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2 BASIS No. 2i Same as Basis No. 1, except UP eonveys to LVL&W Go. at Railroad's percentage of purchase offer and LVL&W sell combined properties to Water District. BASIS No. 3: Convey LA&SL facilities to UP at tax base. UP sell to LVL&W at market value, with market value predicated on the appraised value of LA&SL facilities ($1,711,295) referred to -in paragraph 4 (a variation would be to use Water Dis­trict's appraisal, per Exhibit 1, which might be more accept­able to BIR). BASIS No. 4: . Dissolution of LVL&W Co. and acquisition of all as sets by LA&SLRR Co. under following procedure: (1) As andkwhen the voters approve the Water District's purchase of the water facilities, approve plan of liquidation of LVL&W Co. so as to come withinkthe provisions of Sec. 112(b)(6) I.R.C. (2) LA&SL would then convey the production and distribution facilities to UPRR Co. who would sell them to the Water District. Either Basis No. 3 or No. 4 appears to provide the most satisfactory procedure, providing the Bureau of Internal Revenue would accept them. However, it is felt that Basis No. 4 presents a greater possibility of acceptance as the appraisal in Basis No. 3 might not be acceptable as market value. Mr. Reinhardt's letter of January 30, 1953 indicates the desirability of transferring all of the properties to the LVL&W Co. as soon as possible toJdivorce as far as possible the Railroad's connection with the water business. This ad­vantage may be more important - than the tax advantage and, if so, it would appear Ithat our greatest advantage is obtainable though Basis No. 3 if it will stand up before the Bureau of Internal Revenue. Since the income tax return is filed and such matters are initially handled with the Bureau of Internal Revenue by Mr. Tracy, I would like to handle the matter with him for his opinion. However, before doing so, I would appreciate having your further comments and suggestions in regard to the situation as outlined in the four proposed bases. R. M. SUTTON RMS