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 b01 plr-144542-08 date date x --------------------------------------------------- -------------------------------------------- y country d1 dear --------------- --------- ------------ -------------------------- this letter responds to a letter dated date written on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be classified as a partnership under sec_301_7701-3 effective d1 facts according to the information submitted x was formed on or about d1 as a y under the laws of country at the time of its formation x was classified by default as an association_taxable_as_a_corporation for federal tax purposes the members of x intended that x be classified as a partnership for federal tax purposes effective d1 the members of x relied upon a qualified_tax professional to advise them concerning the election to classify x as a partnership however due to inadvertence the qualified_tax professional failed to advise x concerning the election and x failed to file timely form_8832 entity classification election law and analysis plr-144542-08 sec_301_7701-1 provides that the classification of organizations that are recognized as separate entities is determined under sec_301_7701-2 sec_301_7701-3 and sec_301_7701-4 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides that unless it elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under paragraph c i of that section will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government plr-144542-08 conclusion based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and to elect to be classified as a partnership for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose 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 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 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 the authorized representatives listed in your power_of_attorney sincerely curtis g wilson curtis g wilson associate chief_counsel office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c no united_states tax_court thomas william mcadams petitioner v commissioner of internal revenue respondent docket no filed date p married his wife w in p and w were not legally_separated or divorced during w resided in boise idaho boise address during p stayed at the boise address in excess of days p and w maintained separate bedrooms at the boise address in p received dollar_figure in social_security income p filled out the social_security_benefits worksheet associated with his tax_return p listed dollar_figure as his base_amount because he was married and believed that he lived apart from w for the entire year on his tax_return p claimed married_filing_separately status reported dollar_figure of social_security_benefits and reported dollar_figure as the taxable_amount of his social_security_benefits in the notice_of_deficiency r increased p’s interest_income by dollar_figure and reduced p’s base_amount to zero thereby increasing the taxable_amount of p’s social_security_benefits - - held for purposes of sec_86 c i r c live apart means living in separate residences p and his wife lived in the same residence at least days during the taxable_year in issue accordingly p did not live apart from his spouse at all times during the taxable_year and p’s base_amount pursuant to sec_86 i r c is zero held further sec_86 i r c is not unconstitutional thomas william mcadams pro_se kay hill for respondent vasquez judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for after concessions the issues for decision are whether petitioner did not live apart from his spouse at all times during and whether sec_86 is unconstitutional findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time he filed the petition petitioner resided in ninilchik alaska as of the time of trial petitioner wa sec_74 years old and retired from the u s military petitioner has a bachelor’ sec_1 petitioner concedes that his correct amount of interest_income for was dollar_figure and not dollar_figure as reported on his federal individual_income_tax_return unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue degree in social work and a master’s degree in human relations during his last years in the military he taught classes about race relations and nuclear weapons at the command general staff college in fort leavenworth kansas in petitioner married norma mcadams during the year in issue and up to the date of trial petitioner and mrs mcadams were married as of the date of trial petitioner and mrs mcadams had not legally_separated during mrs mcadams resided pincite shirley avenue boise idaho boise address petitioner’s two children four grandchildren and two great-grandchildren all reside in boise idaho during petitioner used the boise address as a mailing address petitioner received mail and telephone messages at the boise address petitioner kept things at the boise address from approximately april through october petitioner lived in alaska during the rest of the year petitioner resided in the lower --ie in the continental_united_states when in the lower petitioner traveled ina fifth-wheel trailer to wyoming arizona utah nevada and california when he was in boise he stayed at the boise address during petitioner stayed at the boise address in excess of days he parked his fifth-wheel trailer at the q4e- boise address and slept inside the house located at the boise address petitioner and mrs mcadams maintained separate bedrooms at the boise address during petitioner’s main source_of_income was his military retirement pay during petitioner also received social_security income in the amount of dollar_figure petitioner received a form ssa-1099 social_security_benefit statement for reporting benefits paid in and net benefits for in the amount of dollar_figure petitioner filed his federal individual_income_tax_return claiming married_filing_separately status when he prepared his tax_return petitioner filled out the social_security_benefits worksheet petitioner listed dollar_figure as his base_amount because he believed that he lived apart from his spouse for the entire year on his return petitioner reported dollar_figure of social_security_benefits and zero as the taxable_amount of his social_security_benefits in the notice_of_deficiency respondent increased petitioner’s interest_income by dollar_figure and reduced petitioner’s pase amount to zero thereby increasing the taxable_amount of petitioner’s social_security_benefits to dollar_figure opinion sec_86 provides for the taxability of social_security_benefits pursuant to a statutory formula if a taxpayer’s - - modified_adjusted_gross_income plus one-half of the social_security_benefits received during the taxable_year exceeds the base_amount then a portion of the taxpayer’s social_security_benefits are includable in gross_income sec_86 through d a base_amount and living apart at all times during the taxable_year sec_86 provides that for purposes of sec_86 the term base_amount means a except as otherwise provided in this paragraph dollar_figure b dollar_figure in the case of a joint_return and c zero in the case of a taxpayer who-- is married as of the close of the taxable_year within the meaning of sec_7703 but does not file a joint_return for such year and does not live apart from his spouse at all times during the taxable_year when he prepared his tax_return petitioner filled out the social_security_benefits worksheet petitioner listed dollar_figure as his base_amount because he was married and believed that he lived apart from his spouse for the entire year respondent contends that petitioner did not live apart from his wife at all times during the taxable_year within the meaning of sec_86 c whether a taxpayer did not live apart from his spouse at all times during the taxable_year within - - the meaning of sec_86 c an issue of first impression we do not find any ambiguity in the language at all times during the taxable_year a11 means whole entire each and every one or each and every thing webster’s ii new riverside university dictionary neither the statute nor the legislative_history defines what live apart means see s rept pincite 1983_2_cb_326 h conf rept pincite 1983_2_cb_336 similar language to that contained in sec_86 c contained in sec_22 a a e a g b and b il therefore we look to the case law interpreting the phrase live apart contained in those sections in costa v commissioner tcmemo_1990_572 in the taxpayer and her husband purchased a residence located in fairfax california fairfax residence in as a result of the resolution of this issue does not depend on which party has the burden or proof we resolve this issue on the basis of a preponderance of evidence in the record we note that this construction is supported by the legislative_history which provides that the base_amount is zero in the case of a married individual filing a separate_return unless he or she lived apart from his or her spouse for the entire taxable_year s rept pincite 1983_2_cb_326 emphasis added - jj - marital problems the taxpayer moved out of the fairfax residence during the taxpayer’s husband also moved out of the fairfax residence in the taxpayer resumed residing at the fairfax residence in the taxpayer’s husband visited the fairfax residence several times on an intermittent basis he used the fairfax residence address for receiving mail he kept documents and clothes there he received telephone messages there he had a key to the fairfax residence and he came and went at his convenience the taxpayer did not file a joint_return with her husband for the taxpayer did not obtain a formal termination or separation and as of the time of trial the taxpayer was still legally married to her husband we concluded that for purposes of sec_66 the taxpayer did not live apart at_all times during the year as required by statute for costa v commissioner tcmemo_1990_572 we based our holding on the fact that during the taxpayer’s husband intermittently resided at the fairfax residence id in dawkins v commissioner tcmemo_1991_225 during the taxpayer and his wife were in the process of obtaining a divorce during the taxpayer had not obtained a legal_separation and the taxpayer his wife and his three children all resided in the same household the taxpayer and his wife however maintained separate quarters under the same roof - - we concluded that for purposes of sec_152 the taxpayer and his wife were not living apart because they lived under the same roof dawkins v commissioner tcmemo_1991_ in determining what living apart meant we referred to several cases that considered what living apart meant in the context of alimony payments and being separated sec_71 and sec_215 id in those cases courts held that living apart meant living in separate residences 721_f2d_873 2d cir 77_tc_601 a court-reviewed decision disagreeing with the u s court_of_appeals for the ehighth circuit’s holding in 577_f2d_60 8th cir revg 67_tc_170 that taxpayers could be treated as separated when both are living under the same roof coltman v commissioner tcmemo_1991_127 affd 980_f2d_1134 7th cir additionally we have explored the concept of living apart as it related to sec_2 and as it relates to these sections we held that living apart required geographical separation and living in separate residences chiosie v commissioner tcmemo_2000_117 hopkins v commissioner tcmemo_1992_326 furthermore prior to amendment by sec_121 of the tax_reform_act_of_1986 publaw_99_514 100_stat_2109 sec_85 defined a base_amount for purposes of computing the taxable --- - amount of unemployment_compensation similarly to sec_86 sec_1_85-1 income_tax regs which was still in effect during the year in issue provided a taxpayer does not live apart from his or her spouse at all times during a taxable_year if for any period during the taxable_year the taxpayer is a member of the same household as such taxpayer’s spouse a taxpayer is a member of a household for any period including temporary absences due to special circumstances during which the household is the taxpayer’s place of abode a temporary absence due to special circumstances includes a nonpermanent absence caused by illness education business vacation or military service we conclude that for purposes of sec_86 c living apart means living in separate residences petitioner contends that because he and his wife maintained separate bedrooms this is sufficient to find that they lived apart we disagree see dawkins v commissioner supra we decline to explore the guality of a marriage or to infer some form of constructive absence of one spouse when the spouses live under one roof see lyddan v united_states supra pincite chiosie v commissioner supra petitioner also argues that he merely visited his wife and did not live with her in costa v commissioner supra we concluded that intermittent visits to the taxpayer’s home by the taxpayer’s spouse were sufficient to find that the spouse and the taxpayer did not live apart in the case at bar petitioner’s visits lasted in excess of days even if we term petitioner’s stay at the boise address a visit petitioner - resided in the same house with his wife during this time we conclude that for purposes of sec_86 c petitioner did not live apart from his spouse at all times during the taxable_year accordingly his base_amount for was zero b constitutionality petitioner’s final argument is leveled at the constitutionality of sec_86 in essence petitioner questions the fairness of sec_86 in 411_us_1 the u s supreme court noted that no scheme of taxation whether the tax is imposed on property income or purchases of goods and services has yet been devised which is free of all discriminatory impact we have repeatedly held that sec_86 does not suffer any constitutional infirmities thomas v commissioner tcmemo_2001_120 clark v commissioner tcmemo_1998_280 affd without published opinion 187_f3d_641 8th cir roberts v commissioner tcmemo_1998_172 affd without published opinion 182_f3d_927 9th cir accordingly we deny petitioner’s constitutional claim to reflect the foregoing decision will be entered for respondent


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 b04 plr-111136-13 date date re ---------------------------------------------- --------------------------------------------------- legend ----------------------------------------------------------------------- ------------------------- ------------------------- ------------------------------- -------------------------------- -------------------------- -------------------------- -------------------------------------------------------------------------------------- grantor son spouse child child child trust ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- -------------------------------------------------------- trust ------------------------------------------------------ date date date date date date date court -------------------------------------------- court state state statute state -------------------- ------------------- -------------------- ------------------------ ----------------------- ----------------------- ---------------------------- --------------------------------------------------------------------------------- ----------------------------------------------------------- --------------- ------------------------------------------------------- -------------- plr-111136-13 dear ----------------- this letter responds to your authorized representative’s letter of date requesting rulings on the gift estate generation-skipping_transfer gst and income_tax consequences of proposed modifications and division of a_trust facts the facts and representations submitted are summarized as follows grantor established a revocable_trust trust on date trust was amended on date trust as amended provides that upon grantor’s death trustees shall divide all of the assets of the trust into as many equal shares as there are children of grantor then living or who if deceased have a wife or descendants then living with each share to be held as a separate trust designated by the name of the beneficiary for whom the separate share was created grantor died on date trustees then divided trust and created a separate trust trust for the benefit of son no further contributions were made to trust after date date is prior to date on date court entered an order changing the corporate trustee for trust on date court entered an order changing the corporate trustee for trust and transferred the situs of trust to state however state law continues to govern the validity and construction of the trust on date court entered an order approving the resignation of the corporate co-trustee confirming the appointment of a successor corporate co-trustee accepting jurisdiction over trust reforming trust to a create a position of investment_advisor and appoint son as the initial investment_advisor and to give the individual trustees the power to remove and replace the corporate trustees article iv paragraph a of trust provides that the trustees in their discretion may pay and distribute all or part of the income of the trust to or for the benefit of son son’s spouse spouse or any one or more of son’s descendants in monthly or other convenient installments and also provides that the trustee must accumulate any undistributed trust income and add it to trust principal article iv paragraph a provides that the trustees in their discretion may make distributions of principal to or for the benefit of any income_beneficiary of the trust for any purpose the trustees consider to be worthwhile and in the best interest of that income_beneficiary including maintenance care support and other worthwhile purposes article iv paragraph a provides that the trustees in their discretion may make distributions of income or principal of the trust to qualifying charitable organizations plr-111136-13 article iv paragraph a provides that any time after son’s death that he has no living child who is less than years old and no living wife who has not remarried the trustees must divide the remaining principal and undistributed_income of the trust into as many equal shares as there are children of son who are then living or who if deceased have issue then living with each share to be held as a separate trust designated by the name of the grandchild of grantor for whom the separate trust is created article iv paragraph b provides that if after the death of a grandchild of grantor there is no living child of grandchild who is less than the trustees will pay and distribute all of the remaining principal and undistributed_income to the then living issue of such grandchild by right of representation article vii paragraph a provides that the trustee has the power to divide the trust or make a distribution from the trust in whole or in part or in_kind and the decision of the trustees as to the value of any asset thereof or the composition of such share shall be conclusive if reached with reasonable care son is currently married to spouse son has three adult children child child and child child does not have any children child and child each have one child both minors each family line has different investment philosophies regarding asset allocation passive versus active investment management and use of alternative investments this led to a desire to invest the trust assets differently among the children’s shares the trustees believe this can be best accomplished through a division of trust into successor trusts the modifications and division of trust in this manner will allow each separate successor trust to be managed and invested according to the best interests child child and child the dispositive terms of each successor trust will be substantially the same as the dispositive terms of trust on date the individual trustees and current beneficiaries of trust filed a petition with court requesting division of the trust property on a pro_rata basis into three separate and distinct shares one for son spouse child child 1’s descendants and charitable organizations one for son spouse child child 2’s descendants and charitable organizations and one for son spouse child and child 3’s descendants and charitable organizations each separate and distinct trust would be administered according to the terms and conditions of trust as modified by court the attorney_general was provided a copy of the petition and did not oppose the relief requested in the petition state statute provides that a trustee may without approval of any court divide a_trust before or after it is funded into two or more separate trusts if the trustee determines that dividing the trust is in the best interest of all persons interested in the trust and will not substantially impair the accomplishment of the purposes of the trust you have requested the following rulings plr-111136-13 the modifications and division of trust into successor trusts will not alter the inclusion_ratio of trust or the successor trusts for gst tax purposes the modifications and division of trust into successor trusts will not create a transfer of property subject_to federal gift_tax under sec_2501 of the internal_revenue_code the modifications and division of trust into successor trusts will not cause any portion of the assets of trust or the successor trusts to be includible in the gross_estate of any beneficiary under sec_2035 sec_2036 sec_2037 or sec_2038 the successor trusts will be treated as separate taxpayers for federal_income_tax purposes pursuant to sec_643 the modifications and division of trust into successor trusts will not result in treating any trust property as paid credited or distributed for purposes of sec_661 or sec_1_661_a_-2 of the income_tax regulations and so will not result in realization of any income gain_or_loss under sec_661 or sec_662 by trust the successor trusts or a beneficiary of any of the trusts in addition the modifications and division of trust into successor trusts will not result in the realization of any income gain_or_loss to trust the successor trusts or a beneficiary of any of those trusts under sec_61 or sec_1001 the modifications and division of trust into successor trusts will result in each successor trust holding its share of trust 1’s property with the same basis as it had when owned by trust at the time of the division into successor trusts under sec_1015 ruling sec_2601 imposes a tax on each generation-skipping_transfer sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip section b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations provide that the generation-skipping_transfer_tax shall not apply to any generation-skipping_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 that any trust in existence on date will be considered an irrevocable_trust except as provided in sec_26_2601-1 or c relating to property includible in the grantor's gross_estate under sec_2038 and sec_2042 plr-111136-13 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 generation-skipping_transfer_tax will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes 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 capital_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 paragraph b i a b or c of this section 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 but only 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 in this case trust was created and irrevocable before date it is represented that no additions have been made to trust since date consequently trust is currently exempt from gst tax the proposed modifications and division of trust will result in three trusts one each for the benefit of son spouse and each of son’s children and their issue the dispositive terms of each successor trust will be substantially the same as the dispositive terms of trust although limited to a particular family line each resulting trust will terminate no later than the original termination_date of trust accordingly the proposed modifications and division of trust into the successor trusts will not shift a beneficial_interest to any beneficiary who occupies a lower generation than the person or persons who held the beneficial_interest prior to the modifications and division and will not extend the time for the vesting of any beneficial_interest in a successor trusts beyond the period provided for in trust accordingly based on the facts submitted and the representations made and provided that court issues an order approving the modifications and division of plr-111136-13 trust the modifications and division of trust into successor trusts will not alter the inclusion_ratio of trust or the successor trusts for gst tax purposes 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 transferred is real or personal tangible or intangible in this case trust will be divided into three successor trusts each successor trust will benefit son spouse one of son’s children their issue and charities the dispositive provisions of each successor trust will be substantially the same as the dispositive provisions of trust each resulting trust will terminate no later than the date on which trust terminates based on the facts submitted and the representations made and assuming the transaction is carried out as proposed and is effective under state law we conclude that the modifications and division of trust into successor trusts will not create a transfer of property subject_to federal gift_tax under sec_2501 ruling 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 his death sec_2035 provides that if the decedent transferred an interest in 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 the property or interest therein would have been included in the gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if the interest or power had been retained by the decedent on the date of death then the value of the gross_estate shall include the value of any property or interest therein that would have been so included under sec_2035 the gross_estate shall be increased by the amount of any gift_tax paid_by the decedent or his estate on any gift made by the decedent or his spouse during the 3-year period ending on the date of decedent's death 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_consideration in money_or_money's_worth by trust or otherwise under which the decedent has retained for his life or for any period not ascertainable without reference to the decedent's death or for any period which does not in fact end before the decedent's plr-111136-13 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 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 the possession or enjoyment thereof 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 the reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of the 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 the decedent's death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent's death in order for sec_2035 through to apply a 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 based on the facts submitted and the representations made we conclude that the proposed modifications and division of trust do not constitute a transfer by any beneficiary within the meaning of sec_2035 through the beneficiaries of the successor trusts have the same interests after the modifications and division as they had prior to the modifications and division therefore nothing will be transferred by them by reason of the proposed modifications and division accordingly based upon the facts submitted and the representations made we conclude that the modifications and division of trust into successor trusts will not cause any portion of the assets of trust or the successor trusts to be includible in the gross_estate of any beneficiary under sec_2035 sec_2036 sec_2037 or sec_2038 ruling plr-111136-13 sec_643 provides that for purposes of subchapter_j of chapter of subtitle a under regulations prescribed by the secretary two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of such trusts is the avoidance of the tax_imposed_by_chapter_1 section b of the tax_reform_act_of_1986 provides that sec_643 shall apply to taxable years beginning after date except that in the case of a_trust that was irrevocable on date it shall apply only to that portion of the trust that is attributable to contributions of corpus after date the trustees represent that each successor trust will have different beneficiaries the trustees also represent that no portion of the principal of trust was contributed after date based on the facts submitted and the representations made we conclude that as long as the successor trusts are separately managed and administered they will be treated as separate trusts for federal_income_tax purposes ruling sec_661 provides that in any taxable_year a deduction is allowed in computing the taxable_income of a_trust other than a_trust to which subpart b applies for the sum of the amount of income for such taxable_year required to be distributed currently and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed for such taxable_year sec_1_661_a_-2 of the income_tax regulations provides that gain_or_loss is realized by the trust or estate or the other beneficiaries by reason of a distribution_of_property in_kind if the distribution is in satisfaction of a right to receive a distribution of a specific dollar amount of specific property other than that distributed or of income as defined under sec_643 and the applicable regulations if income is required to be distributed currently sec_662 provides that there shall be included in the gross_income of a beneficiary to whom an amount specified in sec_661 is paid credited or required to be distributed by an estate_or_trust described in sec_661 the sum of the following amounts the amount of income_for_the_taxable_year_required_to_be_distributed_currently to such beneficiary whether distributed or not and all other_amounts properly paid credited or required to be distributed to such beneficiary for the taxable_year based on the facts submitted and representations made we conclude that the division of trust to create the three separate successor trusts is not a distribution under sec_661 or sec_1_661_a_-2 sec_61 provides that gross_income includes gain derived from dealings in property plr-111136-13 sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the entire amount of gain_or_loss must be recognized except as otherwise provided sec_1_1001-1 provides that except as otherwise provided in subtitle a the gain_or_loss realized from the exchange of property for cash or for other_property differing materially either in_kind or in extent is treated as income or loss sustained properties exchanged are materially different for purposes of sec_1001 if the properties embody legal entitlements different in_kind or extent or if the properties confer different legal rights and powers 499_us_554 in cottage savings the court held that mortgage loans made to different obligors and secured_by different homes embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans id pincite sec_1_1001-1 provides the severance of a_trust is not an exchange of property for other_property differing materially in_kind or extent if i an applicable_state_statute or the governing instrument authorizes or directs the trustee to sever the trust and ii any non-pro rata funding of the separate trusts resulting from the severance whether mandatory or in the discretion of the trustee is authorized by an applicable_state_statute or the governing instrument revrul_56_437 1956_2_cb_507 concluded that the partition of a joint_tenancy in which co-owners of property sever their interests is not a sale_or_exchange in this case trust 1’s assets will be distributed equally among the three successor trusts for the benefit of child child and child each new trust contains an equal share of the assets of trust in addition each successor trust retains a child of son as a beneficiary state statute authorizes the trustees to divide trust and ii any non-pro rata funding of the successor trusts resulting from the modifications and division whether mandatory or in the discretion of the trustee is authorized by the governing instrument accordingly based upon the facts submitted and the representations made we conclude that the proposed modifications and division of trust will not result in the realization of gain_or_loss under sec_61 and sec_1001 ruling sec_1015 provides that if the property was acquired by gift the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift except that if the basis adjusted for the period before the date of the gift as provided in sec_1016 is greater than the fair_market_value of the property at the time of the gift then for the purpose of determining loss the basis shall be the fair_market_value plr-111136-13 sec_1015 provides that if property is acquired after date by a transfer in trust other than by a transfer in trust by a gift bequest or devise the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized by the grantor on such transfer sec_1_1015-2 provides that in the case of property acquired after date by transfer in trust other than by a transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made if the taxpayer acquired the property by a transfer in trust this basis applies whether the property be in the hands of the trustee or the beneficiary and whether acquired prior to termination of the trust and distribution of the property or thereafter based upon the facts submitted and representations made we conclude that because sec_1001 does not apply to the division of the trust assets under sec_1015 the basis of the trust assets will be the same after the modifications and division of trust as the basis of those assets before the modifications and division 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 by an appropriate party except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely _____________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index no p o box ben franklin station washington dc person to contact telephone number refer reply to cc dom p si plr-105111-99 re ein- date legend grandparent grandparent grandparent 1’s will daughter trust a date date trustee corporation charity this is in response to your letter dated date in which you requested rulings regarding the federal estate and gift_tax consequences of a partial_release of a limited_power_of_appointment and the application of the generation-skipping_transfer gst tax provisions of chapter of the internal_revenue_code according to your submission grandparent died testate on date pursuant to the terms of his will grandparent created four separate residuary trusts of equal value for the benefit of his four children including trust a for the benefit of daughter and her descendants article section c provides generally that the trustee shall pay to each child for whom a_trust is named or the descendants from time to time living of any deceased child the net_income of the trust estate as the trustee in its discretion deems to be necessary for the needs and best interests of such child or descendants of a deceased child in that order and as a group taking into consideration all income available to each of them for such purposes from all other sources known to the trustee and any other circumstances and factors which the trustee deems pertinent any net_income not so distributed by the trustee during any calendar_year shall be accumulated and added to the principal of the respective trust estate article section c provides that the trustee is plr-105111-99 authorized to pay to each child such sums from the principal of the trust estate of such child as the trustee deems necessary or advisable from time to time for the best interests of the child and for the medical_care education best interests and welfare of any person dependent upon such child taking into consideration all other income available to such child for such purposes from all sources known to the trustee article section c provides that after the death of both grandparent and grandparent each child has the right at any time and from time to time during his or her lifetime by instrument in writing delivered to the trustee to appoint any part or all of the corpus of his or her trust estate to or in trust for any one or more of his or her descendants from time to time living and such so-called charitable institutions existing under the laws of the state of which he or she is a resident which are exempt from state inheritance and estate_taxes and federal_estate_taxes as he or she directs article section c states that upon the death of a child the trust estate of such child as then constituted shall be held in trust for the benefit of or distributed to or in trust for the benefit of any one or more of such child’s descendants in such amount and in such manner and upon such terms and conditions as such child shall appoint by his or her last will specifically referring to the power_of_appointment conferred upon him or her however each child may appoint any part or all of the income from his or her share to his or her surviving_spouse until the death or remarriage of such spouse or for such shorter period as the child may designate pursuant to article section c in default of the exercise of the power_of_appointment by a child upon the death of such child the trust estate of such child or the part not effectively appointed shall be distributed per stirpes to the child’s then living descendants if any if there are no such descendants the trust estate or the part not effectively appointed shall be distributed per stirpes to grandparent 1’s then living descendants subject_to certain withholding provisions each portion otherwise distributable to a descendant of grandparent for whom a_trust estate or share of a_trust estate is then being held is to be added to such trust estate or share under article section c if at any time prior to the complete vesting or distribution of the trust no child of grandparent nor any other descendant of grandparent shall be living the entire remaining trust estate then in the hands of the trustee shall be paid transferred and delivered to charity plr-105111-99 article section d provides that nothwithstanding any other provision of trust the trusts created pursuant to the terms of trust will terminate not later than twenty-one years after the death of the last survivor of grandparent and all beneficiaries under the will living at the date of grandparent 1’s death the trustee is directed to distribute any property then held in a_trust to the persons entitled to receive the income therefrom in the same shares or portions in which such income is then being paid to them on date daughter irrevocably disclaimed any right granted to her pursuant to article section c of grandparent 1’s will to appoint during her lifetime any part or all of the corpus of trust a to any charitable institution or institutions daughter reserves only the right to appoint during her lifetime any part or all of the corpus of trust a among her descendants from time to time living either outright or in trust provided that any such trust is only for the benefit of one or more of her descendants the primary asset of trust a is stock in corporation a c_corporation the corporation’s board_of directors proposes to elect to treat corporation as a small_business_corporation an s_corporation trustee proposes to consent to the s election in order to convert corporation to an s_corporation each of its shareholders must be eligible to hold s_corporation stock as of the first day of the year for which the election is to take effect trustee proposes to make an election under sec_1361 to treat trust a as an electing_small_business_trust so that it will qualify as an eligible s_corporation shareholder in an effort to ensure the continuing qualification of corporation as an s_corporation trustee intends to enter into a shareholder agreement with corporation and corporation’s other shareholders to protect the s election under the sec_3 of the proposed shareholder agreement no shareholder may transfer and no person may acquire the legal or beneficial_ownership of any share if such transfer or acquisition would cause the s status of the corporation to terminate specifically no transfer may be made to any person that is not eligible to be a shareholder of an s_corporation under the applicable provisions of the code as in effect at the time of the purported transfer in addition no shareholder may affirmatively transfer shares to a person if the transfer would cause the corporation to exceed the maximum number of persons who are allowable s_corporation shareholders sec_3 of the proposed shareholder agreement provides that no shareholder shall make any transfer of shares to any trust having multiple beneficiaries or amend any trust that owns plr-105111-99 shares to increase the number of beneficiaries unless all such beneficiaries are persons eligible to be transferees pursuant to sec_3 and immediately after such transfer or amendment the number of shareholders the corporation is deemed to have for purposes of sec_1361 would not exceed the maximum number of persons who are allowable s_corporation shareholders pursuant to that section notwithstanding any other provision of the shareholder agreement the shareholders and the corporation acknowledge and agree in sec_3 that none of the following shall be prohibited by the terms of the shareholder agreement i the addition of a_trust beneficiary due to the birth of an additional descendant of grandparent ii the exercise of a power_of_appointment granted to a beneficiary pursuant to the terms of any irrevocable_trust that is in existence on the date of the agreement and that owns shares iii the transfer of shares to any person in whose favor a power_of_appointment described in ii above is exercised or iv the distribution of shares to a a beneficiary of any irrevocable_trust that is in existence on the date of the agreement and that owns shares pursuant to the terms thereof or b to the beneficiary of any trust created pursuant to the exercise of a power_of_appointment described in ii above even if such addition exercise or distribution shall cause the termination of the corporation’s s election sec_3 provides that prior to any transfer or other_disposition of shares if the corporation in its discretion so requires an opinion of counsel to the corporation must first be received by the corporation the cost of which shall be borne by the shareholder whose shares are to be transferred or disposed of that the transferee is i eligible to be a shareholder of an s_corporation in accordance with the applicable_requirements of the code or ii that the transfer otherwise is allowable pursuant to the provisions of the shareholder agreement in addition to the other requirements of sec_3 of the shareholder agreement sec_3 provides that no transfer of shares including without limitation transfers pursuant to sec_3 shall be permitted and no purported transfer shall be effective until a permitted transferee has executed a supplemental signature page to the shareholder agreement all parties agree that upon execution and acceptance of a supplemental signature page the shareholder agreement shall be amended and the transferee shall have the rights and obligations of a shareholder under the agreement sec_3 of the shareholder agreement provides that shareholders possessing of the total voting power of all outstanding shares may at any time and from time to time agree in writing to authorize or ratify any transfer of shares which would plr-105111-99 otherwise not be permitted by the shareholder agreement in which event the transfer shall be deemed for all purposes to comply with the shareholder agreement notwithstanding any other provision of the agreement under sec_3 if a transfer of shares is required to be made pursuant to sec_3 iii or iv to a transferee who is not already a shareholder and who has not previously executed or currently refuses to execute a supplemental signature page to the shareholder agreement a non- consenting transferee certain procedures will apply the shareholders may allow the transfer of shares to the non- consenting transferee pursuant to the procedure set forth in sec_3 otherwise the shares that otherwise would be transferred to the non-consenting transferee shall instead be redeemed by the corporation for a price equal to the fair_market_value of the shares as of the valuation_date pursuant to sec_5 of the proposed shareholder agreement any purported transfer in violation of the shareholder agreement shall not affect the beneficial or legal ownership of shares section of the agreement states that subject_to any limitations on dividends or other distributions imposed by statute the corporation shall make pro_rata dividend distributions of money based on ownership of shares to pay the federal state and local income_tax on the income and gain of the corporation net of any_tax benefits produced for the shareholders by the corporation’s losses deductions and credits for the current_year and for each prior year during which the corporation’s s election was in effect that passes through to the shareholders under the applicable provisions of the code in respect of each taxable_year or portion thereof of the corporation for which its s election is in effect section of the proposed shareholder agreement provides that the corporation shall a not issue more than one class of shares b use its best efforts to avoid a termination of its s election and c in the event of a termination of the s election use its best efforts to distribute to each shareholder such shareholder’s net share of the corporation’s undistributed_taxable_income for all taxable years for which the s election was in effect to the extent permitted by law and consistent with the obligations of the corporation to creditors agreements to which the corporation is a party and other business considerations within the period when such a distribution will be considered a non-dividend distribution under sec_1371 section of the proposed shareholder agreement states that if the corporation’s status as an s_corporation is terminated inadvertently and the corporation wishes to obtain a ruling under plr-105111-99 sec_1362 each shareholder agrees to make any adjustments required pursuant to sec_1362 and approved by the corporation’s board_of directors a shareholder’s obligation to make such adjustments shall continue after the shareholder has ceased to own shares in the corporation and after the shareholder agreement has terminated except as directed by the shareholder agreement the existing trustee will continue to serve in the same manner as it previously served in addition trust a will continue to be administered in accordance with the terms and conditions set forth in trust taxpayer requests the following rulings daughter’s irrevocable disclaimer of her lifetime power to appoint any part or all of the corpus of trust a to or in trust for charitable institutions will not be a taxable transfer for federal gift_tax purposes daughter’s irrevocable disclaimer of her lifetime power to appoint any part or all of the corpus of trust a to or in trust for charitable institutions will not cause any part of trust a to be included in daughter’s gross_estate under sec_2041 the exempt status of trust a for gst tax purposes will not be affected by the following i the trustee’s consent to corporation’s s election on behalf of trust a ii the trustee’s execution of an electing_small_business_trust election on behalf of trust a iii the trustee’s execution of the shareholder agreement on behalf of trust a and iv daughter’s irrevocable disclaimer of her lifetime power to appoint any part or all of the corpus of trust a to or in trust for charitable institutions rulings no and sec_2041 provides that the value of the gross_estate includes the value of all property to the extent of any property with respect to which the decedent has at the time of his 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 which is of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 to inclusive sec_2041 provides that the value of the gross_estate includes the value of all property to the extent of any property with respect to which the decedent- a by will or b by a disposition which is of such nature that if it were a plr-105111-99 transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 sec_2036 or sec_2037 exercises a power_of_appointment created after date by creating another power_of_appointment which under the applicable local law can be validly exercised so as to postpone the vesting of any estate or interest in such property or suspend the absolute ownership or power of alienation of such property for a period ascertainable without regard to the date of the creation of the first power sec_20_2041-1 of the estate_tax regulations defines the term general_power_of_appointment as any power_of_appointment exercisable in favor of the decedent his estate his creditors or the creditors of his estate a power_of_appointment is not a general power if by its terms it is either a exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors or the decedent’s estate or the creditors of his estate or b expressly not exercisable in favor of the decedent or his creditors or the decedent’s estate or the creditors of his estate sec_20_2041-3 provides that if the power is a general_power_of_appointment the value of an interest in property subject_to the power is includible in the decedent’s gross_estate under sec_2041 if either -- i the decedent has the power at the time of his death and the interest exists at the time of his death or ii the decedent exercised or released the power or the power lapsed under the circumstances and to the extent described in sec_20_2041-3 sec_20_2041-3 provides that if a power is not a general_power_of_appointment the value of the property subject_to the power is includible in the holder’s gross_estate under sec_2041 only if it is exercised to create a further power under certain circumstances described in sec_20_2041-3 sec_20_2041-3 provides that property subject_to a power_of_appointment created after date which is not a general power is includible in the gross_estate of the holder of the power under sec_2041 if the power is exercised and if both of the following conditions are met i if the exercise is a by will or b by a disposition which is of such nature that if it were a transfer of property plr-105111-99 owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 through and ii if the power is exercised by creating another power_of_appointment which under the terms of the instruments creating and exercising the first power and under applicable local law can be validly exercised so as to a postpone the vesting of any estate or interest in the property for a period ascertainable without regard to the date of the creation of the first power or b if the applicable rule_against_perpetuities is stated in terms of suspension of ownership or of the power of alienation rather than of vesting suspend the absolute ownership or the power of alienation of the property for a period ascertainable without regard to the date of the creation of the first power under sec_2514 the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power in general rules similar to those contained in sec_2041 and the underlying regulations regarding the estate_tax consequences of the release lapse or exercise of a power_of_appointment apply for purposes of sec_2514 regarding the gift_tax consequences of the lifetime release lapse or exercise of a power_of_appointment sec_25_2514-1 provides that the exercise or complete release of a general_power_of_appointment created after date and under certain circumstances the exercise of a power_of_appointment not a general_power_of_appointment created after date by the creation of another power_of_appointment will be treated as transfers of property sec_2514 and sec_25_2514-3 provide that the exercise of a power_of_appointment that is not a general_power_of_appointment is considered to be a transfer if it is exercised under certain circumstances as described in sec_25_2514-3 to create a further power sec_25_2514-3 provides that there is a transfer for purposes of the gift_tax of the value of property or of property rights or interests with respect to which a power_of_appointment which is not a general_power_of_appointment created after date is exercised by creating another power_of_appointment which under the terms of the instruments creating and exercising the first power and under applicable local law can be validly exercised so as to postpone the vesting of any estate or interest in the property for a period ascertainable without regard to the date of the creation of the first power or if the applicable rule_against_perpetuities is stated in terms of suspension of ownership or of the power of alienation plr-105111-99 rather than of vesting suspend the absolute ownership or the power of alienation of the property for a period ascertainable without regard to the date of the creation of the first power based on the information submitted and the representations made we conclude that daughter’s irrevocable disclaimer release of her lifetime power to appoint any part or all of the corpus of trust a to or in trust for charitable institutions will not be a release of a general_power_of_appointment and will therefore not be a taxable transfer for federal gift_tax purposes and daughter’s irrevocable disclaimer release of her lifetime power to appoint any part or all of the corpus of trust a to or in trust for charitable institutions will not cause any part of trust a to be included in daughter’s gross_estate under sec_2041 ruling no sec_2601 imposes a tax on every generation-skipping_transfer sec_26_2601-1 of the generation-skipping_transfer_tax regulations provides that the gst tax applies to any generation-skipping_transfer made after date sec_26_2601-1 provides an exception to this rule for any distributions from a_trust that was irrevocable on date however this exception does not apply to a pro_rata portion of any generation-skipping_transfer under an irrevocable_trust where additions were made to the trust after date in addition a modification to a_trust that results in a change in the quality value or timing of any beneficial_interest provided for under the trust instrument will cause the trust to lose its exempt status sec_26_2601-1 provides that except as provided under sec_26_2601-1 where any portion of a_trust remains in the trust after the post-date release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse is treated to any extent as a taxable transfer under chapter or chapter the value of the entire portion of the trust subject_to the power that was released exercised or lapsed is treated as if that portion had been withdrawn and immediately retransferred to the trust at the time of the release exercise or lapse sec_26_2601-1 provides a special rule for certain powers of appointment this section provides that the release exercise or lapse of a power_of_appointment other than a general_power_of_appointment as defined in sec_2041 will not be treated as an addition to a_trust if- such power of plr-105111-99 appointment was created in an irrevocable_trust that is not subject_to chapter under sec_26_2601-1 and in the case of an exercise such power_of_appointment is not exercised in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date of creation of the trust extending beyond any life in being at the date of creation of the trust plus a period of years in the present case it has been represented that trust a was irrevocable on date and that there have been no additions constructive or otherwise to trust a after that date based on the representations made and the facts submitted we conclude that daughter’s irrevocable disclaimer release of her lifetime power to appoint any part or all of the corpus of trust a to or in trust for charitable institutions will not be treated as a constructive_addition to trust a in addition we conclude that there is no change in the quality value or timing of any beneficial_interest in trust a resulting from the following i the trustee’s consent to corporation’s proposed s election ii the trustee’s election to treat trust a as an electing_small_business_trust and iii the trustee’s execution of the proposed shareholder agreement further daughter’s irrevocable disclaimer release of her lifetime power to appoint any part or all of the corpus of trust a to or in trust for charitable institutions is not a modification to trust a that results in a change in the quality value or timing of any beneficial_interest provided for under the terms of trust a therefore neither daughter’s disclaimer release nor items i - iii above will cause trust a to lose exempt status for gst tax purposes provided that there are no additions constructive or otherwise to trust a after date distributions from trust a to skip persons will not be subject_to the gst tax except as specifically ruled herein we express no opinion as to the consequences of this transaction under the cited provisions of the code or under any other provisions of the code specifically we express no opinion on whether trust a will qualify as an electing_small_business_trust within the meaning of sec_1361 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely assistant chief_counsel passthroughs and special industries by george masnik chief branch enclosure