t c memo united_states tax_court william h adair and patricia adair petitioners v commissioner of internal revenue respondent docket no filed date pursuant to the u s code u s employees may be either detailed or transferred to international organizations for foreign service p was transferred from the u s army to nato for years after sec_911 i r c was amended to exclude from the definition of foreign_earned_income amounts paid_by the united_states or an agency thereof to an employee of the united_states or an agency thereof held p was an employee of nato and not an employee of the united_states daniel harvey fitzgibbon for petitioners brian m harrington for respondent memorandum opinion körner judge respondent determined deficiencies in petitioners' federal_income_tax for the years and in the respective amounts of dollar_figure dollar_figure and dollar_figure petitioners timely filed their and u s individual income_tax returns form sec_1040 as married_filing_jointly pursuant to an extension of time agreed to by petitioners and respondent for the year the statutory_notice_of_deficiency with respect to the taxable years and was timely mailed to petitioners on date this case was submitted under rule the stipulation of facts and the attached exhibits are incorporated herein by this reference all statutory references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure except as otherwise noted petitioners were residents of brussels belgium when they filed their petition patricia adair is a party to this proceeding solely by virtue of having filed joint income_tax returns with her husband consequently all references to petitioner hereinafter will be to william h adair the controversy for decision is whether sec_911 exempted petitioner from taxation as to a portion of his income during the years in issue while performing services for the north atlantic treaty organization nato as a transferee from the u s army nato nato is an organization of sovereign states created by the north atlantic treaty treaty 63_stat_2241 t i a s u n t s the original signatory states included the united_states of america the kingdom of belgium canada the kingdom of denmark france iceland italy the grand duchy of luxembourg the kingdom of the netherlands the kingdom of norway portugal and the united kingdom of great britain and northern ireland nato was organized in order to promote stability and well- being in the north atlantic region the parties to the treaty seek to preserve peace and security and to unite efforts for their collective defense treaty art 63_stat_2243 article of the treaty created the north atlantic council council a body on which each of the parties would be represented this council is the highest decision-making body in nato and is composed of permanent representatives appointed by each of the nato member states the council created various committees which were supported by an international staff drawn from all member states member states entered into an additional agreement entitled the agreement on the status of the north atlantic treaty organization national representatives and international staff this agreement was signed in ottawa canada on date and is referred to herein as the ottawa agreement u s t t i a s part iv of the ottawa agreement applies to officials of nato's international staff article therein provides that such officials will be agreed upon by the chairman of the council of deputies and the member state concerned article provides officials so agreed upon shall be exempt from taxation on the salaries and emoluments paid to them by nato in their capacity as such officials any member state may however conclude an arrangement with the council acting on behalf of nato whereby such member state will employ and assign to nato all of its nationals except if such member state so desires any not ordinarily resident within its territory who are to serve on the international staff of nato and pay the salaries and emoluments of such persons from its own funds at a scale fixed by it the salaries and emoluments so paid may be taxed by such member state but shall be exempt from taxation by any other member state u s t pincite article of the ottawa agreement states that the privileges and immunities provided to such officials were so granted in the interests of nato and not for the personal benefit of the individuals themselves the united_states and the council also concluded an arrangement in london england on date london agreement as allowed by the second sentence of article of the ottawa agreement u s t pincite the london agreement essentially provides a whenever nato desires the services of a u s national it will notify the deputy u s council representative of the nature of the position to be filled the qualifications required and the salary such individual would receive if employed by nato b the government of the united_states may assign to nato a u s national from its government service who is acceptable to nato and the u s government will provide security clearances for the individual concerned c the government of the united_states will pay any and all salaries and emoluments of u s nationals who are employed by it and assigned to nato from its own funds at rates determined by the u s government d nato agrees that it will not pay salaries and emoluments to any citizen_of_the_united_states and e nato will credit to the united_states the amounts of salaries and emoluments which would otherwise have been paid_by nato to u s nationals and will deduct the total of such credits for each fiscal_year from the amount assessed the government of the united_states by nato in respect of the annual contribution of the united_states government for the subsequent fiscal_year federal employees international_organization service act the u s senate deemed it appropriate and advantageous for the united_states to take an active interest in the number and caliber of americans serving with international organizations it was determined that the increasing difficulties such organizations were experiencing in recruiting american specialists were due principally to the following reduced salary scales a lack of protection of federal employment rights and benefits and a lack of authority to detail federal employees to international organizations the appointment of federal personnel to international organizations was deemed to have the advantage of providing a means of increasing the experience of government employees to remedy recruitment difficulties the senate proposed_legislation s providing federal_agency heads with the authority to detail employees to international organizations and protecting the federal employment rights of such employees on date congress enacted the federal employees international_organization service act feiosa publaw_85_795 72_stat_959 to encourage and authorize details and transfers of federal employees for service with international organizations this act is now codified pincite u s c secs section of title provided the president with the authorization to prescribe regulations necessary to carry out the provisions governing the detail and transfer of employees to international organizations in the president delegated to the office of personnel management opm the authority granted him by u s c sec details and transfers to international organizations section of title addresses details and u s c secs address transfers to international organizations an international_organization is defined as a public international_organization in which the government of the united_states participates an agency may detail or transfer an employee without prior approval of opm if an organization is already designated as a qualifying international_organization nato is listed as one such qualifying international_organization a details a detail is defined as the assignment or loan of an employee to an international_organization without a change_of position from the agency by which he is employed u s c sec a the status of an employee detailed to an international_organization remains that of an employee of his agency for all purposes a detailed employee is deemed an employee of the agency from which detailed for the purpose of preserving his allowances privileges rights seniority and other_benefits and he is entitled to pay allowances and benefits from funds available to that agency u s c sec c and d a detailed employee continues to earn leave under his agency's system the head of an agency may detail an employee from his agency to an international_organization that requests services u s c sec b details may be made with or without reimbursement by the international_organization to the united_states u s c sec d b transfers a transfer is defined as a change_of position by an employee from an agency to an international_organization u s c sec an employee who transfers to an international_organization is entitled to retain coverage rights and benefits under any system established by law for the retirement of employees of the united_states to continue to participate in the federal employees group_life_insurance program under chapter of title u s c and to continue enrollment in the federal employees health benefits program under chapter of title u s c u s c sec a and to retain the above coverage rights and benefits during a period of transfer all necessary employee payments and agency contributions must be currently deposited in the respective trust funds for these programs u s c sec a and the agency must continue its contributions so long as employee payments are made u s c sec a and d consequently a transferred employee who makes such contributions and retains such coverage rights and benefits remains an employee of the agency from which transferred for retirement health benefits and group_life_insurance purposes c f_r sec b the period during which such coverage is retained is deemed creditable service under any retirement_system and service as an employee for health and life_insurance purposes u s c sec a and a transferee is also entitled to retain coverage rights and benefits for work-related injuries pursuant to chapter subchapter_i of title u s c for this purpose a transferee's employment with an international_organization is deemed employment by the united_states however any payments made by an international_organization due to injury or death are creditable against any benefits payable under subchapter_i of chapter of title u s c sec a at the time of transfer a transferee may elect to retain all accumulations and accruals of annual leave to his credit which would otherwise be liquidated by a lump-sum payment a transferee may also request payment of all retained leave at any time prior to reemployment however if a transferee elects a lump-sum payment and is reemployed within months of a transfer such transferee must refund the lump-sum payment to the agency u s c sec a a transferee has an absolute right to reemployment with the agency from which he was transferred at his former position or a position of like seniority status and pay within days of application if he meets two conditions the transferee must separate from the international_organization within his term of employment with the international_organization that is within the agreed-upon time and any extensions thereof and the transferee must make such application to his former agency no later than days after separation if application is made days or more prior to separation such applicant is entitled to reemployment upon separation u s c sec b c f_r sec upon reemployment a transferee is entitled to the same rate of pay to which he would have been entitled had he continuously remained in federal civil service u s c sec b also a transferee's sick leave account will be restored to its status at the time of transfer u s c sec b additionally the period of separation caused by a transfer to an international_organization as well as the period necessary to effectuate reemployment is deemed creditable service for all appropriate civil service purposes for example the service is counted for retirement purposes if a transferee retains retirement coverage u s c sec b an employee may be detailed or transferred pursuant to a written request by an international_organization for the services of a u s employee only upon the consent and at the discretion of the head of a u s agency an agency may authorize the detail or transfer of an employee to the organization for a period not to exceed years the period of employment may be extended for an additional years with the consent of the head of the agency only when the secretary of state determines such extension to be in the national interest u s c secs a c f_r sec refusal to authorize a transfer or an extension to transfer is not reviewable or appealable an agency and an international_organization shall by mutual agreement establish the effective date of detail or transfer c f_r sec upon separation an agency shall furnish a transferee with a statement of his leave account and shall include on the personnel action form effecting the employee's separation for transfer the identity of the international_organization to which he transfers and a clear statement of the period during which he retains reemployment_rights in the agency id nato vacancy on date nato posted a notice that a position on its international staff would become vacant in date secretaries of delegations were invited to submit names of qualified candidates the notice stated that the successful candidate would be offered a definite duration contract not exceeding years but that such term could be renewed by mutual consent for an additional years the record herein does not include such a contract at the time petitioner applied for the post advertised he was in the u s department of the army doa as a program analyst in the office of the comptroller of the department of defense dod of the u s government petitioner was interviewed by nato personnel at nato headquarters in brussels belgium sometime in date nato paid all expenses relating to petitioner's interview by letter dated date nato's deputy director of management informed the administrative adviser of the u s mission to nato that the secretary general of nato had decided to appoint petitioner subject_to a valid security clearance to the grade a post of senior statistician this letter also inquired whether petitioner should be recruited on a reimbursable or direct hire basis in april the u s mission to nato notified the u s secretary of defense of petitioner's proposed appointment the notification requested the defense secretary to confirm petitioner's acceptance of the offer provide an estimated reporting date certify petitioner's security clearance status and the date of his last background investigation and confirm whether petitioner's appointment would be on a reimbursable basis nato's international staff position as a result of his interview petitioner was offered the nato position he accepted the offer upon acceptance a form 50-b notification of personnel action was prepared by the doa reflecting petitioner's transfer from his position with the dod to his new position with nato for a 3-year term effective date while the united_states initially paid the expenses of moving petitioner and his family to belgium nato reimbursed the united_states for these costs at the time nato extended the offer it was explained to petitioner that because he was a u s government employee he had the option of being recruited on a reimbursable or a direct hire basis petitioner was notified that if he elected to be recruited on a direct hire basis he would lose his civil service retirement and other_benefits as well as any right to be reemployed by the united_states following his term with nato petitioner would receive his salary emoluments and other employment benefits directly from nato at the nato salary scale applicable to his position if instead petitioner chose to be recruited on a reimbursable basis he would receive his salary and emoluments directly from the doa at the salary level applicable to his former grade as a u s employee gs-14 would be granted reemployment_rights with the u s government for a limited period following his employment under the nato appointment and would continue to be eligible to participate in employee benefit programs under the reimbursable option nato would provide the united_states with a credit against its fiscal assessment for the amount of salary and emoluments that would otherwise have been paid_by nato to petitioner pursuant to nato's salary scale petitioner would continue to be considered for every promotion he would have been considered for had he remained with the doa and if his former position was upgraded during his absence he would be upgraded as if he were still in that position even in the reimbursable status however petitioner would be entitled to certain educational allowances provided and paid to him directly by nato in accordance with nato policy and regulations petitioner elected to be recruited on the reimbursable basis and was transferred to nato's international staff in accordance with the london agreement accordingly as a then employee of the u s government who was transferred to an international_organization nato petitioner was entitled to and did continue to participate in the u s civil service retirement_system health and life_insurance programs available to u s employees and was granted the right to be reemployed by the united_states following his tenure with nato during the years in issue petitioner was paid on a monthly basis from the u s doa in the united_states for the services he performed for nato on its international staff forms w-2 wage and tax statements were issued to petitioner by the doa for each of the years in issue while the general salary level was determined by nato the specific amount of petitioner's salary was determined and paid in accordance with the internal salary schedule of the u s government although the nato salary level of a senior statistician systems analysis and statistics service defense planning and policy division was a grade a-4 petitioner was paid under the u s salary level as a gs-14 before beginning work with nato in date pursuant to nato's regulations petitioner was required to sign a declaration on accepting appointment which provided i solemnly undertake to exercise in all loyalty discretion and conscience the functions entrusted to me as a member of the staff of nato and to discharge these functions with the interests of nato only in view i undertake not to seek or accept instructions in regard to the performance of my duties from any government or from any authority other than the organization petitioner was required to devote substantially full time to his duties on the international staff he was required to render services to nato personally and performed services solely for nato during his term of transfer a continuing relationship existed between petitioner and nato during the years in issue nato authorities dictated the results that petitioner was to accomplish through his work as well as the means by which he was to attain those results nato retained the right to control the order and sequence of the tasks that petitioner performed nato's personnel regulations set forth various details concerning employment including work hours holidays and rights concerning leave nato's personnel regulations required the organization to provide insurance coverage to appropriately compensate staff members and their families for physical injuries suffered as a result of the performance of nato duties as an international staff member petitioner was also entitled to and did receive certain educational allowances that were paid directly by nato the stipulated record in this case does not reveal the exact amounts paid to him a staff member could be separated from nato due to the expiration of the term of contract resignation by the member age limitation death dismissal or termination by the head of a nato body termination could result if a staff member did not perform satisfactorily became incapacitated if the country from which he were a national ceased to be a member of nato or withdrew or failed to renew a security clearance or due to disciplinary action petitioner's initial term with nato was for years beginning date and ending date petitioner was required to obtain approval from appropriate u s authorities for any and all extensions of his nato tour petitioner's initial term was extended by u s authorities and twice by the secretary general of nato through date in order to continue his reemployment_rights with the u s government petitioner was required to obtain an extension of such rights petitioner was granted extensions of his rights to reemployment petitioners' tax returns for the years and petitioner reported gross_income of dollar_figure dollar_figure and dollar_figure respectively he received compensation_for services performed for nato from the doa totaling dollar_figure dollar_figure and dollar_figure respectively these amounts were reflected in petitioners' tax returns including form_2555 foreign_earned_income additionally in part iii of form_2555 petitioner reported as part of his foreign_earned_income total allowances reimbursements and other expenses paid on his behalf totaling dollar_figure dollar_figure and dollar_figure respectively for the years and petitioner reported these allowances inconsistently during the years in issue the significant decrease in amounts reported between the years on the one hand and and on the other hand is attributable to the fact that petitioner in and did not include the total allowances he received as part of the total foreign_earned_income reflected on the form petitioner included a total figure for the allowances he received in and in the space beside the description for such allowances and described some allowances as tax exempt therefore he did not include these amounts as part of the total foreign_earned_income petitioner reflected the home_leave allowance as taxable in the only year it was received he reported the nato education allowances as tax- exempt in year and as part of his foreign_earned_income in other years petitioner consistently determined that the costs of living overseas differential and the quarters allowances were foreign_earned_income for all years consequently petitioner reported foreign_earned_income for the years and totaling dollar_figure dollar_figure and dollar_figure respectively before applying the limitations of sec_911 on his returns petitioner claimed exclusions from income of dollar_figure dollar_figure and dollar_figure for the years and respectively for each year petitioner consistently reported that his employer was the nato international staff respondent's notice_of_deficiency determined that petitioner was not entitled to the total_amounts claimed as sec_911 exclusions because the salary petitioner received from the doa was not qualified foreign_earned_income sec_911 at the election of a qualified_individual sec_911 provides a limited exclusion for foreign_earned_income such exclusion is limited to dollar_figure annually sec_911 a qualified_individual is a u s citizen whose tax_home is a foreign_country and who meets the bona_fide residence test or resides in a foreign_country for a qualifying period sec_911 the parties agree that petitioner was a u s citizen and was a qualifying_individual during the years in issue foreign_earned_income includes amounts received from sources within a foreign_country as earned_income for services performed but does not include amounts paid_by the united_states or an agency thereof to an employee of the united_states or an agency thereof sec_911 and b ii a petitioner's employment status respondent essentially contends that although petitioner was transferred to nato in accordance with the hiring procedures of the london agreement he remained a u s employee for purposes of sec_911 regardless of common_law principles of employment additionally that amendments to sec_911 made pursuant to the economic_recovery_tax_act_of_1981 erta publaw_97_34 95_stat_172 do not alter this result article of the ottawa agreement allowed member states to conclude an arrangement with nato whereby a member state would hire its nationals assign them to nato's international staff and pay their salaries from its own funds at a scale fixed by it by entering into such an arrangement a member state could still tax the amounts it so paid its nationals the united_states entered into such an arrangement the london agreement we have determined that the united_states retained the power to subject its nationals to its taxing jurisdiction by complying with the mechanism provided in article we have also found that article gave the united_states the ability to tax u s nationals rather than directly imposing the tax itself 90_tc_802 prior to the relevant language limiting sec_911 excludability referred to amounts paid_by the united_states or any agency thereof in erta broadened the potential sec_911 exclusion by narrowing the definition of amounts excluded from foreign_earned_income effective for taxable years beginning after date erta changed paid_by the united_states or an agency thereof to paid_by the united_states or an agency thereof to an employee of the united_states or an agency thereof erta sec_111 95_stat_190 907_f2d_1173 d c cir affg 92_tc_351 petitioner acknowledges that before the erta amendment there would have been little doubt that he would not qualify for the benefits of sec_911 by making this concession petitioner agrees with respondent that he was paid_by the united_states or an agency thereof thereby eliminating from consideration any question regarding who paid petitioner for the services he performed for nato it is clear that before enactment of erta in the united_states retained the power to tax its nationals by following the hiring procedures set forth in the london agreement amaral v commissioner supra pincite respondent argues that following the london agreement procedures conclusively determines that petitioner is a u s employee pursuant to sec_911 as amended by erta on the theory that the language employ and assign of the ottawa agreement is sufficient in and of itself to resolve the employment question without consideration of the facts and circumstances involved herein article of that agreement contemplates that member states which hire and pay their nationals may assign or detail those persons for duty with nato such persons are considered seconded to nato amaral v commissioner supra pincite respondent contends that both detailed and transferred employees are seconded from the united_states and that therefore both are assigned to nato and both are u s employees taxable on the salaries they receive from the united_states while the term detail is defined as the assignment or loan of an employee to an international_organization a transfer is defined as a change_of position by an employee from a u s agency to an international_organization u s c secs a it is evident that petitioner was required to be an employee of the u s government in order to apply for the nato position whether he remained a u s employee while performing services for nato throughout the years in issue is a threshold issue we are called upon to decide we cannot ignore that erta modified the relevant language of sec_911 while the language of the ottawa and london agreements has remained unchanged although the united_states retained the power to tax its nationals by following the london hiring procedures erta added a change to the tax law that has not caused a change in the ottawa or london agreements congress can abrogate a treaty provision by subsequent statute 354_us_1 it is equally true however that when a treaty and a statute relate to the same subject courts will always attempt to construe them so as to give effect to both 124_us_190 the intention to abrogate or modify a treaty is not to be lightly imputed to congress 391_us_404 we agree with petitioner that respondent fails to distinguish between congress' power to tax and its exercise of that power the ottawa and london agreements are construed as contracts one among nations and the other between the united_states and an international_organization 466_us_243 254_us_433 they are not laws by which a nation imposes a tax on its citizens an examination of existing law and the facts herein is required in light of the erta change the conference_report accompanying erta states the bill extends the benefits of the exclusion to individuals who receive compensation from the u s or any agency thereof but who are not employees of the u s or any agency thereof thus for example the bill extends the exclusion to certain overseas independent contractors and teachers at certain schools_for u s dependents who are not employees of the u s or any agency thereof h rept 1981_2_cb_481 respondent argues that petitioner is not a member of the protected class carved out by the erta amendment as he is not an independent_contractor respondent further argues that as petitioner is an employee he is not an intended beneficiary of the amendment and should not be eligible for the sec_911 exclusion the conference explanation does not limit the exclusion to independent contractors and teachers but merely provides examples of beneficiaries of the legislation although the most obvious beneficiaries of the amendment may be independent contractors the language of the amendment speaks for itself and we cannot determine from the legislative_history alone that petitioner was not an intended beneficiary of the amendment the legislation clearly extends the benefits of sec_911 to individuals who receive compensation from the united_states but who are not employees of the u s government the ways_and_means_committee report accompanying erta explains the change further the bill extends the benefits of the exclusion to individuals who are paid_by the united_states but who are not eligible for any exclusion under sec_912 or any other provision of u s law as a general_rule therefore employees of the federal government will not be eligible for the exclusion h rept 1981_2_cb_352 it is respondent's position that petitioner was eligible for and did receive certain benefits from the u s government such as allowances reimbursements and expenses for cost of living and overseas differentials education expenses and quarters and housing sec_912 generally provides that amounts received by civilian officers and employees of the united_states as foreign area cost of living and peace corps allowances are exempt from taxation to be eligible for these benefits and this exclusion a taxpayer must be a civilian officer or an employee of the u s government a determination we have yet to make consequently an analysis of sec_912 alone is not helpful in resolving the issue before us as it presupposes petitioner is a u s employee as revealed by petitioners' tax stated more precisely the amendment to sec_911 did not directly increase the exclusion from income therein it may have done so indirectly by narrowing the limitation on that exclusion returns petitioner did receive allowances contrary to respondent's assertions receipt of these benefits by itself is not determinative of petitioner's status as a u s government employee although petitioner may have received benefits of a type contemplated by sec_912 this fact does not conclusively determine that petitioner is a u s employee but merely indicates that someone thought he qualified for such benefits neither in sec_911 nor elsewhere does the code contain definitions of employee or u s employee respondent agrees that precedents adopt the common_law test when defining employee for purposes of sec_911 matthews v commissioner f 2d pincite it is clear that absent indications to the contrary courts have used the common_law test for defining employee in tax cases id pincite courts have identified several factors to be considered when determining whether an employment relationship exists among them are the right to control the manner in which the work is performed whether the individual performing the work has an opportunity for profit or loss the furnishing of tools and the work place to the worker the permanency of the working relationship whether the service rendered is an integral part of the alleged employer's business whether services are offered to the general_public rather than to one individual the right to discharge and the intent of the parties or the relationship they think they are creating juliard v commissioner tcmemo_1991_230 the control factor overlaps many other factors and is often cited as the fundamental or master test of an employment relationship matthews v commissioner t c pincite having stipulated virtually every significant element of the common_law test it seems that respondent has largely conceded that petitioner was a common_law_employee of nato during the years in issue although respondent states that it cannot be said that petitioner was clearly an employee of nato an examination of the facts and applicable law demonstrates otherwise respondent asserts that nato had no authority to hire petitioner but instead had to seek petitioner's transfer from the u s government the london and ottawa agreements and the u s code and the code_of_federal_regulations as well as the manner by which petitioner was transferred to nato reveal that the transfer process was a joint endeavor whereby both nato and the u s government respectively agreed to acceptable hirees and transferees the effective date of transfer was likewise mutually agreed upon nato notified the u s government of a vacancy the nature of the position qualifications required and the salary if employed by nato we agree that potential nato hirees could be accepted only upon the consent and at the discretion of the head of a u s agency as well as the secretary general of nato requests for extensions of tour with nato were subject_to u s concurrence but contrary to respondent's contentions there is no authority for the proposition that the united_states could require petitioner's return or terminate petitioner's tour before expiration of an agreed-upon term respondent seeks support for her contention in language contained in a standard form entitled rotation agreement--employees recruited from the united_states stating that extensions beyond the initial tour will be authorized should management decide that an extension would be in the best interests of the doa this form further states that denial of such extension was not contestable these statements are consistent with u s law to retain reemployment_rights a transferee must separate from an international_organization within his agreed term of employment and any agreed extensions thereof we find that the united_states retained the right to deny a request for an extension of an agreed term but could not require a transferee to return before his agreed term expired further should a transferee choose to remain beyond his tour without u s approval he would forfeit any right to reemployment nato's rights of termination were markedly broader than the rights of the united_states significantly nato could terminate petitioner not only upon the expiration of his term but also due to disciplinary action unsatisfactory performance or if the country from which he was a national ceased to be a nato member withdrew or failed to renew a security clearance while respondent argues that petitioner and the united_states intended to continue their employment relationship throughout petitioner's tenure with nato such intent is not clear under the facts herein we do find that the united_states sought not only to encourage transfers but also sought to encourage the reemployment of transferees upon the expiration of their term of transfer congress enacted feiosa for the purpose of encouraging details and transfers to international organizations in which the united_states participates 939_f2d_970 fed cir increasing the number and caliber of u s employees serving in these international organizations was considered to be of benefit to the united_states as such individuals would gain valuable international expertise which could be employed to increase the effectiveness of the participation of the united_states in these international organizations congress sought to encourage such transfers by eliminating deterrents transferees were provided with the ability to protect their employment benefits and the right to reemployment upon the expiration of a term of transfer respondent argues that petitioner's election to be paid pursuant to the reimbursable option instead of as a direct hire reflects his intent to continue his employment relationship with the united_states the legislation outlined herein specifically contemplates that transferees could retain such rights and benefits and further specifies that one of the deterrents to such transfers was the prospect of reduced salary scales upon transfer we note that the london agreement provided that the u s government was to pay its nationals assigned to nato at rates determined by the former nato during petitioner's term of transfer exclusively directed petitioner's daily activities including the sequence of tasks the desired results to be achieved and the means by which such results were to be obtained petitioner was accountable solely to nato this is revealed not only by nato's personnel regulations but also by the loyalty declaration petitioner signed upon accepting his appointment to nato respondent argues that even though petitioner may be an employee of nato pursuant to the common_law test petitioner also remained an employee of the united_states for purposes of sec_911 by virtue of the benefits and rights he retained as a transferred employee respondent suggests that the common_law test for employee should be construed broadly so as to consider the significant benefits retained by petitioner petitioner argues that his retention of benefits is not conclusive as to the identity of his employer we agree with petitioner the determination of whether petitioner was an employee of the united_states depends on all the facts and circumstances including the paramount fact that nato rather than the united_states controlled the manner in which his work was performed matthews v commissioner t c pincite other facts also indicate that petitioner was separated from u s government service during his transfer to nato unlike a detail a transfer was considered a change in position additionally a transferee's right to reemployment with the united_states in and of itself indicates that a transferred employee was no longer considered a u s employee although a transferee retained an absolute right to reemployment he had to affirmatively apply for such reemployment upon transfer transferees were entitled to liquidate their accumulated leave accounts in the same manner as separated employees if a transferee chose to retain retirement health and life_insurance coverage the transferee was considered a u s employee for these limited purposes while on transfer to an international_organization transferees were also considered employed by the united_states for purposes of workman's compensation coverage it can be inferred from these provisions that transferees were not considered u s employees for other purposes cf matthews v commissioner supra petitioner's performance was regularly evaluated by his nato supervisors we do not find such arrangement to be contrary to a transferee's status as a separated employee in sum we find that in the years in issue petitioner was an employee of nato and not of the united_states or an agency thereof b petitioner's income under sec_911 we have decided that petitioner in the years in question was the employee of nato and not of the united_states this means that the restrictions of sec_911 do not apply to petitioner here because although he was paid_by the united_states as the parties have stipulated he was not an employee of the united_states this does not mean that the exemption from income under sec_911 was broadened by the amendment to sec_911 but rather that the exclusion from that exemption from income was somewhat narrowed so that before the benefits of sec_911 could be denied the employee it had to be shown that he was both paid_by the united_states and at that time was also an employee of the united_states since we have found that petitioner was not an employee of the united_states the restriction on his right to claim sec_911 benefits is removed the parties have agreed and stipulated if mr adair was not during the taxable years at issue an employee of the united_states within the meaning of sec_911 the compensation he received for his work for nato during those years was foreign_earned_income as that term is defined in sec_911 we treat this stipulation by the parties as a concession by respondent that since we have found that petitioner was not an employee of the united_states his compensation both pay and allowances as a member of nato are entitled to exemption from united_states income_tax under sec_911 cf 101_tc_537 subject of course to the other applicable restrictions of sec_911 including the dollar limitations on foreign_earned_income in sec_911 for the years in question although petitioners claimed an exclusion from income for the year on account of housing presumably under sec_911 and although respondent's statutory_notice_of_deficiency disallowed this claimed exclusion as well as the claimed exclusion for salary under sec_911 petitioners did not allege error on respondent's part because of the disallowance of this housing exclusion and alleged no facts or argument either in their petition or on brief in support of the proposition that such housing exclusion for should be allowed we conclude that petitioners have abandoned the issue accordingly since the only issue presented in this case was the right of petitioner to take advantage of the foreign_earned_income_exclusion of sec_911 because of his compensation_for serving as a member of nato and since respondent has conceded that issue if we decide as we have that petitioner was an employee of nato and not of the united_states a recomputation of petitioners' tax_liability for the years and will be necessary and decision will be entered under rule


department of the treasury internal_revenue_service number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-119787-02 date date legend a b c d e f g h i j k l m n o p plr-119787-02 q r s t u v w x y z country1 country2 country3 d1 d2 d3 d4 d5 dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of b c d e f g h i j k l m n o p q r s t u v w x y and z by their authorized representatives requesting a ruling that b c d e f g h i j k l m n o p q r s t u v w x y and z each be given an extension of time to elect under sec_301_7701-3 of the procedure and plr-119787-02 administration regulations to be classified as a disregarded_entity for federal tax purposes facts the information submitted states that a is a us partnership owned by us investors b a wholly owned subsidiary of a was formed on d1 pursuant to the laws of country1 c a wholly owned subsidiary of b was formed on d2 pursuant to the laws of country2 d a wholly owned subsidiary of c was formed on d3 pursuant to the laws of country3 e a corporation formed under the laws of country3 became a wholly owned subsidiary of d as of d4 on d4 c and d purchased f g h i j k l m n o p q r s t u v w x y and z immediately after the purchase the properties owned by the subsidiaries were transferred to e e owns f and g f owns h h owns i j k l m n o and p j owns q r s t u v w x and y p owns z b represents that pursuant to sec_301_7701-3 b is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes b has a single owner that has limited_liability as defined in sec_301_7701-3 b intended to be disregarded for federal tax purposes effective on d1 however b inadvertently failed to timely file a form_8832 entity classification election c represents that pursuant to sec_301_7701-3 c is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes c has a single owner that has limited_liability as defined in sec_301_7701-3 c intended to be disregarded for federal tax purposes effective on d2 however c inadvertently failed to timely file a form_8832 entity classification election d represents that pursuant to sec_301_7701-3 d is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes d has a single owner that has limited_liability as defined in sec_301_7701-3 d intended to be disregarded for federal tax purposes effective on d3 however d inadvertently failed to timely file a form_8832 entity classification election e f g h i j k l m n o p q r s t u v w x y and z represent that pursuant to sec_301_7701-3 e f g h i j k l m n o p q r s t u v w x y and z are each a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes e f g h i j k l m n o p q r s t u v w x y and z each has a single owner that has limited_liability as defined in sec_301_7701-3 e f g h i j k l m n o p q r s t u v w x y and z each intended to be disregarded for federal tax purposes effective on d5 however e f g h i j k l m n o p q r s t u v w x y and z each inadvertently failed to timely file a form_8832 entity classification election plr-119787-02 law and analysis 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 a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 sec_301_7701-3 provides that unless a foreign eligible_entity elects otherwise the 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 owners if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 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 when elections under sec_301 c i for a series of tiered entities are effective on the same date the eligible entities may specify the order of elections on form_8832 sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 provides that an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed under c the commissioner may grant a reasonable extension of time 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 the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin sec_301_9100-1 and sec_301_9100-3 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_9100-2 plr-119787-02 sec_301_9100-3 provides that requests for relief under 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 granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result b is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d1 c is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d2 d is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d3 e f g h i j k l m n o p q r s t u v w x y and z each is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes effective for d5 additionally in accordance with sec_301_7701-3 the entities may specify that the order of the elections of e f g h i j k l m n o p q r s t u v w x y and z be deemed made in order from the bottom subsidiary to the top subsidiary on form_8832 a copy of this letter should be attached to each form_8832 a copy is included for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-119787-02 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------------- -------------------------------------- ---------------------------------------- attn -------------------------- --------------------------------------- department of the treasury washington dc person to contact -------------------- id no ------------ telephone number --------------------- refer reply to cc ita plr-144366-09 date date do --------------------------------------------------------------------------------------------------------------- ------------------------------------------- ty -------------------------- legend proprietorship ----------------------------------------------------------- year brand product number raw materials ---------- ------- --------------------- ------- ---- dear ---------------------------- we received your application of date which asks us to rule that sec_1363 of the code does not apply when a sole_proprietorship using the lifo inventory_method transfers its assets to a newly formed corporation in a transaction that meets the requirements of sec_351 that corporation timely files an election to use the lifo inventory_method for the first year of its existence and that corporation timely elects to be an s_corporation for the first year of its existence the following facts have been obtained from the above-referenced application operating as a sole_proprietorship since year proprietorship manufactures the brand brand of product and distributes it in number states and select international destinations proprietorship manufactures product from raw materials produced by the plr-144366-09 taxpayers and from raw materials purchased from unrelated parties proprietorship is headed by the taxpayers with assistance from their sons proprietorship uses a modified cash_method_of_accounting specifically proprietorship uses an accrual_method for inventory-production costs and the cash_method for all other activities of the business in addition proprietorship uses the lifo inventory_method and complies with the uniform_capitalization_rules of sec_263a law sec_1363 provides generally that if an s_corporation was a c_corporation for the last tax_year before the first tax_year for which an election to be taxed as an s_corporation was effective and the corporation inventoried goods under the lifo_method for such last tax_year the lifo_recapture_amount shall be included in the gross_income of the corporation for such last tax_year the lifo_recapture_amount is the amount if any by which the inventory_amount of the inventory_asset under the fifo method authorized by sec_471 exceeds the inventory_amount of such assets under the lifo_method the inventory_amount carrying value of assets under a method authorized by sec_471 shall be determined using the retail_method or if the corporation does not use the retail_method by using cost or market whichever is lower analysis sec_1363 mandates the taxation of the lifo_recapture_amount if an s_corporation was a c_corporation for the last taxable_year before the first taxable_year for which an s_corporation_election was effective reading the words of sec_1363 literally we conclude that it does not apply to the facts presented by the taxpayers proprietorship has never been a c_corporation and the corporation to be formed by the taxpayers will elect to be an s_corporation for the first year of its existence our literal reading of sec_1363 in this case does not thwart congressional intent congress enacted a related provision sec_1374 to tax an s_corporation on the built-in gains attributable to the period when it was a c_corporation sec_1374 applies however only to built-in gains recognized during the first years of the corporation’s existence as an s_corporation 10-year recognition_period because of the mechanics of the lifo inventory_method the built-in gains from lifo_inventories will not be fully recognized until the taxpayer experiences a decrement in every inventory layer that existed on the date the c_corporation elected to be an s_corporation it is possible even likely that the s_corporation will not experience a decrement in any of these inventory layers during the 10-year recognition_period and thus will escape taxation under sec_1374 altogether this result gives an s_corporation using the lifo inventory_method a tax-based competitive advantage over an s_corporation using the fifo inventory_method to counter this result congress enacted sec_1363 which prevents an s_corporation from avoiding the taxation of plr-144366-09 any built-in gains attributable to lifo_inventories held when it was a c_corporation see h_r conf_rep no 100th cong 1st sess we do not believe congress intended sec_1363 to apply when avoidance of the built-in_gain rules of sec_1374 is not possible and thus cannot be one of the goals of the corporation’s election to be an s_corporation the existence of built-in_gain subject_to sec_1374 is not possible in this case for the same reasons that sec_1363 literally does not apply to the facts of this case conclusion accordingly based solely on the information and representations submitted by the taxpayers and accompanied by a penalty of perjury statement executed by an appropriate party it is held that sec_1363 does not apply when a sole_proprietorship using the lifo inventory_method transfers its assets to a newly formed corporation in a transaction that meets the requirements of sec_351 that corporation timely files an election to use the lifo inventory_method for the first year of its existence and that corporation timely elects to be an s_corporation for the first year of its existence no opinion is expressed as to the application of any other provisions of the code or the regulations which may be applicable to the transaction specifically no opinion is expressed regarding the propriety of the lifo inventory methods used by the taxpayer 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 though this office has not verified any of the information and representations submitted by the taxpayers those items are subject_to verification on examination this ruling is directed only to the taxpayers who requested it sec_6110 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 taxpayers’ authorized representatives plr-144366-09 please contact the person whose name and telephone number are shown above if you have any questions sincerely jeffery g mitchell branch chief branch office of associate chief_counsel income_tax accounting cc


internal_revenue_service department of the treasury number release date index number re washington dc person to contact telephone number refer reply to cc psi b9 plr-100859-02 date date legend decedent spouse state revocable_trust date date date children date dollar_figurex dollar_figurey dear this responds to your letter dated date and subsequent correspondence requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make a qualified_terminable_interest_property qtip_election under sec_2056 of the internal_revenue_code and a reverse_qtip_election under sec_2652 the facts and representations submitted are summarized as follows decedent and spouse both residents of state created revocable_trust on date decedent and spouse amended and restated revocable_trust in its entirety on date decedent died testate on date survived by spouse and children pursuant to decedent’s last will and testament the decedent’s estate passed to spouse as the surviving trustee of revocable_trust plr-100859-02 revocable_trust provides that upon decedent’s death the trustee shall divide the trust estate into three separate shares designated as the exemption trust the marital trust and the survivor’s trust article of revocable_trust provides that the exemption trust shall consist of a pecuniary amount equal to the maximum amount that can be allocated to a_trust that does not qualify for the federal estate_tax marital or charitable deduction to any extent without producing any federal estate_tax article provides that the marital trust shall consist of a pecuniary amount which when added to the amount set_aside in the exemption trust equals the amount of the generation-skipping_transfer gst tax exemption available to the decedent under sec_2631 article provides that the survivor’s trust shall consist of spouse’s separate_property that is a part of the trust estate spouse’s interest in decedent’s and spouse’s community_property included in or added to the trust estate and decedent’s separate_property and interest in community_property not allocated to the exemption trust or the marital trust article provides that the trustee shall distribute the entire net_income of the survivor’s trust to spouse during spouse’s lifetime in convenient installments at least annually article provides that the trustee may pay to or apply for the benefit of spouse as much of the principal of the survivor’s trust as the trustee considers necessary for spouse’s health education support and maintenance in accordance with spouse’s standard of living on the death of decedent article further provides that spouse shall have the right from time to time to direct the trustee to pay spouse such amounts of principal of the survivor’s trust up to the whole thereof as spouse may designate article provides that after spouse’s death the trustee shall distribute any remaining balance of the survivor’s trust including principal and accrued or undistributed_income to one or more persons and entities including spouse’s estate spouse’s creditors or the creditors of spouse’s estate on any terms and conditions either outright or in trust in present and future_interest or any combination thereof and in any proportion that spouse shall appoint by submitting written instructions to the trustee expressly exercising such power or by spouse’s will or codicil specifically referring to and exercising such power_of_appointment in addition to the foregoing article dollar_figure provides that after decedent’s death spouse may amend revoke or terminate the survivor’s trust article provides that the trustee shall distribute the entire net_income of the marital trust to spouse during spouse’s lifetime in convenient installments at least plr-100859-02 annually article further provides that no person shall have the power to appoint any part of the trust property to any person other than spouse article provides that the trustee may pay to or apply for the benefit of spouse as much of the principal of the marital trust as the trustee considers necessary for spouse’s health education support and maintenance in accordance with spouse’s standard of living on the death of decedent this section further provides that in exercising discretion the trustee shall take into consideration other income or resources of spouse held free of the marital trust article provides that no person has the power to appoint any part of the trust property of the marital trust during spouse’s lifetime to any person other than spouse however upon the death of spouse the trustee shall distribute or retain and administer the marital trust as spouse may appoint by her last will and testament or a codicil thereto to or for the benefit of any one or more of decedent’s issue article provides in part that upon spouse’s death the then remaining balance of the marital trust to whatever extent it has not been appointed pursuant to spouse’s power_of_appointment created in article shall be added to and administered as part of the exemption trust according to the information submitted following decedent’s death the attorney for decedent’s estate prepared the form_706 estate and generation-skipping_transfer_tax return you now request the following rulings an extension of time under sec_301_9100-1 and sec_301_9100-3 to make a qtip_election under sec_2056 with respect to the marital trust and an extension of time under sec_301_9100-1 and sec_301_9100-3 to make a reverse_qtip_election under sec_2652 with respect to the marital trust sec_2001 of the code imposes a tax on the transfer of the taxable_estate of every decedent who is a resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse plr-100859-02 sec_2056 provides in pertinent part that no deduction shall be allowed under sec_2056 where on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur an interest passing to the surviving_spouse will terminate or fail sec_2056 provides that in the case of a property interest passing from the decedent if the surviving_spouse is entitled_for_life to all the income from the entire_interest or all the income from a specific_portion thereof payable annually or at more frequent intervals with power in the surviving_spouse to appoint the entire_interest or such specific_portion exercisable in favor of such surviving_spouse or of the estate of such surviving_spouse or in favor of either whether or not in each case the power is exercisable in favor of others and with no power in any other person to appoint any part of the interest or such specific_portion to any person other than the surviving_spouse - a the interest or such portion thereof so passing shall for purposes of sec_2056 be considered as passing to the surviving_spouse and b no part of the interest so passing shall for purposes of sec_2056 be considered as passing to any person other than the surviving_spouse these provisions shall apply only if such power in the surviving_spouse to appoint the entire_interest or such specific_portion thereof whether exercisable by will or during life is exercisable by such spouse alone and in all events sec_2056 provides that in the case of qualified_terminable_interest_property the entire property is treated as passing to the surviving_spouse for purposes of sec_2056 and no part of such property shall be treated as passing to any person other than the surviving_spouse for purposes of sec_2056 sec_2056 provides that the term qualified_terminable_interest_property means property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life and iii to which an election under sec_2056 applies sec_2056 provides in relevant part that the surviving_spouse will be considered to have a qualifying_income_interest_for_life if the surviving_spouse is entitled to all the income from the property payable annually or at more frequent intervals and no person including the surviving_spouse has a power to appoint any part of the property to any person other than the surviving_spouse during the surviving spouse’s lifetime sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 such an election once made shall be irrevocable sec_20_2056_b_-7 of the estate_tax regulations provides that in general the election referred to in sec_2056 and v is made on the return of tax imposed by sec_2001 or sec_2101 for purposes of this paragraph the term return of tax imposed by sec_2001 means the last estate_tax_return filed by the executor on or plr-100859-02 before the due_date of the return including extensions or if a timely return is not filed the first estate_tax_return filed by the executor after the due_date under sec_2044 any property in which the decedent had a qualifying_income_interest_for_life and for which a deduction is allowed under sec_2056 is includible in the decedent’s gross_estate sec_2044 provides that for purposes of chapter and chapter property includible in the decedent’s gross_estate under sec_2044 a shall be treated as property passing from the decedent sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2632 provides that any allocation by an individual of his gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that in general any portion of an individual’s gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows- a first to property which is the subject of a direct_skip occurring at such individual’s death and b second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual’s death sec_2652 provides in pertinent part that for purposes of chapter the term transferor means- a in the case of any property subject_to the tax imposed by chapter the decedent and b in the case of any property subject_to the tax imposed by chapter the donor an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides that in the case of- a any trust with respect to which a deduction is allowed to the decedent under sec_2056 by reason of subsection b thereof and b any trust with respect to which a deduction to the donor spouse is allowed under sec_2523 by reason of subsection f thereof the estate of the decedent or the donor spouse as the case may be may elect to treat all of the property in such plr-100859-02 trust for purposes of this chapter as if the election to be treated as qualified_terminable_interest_property had not been made sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in pertinent part that no automatic allocation of gst_exemption is made to a_trust that will have a new transferor with respect to the entire trust prior to the occurrence of any gst with respect to the new trust sec_26_2652-2 provides that a reverse_qtip_election is made on the return on which the qtip_election is made under sec_301_9100-1 the commissioner may 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 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_9100-2 provides an automatic_extension of time for making certain elections sec_301_9100-3 provides that in general requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the 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 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made the marital trust qualifies for the qtip_election under sec_2056 because spouse is entitled to all the income from the trust property payable annually and no person including spouse has a power to appoint any part of the property to any person other than spouse during spouse’s lifetime the survivor’s trust qualifies for the marital_deduction under sec_2056 because spouse is entitled to all the income from the trust property payable annually and spouse may appoint the entire_interest of the trust with no power in any other person to appoint any part of the interest to any person other than spouse we conclude that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government also we grant an extension of time until days from the date of this letter for i funding the marital trust and making the qtip_election under sec_2056 with respect to the marital trust plr-100859-02 and ii making a reverse_qtip_election under sec_2652 with respect to the marital trust these elections should be made on a supplemental form_706 filed with the cincinnati service_center a copy of this letter should be attached to the supplemental form_706 a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter we note however that an extension of time to make the reverse_qtip_election under sec_2652 does not extend the time to allocate any of decedent’s remaining gst_exemption in the instant case no allocation of decedent’s gst_exemption was made on decedent’s estate_tax_return accordingly in view of the reverse_qtip_election decedent’s gst_exemption is allocated as follows dollar_figurex to the marital trust and dollar_figurey to the exemption trust this ruling is directed only to the taxpayer requesting it sec_6110 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 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 paul f kugler associate chief_counsel passthroughs and special industries enclosure copy of this letter copy for purposes


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp - plr-143812-02 date date legend parent u s shareholder disregarded_entity purchaser target seller date a date b date c company official country x plr-143812-02 dear this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election parent is requesting an extension to file a sec_338 election under sec_338 with respect to parent’s acquisition of the stock of target sometimes hereinafter referred to as the election on date b additional information was received in a letter dated date the material information is summarized below parent is the common parent of a consolidated_group including u s shareholder which through disregarded_entity owns all the stock of purchaser a country x corporation target is a country x corporation and seller is a country x individual on date a purchaser and seller entered into a purchase agreement for purchaser to acquire all of the target stock from seller on date b purchaser acquired all of the stock of target from seller in exchange for cash pursuant to the purchase agreement it is represented that purchaser’s acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 prior to the acquisition target did not file a united_states income_tax return was not subject_to united_states income_taxation nor was required under sec_1_6012-2 to file a united_states income_tax return in addition target was not a controlled_foreign_corporation within the meaning of sec_957 a passive_foreign_investment_company for which an election under sec_1295 was in effect or a foreign_investment_company or a foreign_corporation the stock ownership of which is described in sec_552 purchaser is a controlled_foreign_corporation as defined in sec_957 and is not required under sec_1_6012-2 other than sec_1_6012-2 to file a united_states income_tax return for its taxable_year that includes the acquisition_date the election was due on date c but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for parent’s consolidated group’s or target’s taxable years in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed plr-143812-02 sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase pursuant to sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under 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 granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_338-2 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent and company official explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent to file the election with respect to the acquisition of the stock of target as described above within days of the date on this letter parent must file the election on form_8023 executed on or after the date on this letter in accordance with sec_1_338-2 and e and the instructions to the form a copy of this letter must be attached to form_8023 plr-143812-02 within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction as a sec_338 transaction for the taxable_year in which the transaction was consummated and for any other affected_taxable_year a copy of this letter and a copy of form_8023 must be attached to the returns the above extension of time is conditioned on the taxpayers’ parent’s consolidated group’s and target’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 we express no opinion as to whether the acquisition of the stock of target qualifies as a qualified_stock_purchase under sec_338 or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely ken cohen senior technician reviewer branch office of associate chief_counsel corporate


internal_revenue_service number info release date index number ---------------------- ---------------------------------------------------- ------------------------------------- ----------------------------------- re --------------------------------------------------- ----------------------------------------------- inc department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - genin-101441-04 date march dear ------------- this is in response to a letter dated date according to the facts provided by your authorized representative the company captioned above currently has a valid s election we believe that you did not intend to make the s election and would like to revoke the election retroactively under ' d c of the internal_revenue_code a revocation made during the taxable_year and on or before the 15th day of the 3rd month thereof shall be effective on the 1st date of such taxable_year and a revocation made during the taxable_year but after such 15th day shall be effective on the 1st day of the following taxable_year under ' d d if the revocation specifies a date for revocation which is on or after the day on which the revocation is made the revocation shall be effective on and after the date so specified more specifically under ' b ii of the income_tax regulations if a corporation specifies a date for revocation and the date is expressed in terms of a stated day month and year that is on or after the date the revocation is filed the revocation is effective on or after the date so specified therefore if a revocation of the company s s election is filed by the end of this year the revocation can be effective either on the first day of the next year or on the specified date that must be on or after the date the revocation is filed relief through the private_letter_ruling process is not available for an earlier date a copy of this letter has been sent to your authorized representative we hope this information is helpful sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number ------------------------------------------------- -------------------- ------------------------------------------------------------ -------------- ---------------------------- ---------------------- - department of the treasury washington dc person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - plr-121606-05 date january --------------------- -------------------------- ------------------------------------------------- legend x ------------------------------------------------------------ country date dear --------------- this letter responds to the letter dated date and related correspondence written on behalf of x requesting a ruling that it be granted an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations in which to elect to be treated as a partnership for federal tax purposes under sec_301_7701-3 facts according to the information submitted x was validly formed under country law on date x represents that as of date x was eligible to make an election under sec_301_7701-3 to be a partnership for federal income purposes however the form_8832 entity classification election inadvertently was not timely filed law and analysis sec_301_7701-3 provides that a business_entity not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes sec_301_7701-3 provides that plr-121606-05 except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is classified as a partnership if it has two or more members and at least one member does not have limited_liability an association if all members have limited_liability or 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 an eligible_entity may elect to be classified other than as provided under sec_301 b by filing form_8832 entity classification election with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time 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 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_extension 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_9100-2 requests for relief under 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 granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-3 as a result x is granted an extension of time of sixty days from the date of this letter to file a properly executed form_8832 with the appropriate service_center to elect to be treated as a partnership for federal tax purposes effective date a copy of this letter should be attached to the election a copies is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal tax consequences of the above described facts under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-121606-05 pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to the taxpayer’s authorized representative heather maloy sincerely heather maloy associate chief_counsel passthroughs and special industries enclosures cc copy of this letter copy for sec_6110 purposes


internal_revenue_service p o box room cincinnati oh number release date date date legend x ‘he foundation z a dollar_figure amount i b dollar_figure amount ity state department of the treasury exempt_organizations rulings and agreements employer_identification_number contact person - id number contact telephone number uuil dear we have considered your request for advance approval of your grant-making program under sec_4945 of the intemal revenue code dated date our records indicate that the foundation x was recognized as exempt from federal_income_tax under sec_501 of the code and that it is classified as a private_operating_foundation as defined in sec_509 your letter indicates that the foundation will operate a grant-making program to promote and develop innovative and effective programs for children and youth its mission will initially be achieved through a research program designed to identify and develop best practices and effect strong linkages between research policy and practice ‘the foundation will provide fellowships to individuals furthering research in the areas of children and youth serving systems in which the foundation has a particular interest in certain cases the foundation will advance its research work by researchers employed by other institutions tn such a case the foundation will make a grant or grants to the employer institution in the amount of the fellowship award to be used to further the work ofa particular researcher the fellowships will typically bave a dual purpose of furthering academic research to improve social practice and policy and to enhance the training and knowledge of the researcher the fellows may be academic researchers practitioners in the field or policy makers with the capacity to undertake the particular research project and bring it to completion the amount of the awards are expected to page range from ato b annually the number of fellowship awards that will be made annually is dependent on the budget for each year and is unlikely to exceed three in any year in addition to regular meetings with the executive director or program office each fellow will be required to submit regular interim reports to the executive director and an annual financial and narrative report to the board_of directors continued funding is contingent on board approval of these reports fellows are supported by foundation staff as well as an advisory committee frequent meetings between staff and fellows ensure that the work is consistent with funding objectives should the conduct of the work under the terms of the award prove to be unsatisfactory based on the interim reports corrective action would be suggested should this persist funding would be discontinued in addition if there is a misuse of funds the foundation will request repayment of the amount of funds misused if the amount of funds misused is sufficiently large the foundation will consider taking legal action to retrieve them the grant program will be publicized through direct mail to a large number of direct service nonprofit_organizations in the field and departments within public institutions and institutions of higher education future announcements will be placed in professional journals and on the organization’s website each award includes salary current salary and benefits and a stipend to cover project-related travel and other expenses related to successfully accomplishing fellowship goals the selection conumittee consists of the foundation staff further review will be conducted by outside experts final approval will be made by the board_of directors no individual who is affiliated with or who has worked with an individual being considered for a grant will serve on the selection committee considering a grant to such individual no member of the board_of directors who is affiliated with an individual recommended by the selection committee for a grant will vote on or participate in the administration of any grant to such individual at the request of any member of the board such affiliated director shall leave any meeting for the period of time the board is discussing the grant an individual shall be deemed affiliated with a committee member or a board member if such individual is a spouse parent sibling child or grandchild or member of the immediate household of such committee member or board member or has a material economic relationship with the committee member or board member in addition to candidates’ professional and personal characteristics the foundation selects fellows based on the quality of proposed ideas the fit of proposed projects with the foundation’s goals and the likelihood that the proposed work can be carried out effectively specific criteria to be used in judging proposals include significance effectiveness feasibility innovation ‘multi-disciplinary impact breadth fit candidates must have some connection to y the rest of the tri-state area or z candidates must apply in partnership with a sponsoring_organization that can act as host page organization for the fellow and funded project the proposal must identify the sponsoring_organization the contact person at the organization and the role the organization will play in the project the sponsoring_organization can be the candidate’s current employer or another organization central to the proposed work the foundation agrees that it will maintain indefinitely records that include the information used to evaluate the qualifications of potential grantees including any recommendations the identification of the grantees including the determination as to whether a potential grantee has any relationship to the private_foundation or is a disqualified_person although a disqualified_individual would not be eligible the amount and purpose of each grant and all requirements imposed on the grantee with respect thereto all grantee reports and other follow-up data obtained in administering the foundation’s grant program sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if its demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 a gi the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product ot improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that ' i its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii ‘the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance page based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiserimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 c b of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code ‘this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request we have not considered whether grants made under your procedures are excludable from the gross_income of recipients under sec_117 of the code any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate recotds and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110g of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above robert choi director exempt_organizations rulings and agreements enclosure notice sincerely yours