MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a general discussion of the material United States federal income tax consequences of the merger to U.S. holders (as defined below) of Sprint common stock. This discussion is limited to such U.S. holders who hold their shares of Sprint common stock as “capital assets” within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”) (generally, property held for investment). This discussion is based on current provisions of the Code, the Treasury regulations promulgated thereunder, judicial interpretations thereof and administrative rulings and published positions of the Internal Revenue Service (which we refer to as the “IRS”), each as in effect as of the date hereof, and all of which are subject to change or differing interpretations, possibly with retroactive effect, any of which changes could affect the accuracy of the statements and conclusions set forth herein.
This discussion does not purport to address all aspects of United States federal income taxation that may be relevant to particular U.S. holders of Sprint common stock in light of their particular facts and circumstances and does not apply to U.S. holders of Sprint common stock that are subject to special rules under the United States federal income tax laws, including, for example, banks or other financial institutions, dealers in securities or currencies, traders in securities that elect to apply a mark-to-market method of accounting, insurance companies, tax-exempt entities, entities or arrangements treated as partnerships for United States federal income tax purposes or other flow-through entities (and investors therein), subchapter S corporations, retirement plans, individual retirement accounts or other tax-deferred accounts, real estate investment trusts, regulated investment companies, U.S. holders liable for the alternative minimum tax, certain former citizens or former long-term residents of the United States, U.S. holders having a functional currency other than the U.S. dollar, U.S. holders who hold their Sprint common stock as part of a hedge, straddle, constructive sale, conversion transaction or other integrated transaction, U.S. holders who own or have at any time owned (directly or constructively) 5% or more of the outstanding Sprint common stock, and U.S. holders who acquired their Sprint common stock through the exercise of an employee stock option or otherwise as compensation. This discussion also does not apply to non-U.S. holders (as defined below).
This discussion does not address any considerations under United States federal tax laws other than those pertaining to the income tax, nor does it address any considerations under any state, local or non-U.S. tax laws, under the unearned income Medicare contribution tax, or under the Foreign Account Tax Compliance Act (by which we mean Sections 1471 through 1474 of the Code, the Treasury regulations and administrative guidance thereunder or any intergovernmental agreement entered into in connection therewith).
If an entity or arrangement treated as a partnership for United States federal income tax purposes holds Sprint common stock, the tax treatment of a person treated as a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Persons that for United States federal income tax purposes are treated as partners in a partnership holding Sprint common stock should consult their own tax advisors regarding the tax consequences to them of the merger.
For purposes of this discussion, the term “U.S. holder” means a beneficial owner of shares of Sprint common stock that is, for United States federal income tax purposes:
| • | an individual citizen or resident of the United States; |
| • | a corporation (or other entity taxable as a corporation for United States federal income tax purposes) created or organized in the United States, any state thereof or the District of Columbia; |
| • | an estate the income of which is subject to United States federal income tax regardless of its source; or |
| • | a trust (a) if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) that has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person for United States federal income tax purposes. |
For purposes of this discussion, the term “non-U.S. holder” means a beneficial owner of shares of Sprint common stock that is neither a U.S. holder nor a partnership for United States federal income tax purposes.
U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of Sprint Common Stock
It is intended that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and that U.S. holders of Sprint common stock will not recognize gain or loss for United States federal income tax purposes, except with respect to the receipt of cash in lieu of fractional shares of T-Mobile common stock. Only in the event that the HoldCo mergers are consummated is the closing of the merger conditioned upon receipt of an opinion of counsel to the effect that the merger will qualify as a “reorganization”. Otherwise, the merger will be completed without the receipt of any tax opinion from counsel. Furthermore, neither T-Mobile nor Sprint intends to request a ruling from the IRS regarding the United States federal income tax consequences of the merger. Accordingly, there can be no assurance that the merger will so qualify.
If the merger does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, a U.S. holder of Sprint common stock generally would recognize capital gain or loss in an amount equal to the difference, if any, between (1) the sum of the fair market value of the shares of T-Mobile common stock and the amount of cash in lieu of fractional shares of T-Mobile common stock received in the merger, and (2) such holder’s tax basis in the shares of Sprint common stock surrendered. Gain or loss must be calculated separately for each block of shares of Sprint common stock exchanged by such U.S. holder if such blocks were acquired at different times or for different prices. Any gain or loss recognized generally would be long-term capital gain or loss if the U.S. holder’s holding period in a particular block of shares of Sprint common stock exchanged exceeds one year on the date of the merger. Long-term capital gain of non-corporate U.S. holders (including individuals) is eligible for preferential United States federal income tax rates. The deductibility of capital losses is subject to limitations. A U.S. holder generally would have an aggregate tax basis in the shares of T-Mobile common stock received in the merger equal to the fair market value of such shares as of the date such shares are received. A U.S. holder’s holding period in shares of T-Mobile common stock received in the merger would begin on the day following the merger.
The remainder of this discussion proceeds on the basis that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.
A U.S. holder receiving shares of T-Mobile common stock in exchange for shares of Sprint common stock pursuant to the merger will not recognize any gain or loss, except with respect to the receipt of cash in lieu of fractional shares of T-Mobile common stock (as discussed below). The U.S. holder’s aggregate tax basis in the shares of T-Mobile common stock received in the merger (including any fractional shares of T-Mobile common stock deemed received and sold by the exchange agent) will be equal to the U.S. holder’s aggregate tax basis in the shares of Sprint common stock surrendered, and the U.S. holder’s holding period for the shares of T-Mobile common stock received in the merger (including any fractional shares of T-Mobile common stock deemed received and sold by the exchange agent) will include the U.S. holder’s holding period of the Sprint common stock surrendered.
If a U.S. holder acquired different blocks of shares of Sprint common stock at different times and at different prices, such U.S. holder should consult its tax advisor regarding the determination of the basis and holding period of shares of T-Mobile common stock received in the merger in respect of particular blocks of shares of Sprint common stock.
Cash in Lieu of Fractional Shares of T-Mobile Common Stock
A U.S. holder of Sprint common stock who receives cash in lieu of a fractional share of T-Mobile common stock in the merger generally will be treated as having received such fractional share in the merger and then as having sold such fractional share. Gain or loss generally will be recognized based on the difference between the
amount of cash received in lieu of the fractional shares of T-Mobile common stock and the U.S. holder’s tax basis in such fractional share. Any gain or loss recognized generally will be long-term capital gain or loss if the holding period for the shares of Sprint common stock exchanged is more than one year on the date of the merger. Long-term capital gain of non-corporate U.S. holders (including individuals) is eligible for preferential United States federal income tax rates. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding
Payments of cash made to a U.S. holder generally will be subject to information reporting and may be subject to U.S. federal backup withholding (currently, at a rate of 24%).
To prevent backup withholding, U.S. holders of Sprint common stock should provide the exchange agent with a properly completed IRS Form W-9. Backup withholding is not an additional tax. Any amount withheld under the backup withholding rules may be refunded or credited against a U.S. holder’s United States federal income tax liability if the required information is supplied to the IRS in a timely manner.
THIS DISCUSSION IS NOT TAX ADVICE. ALL HOLDERS OF SPRINT COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THEM IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS ANY TAX CONSEQUENCES OF THE MERGER ARISING UNDER U.S. FEDERAL TAX LAWS OTHER THAN THOSE PERTAINING TO INCOME TAX (INCLUDING ESTATE OR GIFT TAX LAWS), OR UNDER ANY STATE, LOCAL OR NON-U.S. TAX LAWS.
