t c memo united_states tax_court john s halpern petitioner v commissioner of internal revenue respondent docket no filed date richard a levine for petitioner michael a menillo and tyrone j montague for respondent memorandum opinion dawson judge this case was assigned to special_trial_judge carleton d powell pursuant to rule sec_180 sec_181 and sec_183 all rule references are to the tax_court rules_of_practice and procedure the court agrees with and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge powell special_trial_judge by notice_of_deficiency respondent determined additions to tax under sec_6653 - - and 6659' in the respective amounts of dollar_figure and dollar_figure due from petitioner for the taxable_year respondent also determined an addition_to_tax under sec_6653 in the amount of percent of the interest due on a deficiency in the amount of dollar_figure and that the increased interest provisions of sec_6621 applied after a concession by respondent regarding the inapplicability of the additions to tax regarding petitioner’s investment in greenfield arbitrage partners the sole issue before the court at this time is whether petitioner is foreclosed from litigating the items contained in the notice_of_deficiency regarding resource reclamation associates rra by a closing_agreement that he and respondent executed pursuant to sec_7122 petitioner resided in new york new york at the time the petition was filed background the relevant facts may be summarized as follows on his federal_income_tax return petitioner claimed inter alia ordinary losses from his limited_partnership_interest in resource reclamation associates rra and greenfield arbitrage partners greenfield in the respective amounts of dollar_figure and dollar_figure petitioner further reported dollar_figure of property qualifying for section references are to the internal_revenue_code in effect for the year in issue the investment_tax_credit and dollar_figure of property qualifying for the business_energy_credit partially resulting in a dollar_figure claimed regular investment_tax_credit and resulting ina dollar_figure claimed business_energy_investment_credit with respect to rra petitioner invested dollar_figure in rra by letter dated date respondent proposed to disallow the deductions from rra and greenfield and the credits from rra petitioner was represented by the law firm of kirkland ellis with respect to the greenfield issues by letter dated date kirkland ellis asked that the rra issues be deferred until the greenfield issues are resolved on date respondent’s appeals_office executed a closing_agreement with respect to the greenfield issues that agreement was signed by steven kamerman mr kamerman on behalf of petitioner with regard to rra on date mr kamerman and petitioner executed a closing_agreement that agreement was signed by respondent’s appeals_office on date the agreement provided inter alia the taxpayer petitioner has claimed income deductions and or credits on his tax returns for the taxable years and relating to the resource reclamation assoc tax_shelter hereafter the tax_shelter which are in dispute between the taxpayer and the commissioner of internal revenue hereafter the irs items of income deductions and or credits relating to the tax_shelter are in issue in a case pending before the united_states tax_court harold m provizer and joan provizer v commissioner docket no hereafter the controlling case - - the taxpayer and the irs desire to settle the disputed tax_shelter issues on the same basis as finally determined in the controlling case now it is hereby determined and agreed for federal_income_tax purposes that the above adjustment shall be determined by application of the same formula as that which resolved the tax_shelter adjustment whether litigated or settled in the controlling case as set forth in the final_decision as defined by sec_7481 in the controlling case all issues involving the above adjustment shall be resolved as if the taxpayer was the same as the petitioner in the controlling case a if the court finds that any additions to tax or the sec_6621 interest are applicable to the underpayment attributable to the above-designated tax_shelter adjustment the resolution of the tax_shelter issue and the applicability of such additions to tax or interest to that tax_shelter issue as determined in the controlling case whether by litigation or settlement shall apply to the taxpayer as if the taxpayer was the same as the petitioner in the controlling case fn refs omitted the provizer case referenced as the controlling case in the agreement was decided adversely to the taxpayers by this court the court also sustained the additions to tax under sec_6653 and and determined that the increased interest provisions of sec_6621 were applicable see provizer v commissioner tcmemo_1992_177 affd without published opinion 996_f2d_1216 6th cir the facts concerning the transactions in provizer may be summarized as follows packaging industries group inc pi manufactured and sold six sentinel recyclers the recyclers to ethynol cogeneration inc eci for dollar_figure each eci in - - turn resold the recyclers to f g equipment corp f g corp for dollar_figure each f g corp leased the recyclers to the clearwater group partnership which then licensed the recyclers to first massachusetts equipment corp fmec which sublicensed them back to pi pi allegedly sublicensed the recyclers to entities the end-users which would use them to recycle plastic scrap the sublicense agreements provided that the end-users would transfer to pi percent of the recycled scrap in exchange for payment from fmec based on the quality and amount of recycled scrap all of the foregoing transactions were executed simultaneously the sale of the recyclers from pi to eci was financed with nonrecourse notes approximately percent of the sales_price of the recyclers sold by eci to f g corp was paid in cash and the remainder was financed through notes the notes provided that percent of the amount thereof was recourse but that the recourse portion was due only after the nonrecourse portion had been paid in full all of the monthly payments required among the entities in the above transactions offset each other in provizer v commissioner supra we found that the market_value of a sentinel recycler in did not exceed dollar_figure and that the nuts and bolts or manufacturing cost was dollar_figure the provizers were limited partners in a partnership named clearwater group clearwater and the general_partner was samuel -- - l winer mr winer clearwater was one of many plastics recycling partnerships in which mr winer was the general_partner in this case petitioner invested in rra and the general_partner was richard roberts mr roberts like mr winer mr roberts was the general_partner in many plastics recycling partnerships in greene v commissioner tcmemo_1997_296 the court found that the transactions involving the sentinel epe recyclers leased by rra are substantially identical to those in clearwater moreover we have carefully examined the private offering memorandum in rra and do not find that there is any meaningful difference between the structural facts of the partnership set out in the offering memorandum and the facts that this court found in provizer on date respondent filed a motion for entry of decision the gravamen of that motion is that petitioner is bound by the closing_agreement in opposition to respondent’s motion petitioner alleges that he was not afforded an see eg ulanoff v commissioner tcmemo_1999_170 plymouth equipment associates and taylor recycling associates merino v commissioner tcmemo_1997_385 northeast resource recovery associates affd 196_f3d_147 3d cir sann v commissioner tcmemo_1997_259 affd sub nom 205_f3d_54 2d cir empire associates plymouth equipment associates and foam recycling associates zenkel v commissioner tcmemo_1996_398 phoenix recycling group and scarborough leasing associates where mr winer was also a general_partner stone v commissioner tcmemo_1996_ northeast resource recovery associates and hyannis recycling associates pace v commissioner tcmemo_1995_580 hyannis recycling associates opportunity to settle his case as were other similarly situated taxpayers the notice_of_deficiency is invalid because respondent did not audit rra the closing_agreement relates only to the items relating to rra the ‘tax shelter’ defined in the closing_agreement and provizer v commissioner supra did not involve items relating to rra and the closing_agreement is invalid because it was executed as a result of a misrepresentation of fact or fraud perpetrated by the internal_revenue_service respondent’s motion and petitioner’s opposition thereto were set for hearing on date that hearing focused on whether there was a malfeasance or a misrepresentation of a material fact on the part of respondent at the time that the closing_agreement was executed subsegquent to the hearing the court issued an order denying respondent’s motion for entry of decision on the ground that there is a genuine issue of material fact as to whether respondent committed malfeasance or misrepresented a material fact in obtaining the closing_agreement in issue this case was then calendared for trial discussion sec_7121 provides that the secretary may enter into an agreement in writing with any person relating to the liability of such person in respect of any internal revenue - - tax for any taxable_period sec_7121 provides inter alia sec_7121 finality -- such agreement shall be final and conclusive and except upon a showing of fraud or malfeasance or misrepresentation of a material fact--- in any suit action or proceeding such agreement shall not be annulled modified set_aside or disregarded an agreement under sec_7121 is referred to as a closing_agreement and it is not disputed that petitioner executed such a closing_agreement the issue is whether he is bound by that agreement petitioner essentially makes two arguments first he contends that the agreement should be set_aside because of misrepresentation of material fact by respondent second he contends that as we understand under the literal language of the agreement he is not bound by the agreement we now turn to those issues misrepresentation of a material fact petitioner contends that when he executed the closing_agreement his attorney mr kamerman was told by harris e fisher mr fisher the appeals officer handling his case that the provizers were partners in rra when in fact they were partners in another partnership clearwater he further contends petitioner does not argue that respondent committed fraud --- - that if he had known that the partnership was one other than rra he would not have executed the closing_agreement we are willing to assume but do not decide that mr fisher may have represented that the provizers were partners in rra ’ nonetheless even if mr fisher represented that the provizers were partners in rra we are not satisfied that that misrepresentation constituted a misrepresentation of a material fact sec_7121 a material fact has been defined as a fact that is significant or essential to the issue or matter at hand black’s law dictionary 7th ed for purposes of sec_7121 a misrepresentation is not synonymous with a mistake it denotes something more deliberate or more conscious than mere error or mistake 32_bta_1063 under sec_7121 misrepresentation of a material fact must go to the essence of the agreement miller v irs bankr b a p 9th cir affd 81_f3d_169 9th cir since petitioner attacks the closing mr kamerman testified that mr fisher made this representation to him mr fisher testified that he did not remember making any such representation mr kamerman professed to have no knowledge of the plastics recycling tax_shelter project it may be questionable whether he even knew that there was more than one partnership involved furthermore mr roberts resigned as general_partner of rra in long before petitioner executed the closing_agreement and it is difficult to understand how the identity of the general_partner would have affected mr kamerman's decision to execute the closing_agreement -- - agreement he has the burden of establishing a misrepresentation of a material fact with clear_and_convincing proof 33_bta_718 see also brinkman v commissioner tcmemo_1989_217 if the partnerships were substantially identical we do not understand how the alleged misrepresentation could be considered a material fact the question then is whether the rra partnership in which petitioner invested was substantially different from clearwater the partnership involved in provizer v commissioner tcmemo_1992_177 it would seem that the first logical step would be as the court suggested to counsel to examine the record in provizer that record is a public document and has been available in the tax_court throughout these proceedings for reasons that are not entirely clear petitioner eschewed that approach this is rather peculiar because in greene v commissioner tcmemo_1997_296 the court found that the transactions involving the recyclers leased by rra are substantially identical to those in clearwater it is true that that finding was based there are two greene cases---88_tc_376 and greene v commissioner tcmemo_1997_296 in the first case elliot i miller was counsel of record and in the second case lanny m sagal was counsel mr kamerman has suggested that mr miller may have had a conflict of interest mr miller was not counsel in the second greene case that is discussed above on a stipulated record but petitioner has not shown that any of the facts stipulated in greene were different from the rra facts as noted we have examined the placement offering memorandum in rra and the transactions set forth in the offering appear virtually identical with the facts that the court found in provizer moreover at trial elliot i miller mr miller who represented pi the manufacturer of the recyclers during the relevant period testified that the same type of machines went to both rra and clearwater and that the recyclers were delivered to rra during mr miller testified that the partnerships were identical with two exceptions the number of machines may not have been the same and the general partners were different but other than that the transactions were the same as to the materiality of the alleged misrepresentation mr kamerman testified that he would not have recommended to petitioner that he be bound by litigation involving another partnership because there would be a different general_partner from rra mr kamerman explained that in his view the general_partner being different is a fundamental difference and it’s the counsel has raised questions as to the competency of the representation in the greene cases he did not know and apparently had made no effort to find out however what records counsel in the greene cases had while petitioner has complained that he cannot determine whether the partnerships were substantially identical it appears that there may have been avenues that were available but for reasons that are not readily apparent were not explored general partner’s motive and intent in carrying out the business that determines whether or not the tax_shelter had a profit_motive in the context of this case this is nonsense in provizer we found that the plastics recycling scheme was essentially an economic sham at the heart of that conclusion was the fact that the recyclers were grossly overvalued at no time did we indicate that the identity of the general_partner and his profit_motive had a material effect in resolving the plastics recyclying cases the issue here is whether the alleged misrepresentation was material in the context of whether the closing_agreement should stand and mr kamerman’s professed preoccupation with the identity of the general_partner really does not address that issue regardless who had been the general_partner the fact remains that the foundations of both partnerships rested on the same guicksand the closing_agreement petitioner argues that by the terms of the agreement he is not bound to the result in provizer petitioner’s argument as we understand focuses on the language in the preamble of the agreement the taxpayer has claimed income deductions and or credits relating to the rra tax_shelter hereafter the tax_shelter items of income deductions and or credits relating to the tax_shelter are in issue in a case pending before the united_states tax_court harold m provizer and joan provizer v commissioner docket no hereafter the controlling case fn ref omitted according to petitioner since the tax_shelter related to rra and rra’s items of income deductions and or credits were not in issue in provizer he should not be bound by the agreement the problem with this interpretation is that it essentially ignores the operative parts of the agreement if there is a conflict between the premises stated and the operative part of a closing_agreement the parties are bound by the operative part as we stated in 90_tc_753 sec_7121 does not bind the parties as to the premises underlying their agreement they are bound only as to the matters agreed upon sec_7121 in fact by excluding as grounds for rescission mistakes of fact or law the statute contemplates that the parties may premise their agreement upon such a mistake see also 97_tc_1 furthermore by executing the closing_agreement petitioner and respondent obviously intended that the parties would be bound to something e as stated by the operative part of the agreement all issues involving the above adjustment relating to rra shall be resolved as if the taxpayer petitioner was the same as the petitioner in the controlling case the controlling case was provizer petitioner’s reading of the language in the preamble therefore makes little sense on the other hand if the reference to rra refers generically to the cases involving the plastic recyclers the parts of the agreement are in harmony this seems to us to be the more logical reading of the language in the preamble and notwithstanding mr kamerman’s testimony it probably was what was intended by the parties cf 45_f3d_1085 7th cir in sum we do not find that there wass a misrepresentation of a material fact and under sec_7121 we may not set_aside or disregard the closing_agreement furthermore we find that petitioner is bound by provizer v commissioner supra under the closing_agreement ’ respondent also filed a motion for an award of a penalty under sec_6673 that section provides in relevant part at trial petitioner raised the argument that the closing_agreement should be set_aside because petitioner allegedly did not receive a prior offer that was more favorable to him than that which resulted from our provizer v commissioner tcmemo_1992_177 the theory apparently was that this amounted to malfeasance under sec_7121 or at least it was on that theory that the court allowed examination of the witnesses on that issue petitioner has not argued this point on brief and it is deemed conceded see 82_tc_546 affd 774_f2d_644 4th cir wolf v commissioner tcmemo_1992_432 affd 13_f3d_189 6th cir aside from the so-called tefra partnership provisions see sec_6621 through and on point sec c that do not apply here there is nothing in the internal_revenue_code that requires that an offer to one taxpayer be extended to other taxpayers moreover it should be noted that there was a patent inconsistency in petitioner’s argument that mr fisher’s alleged misrepresentation was to a material fact and petitioner’s insistence that he was entitled to an alleged settlement based upon other plastics recycling cases the latter argument must assume that he was entitled to the offer because the cases were substantially identical -- - that if it appears to the court that a proceeding has been maintained primarily for delay or the taxpayer’s position is frivolous or groundless the court may award a penalty to the united_states in an amount not in excess of dollar_figure see sec_6673 we admit that we are concerned about petitioner’s motives in pursuing this litigation prior to the evidentiary hearing the court told mr kamerman petitioner’s counsel at the time that if the two partnerships were substantially the same there was no misrepresentation of a material fact for purposes of sec_7121 at the hearing petitioner failed to introduce any probative evidence on this point on the other hand while petitioner’s position on the misrepresentation of a material fact is highly suspect we cannot say that his argument concerning the closing_agreement was frivolous or made primarily for delay even though we may disagree with its conclusion accordingly we shall deny respondent’s motion for a penalty under sec_6673 a an appropriate order will be issued and decision will be entered under rule


internal_revenue_service number release date index number ---------------------- ------------------------------ ---------------------------------- ----------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-158124-04 date february ------------------------------ ---------------------- legend corporation ------------------------------------------------------------- shareholder -------------------------------------------------------------- state date date dear ---------------- ---------------------- ------------------ -------- this letter responds to your letter dated date and subsequent correspondence written on behalf of corporation requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted corporation was incorporated in state on date corporation s sole shareholder shareholder intended that corporation would elect to be an s_corporation effective date however there is no record of corporation filing a timely form_2553 election by a small_business_corporation effective date shareholder represents that corporation and shareholder filed their federal_income_tax returns consistent with corporation being treated as an s_corporation for corporation's taxable_year beginning date corporation and shareholder agree to plr-158124-04 amend their federal_income_tax returns to report all tax items consistent with corporation being treated as an s_corporation for corporation's taxable_year beginning date applicable law sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides when an s election will be effective generally if an election to be treated as an s_corporation is made within the first two and one-half months of a corporation s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the fifteenth day of the third month of a corporation s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year following the year the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such election as timely made for such taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that corporation has established reasonable_cause for failing to make a timely s_corporation_election pursuant to sec_1362 accordingly provided corporation makes an election to be treated as an s_corporation for federal tax purposes by filing a completed form_2553 containing an effective date of date with the appropriate service_center within days following the date of this letter then such election will be treated as timely made furthermore this ruling is contingent on corporation and shareholder filing within days following the date of this letter amended federal_income_tax returns consistent with the treatment of corporation as an s_corporation for the taxable_year beginning date a copy of this letter should be attached to the form_2553 and each amended_return filed with the service centers plr-158124-04 except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically we express or imply no opinion concerning whether corporation otherwise is eligible to be an s_corporation for federal tax purposes pursuant to a power_of_attorney on file with this office we are sending a copy of this ruling is directed only to the taxpayer who requested it sec_6110 this letter to corporation s authorized representative provides that it may not be used or cited as precedent sincerely yours james a quinn senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp plr-112114-99 date date re mutual state x state y dear this is in reply to a letter dated date in which rulings are requested as to the federal_income_tax consequences of a proposed transaction additional information was received in a letter dated date the facts submitted are substantially as summarized below mutual is a state x mutual_savings_bank which is insured and regulated by state x and the fdic mutual has no authorized stock instead the holders of mutual’s deposit accounts have liquidation and voting rights in mutual for what have been represented to be valid business purposes mutual’s board_of directors has decided to convert to a mutual holding_company structure accordingly mutual bank proposes the following transaction i mutual will organize a state x chartered mutual holding_company mhc which will initially be organized in stock form and initially exist as mutual’s wholly-owned subsidiary ii iii mhc will organize two wholly-owned subsidiaries a state y capital stock corporation stock holding_company that will subsequently hold percent of stock bank’s stock and an interim state stock savings bank interim the following events will occur simultaneously mutual will exchange its charter for a state x stock savings bank charter becoming stock bank mhc will cancel its outstanding_stock and exchange its charter for a state x mutual holding_company charter becoming mhc a mutual institution owned by the former members of mutual immediately before this transaction interim will merge with and into stock bank with stock bank surviving as a wholly owned subsidiary of mhc as a result stock bank formerly mutual will be the wholly owned subsidiary of mhc a mutual entity in which the former members of mutual will hold ownership interests comparable to those they previously held in mutual iv mhc then will contribute percent of the stock of stock bank to stock holding_company its wholly owned company v vi simultaneously with the foregoing steps stock holding_company will offer for sale percent of its common_stock with priority subscription rights granted in descending order to certain depositors in the former mutual to certain employee stock benefit plans of mutual to other depositors and to certain members of the general_public stock holding_company will contribute an amount of stock holding_company stock equal to percent of that outstanding to an applicant for tax exempt status under sec_501 as a result of these steps stock bank will be a wholly owned subsidiary of stock holding_company which will be until step v in transaction occurs a wholly owned subsidiary of mhc as a mutual entity mhc will not have any authorized capital stock the depositors of mutual and later stock bank will hold all of the liquidation and voting rights to the extent provided for by law or regulation in mhc as long as they maintain deposit accounts in stock bank you propose that the transactions described in step iii above be treated as in substance the conversion of mutual to stock form followed by contribution of mutual now stock bank by its owners to mhc in exchange for mutual ownership interests in mhc followed by the contribution of mutual now stock bank by mhc to stock holding_company you further propose that the conversion of mutual bank to stock form be treated as a reorganization described in sec_368 of the internal_revenue_code and that the contribution of mutual now stock bank by its owners to mhc in exchange for mutual ownership interests in mhc be treated as a transfer of property solely in exchange for stock described in sec_351 sec_3 of revproc_99_3 1999_1_irb_103 provides that the internal_revenue_service will not rule on the qualification of a transaction as a reorganization under sec_368 additionally sec_3 of revproc_99_3 provides that the service will not rule on the application of sec_351 to an exchange of stock for stock in the formation of a holding_company although revproc_99_3 provides a general no-rule policy concerning sec_368 and sec_351 the service has discretion to rule on significant subissues that must be resolved to determine whether a transaction qualifies under either of these sections the service will only rule on such subissues if they are significant and not clearly and adequately addressed by a statute regulation decision of the supreme court tax_treaty revenue_ruling revenue_procedure notice or other authority published in the internal_revenue_bulletin you have represented that to the best of your knowledge and belief and but for the resolution of your requested rulings below the conversion of mutual to stock bank as described in step iii above constitutes a reorganization described in sec_368 and that a contribution of mutual now stock bank by its owners to mhc in exchange for mutual ownership interests in mhc constitutes a transfer described in sec_351 of property in exchange for stock with respect to the conversion of mutual from a state chartered mutual_savings_bank to a state chartered stock savings bank as described in step iii above you have requested two subissues rulings one is that the requirement of sec_1_368-1 of the income_tax regulations that there be a continuity_of_interest on the part of the owners of the enterprise prior to the reorganization is satisfied by the constructive exchange of the members’ mutual ownership interests in mutual for stock interest in stock bank notwithstanding the members’ constructive exchange of that stock for mutual ownership interests in mhc immediately thereafter the other is that neither the transaction described in step iii above involving in substance the contribution of mutual now stock bank by its owners to mhc in exchange for mutual ownership interests in mhc nor the contribution of mhc of stock bank to stock holding_company described in step iv above nor the stock offered of stock holding_company will prevent mutual’s exchange of its charter for that of a state x chartered stock savings bank from qualifying as a reorganization under sec_368 with respect to the remainder of the transaction described in steps iii iv v and vi above you have requested two subissues rulings one is that the merger of interim with and into stock bank in which the depositors transfer the stock of stock bank constructively received in the conversion of mutual into stock bank to mhc in exchange for mutual ownership interests therein will be treated as the contribution of mutual now stock bank by its owners to mhc in exchange for mutual ownership interests in mhc the other is that the mutual ownership interests in the mhc will be treated as stock within the meaning of sec_351 accordingly based on the information and representations set forth above and in your submission we hold as follows the requirements of sec_1_368-1 that there be a continuity_of_interest on the part of the owners of the enterprise prior to the reorganization is satisfied by the constructive exchange of the mutual members’ mutual ownership_interest in mutual for stock interests in stock bank notwithstanding the members’ constructive exchange of that stock for mutual ownership interests in mhc immediately thereafter see revrul_80_105 1980_1_cb_78 revrul_69_646 1969_2_cb_54 neither the transaction described in step iii above involving in substance the contribution of mutual now stock bank by its owners to mhc in exchange for mutual ownership interests in mhc see ruling below nor the contribution by mhc of stock bank to stock holding_company described in step iv above nor the stock offering of stock holding_company will prevent mutual’s exchange of its charter for that of a state x chartered stock savings bank from qualifying as a reorganization under sec_368 see revrul_96_29 1996_1_cb_50 revrul_69_516 1969_2_cb_56 the transaction described in step iii above will be treated as involving in substance a contribution of mutual now stock bank by its owners to mhc in exchange for mutual ownership interests in mhc see revrul_90_95 1990_2_cb_67 revrul_67_448 1967_2_cb_144 the mutual ownership interests in the mhc will be treated as stock within the meaning of sec_351 see revrul_69_3 1969_1_cb_103 a determination as to whether the conversion of mutual to stock form qualifies under sec_368 and whether the exchange of stock bank shares for mutual ownership interests in mhc is described in sec_351 will be made by the district director’s office upon audit of the federal_income_tax returns of mutual stock bank stock holding_company and mhc we express no opinion about the tax treatment of the transactions under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above rulings this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer sincerely yours assistant chief_counsel corporate by debra carlisle chief branch


significant index number zp department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named pian which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning date this extension applies to the eligible amortization charge bases as identified in your application submission established as of date the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status f423049 iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the to the and to your authorized representative pursuant to a power_of_attorney on file in this office this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours te he david m ziegler manager ep actuarial group


internal_revenue_service number release date index number ---------------------------------------------- ----------------------------------------------- ------------------------------------- ----------------------------------------------------- ------------------------------------------ --------------------------------------------- re ---------------------------------------------- -------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-130191-16 date date legend date donor trust date individual trustees limited trustee date state court statute statute --------------------------- ------------------------------ ------------------------------------------------------ ---------------------------- ------------------------ ----------------------- ------------------------ ------------------------------- -------------- ---------------------------- --------------- ------------------------------------------------------------------------------ -------------------------------------------- ----------------------------------------------- dear ------------------------------------------------------- this letter responds to your authorized representative’s letter of date requesting rulings regarding the income estate gift and generation-skipping_transfer gst tax consequences of the proposed division and modification of trust facts the facts and representations submitted are summarized as follows plr-130191-16 on date a date prior to date donor established an irrevocable_trust trust for the primary benefit of four classes of individual beneficiaries described below the current trustees are individual trustees and limited trustee trust is governed by the laws of state under paragraph each of the four classes consists of the following beneficiaries class one includes the living grandchildren of donor class two includes the respective spouses of donor’s grandchildren class three includes the respective issue of donor’s grandchildren class four includes the respective spouses of the respective issue of donor’s grandchildren and class five includes the donor’s siblings classes six through sixteen consists of individuals who are members of donor’s immediate and extended family there are currently seventeen living members of class one individually grandchild collectively grandchildren six living members of class two eight living members of class three and two living members of class five there are currently no living members of class four paragraph dollar_figure provides the trustees have the power to make discretionary distributions of income and principal all income not distributed shall be accumulated and added to principal distributions may be made to one some or all members of any classes then eligible to receive distributions and in such proportions and amounts equal or unequal as the trustees possessing the power of discretionary distributions under paragraph dollar_figure deem advisable in their sole discretion the power to make distributions shall include the power to make complete distributions of all the trust assets at any time and thereby terminate the trust under sec_4 persons eligible to receive distributions shall be the living members of the classes determined in the following order living members of classes one two three four and five are eligible to receive distributions in the event there are no living members of classes one through five paragraph dollar_figure identifies members of other classes of individual beneficiaries consisting of donor’s immediate and extended family who would be thereupon eligible to receive distributions from trust paragraph dollar_figure provides that in the event all classes close the trust assets will be distributed to such persons as determined under state law excluding donor’s spouse and donor’s heirs-at-law section dollar_figure provides that in the event of a termination of trust in whole or in part distribution of assets shall be made among the issue of donor who are members of the class or classes then eligible to receive distributions under paragraph dollar_figure in such amounts and proportions as the trustees possessing the power of discretionary distributions under paragraph dollar_figure deem advisable if no such issue of donor are then living such distribution shall be made among the issue of donor’s grandfather who are members of such class or classes plr-130191-16 paragraph dollar_figure also provides that any assets of trust governed by a statute or rule_of law under which such assets could not validly remain in trust until the date above prescribed shall be distributed on the last date on which such assets can validly remain in trust paragraph dollar_figure provides that the trustees shall have certain powers or where so provided duties exercisable without approval order or license of any court including under paragraph the power to exercise all other powers conferred upon trustees generally by law to the extent such powers are not inconsistent with the powers contained in the trust agreement and to perform all other acts necessary or advisable to administer the trust paragraph dollar_figure provides that any trustee possessing the power of discretionary distributions may not include any beneficiary or anyone who is a_related_or_subordinate_party to donor or other contributors within the meaning of sec_672 on date trustees petitioned court to divide trust into seventeen separate trusts referred to as the divided trusts subject_to adjustments in order to equalize the shares for distributions previously made from trust to certain of the individual beneficiaries the trustees will allocate and distribute trust assets equally among the seventeen divided trusts each divided trust will be for the primary benefit of the class consisting of one grandchild the grandchild’s spouse the grandchild’s issue and the respective spouses of the grandchild’s issue if any grandchild family line the trustees will allocate and divide trust’s primary asset shares of a closely-held corporation equally among the seventeen divided trusts also the trustees will allocate and divide the other assets of trust among the divided trusts in such amounts and proportions as is necessary in order for the total value of the assets allocated between and among the divided trusts to be equal after taking into account certain discretionary distributions made from trust to the beneficiaries prior to the division the dispositive provisions of each divided trust are the same in all material respects as the dispositive provisions of trust except that in the case of each divided trust the sole member of class one will be the grandchild for whose family line the divided trust is being administered the sole member of class two will be the spouse of the grandchild the sole members of class three will be the issue of the grandchild and the sole member of class four will consist of the respective spouses of the issue of grandchild if at any time there is no living member of a particular family line the divided trust administered for the benefit of that family line will terminate and the remaining assets of that divided trust will be allocated and distributed equally to and among such of the other divided trusts as are then being administered for the other family lines with living members plr-130191-16 if donor has additional grandchildren trustees of each divided trust will distribute to a new divided trust for the benefit of the new grandchild’s family line a fraction of its assets and liabilities equal to one divided by the number of divided trusts then being administered plus one any assets or liabilities previously distributed from any divided trust will not be taken into account on date court issued an order that authorized the trustees to divide trust upon the receipt of a favorable private_letter_ruling from the internal_revenue_service it is represented that no actual or constructive additions were made to trust after date you have requested the following rulings after the proposed division and modification of trust the divided trusts will continue to be exempt from the gst tax the proposed division and modification of trust will not cause any of donor’s grandchildren or any member of their respective family lines to be treated as having made any transfer subject_to the gift_tax the proposed division and modification of trust will not cause any portion of the assets of the divided trusts to be includible in the gross_estate of any of donor’s grandchildren or any member of their respective family lines for purposes of the estate_tax the allocation of the assets and liabilities of trust in approximately equal shares as described herein whether done on a pro_rata or non-pro rata basis will not cause trust the divided trusts the grandchildren of donor or any member of their respective family lines to recognize any ordinary_income or loss or capital_gain or loss for income_tax purposes the adjusted_basis of the assets received by the divided trusts will be the same as the respective adjusted_basis of the assets held by trust pursuant to sec_1015 and the holding periods of the assets received by the divided trusts will be the same as the holding periods of the assets in trust pursuant to sec_1223 plr-130191-16 law and analysis ruling sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer the term generation-skipping_transfer is defined in sec_2611 as a taxable_distribution a taxable_termination and a direct_skip under a of the tax_reform_act_of_1986 act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 the gst tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes thus generally the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer sec_26_2601-1 example illustrates a situation where in grantor established an irrevocable_trust for the benefit of grantor’s two children a and b and their issue under the terms of the trust the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be plr-130191-16 distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a’s issue and one for the benefit of b and b’s issue the trust for a and a’s issue provides that the trustee has the discretion to distribute trust income and principal to a and a’s issue in such amounts as the trustee deems appropriate on a’s death the trust principal is to be distributed equally to a’s issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b’s issue the trust for b and b’s issue is identical except for the beneficiaries and terminates at b’s death at which time the trust principal is to be distributed equally to b’s issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a’s issue the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter under statute a trustee may divide a_trust into two or more separate trusts the statute requires notice to the beneficiaries and the division may not impair the rights of any beneficiary or adversely affect the purposes of the trust under statute a trustee may petition the court for an order to construe or reform the terms of a_trust in this case trust will be divided into seventeen divided trusts the proposed provisions of the seventeen divided trusts will be the same in all material respects as the provisions of trust except that classes one through five will include only one grandchild family line the proposed division and modification of trust will not result in a shift of any beneficial_interest in the trusts to any beneficiary who occupies a generation lower than the persons holding the beneficial interests further the proposed division and modification of trust will not extend the time for vesting of any beneficial_interest in the divided trusts beyond the period provided for in trust accordingly based on the facts submitted and the representations made we conclude that after the proposed division and modification of trust divided trusts will continue to be exempt from the gst tax ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible plr-130191-16 sec_2512 provides that if the gift is made in property the value thereof at the date of the gift is considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money_or_money's_worth then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift and is included in computing the amount of gifts made during the calendar_year in this case the beneficiaries of each divided trust will have substantially the same interests after the proposed division that they had as beneficiaries under trust prior to the division because the beneficial interests rights and expectancies of the beneficiaries are substantially the same both before and after the proposed division and modification no transfer of property will be deemed to occur as a result of the division accordingly based on the facts submitted and the representations made we conclude that the proposed division and modification of trust as described above will not cause any of donor’s grandchildren or any member of their respective family lines to be treated as having made any transfer subject_to federal gift_tax ruling sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of death sec_2035 provides that if the decedent made a transfer by trust or otherwise of an interest in any property or relinquished a power with respect to any property during the 3-year period ending on the date of the decedent’s death and the value of such property or an interest therein would have been included in the decedent’s gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if such transferred interest or relinquished power had been retained by the decedent on the date of the decedent’s death the value of the gross_estate shall include the value of any property or interest therein which would have been so included sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom plr-130191-16 sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend revoke or terminate or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent’s death sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive in order for sec_2036 through to apply the decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth under which the decedent retained an interest in or power over the income or corpus of the transferred property in the present case the beneficiaries of the divided trusts will have the same interests after the division that they had as beneficiaries under trust the distribution management and termination provisions of each divided trust will be substantially_similar to the current_distribution management and distribution provisions of trust in addition no beneficiary who is acting as a trustee has any power to participate in discretionary distributions of income or principal discretionary distributions can only be made by trustees who are not related or subordinate to donor or grandchild no beneficiary has a power to appoint trust assets to themselves their estates their creditors or the creditors of their estates under either trust or divided trusts accordingly based on the facts submitted and the representations made we conclude that the proposed division and modification will not cause any portion of the assets of the divided trusts to be includible in the gross_estate of any of donor’s grandchildren or any member of their respective family lines for purposes of the estate_tax plr-130191-16 ruling sec_4 and sec_61 provides that gross_income includes gains derived from dealings in property and under sec_61 from an interest in a_trust sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 states that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained the transfer of assets from trust to the divided trusts will be made under the authority granted to the trustee under the express terms of the trust document thus the beneficiaries do not acquire their interests in the divided trusts as a result of the exchange of their interests in trust but instead by reason of the exercise of the trustee’s existing authority to make distributions in further trust accordingly based on the facts submitted and the representations made we conclude that the allocation of the assets and liabilities of trust in approximately equal shares as described herein whether done on a pro_rata or non-pro rata basis will not cause trust the divided trusts the grandchildren of donor or any member of their respective family lines to recognize any ordinary_income or loss or capital_gain or loss for income_tax purposes in addition the holding periods of the assets received by the divided trusts will be the same as the holding periods of the assets in trust pursuant to sec_1223 ruling sec_1015 provides that the basis in property acquired by a transfer in trust is the same as it would be in the hands of the grantor with adjustments for gain and loss recognized sec_1_1015-2 provides that in the case of property acquired after date by a transfer in trust other than a transfer in trust by gift bequest or devise plr-130191-16 the basis_of_property so acquired is the same as it would be in the hands of the grantor increased by the amount of gain or decreased in the amount of loss recognized to the grantor upon such transfer under the law applicable to the year in which the transfer was made sec_1_1015-2 applies the uniform basis principles in sec_1_1015-1 for determining the basis_of_property where more than one person acquires an interest in property by transfer in trust under sec_1_1015-1 property acquired by gift has a single or uniform basis although more than one person may acquire an interest in the property the uniform basis of the property remains fixed subject_to proper adjustment for items under sec_1016 and sec_1017 in this case sec_1001 does not apply to the proposed transaction accordingly based on the facts submitted and the representations made we conclude that after the proposed division and modification of trust and transfer of the assets into the divided trusts the adjusted_basis of the assets received by the divided trusts will be the same as the respective adjusted_basis of the assets held by trust pursuant to sec_1015 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed plr-130191-16 by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely lorraine e gardner lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b04 ------------- postf-149540-04 uilc date date to area_counsel small_business self- employed area from robert m brown associate chief_counsel income_tax accounting subject new york city real_property tax rebate this chief_counsel_advice responds to your request for assistance dated date specifically you have asked our office to review your memorandum and determine the proper federal_income_tax treatment of a new york city real_property tax rebate under sec_61 sec_111 and sec_164 of the internal_revenue_code this advice may not be used or cited as precedent issue what is the proper federal_income_tax treatment of the new york city real_property tax rebate conclusion a taxpayer who receives a rebate of new york city real_property tax previously deducted on a prior year’s federal_income_tax return must include the rebate in gross_income in the year received to the extent of any federal_income_tax benefit a taxpayer who receives a rebate of new york city real_property tax not previously deducted on a prior year’s federal_income_tax return is not required to include the rebate in gross_income in the year received however in either situation a taxpayer must include the rebate of the tax in gross_income to the extent that it exceeds the real_property tax paid_by the taxpayer illustrative situations are set forth below postf-149540-04 facts on date new york city amended title of its administrative code by adding which provides for a rebate of real_property_taxes on certain residential property for fiscal years beginning on date and ending on date qualified homeowners will receive a real_property tax rebate for each fiscal_year this rebate is contingent upon the city council’s decision not to increase real_property_taxes for the next fiscal_year if real_property_taxes are increased then the rebate is rolled back the amount of the rebate is dollar_figure or the property’s annual tax_liability whichever is less under a qualified homeowner is defined as an owner of property that is a one two or three family residence or a residential cooperative or condominium the property must be a primary residence of one or more of the owners further the owner must not be in arrears on property taxes in an amount over dollar_figure for cooperative buildings total arrears on the building may not exceed in the aggregate an average of dollar_figure for each dwelling_unit in the building there is no requirement that the owner actually paid the property_tax the requirement is that the owner must not be in arrears qualified homeowners usually pay their property taxes quarterly or semiannually based on new york city’s fiscal_year end of june they generally file their federal_income_tax returns on a calendar_year basis using the cash_receipts_and_disbursements_method of accounting depending on their circumstances most qualified homeowners will fall into one of four situations taxpayers who claimed the standard_deduction on their prior year federal_income_tax return and on their current_year federal_income_tax return taxpayers who claimed an itemized_deduction for real_property_taxes on their prior year federal_income_tax return and claimed the standard_deduction on their current_year federal_income_tax return taxpayers who claimed the standard_deduction on their prior year federal_income_tax return and claimed an itemized_deduction for real_property_taxes on their current_year federal_income_tax return or taxpayers who claimed an itemized_deduction for real_property_taxes on their prior year federal_income_tax return and on their current_year federal_income_tax return the city council determined that a fiscal_year increase in real_property_taxes was not required accordingly the city department of finance determined eligibility for the real_property tax rebate and in october and november of issued rebate checks for the fiscal_year to qualified homeowners in a telephone conversation the field counsel attorney assigned to this request informed the national_office that there was no question that the new york city real_property tax rebate provided by of the administrative code was properly postf-149540-04 characterized as a rebate of new york city real_property_taxes thus for purposes of this memorandum we assume that the rebate is in fact a rebate of real_property_taxes previously assessed by the city law and analysis sec_61 provides that except as otherwise provided in subtitle a gross_income means all income from whatever source derived see also sec_1_61-1 of the income_tax regulations sec_111 provides that gross_income does not include income attributable to the recovery during the taxable_year of any amount deducted in any prior taxable_year to the extent such amount did not reduce the amount of tax_imposed_by_chapter_1 of subtitle a in 460_us_370 1983_1_cb_50 the supreme court of the united_states explained the tax_benefit_rule specifically the tax_benefit_rule is a judicially developed principle that modifies the annual accounting doctrine under certain circumstances the basic purpose of the tax_benefit_rule is to achieve rough transactional parity in tax and to protect the government and the taxpayer from the adverse effects of reporting a transaction on the basis of assumptions that an event in a subsequent year proves to have been erroneous id pincite the tax_benefit_rule will cancel out an earlier deduction when the later event is fundamentally inconsistent with the premise on which the deduction was initially based id sec_164 provides in part the general_rule that except as otherwise provided in sec_164 state and local real_property_taxes shall be allowed as a deduction for the taxable_year within which paid_or_accrued in general a taxpayer who receives a rebate of state taxes previously deducted on a prior year’s federal_income_tax return must include the rebate in gross_income in the year received to the extent of any federal_income_tax benefit in accordance with sec_111 a taxpayer who receives a rebate of state taxes that were not previously deducted on a prior year’s federal_income_tax return is not required to include the rebate in gross_income in the year received see revrul_93_75 1993_2_cb_63 cf revrul_79_315 1979_2_cb_27 revrul_70_86 1970_1_cb_23 in either case however a taxpayer must include the rebate of state taxes in gross_income to the extent that it exceeds property taxes actually paid_by the taxpayer see eg revrul_78_194 1978_1_cb_24 in revrul_70_86 the internal_revenue_service addressed the tax treatment of rebates of california real_property_taxes under a prior version of sec_111 in an amendment to the california constitution eligible taxpayers would receive a relief payment in for real_property tax assessed for the fiscal_year if they filed a claim for the real_property tax relief payment in the revenue_ruling holds that for purposes of a taxpayer who uses the cash_receipts_and_disbursements_method of accounting and who files its return on a calendar_year basis a recovery_of the tax previously paid is postf-149540-04 excludable from gross_income to the extent that the underlying real_property tax deduction did not result in a tax_benefit for the prior year further the revenue_ruling provides that when the prior year’s real_property tax is paid in installments over years the relief payment is attributable to each such year in a manner proportionate with the installments made during such years moreover if the taxpayer has not yet paid the real_property tax then the relief payment is in the nature of a reduction of the amount of tax to be paid the revenue_ruling applies these rules to four situations similar to those presented in your request the analysis of each situation in the revenue_ruling varies depending on whether the taxpayer pays the real_property tax in the prior year pays the real_property tax in installments over the prior and current_year ie the year that the rebate is received or does not pay the real_property tax similar variations are addressed below in each situation below we assume that the individual taxpayers use the cash_receipts_and_disbursements_method of accounting and file their tax returns on a calendar_year basis applying the law and analysis discussed above to the situations presented we conclude as follows situation - standard_deduction claimed in the prior and current_year if the standard_deduction was claimed in both taxable years whether the entire real_property tax was paid in the prior year in the current_year or part paid in the prior year and part paid in the current_year the rebate is not includible in gross_income under the tax_benefit_rule because the taxpayer received no tax_benefit see situation a of revrul_70_86 a tax_benefit would have resulted if the taxpayer had taken an itemized_deduction for the real_property tax with a standard_deduction there is no specific deduction for real_property_taxes therefore the taxpayer did not receive a tax_benefit however if the rebate exceeds the amount of real_property tax paid then the excess is includible in gross_income see revrul_78_194 situation - itemized_deductions claimed in the prior year and the standard_deduction claimed in the current_year a entire real_property tax was paid in the prior year if an itemized_deduction for real_property tax was claimed in the prior year and the real_property tax was entirely paid in that taxable_year the rebate received in the current_year is includible in gross_income to the extent of the prior tax_benefit resulting from the deduction of the real_property tax payment see sec_111 b entire real_property tax was paid in the current_year because the taxpayer’s itemized_deductions in the prior year were not affected by the payment of the real_property tax in the current_year the rebate is not includible in gross_income under the tax_benefit_rule however the amount of the rebate reduces the postf-149540-04 amount of real_property tax paid in the current_year see situation c of revrul_70_86 c part of the real_property tax was paid in the prior year and the remaining part was paid in the current_year if part of the real_property tax was paid in the prior year and part in the current_year then the rebate must be apportioned over the years with respect to the actual amounts paid in each year the portion of the rebate attributable to the prior year is includible in gross_income for the current_year to the extent of the prior year’s tax_benefit resulting from the deduction of the portion of the taxes paid in that year the remaining portion of the rebate attributable to the current_year is not includible in the current year’s gross_income but rather reduces the amount of real_property tax paid see situation b of revrul_70_86 under all three of these variations if the rebate exceeds the property_tax paid the excess is includible in gross_income see revrul_78_194 situation - standard_deduction claimed in the prior year and itemized_deductions claimed in the current_year a entire real_property tax was paid in the prior year if the taxpayer claimed the standard_deduction in the prior year then the rebate is not includible in gross_income because there was no tax_benefit in the prior taxable_year see situation a of revrul_70_86 b entire real_property tax was paid in the current_year if the taxpayer claimed the standard_deduction in the prior year then the rebate is not includible in gross_income for the current_year however the amount of the rebate will reduce the deduction allowable under sec_164 for real_property tax paid in the current_year see situation c of revrul_70_86 c part of the real_property tax was paid in the prior year and the remaining part was paid in the current_year if the standard_deduction was claimed in the prior year but an itemized_deduction for real_property tax is claimed in the current_year the rebate must be apportioned in proportion to the property_tax paid in the prior and current years the portion of the rebate attributable to the prior year property_tax paid is not included in the current year’s gross_income because the property_tax payment created no tax_benefit in the prior year the remaining portion of the rebate is not includible in the taxpayer’s gross_income for the current_year but rather serves to reduce the deduction allowable under sec_164 for real_property tax paid in the current_year see situation b of revrul_70_86 under all three of these variations if the rebate exceeds the property_tax actually paid then the excess must be includible in gross_income see revrul_78_194 postf-149540-04 situation - itemized_deductions claimed in the prior and current_year a entire real_property tax was paid in the prior year if an itemized_deduction was taken in the prior year for the real_property tax the rebate received in the current_year is includible in gross_income in the current_year to the extent of the tax_benefit resulting from the deduction of the real_property tax in the prior year see situation a of revrul_70_86 b the real_property tax was paid in the current_year because the taxpayer’s itemized_deductions in the prior year were not affected by the payment of the real_property tax in the current_year the rebate is not includible in gross_income under the tax_benefit_rule however the rebate serves to reduce the allowable real_property tax deduction for the current_year see situation c of revrul_70_86 c part of the real_property tax was paid in the prior year and the remaining part was paid in the current_year if an itemized_deduction was claimed in the prior year for the amount of real_property tax paid in that year the rebate must be apportioned over the years with respect to the actual tax paid the portion of the rebate attributable to the property_tax paid in the prior year is includible in the taxpayer’s gross_income for the current_year to the extent of the tax_benefit resulting from the deduction in the prior year the remaining portion of the rebate attributable to the property_tax paid in the current_year is not includible in gross_income for the current_year but rather serves to reduce the allowable real_property tax deduction for the current_year see situation b of revrul_70_86 under all three variations if the rebate exceeds the actual real_property tax paid the excess must be included in gross_income see revrul_78_194 we note that under certain circumstances a taxpayer’s itemized_deductions including a deduction for real_property_taxes may be reduced in accordance with the overall_limitation_on_itemized_deductions under sec_68 revrul_93_75 1993_2_cb_63 provides guidance on the application of the tax_benefit_rule in situations in which a postf-149540-04 taxpayer’s itemized_deductions in a prior taxable_year were reduced by the limitation in sec_68 and the taxpayer subsequently recovers all or a portion of the previously deducted amount we hope that this memorandum is helpful


internal_revenue_service number release date index number ---------------------- ------------- -------------------------------------------------- ------------------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ----------------- telephone number --------------------- refer reply to cc ita b05 plr-114805-09 date date legend taxpayer -------------------------------------------------------- -------------------------------------- year ------- year ------- date ---------- date ------------------ date ------------------- dear ------------- this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above-named taxpayer requesting permission to change its accounting_period for federal_income_tax purposes from a taxable_year ending date to a taxable_year ending date effective date year the taxpayer has requested that the form_1128 be considered timely filed under the authority contained in of the procedure and administration regulations the taxpayer’s form_1128 requesting a change in accounting_period to a tax_year ending date was due on or before date year but was not timely filed the information furnished indicates that the taxpayer intended to make the change in a timely manner but that due to error or misunderstanding the form was not timely filed the error was not due to any lack of due diligence or prompt action on the part of the taxpayer sec_301 a of the regulations provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of plr-114805-09 sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and the taxpayer’s late-filed form_1128 requesting permission to change to a tax_year ending date effective for the tax_year ending date year will be considered timely filed a copy of this letter_ruling taxpayer’s form_1128 and other relevant documents are being forwarded to the service_center where the taxpayer files its federal_income_tax returns with instructions that the form_1128 be considered timely filed and processed in accordance with established procedures under revproc_2006_45 the ruling contained in this letter is based upon facts and representations furnished by the taxpayer and is limited to the filing of form_1128 except as specifically addressed herein no opinion is expressed as to whether the taxpayer qualified for the automatic consent procedure or regarding the tax treatment of the subject transaction under the provisions of any other section of the internal_revenue_code or income_tax regulations that may be applicable thereto this office has not verified any of the materials submitted in support of the requested ruling verification of factual information representations and other data is within the examination jurisdiction of the taxpayer’s irs industry director copies of this letter_ruling are being provided to the taxpayer’s authorized representative this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent sincerely yours s william a jackson william a jackson chief branch office of associate chief_counsel income_tax accounting enclosures copy for sec_6110 purposes copy of this letter_ruling


internal_revenue_service number release date index number ------------------------------------------------------------ ---------------------------- ------------------------------------------------------- ----------------------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc psi b06 plr-101661-05 date april re request for extension of time to make the election not to deduct the additional first year depreciation parent --------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- taxpayer --------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- a date1 date2 lmsb official dear -------------------- ------- -------------------------- --------------------------- ---------------------------------------------------------------- this letter responds to a letter dated date and supplemental correspondence submitted by parent on behalf of taxpayer requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election not to deduct the additional first year depreciation under sec_168 of the internal_revenue_code for certain qualified_property placed_in_service in the taxable_year ended date1 the a taxable_year facts parent represents that the facts are as follows taxpayer is a member_of_an_affiliated_group of corporations that is headed by parent and that files consolidated federal_income_tax returns parent timely filed its consolidated federal_income_tax return for the taxable_year ended date1 sometime on or before date2 the extended due_date for this income_tax return was date2 on this return taxpayer did not deduct the 30-percent additional first year depreciation for all qualified_property and the 50-percent additional first year depreciation for all 50-percent plr-101661-05 bonus_depreciation property placed_in_service during the a taxable_year however parent and taxpayer inadvertently failed to attach the election out statement to the return ruling requested accordingly taxpayer requests an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election not to deduct the additional first year depreciation under sec_168 for all property placed_in_service during the a taxable_year that qualifies for the additional first year depreciation law and analysis deduction for the taxable_year in which qualified_property is placed_in_service by a taxpayer sec_168 provides a 50-percent additional first year depreciation deduction for the taxable_year in which 50-percent bonus_depreciation property is placed_in_service by a taxpayer sec_168 provides a 30-percent additional first year depreciation sec_168 provides that a taxpayer may elect not to deduct the percent additional first year depreciation for any class of property placed_in_service during the taxable_year the term class of property is defined in sec_1_168_k_-1t e of the temporary income_tax regulations as meaning in general each class of property described in sec_168 for example 5-year_property sec_168 provides that a taxpayer may elect to deduct 30-percent instead of 50-percent additional first year depreciation for any class of property that is 50-percent bonus_depreciation property placed_in_service during the taxable_year if this election is made sec_1_168_k_-1t e ii a provides that the allowable additional first year depreciation deduction is determined as though the class of property is qualified_property under sec_168 sec_1_168_k_-1t e ii b further provides that a taxpayer may elect not to deduct both 30-percent and 50-percent additional first year depreciation for any class of property that is 50-percent bonus_depreciation property placed_in_service during the taxable_year sec_1_168_k_-1t e i provides that the election not to deduct additional first year depreciation must be made by the due_date including extensions of the federal tax_return for the taxable_year in which the property is placed_in_service by the taxpayer sec_1_168_k_-1t e ii provides that the election not to deduct additional first year depreciation must be made in the manner prescribed on form_4562 depreciation and amortization and its instructions the instructions to form_4562 for the a taxable_year provided that the election not to deduct the additional first year depreciation is made by attaching a statement to the taxpayer’s timely filed tax_return plr-101661-05 indicating that the taxpayer is electing not to deduct the additional first year depreciation and the class of property for which the taxpayer is making the election sec_1_168_k_-1t e ii further provides that the election is made separately by each person owning qualified_property or 50-percent bonus_depreciation property for example for each member of a consolidated_group by the common parent of the group by the partnership or by the s_corporation under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in and to make a regulatory election sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' sec_301_9100-3 provides that requests for relief under ' will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusions based solely on the facts and representations submitted we conclude that the requirements of and have been satisfied accordingly parent and taxpayer are granted calendar days from the date of this letter to make the election not to deduct the additional first year depreciation under sec_168 for all property placed_in_service by taxpayer during the a taxable_year that qualifies for the additional first year depreciation this election must be made by parent filing an amended consolidated federal tax_return for that taxable_year with a statement indicating that taxpayer is electing not to deduct the additional first year depreciation for all property placed_in_service during the taxable_year ended date1 except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code specifically no opinion is expressed or implied on whether any item of depreciable_property placed_in_service in the taxable_year ended date1 is eligible for the additional first year depreciation deduction in accordance with the power_of_attorney we are sending copies of this letter to taxpayers authorized representatives we are also sending a copy of this letter to the lmsb official plr-101661-05 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes