discusssion on taxes from IR andproxy
Please refer to the Proxy Statement/Prospectus relating to the
acquisition of Broadwing by Level 3 Communications for a detailed
discussion on the United States Federal Income Tax Consequences to
Broadwing Shareholders. You can reference the proxy as it is presented
in Level 3's SEC filings dated November 22 / November 24, 2006. Per
your request, I have attached a link to Level 3's website. The detailed
description begins on page 64 of the proxy.
lvlt.client.shareholder.com
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United States Federal Income Tax Consequences to Broadwing Shareholders
U.S. Holders
A U.S. holder of Broadwing shares will generally recognize gain (but not loss) in an amount equal to the lesser of (1) the amount of gain realized (i.e., the excess, if any, of the sum of the amount of cash and the fair market value, as of the effective time of the merger, of the Level 3 shares received in the merger over that stockholder’s adjusted tax basis in its Broadwing shares surrendered) and (2) the amount of cash received in the merger. For this purpose, the amount of gain (or disallowed loss) must be calculated separately for each identifiable block of shares surrendered in the exchange, and a loss realized on one block of shares may not be used to offset a gain realized on another block of shares. U.S. holders of Broadwing shares should consult their tax advisors regarding the manner in which cash and Level 3 shares received in the merger should be allocated among different blocks of Broadwing shares surrendered in the merger. Any recognized gain will generally be long-term capital gain if the stockholder’s holding period of the Broadwing shares surrendered is more than one year at the effective time of the merger.
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Notwithstanding the above, if the cash received has the effect of the distribution of a dividend, the gain will be treated as a dividend to the extent of the stockholder’s ratable share of current or accumulated earnings and profits as calculated for U.S. federal income tax purposes. In general, the determination of whether the gain recognized in the merger will be treated as capital gain or dividend income will depend upon whether and to what extent the exchange in the merger reduces the U.S. holder’s deemed percentage share ownership interest in Level 3. For purposes of this determination, a U.S. holder of Broadwing shares will be treated as if it first exchanged all of its Broadwing shares solely for Level 3 shares and then Level 3 immediately redeemed a portion of those Level 3 shares in exchange for the cash that the U.S. holder actually received. In determining whether the receipt of cash has the effect of a distribution of a dividend, the Internal Revenue Code’s constructive ownership rules must be taken into account. The Internal Revenue Service has indicated in rulings that any reduction in the interest of a minority stockholder that owns a minimal number of shares in a publicly and widely held corporation and that exercises no control over corporate affairs would result in capital gain as opposed to dividend treatment. A U.S. holder of Broadwing shares that might be subject to these rules should consult his or her own tax advisor.
The aggregate tax basis of any Level 3 shares received in the merger by a U.S. holder of Broadwing shares will be equal to the aggregate adjusted tax basis of the Broadwing shares surrendered in the merger, reduced by the amount of any cash received by the stockholder in the merger and increased by the amount of any gain recognized by the stockholder on the exchange (including any portion of the gain that is treated as a dividend as described above). The holding period of any Level 3 shares received in the merger by a U.S. holder of Broadwing shares will include the holding period of the Broadwing shares surrendered in the merger. If a U.S. holder has different bases or holding periods in respect of its Broadwing shares, the holder should consult its tax advisor prior to the merger with regard to identifying the bases or holding periods of the particular shares of Level 3 common stock received in the merger.
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"...As you know, tax matters are very complicated. The tax consequences of
the merger to you will depend on your own situation, and we urge you to
consult your own tax advisor for a full understanding of the tax
consequences to you.
Dawn Benchelt
Level 3 Communications, formerly Broadwing, Investor Relations |
