internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-125459-00 date date x a b c d e d1 d2 d3 year year year year trust trust trust trust trust dear this letter responds to a letter dated date submitted by x’s authorized representative on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 c the president of x represents that x became an s_corporation for federal_income_tax purposes effective for year initially all of the stock of x was held by a and b as community_property and by c and d as community_property on d2 of year a and b transferred one share of x stock each to trust and to trust on d3 of year a and b transferred an additional one share of x stock each to trust and to trust on d2 of year c and d transferred one share of x stock each to trust trust and trust on d3 of year c and d transferred an additional one share of x stock each to trust trust and trust c further represents that trust trust trust trust and trust collectively the trusts each satisfy the requirements to be a qualified_subchapter_s_trust as described in sec_1361 at the time that the trusts were established and the x stock was transferred to the trusts x had instructed its lawyer to ensure that the stock transfers would not terminate x’s s_corporation_election however x’s lawyer failed to prepare or file elections described under sec_1361 for the trusts subsequently x consulted another lawyer who reviewed x’s records and determined that x’s s election terminated on d2 of year c represents that during year under the terms of trust trust became a_trust described in sec_1361 treated as owned by e under sec_678 c represents that the termination of x’s election to be taxed as an s_corporation was inadvertent and was not motivated by tax_avoidance intent x and its shareholders consent to adjustments consistent with the treatment of x as an s_corporation c represents that x and its shareholders have treated x as an s_corporation and the trusts as qssts except for that period during which trust was treated as owned by e under sec_678 and have reported all of x’s income consistent with this treatment sec_1362 of the code provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1361 provides that in the case of a qualified_subchapter_s_trust with respect to which a beneficiary makes an election under sec_1361 a such trust shall be treated as a_trust described in sec_1361 and b for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust consisting of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qualified_subchapter_s_trust or a beneficiary’s legal_representative may elect to have sec_1361 apply sec_1361 provides that an election under sec_1361 shall be effective up to days and months before the date of the election sec_1_1361-1 of the income_tax regulations provides that the current income_beneficiary of the trust must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income tax_return the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that any termination under sec_1362 shall be effective on and after the date of cessation sec_1362 of the code provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that the termination of x’s s_corporation_election occurred on d2 of year we further conclude that the termination was an inadvertent termination within the meaning of sec_1362 in addition we conclude that x’s s_corporation_election would have terminated on d3 of year this potential termination would have been inadvertent within the meaning of sec_1362 we further hold that under the provisions of sec_1362 of the code x will be treated as continuing to be an s_corporation from d2 of year to the date that is days after the date of this letter inadvertent termination period provided that x’s s_corporation_election was valid and provided that the election was not otherwise terminated under sec_1362 during the inadvertent termination period the trusts will be treated as trusts described in sec_1361 and the respective beneficiaries of the trusts will be treated for purposes of sec_678 as the owners of that portion of the respective trust that consists of x stock the shareholders of x must in determining their federal_income_tax liabilities report their pro_rata share of the separately and nonseparately computed items of x as provided in sec_1366 make any adjustments to stock basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 this ruling is further conditioned on the beneficiaries of trust sec_2 and making elections described in sec_1361 effective within days following the date of this letter with respect to such trusts a copy of this letter should be attached to the elections if x or its shareholders fail to treat x as described above this ruling will be null and void except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provision of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to x’s authorized representatives sincerely yours jeanne m sullivan assistant to the chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of a letter copy for sec_6110 purposes


tege ec examinations mail stop dal commerce st dallas texas release number release date uil code legend a org address date date a c taxpayer_identification_number person to contact employee identification_number employee telephone number last date to file a petition in tax_court february 20xx certified mail - return receipt dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated october 19xx is hereby revoked and you are no longer exempt under sec_501 of the code effective april 20xx the revocation of your exempt status was made for the following reason s organizations described in sec_501 and exempt under sec_501 must be both organized and operated exclusively for exempt purposes you have failed to produce documents to establish that you are operated exclusively for exempt purposes and that no part of your net_earnings inures to the benefit of private shareholders or individuals you failed to respond to repeated reasonable requests to allow the internal_revenue_service to examine your records regarding your receipts expenditures or activities as required by sec_6001 sec_6033 and revrul_59_95 1959_1_cb_627 contributions to your organization are no longer deductible under sec_170 after april 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending march 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to the united_states tax_court at the following address you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at see the enclosed notice taxpayer_advocate_service - your voice at the irs for taxpayer_advocate telephone numbers and addresses you should contact your state officials if you have any questions about how this final_determination may affect your state responsibilities and requirements if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely sunita lough director eo examinations enclosures publication publication department of the treasury internal_revenue_service te_ge eo examinations grp fulton street floor brooklyn ny government entities division date date org address taxpayer_identification_number form tax_year s ended contact person id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings please sign and return the enclosed form_6018 consent to proposed action - sec_7428 if you have already given us a signed form_6018 you need not repeat this process we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice in lieu of letter if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely sunita b lough director eo examinations enclosures publication publication report of examination in lieu of letter schedule number or exhibit explanations of items form 886-a oar anya name of taxpayer org march 20xx_ through march 20xx tax identification_number year period ended legend org organization name xx date state state issue whether org org qualifies for exemption under sec_501 of the internal_revenue_code facts an examination of org for the tax period ending march 20xx was initiated as the result of a referral_report indicating the organization had failed to file form_990 information returns since 19xx and was collecting consulting fees for services performed by one of its employees org was granted tax exempt status under sec_501 of the internal_revenue_code the code on october 19xx and classified as a publicly_supported_organization described in sec_509 and sec_170 of the code the organization’s purpose as set forth in its articles of incorporation is to promote development by owners landlords and tenants of rehabilitation of deteriorating or abandoned tenement housing and to advise and assist in implementing programs relating to such rehabilitation during the examination we verified that org had not filed a form_990 return since the tax period ending march 19xx and that the organization is still listed as an active domestic not- for-profit corporation in the state of state despite numerous information document requests submitted to the organization during the examination the organization failed to provide complete books_and_records for our review we also learned that the organization did not maintain an accounting system during the examination period for the purpose of the examination the power_of_attorney prepared financial reports using source documents such as bank statements and cancelled checks which were requested from various financial institutions during the course of our examination as a result org was able to file delinquent returns for the periods ending march 20xx and march 20xx based on our examination we have determined the following org has not conducted tax exempt_activities since the fiscal_year ending 20xx subsequent to the fiscal_year ending 20xx org sole source of support was derived from management and consulting fees subsequent to the fiscal_year ending 20xx org received no public support form_886 form 886-a rey date name of taxpayer org schedule number or exhibit explanations of items tax identification_number year period ended march 20xx_ through march 20xx org failed to file form 990’s for all tax periods subsequent to the year ending 20xkx the organization has agreed to a voluntary revocation of its tax exempt status as of april 20xx law sec_1_501_c_3_-1 _states that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_6001 provides that every person liable for any_tax imposed by the irc or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_6038a-3 states a reporting_corporation must keep the permanent books of account or records as required by sec_6001 that are sufficient to establish the correctness of the federal_income_tax return of the corporation including information documents or records to the extent they may be relevant to determine the correct u s tax treatment of transactions with related parties such records must be permanent accurate and complete and must clearly establish income deductions and credits this requirement includes records of the reporting_corporation as well as to records of any foreign related_party that may be relevant to determine the correct u s tax treatment or transactions between the reporting_corporation and foreign related parties taxpayer’s position org has agreed to revocation of the organization’s tax-exempt status as of april 20xx government’s position form_886 form 886-a cuca name of taxpayer org schedule number or exhibit explanations of items tax identification_number year period ended march 20xx through march 20xx sec_1_501_c_3_-1 states that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section sec_1_6038a-3 states a reporting_corporation must keep the permanent books of account or records as required by sec_6001 that are sufficient to establish the correctness of the federal_income_tax return of the corporation as well as to records of any foreign related_party that may be relevant to determine the correct u s tax treatment or transactions between the reporting_corporation and foreign related parties it is the government’s position that org does not qualify for exemption under sec_501 of the code because the organization does not pass the operational_test as stated in sec_1 c -1 a does not maintain records in compliance with sec_1_6038a-3 and has failed to file returns form_990 for years ending march 20xx through 20xx conclusion it is the irs's position that org has failed to demonstrate that it is conducting c activities and operating in compliance with sec_1_501_c_3_-1 and has failed to meet the reporting requirements under sec_6001 and sec_6033 accordingly the organization does not qualify for exemption under sec_501 of the code we therefore propose revocation of the organization’s tax exempt status effective april 20xx form_1120 returns should be filed for the tax periods ending after march 20xx form_886


department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-105311-06 date date number release date internal_revenue_service index number ------------------------------------------- ---------------------------------------- ------------------------------------------------------------ - --------------------- --------------------------- ----------------------------------- - --------------------- ----------------- ------------------- ---------------------------------------------------------- ------------------------ ------------------------ -------------- ---------------- --------------------- ----------- ---- ----------- legend settlor date date trust x a b c d z state dear ---------------- this letter responds to a letter dated date submitted on behalf of trust requesting rulings on the income estate gift and generation-skipping_transfer gst tax consequences of the division of a_trust plr-105311-06 facts on date settlor executed trust an irrevocable_trust under the laws of state for the primary benefit of x one of settlor’s children settlor died on date trust was not included in settlor’s estate x is living and has four children all of whom are living x and all of x’s children have attained age z there have been no additions to trust since settlor’s initial contribution of property to trust article first of trust provides that the income of trust is to be distributed to x during x’s life upon the death of x the principal of trust and any net_income on hand or accrued shall be distributed to the descendants of x who shall survive x in equal shares per stirpes or in default of any such descendant in equal shares per stirpes to the descendants of settlor who shall survive x article second b of trust provides that whenever the trustees are authorized or required to pay or distribute any amount whether income or principal to a descendant of settlor other than a child of settlor who will not have attained the age of z years the trustee is authorized in its absolute discretion to retain all or any part of such amount as the principal of a separate trust for the benefit of such descendent holdback beneficiary or to add it to the principal of any separate trust which shall previously have been established for the benefit of the holdback beneficiary in respect of each such separate trust holdback trust the trustee is directed to pay the net_income of the holdback trust to the holdback beneficiary until that person attains age z or sooner dies holdback distribution date on the holdback distribution date the trustee shall distribute the then principal of the holdback trust and any income on hand or accrued to the holdback beneficiary if that person is then living otherwise in equal shares to the holdback beneficiary’s then living children or in default of any such child in equal shares per stirpes to the then living descendants of the most immediate ancestor of the holdback beneficiary who shall have been settlor or one of his descendents and who shall theretofore have died leaving descendents then living article third b of trust authorizes the trustee to withhold from any beneficiary all or any part of the income which could be properly paid to the beneficiary and instead pay the amount so withheld to any descendent of the beneficiary or to the extent permitted by law to accumulate the withheld income and add it to the principal of the trust as the trustee deems to be in the best interest of the beneficiary and the descendants of the beneficiary as a group article third b of trust also authorizes the trustee in its absolute discretion to pay to the beneficiary or to any of the beneficiary’s descendents so much of the principal of such trust as the trustee shall deem necessary or advisable a for the maintenance and welfare of the beneficiary of any descendant of his or b to enable plr-105311-06 the beneficiary or any descendent of his to pay any debts or to enter into any financial transaction or transactions which the trustee shall deem to be in his best interests to date all distributions from trust have been made directly either to x or to x’s children no holdback trust has ever been established section a of state statute permits a trustee after notice to the qualified beneficiaries to divide a_trust into two or more separate trusts if the result does not impair rights of any beneficiary or adversely affect achievement of the purposes of the trust a proceeding to divide a_trust may be commenced by the trustee pursuant to section b of state statute in addition section c of state statute provides that a judicial proceeding involving a_trust may relate to any matter involving the trust’s administration including but not limited to a proceeding to combine trusts or divide a_trust section d of state statute permits a court with the consent of all adult beneficiaries who are not disabled and on a finding that the action will benefit the disabled minor unborn and unascertained beneficiaries to vary the terms of a_trust for various reasons trust through its trustee proposes to divide trust’s property into four separate trusts of equal value where each new trust will benefit x and one of x’s four children and the descendants of such child the trustee proposes to effect this division pursuant to authority granted to it under state law and only after approval of its action by a court of competent jurisdiction in state the trustee will allocate a pro-rata portion of each of the assets of trust to each of the four separate trusts insofar as possible the provisions of each separate trust will continue to be governed by the terms of trust except that so long as there is any living descendant within a particular family line distributions of income and principal will be limited to x and the descendants of that particular family line in all other respects the four separate trusts will be identical to trust rulings requested the division of trust into four separate trusts will not cause trust or any of the four separate trusts to become subject_to the gst tax the four separate trusts into which trust is divided will be treated as separate trusts for federal_income_tax purposes the division of trust into four separate trusts will not cause trust or any of the four separate trusts or their beneficiaries to recognize any gain_or_loss from a sale_or_other_disposition of property under sec_61 sec_662 or sec_1001 plr-105311-06 the tax basis of each of the assets of the four separate trusts received from trust will be the same as the tax basis of trust in such asset the holding_period of the four separate trusts in each asset received from trust will include the holding_period of trust in that asset a pro-rata division of the assets of trust among the four separate trusts will not cause any portion of the assets of trust or of the four separate trusts to be includible in the gross_estate of any beneficiary of trust or of the four separate trusts neither the division of trust into four separate trusts nor the proposed pro-rata allocation of the existing assets of trust among the four separate trusts will constitute a transfer by any beneficiary that will be subject_to the federal gift_tax under sec_2501 law and analysis ruling_request sec_2601 imposes a tax on every gst made after date a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2612 provides that the term taxable_termination means a termination by death lapse of time release of a power or otherwise of an interest_in_property_held_in_trust where the property passes to a skip_person with respect to the transferor of the property sec_2612 provides that the term taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip under sec_2612 a direct_skip is a transfer subject_to federal estate or gift_tax made by a transferor to a skip_person under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax provisions do not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date but only to the extent that the transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date is considered an irrevocable_trust except as provided in sec_26_2601-1 or c relating to property includible in a grantor’s gross_estate under sec_2038 and sec_2042 plr-105311-06 sec_26_2601-1 provides that in general unless specifically provided otherwise the rules contained in sec_26_2601-1 are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph b i a b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust in addition administration of a_trust in conformance with applicable local law that defines the term income as a unitrust_amount or permits a right to income to be satisfied by such an amount or that permits the trustee to adjust between principal and income to fulfill the trustee's duty_of impartiality between income and principal beneficiaries will not be considered to shift a beneficial_interest in the trust if applicable local law provides for a reasonable apportionment between the income and remainder beneficiaries of the total return of the trust and meets the requirements of sec_1_643_b_-1 sec_26_2601-1 example provides as follows in grantor established an irrevocable_trust for the benefit of his two children a and b and their issue under the terms of the trust the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate plr-105311-06 on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a's issue and one for the benefit of b and b's issue the trust for a and a's issue provides that the trustee has the discretion to distribute trust income and principal to a and a's issue in such amounts as the trustee deems appropriate on a's death the trust principal is to be distributed equally to a's issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b's issue the trust for b and b's issue is identical except for the beneficiaries and terminates at b's death at which time the trust principal is to be distributed equally to b's issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a's issue the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter in the present case trust was irrevocable on date it has been represented that no additions have been made to trust after that date the proposed modification of trust is similar to the modification described in sec_26_2601-1 example therefore based on the facts submitted and the representations made we conclude that the proposed division will not shift a beneficial_interest in any trust operating under trust to a beneficiary who occupies a lower generation than the persons who held beneficial interests prior to the division in addition the division will not extend the time for vesting of any beneficial_interest in the trusts operating under trust beyond the period provided in trust accordingly the proposed division will not affect the status of any of the trusts operating under trust as exempt from the gst tax under sec_2601 ruling_request sec_643 provides that for purposes of subchapter_j of chapter of subtitle a of the code under regulations prescribed by the secretary two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of such trusts is the avoidance of the tax_imposed_by_chapter_1 section b of the tax_reform_act_of_1986 provides sec_643 shall apply to taxable years beginning after date except that in the case of a_trust that was irrevocable on date it shall apply only to that portion of the trust that is attributable to contributions to corpus after date plr-105311-06 the trustee of trust has represented that no portion of the corpus of trust was contributed to trust after date based on the facts submitted and representations made we conclude that as long as the new separate trusts are separately managed and administered they will be treated as separate trusts for federal_income_tax purposes ruling_request sec_61 provides that gross_income includes gains derived from dealings in property and under ' a income from an interest in a_trust sec_661 provides that in any taxable_year a deduction is allowed in computing the taxable_income of a_trust other than a_trust to which subpart b applies for the sum of the amount of income for such taxable_year required to be distributed currently and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed for such taxable_year but such deduction shall not exceed the distributable_net_income dni of the estate_or_trust sec_1_661_a_-2 of the income_tax regulations provides that gain_or_loss is realized by the trust or estate or the other beneficiaries by reason of a distribution_of_property in_kind if the distribution is in satisfaction of a right to receive a distribution of a specific dollar amount of specific property other than that distributed or of income as defined under ' b and the applicable regulations if income is required to be distributed currently sec_662 provides that there shall be included in the gross_income of a beneficiary to whom an amount specified in ' a is paid credited or required to be distributed by an estate_or_trust described in ' the sum of the following amounts the amount of income_for_the_taxable_year_required_to_be_distributed_currently to such beneficiary whether distributed or not and all other_amounts properly paid credited or required to be distributed to such beneficiary for the taxable_year if the sum of a the amount of income_for_the_taxable_year_required_to_be_distributed_currently to all beneficiaries and b all other_amounts properly paid credited or required to be distributed to all beneficiaries exceeds the dni of the estate_or_trust then in lieu of the amount provided in the preceding sentence there shall be included in the gross_income of the beneficiary an amount which bears the same ratio to dni reduced by the amounts specified in a as the other_amounts properly paid credited or required to be distributed to the beneficiary bear to the other_amounts properly paid credited or required to be distributed to all beneficiaries sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in ' for determining gain and the loss shall be the excess of the adjusted_basis provided in ' for determining loss over the amount_realized plr-105311-06 sec_1001 states that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under ' c except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under ' on the sale_or_exchange of property shall be recognized sec_1_1001-1 provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained 499_us_554 concerns the issue of when a sale_or_exchange has taken place that results in realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another lender's interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court of the united_states in cottage savings u s pincite concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite it is consistent with cottage savings to find that the interests of the beneficiaries after the division of trust will not differ materially from their interests prior to the proposed division because state statute grants the trustees the power to administer the four separate trusts in the same manner as proposed in the division the division of trust is not treated as an exchange of interests by the beneficiaries or the trusts except for the changes described above all other provisions of the trusts will remain unchanged based on the facts submitted and the representations made we conclude that the proposed division of trust will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries we further conclude that the division of trust into four separate trusts is not a distribution under sec_661 or sec_1_661_a_-2 accordingly the proposed division of trust’s assets among the four new trusts will not cause trust the four new trusts or the beneficiaries to recognize any income gain_or_loss under sec_61 sec_662 and sec_1001 plr-105311-06 ruling_request sec_1015 provides that if property is acquired after date by a transfer in trust other than a transfer in trust by a gift bequest or devise the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on such transfer sec_1_1015-2 provides that in the case of property acquired after date by transfer in trust other than by transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made if the taxpayer acquired the property by transfer in trust this basis applies whether the property be in the hands of the trustee or the beneficiary and whether acquired prior to termination of the trust and distribution of the property or thereafter sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if under chapter of subtitle a of the code such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of such other person see also sec_1_1223-1 based on the facts submitted and representations made we conclude that because sec_1001 does not apply to the division of trust under sec_1015 the basis of the assets received by the four separate trusts from trust will be the same after the division as the basis of those assets in the hands of trust before the division pursuant to sec_1223 the holding_period of each asset in the hands of one of the four separate trusts will include the holding_period of trust in that asset ruling_request sec_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death - the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom plr-105311-06 sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period on the date of the decedent’s death sec_2041 provides that to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive in this case the interests of the beneficiaries in trust are the same before the proposed division as they are after the division therefore based on the facts submitted and the representations made we conclude that the proposed division of trust will not cause any of the property of trust or the four separate trusts to be included in the gross_estate of any of the beneficiaries of trust or the four separate trusts except to the extent of property that is distributed to such person and remains in his or her estate at the date of death ruling_request sec_2501 imposes a tax on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that as to any property or part thereof or interest therein of which the donor has so parted with dominion and plr-105311-06 control as to leave in him no power to change its disposition whether for his own benefit or for the benefit of another the gift is complete in this case upon division of trust into separate trusts each beneficiary will have substantially the same beneficial_interest as he or she had under trust prior to the division because the beneficial interests of the beneficiaries are substantially the same both before and after the proposed division no transfer of property will be deemed to occur as a result of the division accordingly based on the facts submitted and the representations made we conclude that the proposed division will not cause any beneficiary to be considered as having made a taxable gift under sec_2501 conclusion sec_1 the proposed division of trust will not affect the status of any of the trusts operating under trust as exempt from the gst tax under sec_2601 as long as the new trusts are separately managed and administered they will be treated as separate trusts for federal_income_tax purposes the proposed division of trust into four separate trusts will not cause trust or any of the four separate trusts or their beneficiaries to recognize any gain_or_loss under sec_61 sec_662 or sec_1001 because sec_1001 does not apply to the division of trust under sec_1015 the basis of the assets received by the four separate trusts from trust will be the same after the division as the basis of those assets in the hands of trust before the division pursuant to sec_1223 the holding_period of the four separate trusts in each asset received from trust will include the holding_period of trust in that asset the proposed division of trust will not cause any of the property of trust or the four successor trusts to be included in the gross_estate of any of the beneficiaries of trust or the four successor trusts except to the extent of property that is distributed to such person and remains in his or her estate at the date of death the proposed division of trust will not cause any beneficiary to be considered as having made a taxable gift under sec_2501 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 plr-105311-06 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-105311-06 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to trust’s authorized representative sincerely audrey ellis senior counsel branch passthroughs special industries enclosure copy of letter for sec_6110 purposes


department of the treasury o02 internal_revenue_service washington d c commissioner tax_exempt_and_government_entities_division uniform issue list feb s elt ep rat legend taxpayer a ira x amount b financial_institution c company d dear this is in response to your letter dated date supplemented by your correspondence dated date and date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that she received a distribution from ra x totaling amount b taxpayer a asserts that her failure to complete a rollover of amount b within the 60-day period prescribed by sec_408 of the code was due to an error by financial_institution c on date taxpayer a contacted financial_institution c to execute a withdrawal request and complete a cash surrender of her nonqualified_annuity contract held with company d however due to an inadvertent administrative error a representative of financial_institution c processed a withdrawal request and completed zu1621u22 a cash surrender of ira x taxpayer a submitted a letter she received from financial_institution c admitting the error which caused the distribution of amount b from ira x based on the facts and representations you request a ruling that the internal_revenue_service the service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount b sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if-- i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement revproc_2003_16 i r s date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postalerror the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover of amount b was due to an error by financial_institution c therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount b from ira x taxpayer a is granted a period of days from the issuance of this ruling letter to contribute an amount not to exceed amount b into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution the contribution willbe considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t3 sincerely yours feta pere carolyn e zimmerman acting manager employee_plans technical group


department of the treasury i n t e r n a l r e v e n u e s e r v i c e washington d c office_of_chief_counsel number info release date uil conex-137219-06 date ------------------------------------ ------------------------ --------------------------------------------- --------------------------------------------- ------------------------------------------------------------ ------------------------------- dear ------------------ this letter is in response to your inquiry dated ------------------- you expressed concern as to whether sec_301_7701_b_-3 the regulation retroactively extends social_security coverage to --------------------------------------------------------employees who once worked under visas issued pursuant to sec_101 of the immigration and nationality act j visa holders the regulation does not address social_security coverage of j visa holders rather the regulation modifies the definitions of teacher_or_trainee and student to include employees working under visas issued pursuant to sec_101 of the immigration and nationality act q visa see t d 1997_43_irb_8 date the modification was made in order to conform the regulation to changes in the statutory definitions of teacher_or_trainee and student in code sec_7701 nonresident_aliens temporarily present in the united_states under either a j visa or a q visa who meet the definition of teacher_or_trainee and or student are not required to count the days of presence in the united_states for purposes of determining their status under the substantial_presence_test the substantial_presence_test is used to determine whether an alien is a resident or nonresident of the united_states for tax purposes whether an employee is entitled to social_security_benefits depends on whether the employee worked a sufficient amount of time in covered employment social_security_benefits are funded through a payroll tax imposed under the federal_insurance_contributions_act fica fica_taxes are imposed on wages paid with respect to employment with certain exceptions the term wages is defined as all remuneration for employment including the cash_value of all remuneration including benefits paid in any other medium other than cash the term employment includes any service of whatever nature performed within the united_states by an employee for the person employing him irrespective of the citizenship or residence of either thus fica tax is generally imposed on remuneration for services performed within the united_states by nonresident_aliens who are temporarily visiting the united_states subject_to certain specific exceptions there is a specific exception to what constitutes employment under fica for services performed by a nonresident_alien temporarily present in the united_states under a j visa sec_3121 thus fica tax is not imposed on remuneration for services performed by a nonresident_alien who is temporarily present in the united_states under a j visa as long as the services are performed to carry out the purpose specified in the visa in order to qualify for the exception from fica for j visa holders such individuals must retain their status as nonresident_aliens the substantial_presence_test in sec_7701 of the code determines an alien’s status as either a resident or a nonresident based on their total time present in the united_states and its territories if j visa holders remain in the united_states for more than a temporary period of time they may be treated as resident aliens under the code therefore if any of ------- approximately ----- former j visa holders qualified as nonresident_aliens then their wages would not have been subject_to fica_taxes see sec_3121 however if any of the j visa holders became resident aliens under the code then they are no longer eligible for the exemption from fica under sec_3121 wages paid to j visa holders who are treated as resident aliens under the substantial_presence_test are only subject_to fica beginning in the calendar_year in which they meet the substantial_presence_test if you have any questions please contact --------------------- at ----- ------------- sincerely lynne a camillo chief employment_tax branch office of the associate chief_counsel tax exempt government entities department of the treasury - internal_revenue_service cc macro form rev


internal_revenue_service number release date index number --------------------- ----------------------------------- ------------------------------ --------------------------------------------------- ---------------------------------- -------------------------- - - department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no --------------- telephone number --------------------- refer reply to cc tege eoeg teb plr-115122-04 date september legend utility utility utility state state state service provider bonds --------------------------------------------------------------------------- --------------------------------------------------------------- ------ -------------------- ----------- --------- --------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------ ----------------------------------------------------- generators installed ------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ components ------------------------------------------------------------------------------------------ plr-115122-04 spare sets ------------------------------------------------------------------------------------------ -------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------- ----------------------------------- ----------------------------------------------------------------------- this responds to your request for the following two rulings ------------------------------------------------------------------------------------------ the service provider’s use of the generator components pursuant to the manufacturer organization project ------------------------------------------------------------------------------------------------------------ dear -------------- use by utility and utility of the generator components defined below pursuant to the project will not be private_business_use of the proceeds of the bonds contracts defined below will not be private_business_use of the proceeds of the bonds facts and representations electric power utility owns and operates four generators in state utility issued the bonds and used the proceeds to finance a portion of the costs of constructing its generators and acquiring spare sets of generator components ie the spare sets utility financed the remaining portion of the costs of constructing its generators and its spare sets with funds other than the proceeds of bonds issued pursuant to sec_103 and sec_141 - of the internal_revenue_code the code the cost of constructing the generators includes the cost of four sets of installed components one set for each of utility 1’s generators of the proceeds of its bonds to its generators including the four sets of installed components and a portion to the spare sets utility 1’s allocations will be consistent for purposes of sec_141 and sec_148 utility expects that sales of the output of its generators pursuant to output contracts that constitute private_business_use under sec_141 will not exceed percent accordingly for purposes of sec_148 utility has allocated or will allocate a portion utility is a political_subdivision of state and produces distributes and sells utility is a political_subdivision of state and supplies power to various local municipal electric systems in state utility owns and operates two generators in state utility financed the costs of its generators with the proceeds of the bonds plr-115122-04 the cost of constructing its generators includes the cost of two sets of installed components one set for each of utility 2’s generators utility has not purchased spare sets accordingly for purposes of sec_148 utility has allocated or will allocate a portion of the proceeds of its bonds to its generators including the installed components utility 2’s allocations will be consistent for purposes of sec_141 and sec_148 utility expects that sales of the output of its generators pursuant to output contracts that constitute private_business_use under sec_141 will not exceed percent utility is a political_subdivision of state and owns and manages an electric utility that serves state customers utility owns and operates four generators in state utility financed the costs of two of its generators with the proceeds of bonds issued pursuant to sec_103 and sec_141 - the cost of constructing its generators includes the cost of four sets of installed components one set for each of utility 3’s generators utility financed the costs of the other two generators and its spare sets with funds other than the proceeds of bonds issued pursuant to sec_103 and sec_141 - accordingly for purposes of sec_148 utility has allocated or will allocate a portion of the proceeds of its bonds to its generators including the installed components utility 3’s allocations will be consistent for purposes of sec_141 and sec_148 utility expects that sales of the output of its generators pursuant to output contracts that constitute private_business_use under sec_141 will not exceed percent due to the need for planned maintenance and unplanned maintenance defined below for the generators utility utility and utility collectively the utilities plan to share their respective sets of installed components and spare sets collectively the generator components by participating in the project described more fully below generator components and maintenance generators each generator requires a complete set of generator components to be installed in order to operate each item within a set of generator components is identified by serial number the generator components are certain integral component parts of the the manufacturer specifies a useful_life for each set of generator components the useful_life of a set of generator components is described as the total number of hours of operation or starts that the set may have in order to properly function when it is installed in an operating generator this total number of hours starts is subdivided into specific periods that are referred to as turns hence the useful_life of a set of generator components is described as a total number of turns eg four turns with each turn representing the number of hours of operation or starts that the manufacturer plr-115122-04 specifies a set of generator components may have in order to properly function when installed in an operating generator the manufacturer also specifies that each set of generator components must be utility utility and utility and a fourth utility are members of the removed after one turn and refurbished in order to continue to operate properly for the remaining number of turns if any planned maintenance once refurbished that set of generator components can be reinstalled in a generator for an additional turn after which the generator components are again removed and refurbished removal refurbishment and reinstallation continue until the total number of turns has been exhausted if a set of generator components malfunctions or fails unexpectedly that set is also removed and replaced unplanned maintenance the project organization a nonprofit corporation formed under provisions of the state nonprofit corporation law to facilitate cost savings and to enhance revenues in the operation and maintenance of each organization member’s respective utility business the project is one of the organization’s cooperative projects and each of the utilities has elected to participate the fourth utility is not material to this ruling_request because it will not participate in the project because the utilities each own generators that are the same model from the manufacturer the utilities could reduce their costs for planned maintenance and unplanned maintenance if the utilities shared their respective generator components and acted together to arrange for the service provider to provide planned maintenance and unplanned maintenance based on the utilities’ total number of ten generators and spare sets the project is the initiative designed to implement these measures as a result of its participation in the project utility reasonably expects that the installed components which it has purchased with a portion of the bonds will be installed in the generators that utility utility and utility own and the service provider will take title to and exercise ownership rights over at least some of the generator components to be shared by the utilities based on feasibility studies the organization and the utilities concluded that the generator components pool the utilities plan to share their generator components as a pool we subsequently refer to all of the generator components that the utilities own collectively as the pool the utilities’ use of the pool will be measured by the number of turns with respect to any generator components in the pool based on turns the utilities expect that utility and utility will each use percent of the pool and utility will use percent of the pool the total number and value of the generator components each utility will contribute to the pool will differ more importantly the relative value each utility will contribute will not be in exact proportion to its expected use of the pool plr-115122-04 as a result the organization will coordinate a settlement among the utilities that will equitably apportion each utility’s contribution to the pool based on the value of their respective contributions as adjusted by the settlement utility and utility will each initially hold a percent interest in the pool and utility will hold a percent interest to ensure that generator components are available to each of the utilities for planned maintenance the organization will develop one planned maintenance schedule for all ten of the utilities’ generators the master schedule based on schedules submitted by each of the utilities when the service provider performs planned maintenance on each of the ten generators according to the master schedule the service provider will refurbish the set of generator components that has been removed and ship it to the site of the next generator that is scheduled for planned maintenance and that does not have a spare set of generator components on hand the master schedule reflects each of the utilities’ interests in the pool the master schedule permits each of the utilities to use generator components from the pool according to that particular utility’s respective interest in the pool without regard to which of the utilities originally owned the specific generator components the project operating procedures provide that each of the utilities will be entitled to use generator components from the pool for unplanned maintenance only if those generator components are not needed for a planned maintenance event according to the master schedule if a utility requires generator components for unplanned maintenance and none from the pool are available the project operating procedures require that utility to purchase an additional set of generator components the additional components which will then be added to the pool for use by any of the utilities for subsequent planned or unplanned maintenance events the utility that purchases the set of additional components will take title to that set and the utilities will share the cost according to their respective interests in the pool the organization will compile and maintain relevant data regarding the use of the pool and each item within the pool according to the serial numbers for each item the organization will review the utilities’ rates of use and operational history at quarterly meetings and will use this data to recommend any adjustments provided for under the settlement procedures the contributing utility will retain title to any generator components that it has contributed however the project operating procedures provide that the contributing utility cannot sell or otherwise exercise ownership rights over the contributed generator components for the duration of the project if one utility terminates its participation in the project the terminating utility’s contributed generator components other than any that may then be installed in its generators will remain in the pool for continued use by the other two utilities and the terminating utility will utility expects that the settlement will result in a payment by it to utility and utility utility has not requested a ruling and therefore we express no opinion as to the treatment or consequences of this settlement payment plr-115122-04 receive a settlement based on the value of the terminating utility’s interest in the pool compared to the total value of the generator components installed in that utility’s generators if the project is terminated there will be a settlement among the utilities based on the value of their respective interests as compared to the total value of the generator components installed in each utility’s generators and each utility must insure and replace lost or damaged generator components that are in that utility’s possession the maintenance contracts for planned maintenance the contracts further provide that the service provider the contracts provide that for planned maintenance the service provider will the utilities have each entered into substantially identical maintenance contracts with the service provider the contracts the term of each contract i sec_25 years or if earlier the date that the service provider completes a stated number of planned maintenance events remove a set of generator components and immediately replace those generator components with generator components from the pool the contracts also provide that the service provider will refurbish the removed set of generator components at the service provider’s facility and return the refurbished set of generator components to the pool within a specified period by shipping the generator components to the next utility that has been scheduled for planned maintenance and that does not have spare generator components on hand may replace a set of generator components with new generator components from the service provider’s inventory the new components instead of using generator components from the pool in two circumstances the service provider concludes that the removed generator components cannot be refurbished because for example the useful_life is exhausted or new components would enhance generator performance or reduce future maintenance in either of these two circumstances the service provider will take title to the set of generator components that has been removed and will exercise all ownership rights over those removed generator components the utility that held title to the removed generator components will take title to the new components but at no additional cost and those new components will be included in the pool utility expects that any new components will be of greater value than the removed generator components because the new components will have a longer useful_life or will be more technologically advanced than the removed generator components the contracts also provide that if a generator requires unplanned maintenance and no generator components from the pool are available the additional components to be purchased from the service provider may be either a refurbished set of generator components from the service provider’s inventory if the utility consents or new components the service provider will not take title to the set of generator plr-115122-04 components that has been removed instead the utility that holds title to the removed set of generator components will retain title to those generator components the utility that owns the generator in which the additional components are installed will take title to the additional components the additional components will be added to the pool and the utilities will share the cost of the additional components according to their respective interests in the pool law and analysis generally sec_103 provides that gross_income does not include interest on any state_or_local_bond sec_103 provides that this exclusion does not apply to any private_activity_bond unless it is a qualified_bond under sec_141 sec_141 provides that a bond is a private_activity_bond if the bond satisfies the private_business_use_test and the private_security_or_payment_test under sec_141 or the private_loan_financing_test under sec_141 under sec_141 and a an issue meets the private_business_use_test if more than percent of the proceeds of the issue are to be used for any private_business_use ie use directly or indirectly in a trade_or_business carried on by any person other than a governmental_unit under sec_1_141-1 and sec_1_103-1 of the income_tax regulations a governmental person is any state_or_local_governmental_unit ie a state territory or possession_of_the_united_states the district of columbia or any political_subdivision or an instrumentality thereof under sec_1_141-3 the private_business_use_test relates to the use of the proceeds of an issue section sec_1_141-3 further provides that use of financed property is treated as the direct use of proceeds under sec_1_141-3 it is necessary to look to both the indirect and direct uses of proceeds in determining whether an issue meets the private_business_use_test under sec_1_141-3 both actual and beneficial use by a nongovernmental person may be treated as private_business_use sec_1_141-3 further provides as follows in most cases the private_business_use_test is met only if a nongovernmental person has special legal entitlements to use the financed property under an arrangement with the issuer in general a nongovernmental person is treated as a private business user of proceeds and financed property as a result of ownership actual or beneficial use of property pursuant to a lease or a management or incentive payment contract or certain other arrangements such as a take or pay or other output- type contract sec_1_141-3 provides that in general a management_contract within the meaning of sec_1_141-3 with respect to financed property may result in private_business_use of that property based on all of the facts and circumstances section plr-115122-04 b ii defines a management_contract as a management service or incentive payment contract between a governmental person and a service provider under which the service provider provides services involving all a portion of or any function of a facility sec_1_141-3 provides that contracts for services that are solely incidental to the primary governmental function or functions of a financed facility for example contracts for janitorial office equipment repair hospital billing or similar services generally are not treated as management contracts that give rise to private_business_use sec_1_141-3 provides in part that a management_contract with respect to financed property results in private_business_use of that property if the service provider is treated as the lessee or owner of financed property for federal_income_tax purposes sec_1_141-6 provides as follows for purposes of sec_1_141-1 through sec_1_141-2 provides in part that an issue is an issue of private_activity_bonds if the issuer reasonably expects as of the issue_date that the issue will meet the private business tests sec_1_141-2 further provides in part that an issue is also an issue of private_activity_bonds if the issuer takes a deliberate action subsequent to the issue_date that causes the conditions of the private business tests to be met under sec_1_141-2 in general a deliberate action is any_action taken by the issuer that is within its control an intent to violate the requirements of sec_141 is not necessary for an action to be deliberate under sec_1_141-2 a deliberate action occurs on the date the issuer enters into a binding contract with a nongovernmental person for use of the financed property that is not subject_to any material contingencies the provisions of sec_1_148-6 apply for purposes of allocating proceeds to expenditures thus allocations generally may be made using any reasonable consistently applied accounting_method and allocations under sec_141 and sec_148 must be consistent with each other transmission distribution and related facilities and water collection storage and distribution facilities the purchase of output from an output_facility cause an issue of bonds to meet the private business tests sec_1_141-7 example provides as follows z an investor-owned electric utility and city h agree to construct an electric generating facility of a size sufficient to take advantage of the economies of scale h will issue dollar_figure million of its 24-year bonds and z will use dollar_figure million of its funds for construction of a facility they will jointly own as tenants in common each of the participants will share in the ownership output and operating_expenses of the facility in proportion to its contribution to the cost of the facility that is one-third by h and two-thirds by z h's bonds will be secured_by h's ownership_interest in the facility and by revenues to be sec_1_141-7 provides special rules to determine whether arrangements for sec_1_141-1 defines output_facility as electric and gas generation plr-115122-04 derived from its share of the annual output of the facility h will need only percent of its share of the annual output of the facility during the first years of operations it agrees to sell percent of its share of the annual output to z for a period of years pursuant to a contract under which z agrees to take that power if available the facility will begin operation and z will begin to receive power years after the h bonds are issued the measurement_period for the property financed by the issue is years h also will sell the remaining percent of its share of the annual output to numerous other private utilities under contracts of three years or less that satisfy the exception under paragraph f of this section no other contracts will be executed obligating any person to purchase any specified amount of the power for any specified period of time no person other than z will make payments that will result in a transfer of the burdens of paying debt service on bonds used directly or indirectly to provide h's share of the facilities the bonds are not private_activity_bonds because h's one-third interest in the facility is not treated as used by the other owners of the facility although percent of h's share of the annual output of the facility will be used_in_the_trade_or_business of z a nongovernmental person under this section that portion constitutes not more than percent of the available output of h's ownership_interest in the facility use by utility and utility proceeds of the bonds to its two sets of serial-numbered installed components pursuant to the project the installed components that utility contributes to the pool will also be used in generators that utility and utility own if after utility 2’s contribution of the installed components to the pool the proceeds of utility 2’s bonds were to remain allocable for purposes of sec_141 to the specific serial-numbered installed components that it contributes to the pool utility would be required to take into account use of the installed components by utility and utility utility argues that it is appropriate on the facts presented here to reallocate proceeds of the bonds from the installed components that it will contribute to the pool to its percent interest in the pool and to determine private_business_use of those proceeds of the bonds based solely on its use of the pool thus disregarding use of the pool by utility and utility ownership rights to its contributed installed components and in exchange utility will receive a percent undivided ownership_interest in all of the generator components in the pool no utility may select its contributed generator components for use in a planned or unplanned maintenance event but is required to use the set that has been shipped to its generator site each utility will bear the risk of loss for generator components from the pool that are in its possession regardless of whether it holds title reallocation of proceeds of the bonds based on the facts we conclude that utility will divest itself of all meaningful for purposes of sec_148 utility has allocated or will allocate a portion of the use of utility 2’s interest in the pool utility 2’s contribution of the installed components to the pool is a transfer of its plr-115122-04 to those generator components if a utility obtains a set of new components because for example the service provider cannot refurbish a set that has been removed from that utility’s generators the new components will also be included in the pool further if a utility terminates its participation in the project it will be entitled only to a settlement amount based on the value of its interest in the pool and it will not recover its specific serial-numbered generator components instead the terminating utility’s contributed generator components will remain in the pool for continued use by the remaining utilities unless already installed in the terminating utility’s generator bond-financed property this is a deliberate action under sec_1_141-2 because it is an action within its control here utility will exchange its installed components for an undivided_interest in all of the generator components in the pool the generator components are fungible parts and utility 2’s interest in the pool represents a share of these fungible generator components utility 2’s undivided_interest in the pool is merely a substitute for and replacement of utility 2’s originally financed installed components on these facts we conclude that it is appropriate for utility to reallocate the proceeds of the bonds from its installed components to its 20-percent undivided ownership_interest in the pool generator operation absent one set of generator components installed in a generator the generator cannot operate and stands idle hence at any given time ten sets of generator components that are included in the pool will be installed in the generators moreover the remaining generator components are interchangeable with the installed sets of generator components which the manufacturer specifies must be periodically removed and refurbished for the generators to continue to operate the immediate availability of these spare generator components enables the utilities to provide uninterrupted generator operation to the greatest extent possible hence the spare generator components are functionally related to the generators and are integral to such uninterrupted generator operation therefore we conclude that the definition of output_facility found in sec_1_141-1 applies to the pool for purposes of applying the private business tests when multiple entities own an undivided ownership_interest in an output_facility example of sec_1_141-7 conceptually divides the facility according to the joint owners’ proportionate interests in the facility in example city h owns a one-third interest in the facility and z owns a two-thirds interest based on their respective contributions to the total cost of the facility they share in the output of the facility in the same proportions as a result example applies the private business tests only to city h’s one-third interest city h’s interest is not treated as used by the other owner however the output that z will purchase from city h is treated as use of the city h’s interest the pool consists of generator components that are integral to and required for here each of the utilities will acquire an undivided ownership_interest in the pool under sec_141 the service provider is a nongovernmental person engaged in plr-115122-04 that will correspond to the value that each utility contributes ie utility and utility will each contribute percent of the value of the pool and utility will contribute percent each utility will be entitled to use the pool only to the extent of that utility’s interest accordingly to the extent that utility and utility 2’s use of the pool does not exceed their collective interests for purposes of applying the private business tests we conclude that only utility not utility or should be treated as using its ownership_interest in the pool use by the service provider a trade_or_business its use of the pool is pursuant to the contract which entitles the service provider to refurbish generator components that make up the pool and take title to and exercise ownership rights over any generator components in the pool when the service provider removes those generator components from one of the utilities’ generators and replaces them with new components as to refurbishing under sec_1_141-3 we conclude that the service provider’s contract is a contract for services that are solely incidental to utility 2’s primary function of supplying power to various local municipal electric systems in state therefore the service provider’s refurbishing is analogous to office equipment repair and accordingly the contract is not treated as a management_contract that gives rise to private_business_use as to taking title to and exercising ownership rights over the removed generator components the service provider’s ownership would result in private_business_use of the removed generator components under sec_1_141-3 however the contract limits the service provider’s ownership of removed generator components to two circumstances where the service provider installs new components to replace the removed generator components the service provider cannot refurbish the generator components because for example the useful_life has been exhausted or the new components will improve the generator’s performance or reduce future generator maintenance in each of these circumstances the utility that held title to the removed generator components will take title to the new components and the new components will be included in the pool moreover the service provider will receive no additional payment for these new components and utility expects that any new components will be of greater value than the removed generator components components of lesser value for a substantially identical and interchangeable set of new components of greater value and at no additional cost to the utilities as a result when the pool acquires new components the pool will continue to consist of the same number of fungible generator components but with greater value accordingly we thus the contract only permits the substitution of one set of generator to the extent that use by utility and utility of the pool does not exceed the service provider’s use of the pool will not be private_business_use of the plr-115122-04 conclude that the service provider’s subsequent ownership of removed generator components will not be private_business_use of the proceeds of the bonds conclusions their collective interests in the pool their use will not be use of the proceeds of the bonds proceeds of the bonds concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the code provides that it may not be used or cited as precedent 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 this ruling is directed only to the taxpayer requesting it sec_6110 of except as expressly provided herein no opinion is expressed or implied the rulings contained in this letter are based upon information and sincerely assistant chief_counsel exempt_organizations employment_tax government entities by johanna som de cerff assistant branch chief tax exempt bond branch enclosure


number release date id office uilc cca_2008071414404951 -------------- from ------------------- sent monday date pm to ------------------------- cc subject fw response to ---------------------- you had asked --------------------------------------------------------whether the the taxpayer in the subject referred matter could retain its ein after coordination with ------------ we conclude the taxpayer may retain its ein based on the analysis below please contact me if you have any further questions sent friday date pm subject response to ---------------------- -- sorry for not getting back to you sooner we have reviewed the attached case and believe the taxpayer should continue to use its old ein the brief facts of the case involve ---------- a member of a consolidated_group which underwent the following changes on --------------- it converted from c_corporation to an association_taxable_as_a_corporation on --------------- the association_taxable_as_a_corporation checked the box to be treated as a partnership the question you asked us is whether new ---------- as a partnership can use the same ein that old ---------- used while a c_corporation step is treated for federal tax purposes as an f reorganization under revrul_73_526 since the surviving corporation is for federal_income_tax purposes treated as the same corporation as the transferor_corporation the ein should be continued to be used after the transaction step is treated for federal tax purposes of a liquidation of ---------- sec_301_7701-3 the liquidation will either qualify for tax free treatment under sec_332 and sec_337 if distributed to a percent corporate shareholder or be taxable to the distributor and distributee under sec_331 and sec_336 under sec_301 h any entity that has an ein will retain that ein if its federal tax classification changes under sec_301_7701-3 furthermore under applicable state law it appears that the surviving entity -- ------------- as a partnership retains all the liabilities of the prior corporation therefore it should retain the old ein number


internal_revenue_service number release date index number - --------------------------- ------------- ---------------------------------- ----------------------------- ----------------------------------- department of the treasury washington dc person to contact ------------------------------- --------- ------------ --------- telephone number --------------------- refer reply to cc psi - plr-107406-06 date march ------------- -------------------------------------- legend x --------------------------------------------------- state date date dear --- --------------- requesting relief under sec_1362 of the internal_revenue_code ---------------------- ------------------- this letter responds to a letter dated date submitted on behalf of x x was incorporated on date under the laws of state and began operating on plr-107406-06 facts date the shareholder of x desired that x elect s_corporation treatment effective date but the election to be treated as an s_corporation was not timely received by the service accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion x did not timely make an election to be treated as an s_corporation under based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date provided that within days from the date of this letter x submits a properly completed form_2553 election by a small_business_corporation with a copy of this letter attached to the relevant service_center the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes except as specifically set forth above no opinion is expressed or implied as to plr-107406-06 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely yours beverly katz senior technician reviewer branch associate chief_counsel passthroughs and special industries