Western Union 2011 Annual Report Download - page 46

If the Spin-off does not qualify as a tax-free transaction, First Data and its stockholders could be subject to
material amounts of taxes and, in certain circumstances, we could be required to indemnify First Data for
material taxes pursuant to indemnification obligations under the tax allocation agreement.
First Data received a private letter ruling from the IRS to the effect that, the Spin-off (including certain related
transactions) qualifies as tax-free to First Data, us and First Data stockholders for United States federal income
tax purposes under sections 355, 368 and related provisions of the Internal Revenue Code, assuming, among
other things, the accuracy of the representations made by First Data with respect to certain matters on which the
IRS did not rule. If the factual assumptions or representations made in the private letter ruling request were
determined to be untrue or incomplete, then First Data and ourselves would not be able to rely on the ruling.
The Spin-off was conditioned upon First Data’s receipt of an opinion of Sidley Austin LLP, counsel to First
Data, to the effect that, with respect to requirements on which the IRS did not rule, those requirements would be
satisfied. The opinion was based on, among other things, certain assumptions and representations as to factual
matters made by First Data and us which, if untrue or incomplete, would jeopardize the conclusions reached by
counsel in its opinion. The opinion is not binding on the IRS or the courts, and the IRS or the courts may not
agree with the opinion.
If, notwithstanding receipt of the private letter ruling and opinion of tax counsel, the Spin-off were determined
to be a taxable transaction, each holder of First Data common stock who received shares of our common stock in
connection with the Spin-off would generally be treated as receiving a taxable distribution in an amount equal to
the fair value of our common stock received. First Data would recognize taxable gain equal to the excess of the
fair value of the consideration received by First Data in the contribution over First Data’s tax basis in the assets
contributed to us in the contribution. If First Data were unable to pay any taxes for which it is responsible under
the tax allocation agreement, the IRS might seek to collect such taxes from Western Union.
Even if the Spin-off otherwise qualified as a tax-free distribution under section 355 of the Internal Revenue
Code, the Spin-off may result in significant United States federal income tax liabilities to First Data if 50% or
more of First Data’s stock or our stock (in each case, by vote or value) is treated as having been acquired,
directly or indirectly, by one or more persons as part of a plan (or series of related transactions) that includes the
Spin-off. For purposes of this test, any acquisitions, or any understanding, arrangement or substantial
negotiations regarding an acquisition, within two years before or after the Spin-off are subject to special scrutiny.
With respect to taxes and other liabilities that could be imposed as a result of a final determination that is
inconsistent with the anticipated tax consequences of the Spin-off (as set forth in the private letter ruling and
relevant tax opinion) (“Spin-off Related Taxes”), we, one of our affiliates or any person that, after the Spin-off, is
an affiliate thereof, will be liable to First Data for any such Spin-off Related Taxes attributable solely to actions
taken by or with respect to us. In addition, we will also be liable for 50% of any Spin-off Related Taxes (i) that
would not have been imposed but for the existence of both an action by us and an action by First Data or
(ii) where we and First Data each take actions that, standing alone, would have resulted in the imposition of such
Spin-off Related Taxes. We may be similarly liable if we breach certain representations or covenants set forth in
the tax allocation agreement. If we are required to indemnify First Data for taxes incurred as a result of the
Spin-off being taxable to First Data, it likely would have an adverse effect on our business, financial condition,
results of operations and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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