The Dallas-based telecommunications company reported the ruling in a regulatory filing released Dec. 29. After announcing the deal in May, the companies began a multistep process known as a Reverse Morris Trust, which enables AT&T and its partner to complete the process without incurring capital gains taxes.
“On Dec. 28, 2021, the company received a favorable private letter ruling from the IRS regarding the qualification of the contribution of the WarnerMedia business to SpinCo pursuant to the separation, the distribution and certain related transactions for their intended tax treatments,” AT&T reported in the filing.
As a result of the transaction, AT&T plans to separate New York-based WarnerMedia from its other holdings for the merger with New York-based Discovery.
In order to guarantee the deal is tax-free, AT&T’s shareholders must retain a majority stake in the newly merged entity to demonstrate to the IRS that no capital gains occurred as a result of the sale.
Per the terms of the deal, AT&T stockholders will control 71% of the new company, and Discovery’s stockholders will own the other 29%.
WarnerMedia-Discovery Merger Gets ‘Favorable’ IRS Rating