantageous, and we have concluded that no such circumstances exist in the present case. The principal considerations against a corporate election are as follows:
Entity-Level Tax. An election to be classified as a corporation would subject Stonebridge Holdings to federal corporate income tax at the current rate of 21% on all taxable income generated by the Stonebridge Campus. Upon distribution of after-tax earnings to IHDC (as the sole shareholder), a second layer of tax would be imposed — either as a dividend (subject to tax at the applicable rate of the ultimate investor) or, in the case of a liquidating distribution, as gain on the deemed sale of the stock. This double taxation would significantly erode the after-tax returns to Ridgeline Fund IV's investors and would be directly contrary to the fund's investment objectives.
Impediment to Loss Flow-Through. Corporate classification would prevent the flow-through of construction-period losses to IHDC and its members. Losses generated by a C-corporation are trapped at the entity level and may only be used to offset the corporation's own income. Given the multi-year construction timeline and the substantial depreciation and interest deductions expected during the development phase, the inability to pass through these losses would represent a significant economic cost to the equity investors.
Complexity and Cost. Corporate classification would require Stonebridge Holdings to file a separate federal corporate income tax return (Form 1120) annually, increasing compliance costs and administrative burden. It would also complicate the capital stack, lender reporting, and the intercompany accounting between Stonebridge Holdings and IHDC.
No Offsetting Benefit. We have identified no offsetting tax benefit that would justify a corporate election. In certain circumstances, corporate classification can provide benefits such as access to lower marginal tax rates on modest levels of income, retention of earnings without current taxation to owners, or qualification for certain corporate-only tax incentives. None of these potential benefits is relevant or material in the context of a $600,000,000 data center campus development owned by an institutional private equity fund.
Recommendation: Do not elect corporate treatment. The default disregarded entity classification is the clearly superior approach in all respects.
E. EIN and Filing Requirements
Although Stonebridge Holdings will be a disregarded entity for federal income tax purposes, it will nonetheless need to obtain its own Employer Identification Number ("EIN"). The EIN will be required for the following purposes:
(a) Virginia State Corporation Commission filings and Virginia tax registrations;
(b) Opening segregated bank accounts in the entity's own name (required by the SPE covenants in the construction loan documents);
(c) Employment tax purposes, if Stonebridge Holdings directly employs any individuals (though the current expectation is that all employees will be employed by IHDC, with management services provided to Stonebridge Holdings under a management agreement);
(d) Vendor and contractor reporting (issuance of Forms 1099 and W-9 certifications); and
(e) Real property tax filings with Loudoun County.
As a disregarded entity, Stonebridge Holdings' activities for federal income tax purposes will be reported on IHDC's Form 1065 using IHDC's EIN (84-3291057). However, certain state and local filings, as well as third-party business requirements, necessitate that Stonebridge Holdings maintain its own EIN. There is no inconsistency between holding an EIN and being classified as a disregarded entity; the IRS routinely issues EINs to disregarded entities for the purposes described above.
IV. Virginia State Tax Implications
A. Virginia Pass-Through Entity Tax (PTET)
Virginia enacted a pass-through entity tax election effective for taxable years beginning on or after January 1, 2021, codified at Va. Code § 58.1-390.1 et seq. This provision permits eligible pass-through entities — including partnerships, S-corporations, and LLCs classified as partnerships for federal income tax purposes — to elect to pay Virginia income tax at the entity level at the applicable rate (currently 5.75%). When a PTET election is made, the entity's owners receive a corresponding credit against their individual Virginia income tax liability, and the entity-level tax payment is deductible on the entity's federal income tax return as a business expense, effectively circumventing the $10,000 federal cap on individual deductions for state and local taxes ("SALT") imposed by Section 164(b)(6) of the Internal Revenue Code, as amended by the Tax Cuts and Jobs Act of 2017.
Application to Stonebridge Holdings. Because Stonebridge Holdings will be classified as a disregarded entity for both federal and Virginia income tax purposes, it is not itself an "eligible pass-through entity" for purposes of the PTET election. An entity that is disregarded — that is, an entity that does not exist as a separate taxpayer — cannot make a PTET election because there is no entity-level taxpayer to make the election or to pay the entity-level tax.
Accordingly, if a PTET election is desired with respect to income derived from the Stonebridge Campus, the election must be made at the IHDC level, as IHDC is the first entity in the ownership chain that is recognized as a separate taxpayer (i.e., a partnership filing Form 1065). An IHDC-level PTET election would apply to all of IHDC's Virginia-source income — not just income attributable to the Stonebridge Campus, but also income from IHDC's three existing data center facilities in Northern Virginia.
The decision whether to make an IHDC-level PTET election requires careful analysis that goes beyond the scope of this memorandum. The election's desirability depends on the composition of Ridgeline Fund IV's investor base (specifically, the proportion of investors who are individuals subject to the SALT cap versus tax-exempt institutions, foreign investors, or corporations that may not benefit from the credit), as well as the income and loss profiles of all of IHDC's operations (not just the Stonebridge Campus). We recommend that this analysis be coordinated with Fielding & Associates, CPAs (Robert Fielding, CPA, engagement partner for IHDC's tax compliance) and with Ridgeline Capital Management LLC's tax team to determine whether an IHDC-level PTET election is advantageous for the fund's investors.
B. Virginia LLC Annual Registration Fee
Virginia imposes an annual registration fee of $50 on limited liability companies registered with the Virginia State Corporation Commission, pursuant to Va. Code § 13.1-1062. This fee is due annually on or before the last day of the month in which the entity's initial articles of organization were filed, and failure to pay the fee can result in the entity being placed in "not in good standing" status by the SCC.
While the $50 fee itself is de minimis, the maintenance of the entity's good standing with the Virginia SCC is of critical importance for several reasons. Good standing is typically a condition to closing under the construction loan documents, a requirement for the validity of deeds and other instruments recorded in the land records, and a prerequisite for the issuance of title insurance. The entity's registered agent and the individuals responsible for annual compliance at IHDC must calendar this filing obligation and ensure it is met without interruption.
C. Virginia Withholding on Nonresident Members
Under Va. Code § 58.1-486.1, a pass-through entity doing business in Virginia that has one or more nonresident owners is required to withhold Virginia income tax on each nonresident owner's distributive share of Virginia-source income. The withholding rate is the highest individual income tax rate applicable in Virginia, currently 5.75%. Alternatively, the entity may accept a nonresident owner's agreement to file a Virginia nonresident income tax return in lieu of withholding, though this is an administrative burden on the entity and its owners.
Because Stonebridge Holdings is a disregarded entity, it does not itself have "owners" for Virginia tax purposes. The withholding obligation instead falls on IHDC, the first entity in the chain that is treated as a separate taxpayer. IHDC's two members are RCP Digital Holdings LLC and Ironhaven Management Incentive Pool LLC. RCP Digital, in turn, is a disregarded entity owned by Ridgeline Fund IV. The ultimate question for Virginia withholding purposes is whether the beneficial owners of Ridgeline Fund IV — its limited partners and general partner — include nonresidents of Virginia.
Given that Ridgeline Fund IV is a large institutional fund with approximately $3.8 billion in committed capital and a geographically diverse limited partner base, it is virtually certain that a significant portion of the fund's investors are nonresidents of Virginia. We recommend that Fielding & Associates undertake a detailed analysis of the composition of Ridgeline Fund IV's investor base to determine the scope of IHDC's Virginia withholding obligations with respect to Virginia-source income attributable to the Stonebridge Campus and the existing data center facilities. This analysis should also consider whether any tiered withholding provisions or composite return filing mechanisms are available under Virginia law to simplify compliance.
D. Loudoun County Business, Professional and Occupational License (BPOL) Tax
Loudoun County imposes a Business, Professional and Occupational License ("BPOL") tax on persons engaged in business within the county, pursuant to the county's local ordinance and the enabling authority of Va. Code § 58.1-3700 et seq. The BPOL tax is an annual tax based on the gross receipts of the business, with rates that vary by business classification (e.g., professional services, retail, contracting). Data center operations may be subject to BPOL depending on whether the operator's activities are classified as a service business, a rental activity, or some other category.
The applicability and amount of BPOL tax on Stonebridge Campus operations requires a separate, detailed analysis that should be undertaken closer to the commencement of revenue-generating activities. The estimated target for initial stabilization of Building A is Q2 2028. At that time, the classification of the campus's activities — which may include a mix of direct leasing, colocation services, and managed hosting — will need to be analyzed under the applicable BPOL categories to determine the appropriate tax rate and reporting obligations. The entity classification of Stonebridge Holdings as a disregarded entity does not directly affect the BPOL analysis, as the BPOL tax is imposed on the "person" engaged in business, which may be construed as either the disregarded entity or its owner (IHDC) depending on the facts and circumstances.
E. Loudoun County Data Center Equipment Tax
Loudoun County imposes a tax on data center equipment — specifically, computer equipment and peripherals located within qualified data center facilities — at a rate of $1.25 per $100 of assessed value. This tax is authorized under Virginia's data center equipment taxation framework and represents a significant recurring cost for data center operators in Loudoun County.
The data center equipment tax will apply to IT equipment installed at the Stonebridge Campus following the issuance of the certificate of occupancy for each building. The tax is assessed on the owner of the equipment, which may be IHDC (or Stonebridge Holdings, as its disregarded entity) if IHDC owns the equipment directly, or IHDC's tenants if the equipment is owned by the tenants under the applicable lease structures. The entity classification of Stonebridge Holdings as a disregarded entity does not directly affect the incidence of the equipment tax, but the lease documentation should clearly delineate responsibility for the equipment tax between landlord and tenant to avoid ambiguity.
A separate, detailed analysis of the Loudoun County data center equipment tax — including assessment methodology, projected equipment values, estimated annual tax liability, and strategies for managing the tax burden through lease structuring — is provided in the companion memorandum referenced in Section I above.
V. Coordination with Lender Requirements — Single-Purpose Entity Covenants
A. Construction Loan SPE Requirements
The $390,000,000 senior secured construction loan from Summit National Bank, N.A. (as Administrative Agent), Cascade Commercial Lending Corp., and Harborview Trust Company requires that the Borrower — Stonebridge Holdings — be organized and operated as a "single-purpose entity" at all times during the term of the loan. The requirement for SPE status is referenced in the Summit Loan Commitment Reference CL-2025-VA-04418 and is a standard feature of construction lending and commercial real estate finance.
The purpose of SPE covenants is to insulate the lender's collateral (the Stonebridge Campus real property and related assets) from the risks associated with the borrower's affiliates, including the risk that the borrower could be substantively consolidated with an affiliate in a bankruptcy proceeding. By requiring the borrower to be a separate, single-purpose entity with restricted activities and independent governance, the lender enhances the likelihood that the borrower's assets will be available to satisfy the loan obligations in the event of a default, without interference from the claims of affiliate creditors.
The typical SPE covenants that are expected to be included in the construction loan documents for Stonebridge Holdings include the following:
(i) Stonebridge Holdings' sole purpose shall be to acquire, own, develop, finance, lease, and operate the Stonebridge Data Center Campus, and the entity shall not engage in any other business activity;
(ii) Stonebridge Holdings shall not commingle its assets, accounts, or funds with those of any other person or entity, including its sole member (IHDC) or any affiliate;
(iii) Stonebridge Holdings shall maintain its own separate books and records, distinct from those of any affiliate;
(iv) Stonebridge Holdings shall maintain adequate capitalization in light of its contemplated business operations, and shall not be rendered insolvent by reason of distributions or transfers to its member;
(v) Stonebridge Holdings shall conduct all business in its own name and shall not conduct business in the name of any affiliate or allow any affiliate to conduct business in its name;
(vi) Stonebridge Holdings shall hold itself out to the public and to all third parties as a legal entity separate and distinct from its member and any other affiliate, including by maintaining separate stationery, business cards, and signage (to the extent applicable);
(vii) Stonebridge Holdings shall not guarantee, become obligated for, or pledge its assets to secure the debts or obligations of any other person or entity, including its member and affiliates; and
(viii) Stonebridge Holdings shall have at least one independent manager or member (an "Independent Manager") whose affirmative consent is required for the filing of any voluntary bankruptcy petition, the consent to the filing of any involuntary bankruptcy petition, the dissolution of the entity, or the merger or consolidation of the entity with any other person.
These covenants will be incorporated into both the Stonebridge Holdings Operating Agreement and the construction loan documents themselves, and any amendment to these provisions will require the prior written consent of the Administrative Agent.
B. Tax Classification Consistency with SPE Structure
A critical point of this memorandum is that disregarded entity status for federal income tax purposes does not conflict with the SPE requirements imposed by the construction lenders. The SPE covenants relate to the operational separateness of Stonebridge Holdings as a legal entity — the maintenance of separate accounts, separate books, separate governance, and a limited purpose. These operational characteristics are independent of the entity's federal income tax classification. An entity can be operationally separate and legally distinct for purposes of state law, bankruptcy analysis, and commercial transactions while simultaneously being "disregarded" for federal income tax purposes.
This distinction is well-established in commercial real estate practice. Construction lenders and permanent lenders across the commercial mortgage market routinely accept disregarded entity borrowers, provided that the SPE covenants are properly drafted and incorporated into the borrower's organizational documents. There is no tension between being a "separate entity" for bankruptcy and commercial purposes and a "disregarded entity" for federal tax classification purposes; these are entirely different legal concepts that operate in distinct analytical frameworks.
We recommend confirming with Redmond & Calloway LLP (Victor Redmond, lender's counsel) that disregarded entity status is acceptable under the proposed credit agreement. Based on our extensive experience with construction loan documentation in the data center and commercial real estate sectors, we expect this to be a non-issue. No lender in a comparable transaction in our recent experience has required the borrower to elect corporate classification, and we are not aware of any lending institution that imposes such a requirement.
The Operating Agreement of Stonebridge Holdings should incorporate the full suite of SPE and separateness covenants required by the loan documents, and these covenants should be drafted to survive any future change in tax classification, ownership, or organizational restructuring. The Operating Agreement should also include a provision that the SPE covenants may not be amended without the prior written consent of the Administrative Agent.
C. Independent Manager Requirement
As noted above, the construction lenders will require Stonebridge Holdings to include at least one Independent Manager whose affirmative vote is required before the entity may take certain "springing" or fundamental actions — most critically, the filing of a voluntary bankruptcy petition, but also potentially including dissolution, merger, consolidation, or the transfer of all or substantially all of the entity's assets.
We recommend engaging a professional independent manager service provider, such as Pemberton Industries ("Fenmore Health IT"), Hollowell Technologies, or Cascade Systems ("NRAI"), to provide a qualified Independent Manager for Stonebridge Holdings. These service providers maintain a roster of individuals who are experienced in serving as independent managers of SPE borrower entities and who meet the independence criteria typically required by lenders — generally, an individual who is not an employee, officer, director, member, partner, or affiliate of the borrower or any of its affiliates and who has no material financial interest in or relationship with the borrower or its affiliates other than serving as Independent Manager.
The Independent Manager will hold a "special member" interest in Stonebridge Holdings. This interest will carry no economic rights whatsoever — specifically, no capital account, no right to allocations of income or loss, no right to distributions, and no economic participation in the entity's profits, losses, or capital. The Independent Manager's sole right will be the right (and obligation) to vote on the specified fundamental actions, and the Operating Agreement will require the Independent Manager's affirmative consent before any such action may be taken.
Tax Classification Impact. The inclusion of an Independent Manager holding a non-economic special member interest does not create a "second member" for federal tax classification purposes, provided the interest is properly structured. Under applicable Treasury guidance and established practice, a holder of a purely non-economic, non-participating interest in an LLC is not treated as a "member" or "owner" for purposes of the single-member versus multi-member classification analysis under Treasury Regulation § 301.7701-3. The Independent Manager has no capital account, no right to distributions, and no economic participation; the interest is, in substance, a governance right, not an ownership interest. Accordingly, Stonebridge Holdings will remain a single-member LLC treated as a disregarded entity, notwithstanding the inclusion of the Independent Manager.
To ensure clarity and certainty on this point, the Operating Agreement should include explicit provisions confirming that (a) the Independent Manager is not a "member" of the LLC for purposes of federal or state income tax classification, (b) the Independent Manager holds no economic interest of any kind, (c) the Independent Manager has no capital account and is not entitled to any allocation or distribution, and (d) the sole purpose of the Independent Manager's interest is to satisfy the governance requirements of the construction loan documents.
VI. Change of Control Considerations
The construction loan agreement for the Stonebridge Campus is expected to include a mandatory prepayment trigger upon any "change of control" of the Borrower (Stonebridge Holdings) or the Guarantor (IHDC). The change of control definition in the loan commitment term sheet is defined as any transfer, conveyance, assignment, or other disposition (whether direct or indirect, voluntary or involuntary, by operation of law or otherwise) resulting in Ridgeline Capital Partners Fund IV, LP ceasing to hold, directly or indirectly, at least 51% of the equity interests in the Borrower or the Guarantor.
This change of control threshold must be carefully monitored throughout the term of the construction loan and any subsequent permanent financing. Currently, Ridgeline Fund IV's indirect ownership of Stonebridge Holdings is as follows:
• Ridgeline Fund IV owns 100% of RCP Digital Holdings LLC;
• RCP Digital Holdings LLC owns 92% of IHDC;
• IHDC owns 100% of Stonebridge Holdings.
Ridgeline Fund IV's indirect interest in Stonebridge Holdings = 100% × 92% × 100% = 92%, which is well in excess of the 51% threshold.
The entity structure must be maintained such that any transfer analysis traces through each tier of the ownership chain — from Ridgeline Fund IV through RCP Digital Holdings LLC and IHDC to Stonebridge Holdings — to confirm ongoing compliance with the 51% indirect ownership threshold. This means that a disposition by Ridgeline Fund IV of its interest in RCP Digital, or a disposition by RCP Digital of a portion of its interest in IHDC, could trigger the change of control provision even though no direct transfer of Stonebridge Holdings membership interests occurs.
In addition to the construction loan change of control provisions, the EPC Agreement with Titan-McAllister Construction Group, LLC (the general contractor for the Stonebridge Campus development) includes a contractor consent right upon any change of control of the project owner entity. Under the EPC Agreement, a "Change of Control" of the Owner is defined to include any transaction or series of transactions resulting in a change in the identity of the Person that directly or indirectly Controls the Owner. The EPC Agreement requires that the Owner provide prior written notice to the Contractor of any proposed Change of Control and that the Contractor have a reasonable opportunity to consent (such consent not to be unreasonably withheld, conditioned, or delayed).
Any restructuring, recapitalization, or disposition of interests at any level of the ownership chain — including at the Ridgeline Fund IV, RCP Digital Holdings LLC, or IHDC level — must be evaluated for change of control triggers under both the construction loan documents and the EPC Agreement before any such transaction is consummated. This includes, without limitation, secondary sales of limited partnership interests in Ridgeline Fund IV, fundraising transactions involving RCP Digital or IHDC, management buy-in or buy-out transactions, and co-investment arrangements.
Furthermore, any tax-free restructuring transactions — such as mergers, conversions, or reorganizations involving entities in the ownership chain — must be analyzed not only for their federal and state income tax consequences but also for their compliance with these contractual change of control provisions. A transaction that is tax-neutral may nonetheless trigger a mandatory prepayment obligation or a contractor consent requirement if it alters the direct or indirect ownership percentages in a manner that crosses the applicable threshold.
A detailed cross-referencing analysis of the change of control provisions across the loan documents, the EPC Agreement, and the Landlord Load Serving Agreement ("LLSA") with Northgate Partners LLC is provided in the companion memorandum referenced in Section I above. That analysis maps each change of control definition, identifies the applicable thresholds and consent requirements, and provides a matrix of common transaction scenarios and their potential trigger effects.
VII. Tax Elections and Filings
A. Form 8832 — Entity Classification Election
Recommendation: Do not file. As discussed in Section III.A above, Stonebridge Holdings will default to disregarded entity classification for federal income tax purposes as a domestic single-member LLC under Treasury Regulation § 301.7701-3(b)(1)(ii). The filing of Form 8832 (Entity Classification Election) is unnecessary and would be appropriate only if a change from the default classification were desired. Because we recommend accepting the default classification, no Form 8832 should be filed.
B. EIN Application (Form SS-4)
Stonebridge Holdings should file Form SS-4 (Application for Employer Identification Number) with the Internal Revenue Service promptly upon formation. As discussed in Section III.E, the EIN is required for Virginia state filings, opening bank accounts, compliance with the construction loan documentation, vendor and contractor reporting, and real property tax filings with Loudoun County. The Form SS-4 can be filed online through the IRS Business & Specialty Tax Line, and the EIN should be available immediately or within a few business days of the application.
C. Virginia State Corporation Commission Registration
The Articles of Organization for Stonebridge Campus Holdings LLC should be filed with the Virginia State Corporation Commission to formally organize the entity as a domestic Virginia limited liability company. The Articles of Organization must include the entity's name, the name and address of its registered agent in Virginia, and other information required by the Virginia Limited Liability Company Act (Va. Code § 13.1-1000 et seq.). The filing fee for Articles of Organization is $100. Upon filing, the SCC will issue a certificate of organization confirming the entity's existence.
Following formation, Stonebridge Holdings will be subject to the annual registration fee of $50, as discussed in Section IV.B above. The entity's registered agent should be a professional registered agent service with a physical address in Virginia to ensure prompt receipt of service of process and official correspondence from the SCC and other governmental authorities.
D. Virginia Income Tax — No Separate Entity Filing
Because Virginia conforms to the federal check-the-box regulations for purposes of entity classification, Stonebridge Holdings will be treated as a disregarded entity for Virginia income tax purposes as well as for federal income tax purposes. Accordingly, Stonebridge Holdings will not file a separate Virginia income tax return.
All Virginia-source income and loss attributable to the Stonebridge Campus will be reported on IHDC's Virginia Form 502 (Virginia Pass-Through Entity Return of Income). IHDC will also issue Virginia Schedule VK-1s to its members, reporting each member's distributive share of Virginia-source income, deductions, and credits. As discussed in Section IV.C, IHDC will be responsible for Virginia withholding on any nonresident members' shares of Virginia-source income, to the extent required by Va. Code § 58.1-486.1.
E. Loudoun County Filings
Upon the commencement of business operations at the Stonebridge Campus, Stonebridge Holdings (or IHDC, as the disregarded entity's owner) may be required to obtain a Loudoun County business license and to file applicable BPOL tax returns. The specific filing requirements will depend on the nature and classification of the business activities conducted at the campus, as discussed in Section IV.D above. These filings should be evaluated and prepared in advance of the commencement of revenue-generating activities.
In addition, annual data center equipment tax returns will be required once IT equipment is placed in service at the campus. The first equipment tax filing is expected to coincide with the certificate of occupancy for Building A, which is currently estimated for August 2027. The equipment tax return will require a detailed inventory and valuation of all taxable computer equipment and peripherals located at the facility.
F. Virginia Data Center Sales Tax Exemption
Virginia provides a sales and use tax exemption for certain computer equipment and enabling software purchased for use in qualified data centers, codified at Va. Code § 58.1-609.3(18). This exemption is a significant economic incentive for data center development in Virginia and can generate substantial cost savings on equipment procurement.
A separate qualification analysis under Va. Code § 58.1-609.3(18) is currently being conducted by this office in coordination with Fielding & Associates. The exemption requires, among other things, that the applicant make a minimum capital investment of $150,000,000 over a five-year period and create a minimum of 50 new jobs at the data center facility. The Stonebridge Campus project, with a total budget of $600,000,000, is expected to comfortably exceed the minimum capital investment threshold, and IHDC's operational plans for the campus anticipate the creation of well in excess of 50 new full-time positions.
The entity through which the exemption is claimed must be identified in the exemption application filed with the Virginia Department of Taxation. Because Stonebridge Holdings is a disregarded entity, the exemption application should be filed in the name of IHDC (as the taxpayer of record), with Stonebridge Holdings identified as the site-level entity at which the qualifying equipment will be located and used. The application will need to include supporting documentation regarding the planned capital investment, job creation projections, and the nature of the qualifying equipment purchases.
The estimated sales tax savings from this exemption are substantial. Based on preliminary projections, approximately $300,000,000 in qualifying equipment purchases are anticipated for the Stonebridge Campus over the build-out period. At the combined Virginia state and local sales tax rate of 5.3%, this would generate estimated sales tax savings of approximately $15,900,000 — a material contribution to the project's overall economics.
A detailed analysis of the sales tax exemption qualification requirements, application process, compliance obligations, and clawback provisions is provided in the companion memorandum referenced in Section I above.
VIII. Coordination with Cost Segregation and Depreciation
A cost segregation study is a critical tax planning tool for the Stonebridge Campus project, and we recommend that the study be commissioned upon construction commencement. The Notice to Proceed ("NTP") under the EPC Agreement with Titan-McAllister Construction Group, LLC is currently targeted for November 1, 2025. The cost segregation study should be engaged in advance of, or concurrently with, NTP issuance to ensure that the study can be coordinated with the construction schedule and that the cost segregation engineer has access to the construction drawings, specifications, and cost breakdowns from the earliest stages of the project.
A cost segregation study involves a detailed engineering-based analysis of the construction costs of the Stonebridge Campus buildings and site improvements, with the objective of identifying and reclassifying components that qualify for shorter depreciable lives under the Modified Accelerated Cost Recovery System ("MACRS"). Under current law, nonresidential real property (including data center buildings) is generally depreciated over a 39-year recovery period using the straight-line method. However, certain building components — such as electrical systems dedicated to data center equipment, specialized cooling and HVAC systems, raised flooring, fire suppression systems, site improvements, and decorative or non-structural elements — may qualify for classification as 5-year, 7-year, or 15-year property, allowing for significantly accelerated depreciation deductions.
Based on preliminary estimates prepared by IHDC's development team and benchmarked against cost segregation studies for comparable data center projects, approximately $45,000,000 of building costs are expected to be reclassifiable from the 39-year nonresidential real property category to shorter depreciable lives. This reclassification will generate substantial accelerated depreciation deductions in the early years following the placed-in-service date of each building, enhancing the after-tax cash flow and internal rate of return for the equity investors.
Because Stonebridge Holdings is a disregarded entity, these depreciation deductions will not be reported on a separate return for Stonebridge Holdings. Instead, they will flow through to IHDC's partnership return (Form 1065) and will be allocated to IHDC's two members — RCP Digital Holdings LLC (92%) and Ironhaven Management Incentive Pool LLC (8%) — in accordance with the allocation provisions of the IHDC Operating Agreement. From RCP Digital (a disregarded entity), the deductions will flow through to Ridgeline Fund IV, which will in turn allocate them to its limited partners and general partner on their respective Schedule K-1s.
We recommend coordinating with Fielding & Associates, CPAs (Robert Fielding, engagement partner) on the engagement of a qualified cost segregation specialist firm. The specialist should be engaged sufficiently in advance of the NTP date to allow for the planning and scoping of the study, including the identification of the specific building components to be analyzed, the establishment of a site inspection schedule, and the coordination with the EPC contractor's cost accounting systems.
A detailed analysis of the cost segregation study's scope, timing, estimated benefits, and coordination with the construction schedule is provided in the companion memorandum referenced in Section I above.
IX. Management Incentive Pool Considerations
As noted in Section II.A above, 8% of the membership interests in IHDC are held by Ironhaven Management Incentive Pool LLC, a Delaware limited liability company that serves as a profits-interest vehicle for key members of IHDC's management team. The individuals who participate in the management incentive pool include Marcus Thorne (CEO), Priya Dasgupta (CFO), Leonard Castellano (EVP, Development), and certain other key employees of IHDC.
The profits interests held by Ironhaven Management Incentive Pool LLC are designed to qualify for favorable tax treatment under Revenue Procedure 93-27, 1993-2 C.B. 343, and Revenue Procedure 2001-43, 2001-2 C.B. 191. Under these revenue procedures, the receipt of a profits interest in a partnership (or an entity classified as a partnership for federal tax purposes) by a person in exchange for services is generally not a taxable event at the time of the grant, provided that the interest entitles the holder only to a share of future profits and appreciation and does not entitle the holder to any share of the partnership's existing capital (i.e., the interest has a "liquidation value" of zero at the time of grant). This treatment allows management participants to receive equity-like compensation in IHDC without immediate income recognition, with the expectation that they will be taxed on their share of income and gains only as and when such amounts are allocated and distributed.
The creation of Stonebridge Holdings as a disregarded subsidiary of IHDC is fully transparent from a tax perspective with respect to the management profits interests. Because Stonebridge Holdings is disregarded, all income, deductions, gains, losses, and credits generated by the Stonebridge Campus flow through to IHDC as if IHDC directly owned and operated the campus. There is no "trapping" of income or loss at the Stonebridge Holdings level, and there is no change in the manner in which partnership items are allocated among IHDC's members (including the management incentive pool). The economics and tax treatment of the management profits interests are unaffected by the formation of Stonebridge Holdings.
No additional tax elections or filings are required at the Stonebridge Holdings level in connection with the management incentive structure. The existing provisions of the IHDC Operating Agreement governing the allocation of income, gain, loss, deduction, and credit among its members — including the special allocation provisions applicable to the profits interests — will continue to apply to all of IHDC's activities, including those conducted through Stonebridge Holdings.
We note, however, that the significant increase in IHDC's asset base and income potential resulting from the Stonebridge Campus development may warrant a review of the existing IHDC Operating Agreement's allocation and distribution waterfall provisions to confirm that the profits interest thresholds and hurdle rates remain appropriate and accurately reflect the parties' intent. This review is beyond the scope of this memorandum but should be discussed with Douglas Fairchild and the client.
X. Timing and Action Items
A. Immediate Action Items
The follow

PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION

MEMORANDUM

MATTER NO.: 1043-00002

Record

Parties

Dates

Amounts