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EXHIBIT 8.1
[REED SMITH SHAW & MCCLAY LLP LETTERHEAD]
February 12, 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 Carey Diversified LLC's shelf registration
statement on Form S-1 (the "Shelf Registration"). 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 Shelf Registration.
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 Shelf Registration 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 Shelf
Registration; 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.
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February 12, 1998
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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 Shelf Registration and Prospectus, we have assumed and
have relied on the following:
(a) The truth and accuracy of the statements contained in the
Shelf Registration and Prospectus;
(b) The representations, views and beliefs of the Manager
referred to in the "Income Tax Consequences" sections of the Shelf Registration
and Prospectus and elsewhere in the Shelf Registration 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
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February 12, 1998
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(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
Shelf Registration 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 Shelf Registration 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 Shelf Registration 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
Shelf Registration 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
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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
"Income Tax Consequences" in the Shelf Registration 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
issued under the Shelf Registration, such discussion constitutes, in all
material respects, an accurate summary of the Federal income tax considerations
that are likely to be material to those receiving shares pursuant to the Shelf
Registration.
3. We hereby confirm that each of the statements in the
Prospectus and Shelf Registration in which it is stated that counsel has advised
the Company or Partnerships of an opinion as to the probable outcome of an issue
if the issue were fully litigated in court accurately reflects our current
opinion as to such issue.
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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.
We hereby consent to the use of this letter as an exhibit to the
Shelf Registration 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