1
[REED SMITH SHAW & MCCLAY LLP LETTERHEAD]
February 11, 1998
Carey Diversified LLC
50 Rockefeller Plaza
New York, New York 10020
Gentlemen:
You have requested our opinions with respect to certain Federal income
tax matters in connection with the Dividend Reinvestment and Share Purchase Plan
of Carey Diversified LLC (the "Company") (the "Plan"). The consolidation by
merger (the "Consolidation") of nine public limited partnerships in the
Corporate Property Associates series of limited partnerships is more fully
described in the Registration Statement on Form S-4, Registration No. 333-37901
dated October 16, 1997(the "Registration Statement"), and the Prospectus
included therein filed by Carey Diversified LLC (the "Company" or "LLC") with
the Securities and Exchange Commission. All terms used herein have the
respective meanings set forth in the Prospectus or Plan.
In connection with the Registration Statement, we have acted as your
counsel and have assisted in the preparation of the tax summary for such
Registration Statement. In rendering or confirming the opinions stated below and
referred to in the Plan and Registration Statement, we have examined and relied
upon the following:
1. Amended and Restated Agreements of Limited Partnership for the
Partnerships;
2. Amended and Restated Limited Liability Company Agreement of Carey
Diversified LLC (hereinafter the "Operating Agreement");
3. Bylaws of Carey Diversified LLC;
4. The Prospectus, Registration Statement and Plan; and
5. Such other documents, records and instruments as we have deemed
necessary in order to permit us to render and confirm the opinions referred to
herein.
2
REED SMITH SHAW & MCCLAY LLP
Carey Diversified LLC
February 11, 1998
Page 2
In our examination, in those cases in which we have not been involved
directly in the preparation, execution or the filing of a document, we have
assumed that (i) the document reviewed by us is an original document, or a true
and accurate copy of the original document, and has not been subsequently
amended, (ii) the signatures on each original document are genuine, and (iii)
each party who executed the document had proper authority and capacity.
For purposes of rendering and confirming the opinions stated below and
referred to in the Plan and Prospectus, we have assumed and have relied on the
following:
(a) The truth and accuracy of the statements contained in the Plan and
Prospectus;
(b) The representations, views and beliefs of the Manager referred to
in the "Certain Federal Income Tax Considerations" section of the Plan and the
"Income Tax Consequences" section of the Prospectus and elsewhere in the Plan
and Prospectus are true, correct and accurate.
With respect to opinions (1) and (2) rendered below, we have
additionally assumed and have relied on the following:
(a) That the Partnerships have been organized and have been and will be
operated at all times during their existence in accordance with the provisions
of the Partnership Agreements, the description of their organization and
operation contained in the Prospectus, and all applicable state statutes
pertaining to limited partnerships, and the Partnership Agreements will not be
amended or modified in any manner which would adversely affect the
classification of the Partnerships as a partnership for Federal income tax
purposes;
(b) That the Company will be organized and operated at all times during
its existence in accordance with the provisions of the Operating Agreement, the
description of its organization and operation contained in the Prospectus, and
all applicable state statutes pertaining to Limited Liability Companies, and the
Operating Agreement will not be amended or modified in any manner which would
adversely affect the classification of the Company as a partnership for Federal
income tax purposes;
(c) That the Company will satisfy the gross income requirements of Code
Section 7704; and
3
REED SMITH SHAW & MCCLAY LLP
Carey Diversified LLC
February 11, 1998
Page 3
(d) That each Partnership will satisfy the gross income requirements of
Section 7704 of the Code and/or will not be a "publicly traded partnership" as
that term is defined in Section 7704 of the Code.
Our opinions stated below and confirming those referred to in the Plan
are based upon the California Revised Limited Partnership Act, the Delaware
Limited Liability Company Act, the Delaware Revised Uniform Limited Partnership
Act, the Code, final and proposed Treasury Regulations, legislative history,
published administrative positions of the IRS and court decisions, all as of the
date of this letter. We can furnish no assurance that changes in the relevant
statutes, regulations, administrative positions or court decisions will not be
made in the future which would modify or supersede our opinions.
Additionally, our opinions are not binding on the IRS or the courts and
there can be no assurance that the IRS will not assert positions contrary to our
opinions or that a court considering the issues would not agree with the IRS.
Our opinions represent our conclusions based upon the documents, facts and
assumptions referred to above, any modifications to or changes of which might
affect our opinions. Although we have made such inquiries and performed such
investigation as we have deemed necessary to fulfill our professional
responsibilities as counsel, we have not attempted to verify independently each
of the facts and assumptions referred to above. On the other hand, nothing has
come to our attention which would cause us to question such facts and
assumptions.
In rendering our opinions stated below and confirming those referred to
in the Plan and Prospectus, we have considered the relevant professional
standards, including those expressed in American Bar Association Formal Opinion
346 (Revised), January 29, 1982, and have considered all material tax issues
which have a reasonable probability of being challenged by the IRS. Furthermore,
although we believe that the Plan and Prospectus contains full and fair
disclosure of such material tax issues, we can provide no assurance that the IRS
will not challenge the Federal income tax positions taken by the Company, the
Partnership or the Partners on grounds not disclosed in the Plan and Prospectus.
Finally, we express no opinion on any Federal income tax matter or
other matter except those set forth or confirmed below. Specifically, for the
reasons set forth in the Prospectus, it is
4
REED SMITH SHAW & MCCLAY LLP
Carey Diversified LLC
February 11, 1998
Page 4
not possible for us to reach a conclusion as to the likely outcome (either
favorable or unfavorable) of certain Federal income tax matters, including but
not limited to: (1) whether the sale or disposition of any asset of the Company
or a Subsidiary Partnership might, at that time, be treated as being to a
customer of the Company or Subsidiary Partnership and in the ordinary course of
such entity's trade or business, thereby resulting in the entire gain recognized
upon such sale or disposition being treated as ordinary income rather than
capital gain; (2) whether the Company's or a Subsidiary Partnership's allocation
of basis between land and depreciable improvements will be respected for
purposes of computing depreciation or cost recovery (ACRS) deductions and
whether the Company's or any Subsidiary Partnership's allocation between real
estate assets and stock or warrants will be respected; (3) whether expenses
incurred by the Company prior to the time it was or is engaged in an active
trade or business will be deductible or required to be capitalized, and if the
latter, whether amortizable; and (4) whether the Company's or the Subsidiary
Partnerships' allocations of tax items have substantial economic effect.
Based upon and subject to the foregoing:
1. We are of the opinion that the Company and the Partnerships will be
classified as partnerships and not as associations taxable as corporations for
Federal income tax purposes.
2. Although the discussions set forth under the caption "Certain
Federal Income Tax Considerations" in the Plan and "Income Tax Consequences" in
the Prospectus do not purport to discuss all possible Federal income tax
consequences of the acquisition and ownership of the Company's shares acquired
under the Plan, such discussion constitutes, in all material respects, an
accurate summary of the Federal income tax considerations that are likely to be
material to a participant in the Plan.
Other than as expressly stated above, we express no opinion on any
issue relating to the Company or to any investment therein or under any law
other than the Federal income tax laws.
5
REED SMITH SHAW & MCCLAY LLP
Carey Diversified LLC
February 11, 1998
Page 5
We hereby consent to the use of this letter as an exhibit to the Plan
and to the reference of this firm in the Prospectus in "Legal Matters".
Very truly yours,
/s/ REED SMITH SHAW & McCLAY LLP
-----------------------------------
REED SMITH SHAW & McCLAY LLP
WLK/fgy