Clearwire 2009 Annual Report Download - page 50

p
urpose, t
h
e
f
a
i
r mar
k
et va
l
ue ascr
ib
e
d
to t
h
ose assets at t
h
et
i
me o
f
contr
ib
ut
i
on was ca
l
cu
l
ate
db
ase
d
upon a va
l
ue
of $17 per Clearwire Communications Non-Votin
g
Interest plus liabilities assumed b
y
Clearwire Communications
at the time of contribution. We refer to contributed assets that have a fair market value that exceeds the tax basis o
f
th
ose assets on t
h
e
d
ate o
f
contr
ib
ut
i
on as
b
u
il
t-
i
nga
i
n assets. Un
d
er Sect
i
on 704(c) o
f
t
h
eCo
d
e,
i
tems o
fi
ncome,
g
ain, loss or deduction of Clearwire Communications must be allocated amon
g
its members for tax purposes in a
m
anner t
h
at ta
k
es account o
f
t
h
e
diff
erence
b
etween t
h
e tax
b
as
i
san
d
t
h
e
f
a
i
r mar
k
et va
l
ue o
f
t
h
e
b
u
il
t-
i
nga
i
n assets.
T
h
e
b
u
il
t-
i
nga
i
n assets o
f
C
l
earw
i
re Commun
i
cat
i
ons w
i
t
h
t
h
e
l
argest amounts o
fb
u
il
t-
i
nga
i
n are spectrum an
d
ot
h
er
i
ntan
gibl
e assets.
Cl
earw
i
re Commun
i
cat
i
ons w
ill
ma
i
nta
i
naca
pi
ta
l
account
f
or eac
h
mem
b
er, w
hi
c
h
w
ill
re
fl
ect t
h
e
f
a
i
r mar
k
et
va
l
ue o
f
t
h
e propert
y
contr
ib
ute
dby
t
h
at mem
b
er to C
l
earw
i
re Commun
i
cat
i
ons an
d
t
h
e amount o
f
w
hi
c
hg
enera
lly
will correspond to the member’s percentage interest in Clearwire Communications. For capital account purposes
,
C
l
earw
i
re Commun
i
cat
i
ons w
ill
amort
i
ze t
h
eva
l
ue o
f
t
h
e contr
ib
ute
db
u
il
t-
i
n
g
a
i
n assets,
g
enera
lly
on a stra
igh
t-
line basis over a period of up to 1
5y
ears, and each member will be allocated amortization deductions,
g
enerall
y
on a
p
ro rata basis in proportion to the number of Clearwire Communications Non-Votin
g
Interests held b
y
the membe
r
as compare
d
to t
h
e tota
l
num
b
er o
f
C
l
earw
i
re Commun
i
cat
i
ons Non-Vot
i
ng Interests. Tax amort
i
zat
i
on on a
b
u
il
t-
i
n
g
ain asset, which will be based on the tax basis of that asset, will be allocated first to the non-contributin
g
members
(meanin
g
members other than Clearwire, in the case of former Clearwire assets, and members other than Sprint, in
th
e case o
ff
ormer Spr
i
nt assets),
i
n an amount up to t
h
e cap
i
ta
l
account amort
i
zat
i
on a
ll
ocate
d
to t
h
at mem
b
er w
i
t
h
r
espect to that asset. Thus, the consequence of the built-in
g
ain will be that Clearwire, in the case of former
Clearwire assets, will be allocated amortization deductions for tax
p
ur
p
oses that are less than its share of the ca
p
ital
account amort
i
zat
i
on w
i
t
h
respect to t
h
ose assets. In t
hi
sc
i
rcumstance, C
l
earw
i
re w
ill
recogn
i
ze over t
i
me,
i
nt
he
f
orm o
fl
ower tax amort
i
zat
i
on
d
e
d
uct
i
ons, t
h
e
b
u
il
t-
i
n
g
a
i
n
f
or w
hi
c
hi
t was
gi
ven econom
i
c cre
di
tatt
h
et
i
me o
f
formation of Clearwire Communications
.
If
t
h
ere
i
s not enou
gh
tax
b
as
i
s
i
na
b
u
il
t-
i
n
g
a
i
n asset to ma
k
e tax a
ll
ocat
i
ons o
f
amort
i
zat
i
on
d
e
d
uct
i
ons to t
h
e
n
on-contributin
g
members in an a
gg
re
g
ate amount equal to their capital account amortization with respect to tha
t
asset, then the regulations under Section 704(c) of the Code permit the members to choose one of several methods t
o
account
f
or t
hi
s
diff
erence. Un
d
er t
h
e Operat
i
n
g
A
g
reement a
ll
o
f
t
h
e
b
u
il
t-
i
n
g
a
i
n assets contr
ib
ute
dby
C
l
earw
i
r
e
and
5
0% of the built-in
g
ain in the assets contributed b
y
Sprint will be accounted for under the so-called “remedial
”
m
ethod. Under that method, the non-contributin
g
members will be allocated “phantom” tax amortization deduc-
ti
ons
i
nt
h
e amount necessary to cause t
h
e
i
r tax amort
i
zat
i
on
d
e
d
uct
i
ons to
b
e equa
l
to t
h
e
i
r cap
i
ta
l
accoun
t
amortization on the built-in
g
ain asset, and the contributin
g
member (Clearwire, in the case of Old Clearwire assets)
will be allocated a matchin
g
item of phantom ordinar
y
income. The remedial method is intended to ensure that the
e
nt
i
re tax
b
ur
d
en w
i
t
h
respect to t
h
e
b
u
il
t-
i
nga
i
nona
b
u
il
t-
i
nga
i
n asset
i
s
b
orne
b
yt
h
e contr
ib
ut
i
ng mem
b
er. Un
d
e
r
t
he Operatin
g
A
g
reement, the remainin
g5
0% of the built-in
g
ain in the assets contributed b
y
Sprint will be
accounted for under the so-called “traditional” method. Under that method
,
the tax amortization deductions
a
ll
ocate
d
to t
h
e non-contr
ib
ut
i
ng mem
b
ers w
i
t
h
respect to a
b
u
il
t-
i
nga
i
n asset are
li
m
i
te
d
to t
h
e actua
l
tax
amort
i
zat
i
on ar
i
s
i
n
gf
rom t
h
e
b
u
il
t-
i
n
g
a
i
n asset. T
h
ee
ff
ect o
f
t
h
e tra
di
t
i
ona
l
met
h
o
di
st
h
at some o
f
t
h
e tax
b
ur
d
e
n
with respect to the built-in gain on a built-in gain asset is shifted to the non-contributing members, in the form o
f
r
educed tax amortization deductions.
T
he use of the remedial method for all of the Old Clearwire assets, but for onl
y
a portion of the former Sprint
assets, means t
h
at C
l
earw
i
re w
ill b
ear t
h
e ent
i
re tax
b
ur
d
en w
i
t
h
respect to t
h
e
b
u
il
t-
i
nga
i
nont
h
eO
ld
C
l
earw
i
re
assets, an
d
w
ill h
ave s
hif
te
d
to
i
t a port
i
on o
f
t
h
e tax
b
ur
d
en w
i
t
h
respect to t
h
e
b
u
il
t-
i
n
g
a
i
nont
h
e
f
ormer Spr
i
nt
assets. Accordin
g
l
y
, Clearwire is likel
y
to be allocated a share of the taxable income of Clearwire Communications
th
at excee
d
s
i
ts proport
i
onate econom
i
c
i
nterest
i
nC
l
earw
i
re Commun
i
cat
i
ons, an
d
C
l
earw
i
re may
i
ncur a mater
i
a
l
li
a
bili
ty
f
or taxes. However, su
bj
ect to t
h
eex
i
st
i
ng an
d
poss
ibl
e
f
uture
li
m
i
tat
i
ons on t
h
e use o
f
C
l
earw
i
re’s NOLs
under Section 382 and Section 384 of the Code, Clearwire’s NOLs are
g
enerall
y
expected to be available to offset, t
o
th
e extent o
f
t
h
ese NOLs,
i
tems o
fi
ncome an
d
ga
i
na
ll
ocate
d
to C
l
earw
i
re
b
yC
l
earw
i
re Commun
i
cat
i
ons. See
“
R
i
s
k
Factors — T
h
ea
bili
ty o
f
C
l
earw
i
re to use
i
ts NOLs to o
ff
set
i
ts
i
ncome an
d
ga
i
n
i
ssu
bj
ect to
li
m
i
tat
i
on. I
f
us
e
of its NOLs is limited, there is an increased likelihood that Clearwire Communications will be re
q
uired to make a
t
ax distribution to Clearwire” beginning on page 39. Clearwire Communications is required to make distributions to
C
l
earw
i
re
i
n amounts necessary to pay a
ll
taxes reasona
bl
y
d
eterm
i
ne
db
yC
l
earw
i
re to
b
e paya
bl
ew
i
t
h
respect to
i
ts
di
str
ib
ut
i
ve s
h
are o
f
t
h
e taxa
bl
e
i
ncome o
f
C
l
earw
i
re Commun
i
cat
i
ons, a
f
ter ta
ki
n
gi
nto
40