internal_revenue_service number release date index number --------------------------- --------------------------- ---------------------------------------------------- ----------------------- in re --------------------------------------------------- --------------------------------------- ----------------------------------------------- ----------------------- department of the treasury washington dc person to contact ---------------- id no ------------- telephone number --------------------- refer reply to cc psi b09 - plr-162098-02 date april legend son trust date donor spouse daughter grandchild ------------------------------------------------------------------------------------ ------------------------- ------------------------------------------------------------------------------------ ----------------------- ---------------------- --------------------------------- -------------------------------- ---------------- ------------------------------------------------------------------------------------ ------------------------- ------------------ --------------------- -------- -------------------------------------------- ------------------- --------- ------------------------- --- -------------------------- ----------------------------------------- ------------------------- -------------------- date trustee b bank family trusts c partnership d partnership partnership corporation e date successor trustee ---------------------- date date family date date ------- ---------------- ----------------- -------------- ---------------- plr-162098-02 court ------------------------------------------------------------------------------------ -------------------- ---------------------- ---------------- -------------------- this is in response to your letter dated date and prior the information submitted and representations made are summarized as follows date family grandchild dear ------------ correspondence submitted on behalf of son as trustee of the trust requesting a ruling regarding the generation-skipping_transfer gst tax consequences of a settlement agreement modifying the terms of a_trust that is exempt from the application of the gst tax imposed under sec_2601 of the internal_revenue_code on date a date prior to date donor and spouse each established four virtually identical irrevocable inter_vivos trusts original trusts one for the benefit of each of their four then living grandchildren each of the trusts provides either son or daughter with a right to a percentage of the yearly net_income of the trust each of the trusts also contain an equalization provision in order to ensure that any grandchild born after date would be provided for in a manner similar to that of donor and spouse’s four then living grandchildren pursuant to the equalization provision upon the birth of any grandchild after date each of the trusts established by donor shall contribute a portion of its income and corpus to a new trust to be held under the same conditions for the benefit of the subsequently born grandchild established pursuant to the equalization provision for grandchildren born after date grandchild was born on date the trust was established by donor for the primary benefit of grandchild and grandchild 1's issue it is represented that no additions have been made to the trust subsequent to the initial funding the preamble of the trust provides that daughter son and trustee shall be the original trustees the trust provides generally that the trustees shall pay son and daughter each b percent of the yearly trust income the balance of the net_income of the trust is to be paid to grandchild for her maintenance support education business needs and other trustee-approved requirements after grandchild reaches age sixteen for so long as both son and daughter are living and serving as original trustees the original trustees son and daughter shall not be required to account to either beneficiaries or representatives of beneficiaries at any time regarding the handling of trust properties or the withholding or distributing of trust income or corpus successor trustees shall pay the net_income to the beneficiary grandchild of this trust namely grandchild during her life for the purposes and in the amounts set forth article third of the trust provides generally that the original trustees and the trust the subject of the instant ruling_request is one of the trusts article fourth of the trust provides generally that the trust shall continue to be plr-162098-02 above upon the death of grandchild if the trust is still operative and in effect the trustees and successor trustees shall pay the net_income first to the issue of grandchild should grandchild leave no issue the trustees and successor trustees shall pay the net_income in equal shares to donor’s other grandchildren who may have survived grandchild or the issue of donor’s other grandchildren who may have predeceased grandchild provided however the shares of any deceased grandchildren shall be divided per capita among all the issue of said deceased grandchildren upon the death of all of donor’s grandchildren if such deaths take place during the operation of this trust the income to be paid to grandchild shall be paid should grandchild leave no issue per capita to the living issue of donor’s other grandchildren operative so long as any of the trustees herein named are living the trust shall terminate only after all of the deaths of the trustees the particular time of termination after said deaths shall be on a date twenty-one years after the death of the last trustee upon termination of this trust the successor trustee shall pay over deliver and convey the trust estate with its accumulations and all undistributed_net_income to grandchild absolutely if grandchild is then living in the event that grandchild shall have died prior to the disposition of this trust the successor trustees shall distribute the trust estate to any living issue of grandchild should grandchild leave no issue the successor trustees shall distribute the trust estate in equal shares to donor’s other grandchildren who may have survived grandchild or the issue of donor’s grandchildren who have predeceased grandchild provided however the shares of any deceased grandchildren shall be divided per capita among all the living issue of said deceased grandchildren upon the death therefore of all donor’s grandchildren if such deaths take place prior to the termination of this trust the trust corpus herein provided to be paid to grandchild should she leave no issue shall be paid per capita to the living issue of donor’s other grandchildren three successor trustees at least one of which is a national bank with a_trust department the successor trustees shall be unanimously appointed by the original trustees son and daughter by means of a written instrument legally effecting such appointment after the death of either daughter or son if no such appointment has been made it shall be the obligation of the survivor of them within ten days after the death of the other to appoint successor trustees any appointment of successor trustees may be revoked at any time by both daughter and son if the two of them are living or either of them if one is deceased and new successor trustees appointed in the place of the ones removed should the original trustees for any reason fail to appoint specific successor trustees the bank shall serve as successor trustee the appointment of successor trustees shall become effective on the deaths of both original trustees daughter and son should trustee survive both daughter and son the successor trustee shall serve together with trustee in administering this trust the appointment of successor trustees shall not become effective so long as either of the article fifth of the trust provides generally that there shall not be more than after the execution of the original trusts on date four additional grandchildren plr-162098-02 original trustees son and daughter are living son or daughter shall have the right to administer this trust alone were born pursuant to the equalization provisions for after-born grandchildren contained in the original trusts established by donor four additional trusts one for each after-born grandchild were established by donor pursuant to the equalization provisions for after-born grandchildren contained in the four original trusts established by spouse four additional trusts one for each after-born grandchild were established by spouse thus a total of eight trusts were established by donor and eight trusts were established by spouse collectively the parties refer to these sixteen trusts as the family trusts each of the family trusts invests directly or indirectly in publicly held stock and securities real_estate interests in closely-held entities and other miscellaneous assets each of the family trusts owns a c percent limited_partnership_interest in partnership partnership owns a d percent general_partnership interest in partnership partnership is a class b limited_partner in partnership corporation owns a e percent general_partnership interest in partnership and a e percent general_partnership interest in partnership corporation is wholly owned by son appointed successor trustee successor trustee resigned in date since date son has served as the sole trustee family retained the services of an attorney because they were unsatisfied with son’s administration of various trusts offers and counteroffers of settlement were continually made however settlement negotiations broke down around the end of date things that son breached his fiduciary obligations relating to the investment administration management and use of the family trusts’ funds that various related_party transactions were improper and that trust accounts were incorrect before the time for filing an answer to these complaints expired a death in the family led the respective parties to attempt to resolve their disputes again after lengthy negotiations a basis for settlement was reached and finally reduced to writing on date the settlement agreement as a result of the settlement agreement the following modifications will be made to the trust article first of the trust will be modified in part to provide that reference to the term net_income shall not be deemed to include accumulated but undistributed_income of the trust in date daughter and members of her family collectively referred to as on date daughter and trustee resigned as trustees successor trustee was on date family filed three complaints in the court alleging among other article second paragraph b of the trust will be modified to provide that the article second paragraph a of the trust will be modified to provide generally plr-162098-02 that the trustees shall pay to daughter at such times and in such amounts as daughter in her own discretion might require b percent of the yearly net_income of the trust upon the death of daughter and until the trust terminates the trustees shall pay b percent of the yearly net_income of the trust to daughter’s then living lineal_descendants per stirpes the trustees shall pay to son at such times and in such amounts as son in his own discretion might require b percent of the yearly net_income of the trust upon the death of son and until the trust terminates the trustees shall pay b percent of the yearly net_income of the trust to son’s then living lineal_descendants per stirpes trustees shall pay the balance of the net_income to the beneficiary or the beneficiaries hereinafter designated for so long as either daughter or son shall be living in such amounts and at such times after the beneficiary has reached the age of sixteen years as the trustees shall deem necessary and proper for the maintenance support education business needs and other trustee-approved requirements of the beneficiary or beneficiaries all net_income not distributed shall be accumulated and added to corpus in addition the provision in article second paragraph b that provides that the original trustees son and daughter shall not be required to account to beneficiaries at any time regarding the handling of trust properties or the withholding or distributing of trust income or corpus will be deleted order to ensure that any grandchildren born after the execution of this trust agreement an after-born grandchild shall be provided for in a manner equal to that of grandchild and donor’s other grandchildren who are living as of date for whom donor has established three other trusts donor specifically directs as follows upon the birth of any after-born grandchild there shall be allocated to such after-born grandchild as a separate trust a portion of the assets of this trust determined by multiplying the fair_market_value of the assets of this trust by a fraction the numerator being one and the denominator being the total number of donor’s grandchildren whether then living or deceased each trust so set_aside for an after-born grandchild shall be held administered and disposed of for such grandchild as otherwise provided in this trust subject_to the following such trust shall be subject_to further division upon the birth of additional after-born grandchildren each after-born grandchild for whom an additional trust is established pursuant to this paragraph shall be considered the beneficiary of such trust and after his or her death his or her issue shall be beneficiaries as provided herein separate trusts similarly established for a beneficiary may be combined into one trust by the trustees in such event if daughter or son has any rights to receive a percentage of the income from a separate trust such rights shall continue as to a combined trust provided such percentage shall be recomputed for a combined trust based upon the percentage of the assets of the combined trust represented by assets from each separate trust at the time of combination multiplied by the percentage of income to which son or daughter was article third of the trust will be modified in part to provide generally that in plr-162098-02 entitled from such separate trust and such products shall be added together to produce the recomputed percentage of income to which son or daughter is entitled from a combined trust more specifically for any such separate trust for an after-born grandchild daughter and son shall each have the right to withdraw b percent of the yearly net_income of such separate trust whether or not the separate trusts for an after-born grandchild are combined the date of termination of each trust or portion of a combined trust shall be determined by the provisions of the trusts from which such trusts or portions were created article fourth of the trust will be modified in part to provide generally that the trust shall continue to be operative so long as any of the original trustees are living upon termination of the trust the successor trustee shall pay over deliver and convey the trust estate as then constituted to grandchild absolutely if grandchild is then living article fifth of the trust will be modified to provide generally that in the event of the death resignation or incapacity of son to serve as a trustee his successor shall be that person or persons whom son designates a through a separate written instrument delivered during his life to the other serving trustee or b in his last will and testament which is admitted to probate any written instrument under article fifth clause a shall be witnessed by two individuals and notarized the latest dated written instrument or last will and testament shall control if a successor trustee is not serving or is not nominated herein then a successor trustee the family trustee shall be nominated appointed and confirmed by a majority of the then living lineal_descendants of son family who are sui juris notwithstanding anything to the contrary or otherwise after the death of son the family beneficiaries who are sui juris may by majority vote remove the family trustee for any reason and appoint a new family trustee and if the then acting family trustee becomes incapacitated or incompetent shall replace such trustee grandchild and his successors the family trustee is the successor trustee to daughter in the event of the death resignation or incapacity of the family trustee then a successor trustee shall be nominated appointed and confirmed by a majority of daughter if she is then living and her then living lineal_descendants who are sui juris family notwithstanding anything to the contrary or otherwise the members_of_family who are sui juris may by majority vote remove the family trustee for any reason and appoint a new family trustee and if the then acting family trustee becomes incapacitated or incompetent shall replace such trustee there shall at all times be a one trustee who is son or who is selected by either son or family and b one trustee who is grandchild or is selected by family no trustee shall vote or participate in any manner on any discretionary distribution of income or principal to himself or herself or to a beneficiary to whom such trustee is related to or subordinate to within the meaning of sec_672 or to a person whom such trustee or beneficiary is legally obligated to support the trustee who is so restricted in his or her participation in any trustee action under this section shall by written document delivered to the other then acting trustee designate a third party who is not related to or subordinate to within the meaning of sec_672 such restricted the settlement agreement has been approved by the court conditioned upon a plr-162098-02 trustee or the beneficiary to act as a special trustee solely for the purpose of exercising such discretion and the special trustee shall exercise that discretion provided however that such special trustee shall be subject_to the same terms and limitations applicable to any other named trustee favorable ruling by the service on the effect the settlement agreement has on the trust’s exemption from the gst tax son as trustee of the trust has requested rulings that the following aspects of the settlement agreement will not adversely affect the gst exempt status of the trust the modifications and changes to the trust concerning the appointment and removal of a trustee and the method of appointing successor trustees the resolution of the issue of the proper construction and application of the equalization provisions of the trust the construction of the trust as to the right to income from the trust after the death of either son or daughter by continuing son’s and daughter’s rights to income upon his or her death for such deceased person’s lineal_descendants until the termination of the trust and otherwise continuing the right to discretionary distributions of income to the remainder beneficiaries the resolution of the issue of the proper construction of the trust with respect to accumulated but undistributed_net_income the elimination of language regarding trustee accountings and the resolution of various economic issues between the parties including but not limited to a equalization of the trust corpus between the family trusts so that the assets of each trust are identical as of the effective date of the settlement agreement b equalization of the right to income of the family trusts so that as of the effective date of the settlement and thereafter the family trusts remain equalized c the transfer of stock of corporation equally to each family_trust d the purchase and or redemption of the interests of the partnership in partnership and e the reimbursement of family 1’s legal fees and costs incurred in the dispute distribution a taxable_termination and a direct_skip under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation-skipping_transfer_tax provisions do not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date however this exemption does not apply if additions actual or constructive are made to the trust after date date will be considered an irrevocable_trust except as provided in sec_2611 defines the term generation-skipping_transfer as a taxable sec_26_2601-1 provides that any trust in existence on sec_2601 imposes a tax on every generation-skipping_transfer sec_26_2601-1 provides rules for determining when a modification sec_26_2601-1 provides that a court-approved settlement of a bona plr-162098-02 sec_26_2601-1 or c which relates to property includible in a grantor’s gross_estate under sec_2038 and sec_2042 in the present case the trust is considered to have been irrevocable on date because neither sec_2038 nor sec_2042 applies judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status the rules contained in sec_26_2601-1 are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to the provisions of chapter if the settlement is the product of arm’s length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties’ assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes and there have been no additions made to the trust after date accordingly the trust is exempt from the gst tax under sec_26_2601-1 agreement is a settlement of a bona_fide issue the product of arm’s length negotiations and is within the range of reasonable outcomes under the governing instrument and applicable state law therefore provided that the court approves the proposed agreement the modifications will not violate b a of the tax_reform_act_of_1986 and will not affect the exempt status of the trust representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party if there is a change in material fact or law local or federal before the transactions considered in this ruling take effect the ruling will have no force or effect 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 in the present case the trust was created and became irrevocable on date based on the facts presented and the representations made the settlement the rulings contained in this letter are based upon information and except as expressly provided herein no opinion is expressed or implied plr-162098-02 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed or implied with respect to the income_tax consequences of any transaction the code provides that it may not be used or cited as precedent being sent to son as trustee of the trust this ruling is directed only to the taxpayer requesting it sec_6110 of pursuant to the power_of_attorney on file with this office a copy of this letter is sincerely melissa c liquerman branch chief branch office of associate chief_counsel passthroughs special industries enclosure copy for sec_6110 purposes


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 ---------------------------------------- telephone number --------------------- refer reply to cc psi b02 plr-105479-10 date date legend x ----------------------------------------------------- ------------------------ state -------- d1 ---------------------- dear ---- ---------------- this responds to a letter dated date submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated in state on d1 it was intended that x elect s_corporation treatment effective d1 however a form_2553 election by a small_business_corporation was not timely filed for x law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr-105479-10 sec_1362 provides the rule on when an s election will be effective generally 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 sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or 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 the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply conclusion based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective d1 within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning d1 a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed or implied as to 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 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 sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court sylwester a slojewski petitioner v commissioner of internal revenue respondent docket no filed date william e taggart jr for petitioner anthony j kim for respondent memorandum opinion haines judge this case is before the court on petitioner’s motion to vacate order and decision pursuant to rule unless otherwise noted all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect at all relevant times for the reasons stated below we shall deny petitioner’s motion to vacate background on date respondent issued a notice_of_deficiency to petitioner that determined a deficiency in petitioner’s federal_income_tax and a penalty under sec_6662 on date petitioner timely filed a petition with the court disputing respondent’s determination at the time he filed the petition petitioner resided in san francisco california this case was calendared for trial at the court’s trial session in san francisco california that began on date when the case was called from the calendar on date the parties informed the court that a basis of settlement with respect to all issues had been reached in the stipulation of settlement submitted to the court on date the parties stipulated as follows petitioner and respondent agree that petitioner should not have reported dependent’s w-2 income of dollar_figure on his tax_return for taxable_year respondent concedes that petitioner does not have to include in taxable_income the dollar_figure that was reported on the form 1099-misc issued by robert leslie in taxable_year respondent concedes that petitioner may deduct as car and truck expenses dollar_figure of the dollar_figure of claimed deductions that petitioner erroneously listed as mortgage expenses on his tax_return petitioner concedes that he may not deduct the remaining dollar_figure of claimed deductions petitioner concedes that he may not deduct the remaining dollar_figure of schedule c expenses that he claimed on his tax_return those disallowed deductions are as follows a dollar_figure of advertising expenses b dollar_figure of commissions and fees expenses c dollar_figure of insurance expenses d dollar_figure of legal expenses e dollar_figure of office expenses f dollar_figure of repair expenses g dollar_figure of taxes and licenses expenses and h dollar_figure of travel and entertainment_expenses respondent concedes that as a result of respondent’s concession in paragraph petitioner is not liable for an accuracy-related_penalty under sec_6662 for the taxable_year the court ordered the parties to submit a decision document by date on date respondent mailed to petitioner’s counsel a proposed decision document on date respondent received from petitioner’s counsel a letter dated date in which petitioner’s counsel stated that he anticipated prompt approval by petitioner of the proposed decision document on the next day date respondent received a letter from petitioner’s counsel dated date in which petitioner’s counsel stated i also have completed my review of your computation of the income_tax_liability that flows from the settlement of this case i do not entirely agree with your computation it is my impression from the information that i have available that mr slojewski is entitled to a child_tax_credit in the amount of dollar_figure based on the information in the administrative file it also is possible mr slojewski is entitled to claim child care expense credit or education credit i have asked mr slojewski to advise me whether he is entitled to claim credits for child care expenses or education and whether he has any documentation to support such claims i believe the proper procedure for making such an adjustment would be to pay the deficiency that flows from our settlement and then file an amended_return to claim the refund that flows from any credits to which mr slojewski may be entitled for child care expenses or education it is my impression it is unlikely that we will agree on a decision document prior to date i suggest that you advise the court that we have encountered some unexpected issues in agreeing on a decision document and that you request an additional days for the submission of a mutually agreeable decision document on date respondent mailed a letter to petitioner’s counsel stating that respondent would not request additional time to file the decision document respondent explained that the record was closed and that petitioner’s counsel did not appear to object to the decision document as it pertained to the issues covered by the stipulation of settlement respondent informed petitioner’s counsel that if the decision document was not signed and returned by date respondent would file a motion for entry of decision on date petitioner filed a motion to withdraw agreement to stipulation of settlement the court denied petitioner’s motion to withdraw on date on date the court filed respondent’s motion for entry of decision asking the court to enter a decision in accordance with the proposed decision document paragraph of respondent’s motion for entry of decision states counsel for petitioner objects to the granting of this motion on date the court granted respondent’s motion for entry of decision and entered a decision that there is a deficiency of dollar_figure in petitioner’s federal_income_tax and that there is no penalty due from petitioner for the taxable_year under sec_6662 on date petitioner filed a timely motion to vacate order and decision pursuant to rule on date respondent filed an objection to petitioner’s motion to vacate order and decision and a memorandum of points and authorities in support of his objection discussion rule allows a party to file a motion to vacate or revise a decision with or without a new or further trial within days after the decision has been entered unless the court shall otherwise permit the disposition of a motion to vacate or revise a decision rests within the court’s discretion 87_tc_164 the court has applied a stringent standard in evaluating motions to vacate settlement agreements where shortly before trial the parties have agreed to a settlement and caused the trial date to be vacated in such cases we have held the settlements to be enforceable unless the moving party can show a lack of formal consent mistake fraud or some similar ground see 108_tc_320 affd 208_f3d_205 3d cir 90_tc_315 moreover a settlement is generally binding irrespective of whether it is correct on the merits see eg lamanna v commissioner tcmemo_2003_110 affd in part vacated and remanded in part 107_fedappx_723 9th cir we believe that petitioner should be held to this stringent standard here the parties reached a settlement shortly before trial and the trial date was vacated as a result of that settlement petitioner argues that rule applies to this case and therefore alleges that the court should not have entered its decision because the clerk of the court did not serve petitioner with a notice of the filing of respondent’s motion for entry of decision petitioner alleges that respondent was aware that petitioner disagreed with respondent’s computation of petitioner’s deficiency on the basis of the items addressed in the stipulation of settlement on the date respondent filed his motion for entry of decision petitioner also argues that respondent misled the court by filing his motion for entry of decision without disclosing as required by rule a that petitioner disagreed with respondent’s computation of petitioner’s deficiency on the basis of items addressed in the stipulation of settlement we disagree rule is the mechanism whereby the court is enabled to enter a decision in a case where the dollar amounts of the deficiency liabilities and or overpayment cannot readily be determined 79_tc_933 in accordance with the computations in respondent’s motion for entry of decision we entered a decision that there is a deficiency of dollar_figure in petitioner’s federal_income_tax and that there is no penalty due from petitioner for the taxable_year under sec_6662 petitioner does not show that he disagreed with respondent’s computation of petitioner’s tax_liability in accordance with the stipulation of settlement nor does petitioner allege that there was lack of consent mistake or fraud as the basis for his motion to vacate order and decision instead petitioner raises new issues involving possible entitlement to a child_tax_credit a child care expense credit or an education credit new issues raised after a stipulation of settlement has been executed which are not based on lack of consent mistake or fraud are not sufficient grounds to vacate the stipulation of settlement nor to vacate an order and decision entered as a result of the stipulation of settlement see brewer v commissioner tcmemo_2005_10 finally we conclude that respondent properly advised the court that petitioner objected to respondent’s motion for entry of decision as provided in rule a paragraph of respondent’s motion for entry of decision states counsel for petitioner objects to the granting of this motion in summary petitioner has not shown that there was a lack of formal consent mistake fraud or some similar ground for vacating the stipulation of settlement nor has he cited any ground or precedent that would support his motion to vacate our order and decision consequently we shall deny petitioner’s motion to vacate order and decision in reaching our holding herein we have considered all arguments made and to the extent not mentioned above we conclude that they are irrelevant or without merit an order will be issued denying petitioner’s motion to vacate order and decision


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 ------------------- ---------- ------------- telephone number --------------------- refer reply to cc pa apjp b01 plr-111199-06 date date sec_3406 -- backup withholding sec_3406 -- backup withholding backup withholding sec_6041 -- information_at_source fixed or determinable gains profits or income payments specifically included sec_6045 -- returns of broker sec_6045 returns of brokers sec_6049 -- returns regarding payments of interest reportable interest legend taxpayer ----------------------------------------------------------------------------------------------------- ----------------------------------- fund ---------------------------------------------------------------------------------------------------------- ---------------------- x -------------- y -------------------------------- z ------------------------------------ years --------------- year ------- dollar_figurea ----------------- dollar_figureb --------------- plr-111199-06 dollar_figurec ----------------- dear ------------------- this letter responds to the letter dated date as supplemented by the letter dated date submitted on behalf of the fund requesting the following rulings settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6041 of the internal_revenue_code except in the case of payments made directly to participants in tax-qualified retirement plans settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6045 settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6049 for purposes of meeting any obligations it may have under sec_3406 as a payor of reportable payments the fund need not solicit taxpayer identification numbers tins from the individuals to whom it will make distributions the fund may obtain the tins from the variable_annuity providers mutual funds or tax-qualified plans in which such individuals invested or from transfer agents performing services for these providers funds or plans facts based upon the facts and the representations made the fund is a qualified_settlement_fund qsf as described in sec_468b and the regulations thereunder the fund was created in year to resolve an administrative_proceeding brought by the securities_and_exchange_commission commission against x y and z relating to the following circumstances misleading assurances that providers of variable_annuity products would seek to prevent market timing of mutual funds in which purchasers of these products invested actions by y z and others to allow market timing trading of mutual_fund units units and inadequate oversight by y and z regarding trades of such units trades the commission found that the improper conduct described above occurred from late in year through at least early fall of year the commission further found that x as a holding_company for an entity engaged in such wrongdoing was liable along with others for that wrongdoing plr-111199-06 in an order instituting proceedings oip the commission alleged that x through a related_entity made various material omissions and misrepresentations regarding market timing of funds and that x again through a related_entity y and z committed certain other wrongful acts relating to trades in the units the commission based on the improper conduct described above and the resulting damage to annuity holders who invested in mutual funds through entities for which x served as the holding_company sought profit disgorgement and civil penalties after investigation and negotiations x y and z agreed to pay a total of dollar_figurea to settle the commission’s claims pursuant to section a of the sarbanes-oxley_act of u s c the oip authorized a fair fund for the disgorgement and penalty components of the settlement thus permitting both components to be paid to injured investors y and z will pay on a joint_and_several basis dollar_figureb in disgorgement and z will pay dollar_figureb as a civil penalty the remaining dollar_figurec of the dollar_figurea shall be paid if allowed through a claim the commission will file against x’s bankruptcy_estate the dollar_figurec payment if approved will be deemed one-half disgorgement and one-half civil penalty the distributions to injured investors will be based on the commission’s orders the amount available for distribution is the net settlement pool which includes up to dollar_figurea and the amount of net_income earned by the fund the injured investors based on their proportionate share of losses suffered from the market timing described above will be eligible to receive portions of the net settlement pool law and analysis ruling sec_1_468b-2 of the treasury regulations provides that in general distributions by a qsf are subject_to certain information reporting and withholding requirements sec_1_468b-2 provides that a qsf must make a return for or must withhold tax on a distribution to a claimant if one or more transferors would have been required to make a return or withhold tax had that transferor made the distribution directly to the claimant the regulations further provide that for purposes of sec_6041 and sec_6041a if a qsf makes a distribution on behalf of a transferor or a claimant the fund is deemed to make the distribution to the recipient of that payment or distribution in the course of a trade_or_business in such a situation the qsf is also deemed to have made the distribution to the transferor or claimant see sec_1_468b-2 c - d sec_6041 requires all persons engaged in a trade_or_business and making payment in the course of such trade_or_business to another person of rent salaries wages premiums annuities compensations remunerations emoluments or other fixed or determinable gains profits and income of dollar_figure or more in any taxable_year to file an information_return with the service and to furnish an information statement to the payee sec_1_6041-1 provides that payments are fixed when they are paid in amounts definitely predetermined income is determinable whenever there is a basis of plr-111199-06 calculation by which the amount to be paid may be ascertained sec_1 a requires a payor to report sec_6041 amounts on form_1099 thus payments that are not fixed or determinable are not subject_to information reporting under sec_6041 if the fund concludes that any of its payments to investors constitute taxable_income it would need information such as the annuity starting dates of investors in order to calculate the amount of income chargeable to any given investor in some cases the fund would also need information as to the investor’s investment in the annuity_contract the fund represents that it lacks knowledge as to the annuity starting dates of injured investors and has no authority to compel disclosure of that information any income that investors would realize from the fund distributions therefore is not fixed or determinable within the meaning of the regulations under sec_6041 accordingly subject_to the exception noted below pertaining to distributions to qualified_retirement_plan participants the fund has no information reporting obligations under sec_6041 the fund states that it may make a certain number of distributions directly to participants in tax-qualified retirement plans sec_72 of the code controls the taxation of such distributions and the distributions must be reported on form 1099-r pursuant to sec_6041 subject_to the dollar_figure reporting threshold set forth in sec_6041 and sec_1_6041-1 ruling sec_1_468b-2 provides that a qsf must make a return for a distribution to a claimant if one or more transferors would have been required to make a return had that transferor made the distribution directly to the claimant sec_6045 provides generally that every person doing business as a broker shall when required by the secretary make a return in accordance with such regulations as the secretary may prescribe sec_6045 defines the term broker to include a dealer a barter_exchange and any other person who for a consideration regularly acts as a middleman with respect to property or services the regulations further define the term broker to mean a person that in the ordinary course of a trade_or_business during the calendar_year stands ready to effect sales to be made by others see sec_1_6045-1 sec_1_6045-1 provides generally that a broker shall make an information_return for each sale effected by the broker in the ordinary course of the broker’s trade_or_business sec_1_6045-1 defines a sale as any disposition of securities commodities regulated_futures_contracts or forward contracts for cash and as including redemptions of stock retirements of indebtedness and entering into short_sales plr-111199-06 the fund’s payments to investors do not result from a sale as that term is defined above the fund therefore has no information reporting obligations under sec_6045 with respect to these payments ruling sec_6049 provides that every person who makes payments of interest aggregating dollar_figure or more to any other person during any calendar_year or receives payments of interest as a nominee and who makes payments aggregating dollar_figure or more during any calendar_year to any other person with respect to the interest so received shall make a return according to the forms or regulations prescribed by the secretary sec_6049 b provides that the term_interest includes interest on any obligation issued in_registered_form or of a type offered to the public other than any obligation with a maturity at issue of a year or less which is held by a corporation pursuant to sec_6049 interest also includes interest on deposits with brokers as defined in sec_6045 the fund distributions in the present case do not relate to deposits with brokers or obligations issued in_registered_form and do not otherwise qualify as interest within the meaning of sec_6049 this is so even though interest earnings have accrued on the funds to be paid to investors from the time x y or z paid such funds to the fund the fund distributions to investors relate to violations of securities law and compensation_for financial harm not to obligations issued in_registered_form or other instruments that generate interest as sec_6049 defines that term accordingly the fund has no information reporting obligations under sec_6049 regarding its distributions to the investors ruling sec_3406 generally provides that in the case of any reportable_payment if a the payee fails to furnish his or her tin to the payor in the manner required b the secretary notifies the payor that the tin furnished by the payee is incorrect c there has been a notified_payee_underreporting of interest and dividends or d there has been a certification failure collectively referred to as payee failures then the payor shall deduct and withhold from such reportable_payment a backup withholding amount totaling of such payment sec_3406 provides that the term reportable_payment means any reportable_interest_or_dividend_payment and any other_reportable_payment sec_3406 provides that the term other_reportable_payment includes any payment of a kind and to a payee required to be shown on a return under sec_6041 or sec_6045 in light of rulings one through three above only direct payments by the fund to participants in tax-qualified plans will be reportable payments subject_to backup withholding under sec_3406 in order to meet its obligations under sec_3406 and to include tins on information returns it must provide for these reportable plr-111199-06 payments the fund plans to obtain those tins from one of the following sources the plan_administrator the mutual funds or annuity providers in which the participants invested or the transfer agents that provide services to the administrator or mutual funds obtaining the tins in this manner should prove more reliable and less burdensome and costly to the fund than soliciting the tins from the plan participants in light of the authority it has been granted by the commission the fund will be able to obtain the tins of plan participants from the plan administrators annuity providers mutual funds or transfer agents the fund will not be required to solicit tins from the participants for purposes of applying the backup withholding rules of sec_3406 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 furthermore this letter expresses no opinion about information reporting requirements for fund distributions that are not made directly to the injured investors this letter also expresses no opinion about the income_tax consequences to investors of fund distributions this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination enclosure carol p nachman acting senior technician reviewer office of associate chief_counsel procedure and administration administrative provisions and judicial practice sincerely


number release date id office uilc cca_2010031513122025 -------------- from ---------------- sent monday date pm to ----------------- cc ------------------------------------- subject re not quite hallucinating but ------- ok but the question is whether the flush language of sec_6335 somehow does not apply to some category of exceptions eg intangible_property learn that we do not provide notice in the case of intangibles especially in the 9th circuit -------------------- -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------- the written notice of seizure itself if not waived voluntarily must be given as soon as practicable after the seizure occurs i don't see any exceptions so i was surprised to --------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------


internal_revenue_service national_office technical_advice_memorandum date number release date index uil nos 263a case mis no tam-100727-00 cc psi b5 taxpayer’s name taxpayer’s address taxpayer’s identification no tax_year involved date of conference legend taxpayer project address agency state x y z a b c issue what costs incurred in the construction of a low-income_housing building are included in eligible_basis under sec_42 of the internal_revenue_code specifically tam-100727-00 are certain land preparation costs and bond issuance costs incurred by the taxpayer in constructing the project included in eligible_basis under sec_42 conclusions eligible_basis a cost incurred in the construction of a low-income_housing building is includable in eligible_basis sec_42 if the cost is included in the adjusted_basis of depreciable_property subject_to sec_168 and the property qualifies as residential_rental_property under sec_103 or included in the adjusted_basis of depreciable_property subject_to sec_168 that is used in a common area or provided as a comparable amenity to all residential rental units in the building land preparation costs for the cost of a land preparation to be includable in the project’s eligible_basis under sec_42 the cost must be for property of a character subject_to the allowance for depreciation under sec_168 the cost of a land preparation is a depreciable_property if the land preparation is so closely associated with a particular depreciable asset that the land preparation will be retired abandoned or replaced contemporaneously with that depreciable asset whether the land preparation will be retired abandoned or replaced contemporaneously with the depreciable asset is a question of fact if it is determined upon further factual development that a land preparation cost is depreciable such cost may be included in eligible_basis if it is also determined as part of the adjusted_basis of sec_168 property that qualifies as residential_rental_property under sec_103 or sec_168 property used in a common area or provided as a comparable amenity to all residential rental units in the building bond issuance costs costs associated with the issuance of tax-exempt_bonds are not includable in the project’s eligible_basis under sec_42 because they do not qualify as either sec_168 property that is residential_rental_property under sec_103 or as sec_168 property that is used this test does not exclude the application of other requirements that affect eligible_basis under sec_42 for example the cost for constructing a parking area would qualify under this test however this cost would not be permitted in eligible_basis if a separate fee were charged for use of the area h_r conf_rep no 99th cong 2d sess ii-90 vol c b tam-100727-00 in a common area or provided as a comparable amenity to all residential rental units in a building facts the taxpayer a state limited_partnership was formed to construct develop own and operate the project a x unit residential rental apartment complex located at address on y the project received from the agency an allocation in the amount of dollar_figurez in low-income_housing credits under sec_42 and began to develop the project the taxpayer included certain land preparation costs and bond issuance costs in the project’s eligible_basis under sec_42 law and analysis eligible_basis sec_42 provides that the amount of the low-income_housing tax_credit determined for any_tax year in the credit_period is an amount equal to the applicable_percentage of the qualified_basis of each low-income building sec_42 defines the qualified_basis of any qualified_low-income_building for any_tax year as an amount equal to the applicable_fraction determined as of the close of the tax_year of the eligible_basis of the building determined under sec_42 sec_42 provides that the term qualified_low-income_building means in part any building to which the amendments made by section a of the tax_reform_act_of_1986 apply the act section a of the act modified property subject_to the accelerated_cost_recovery_system acrs under sec_168 for property placed_in_service after date except for property covered by transition_rules sec_42 provides that the eligible_basis of a new_building is its adjusted_basis as of the close of the first tax_year of the credit_period sec_42 provides that except as provided in sec_42 the adjusted_basis of any building is determined without regard to the adjusted_basis of any property that is not residential_rental_property sec_42 provides that the adjusted_basis of any building the facts relevant to these issues are subject_to disagreement between the taxpayer and the district director’s office pursuant to dollar_figure of revproc_2000_1 i r b the national_office if it chooses to issue technical_advice will base that advice on facts provided by the district_office tam-100727-00 includes the adjusted_basis of property of a character subject_to the allowance for depreciation used in common areas or provided as comparable amenities to all residential rental units in the building the legislative_history of sec_42 states that residential_rental_property for purposes of the low-income_housing_credit has the same meaning as residential_rental_property within sec_103 the legislative_history of sec_42 further states that residential_rental_property thus includes residential rental units facilities for use by the tenants and other facilities reasonably required by the project h_r conf_rep no 99th cong 2d sess ii-89 vol c b under sec_1_103-8 of the income_tax regulations facilities that are functionally related and subordinate to residential rental units are considered residential_rental_property sec_1_103-8 provides that facilities that are functionally related and subordinate to residential rental units include facilities for use by the tenants such as swimming pools and similar recreational facilities parking areas and other facilities reasonably required for the project the examples given by sec_1_103-8 of facilities reasonably required for a project specifically include units for resident managers or maintenance personnel based on the above a cost is incurred in the construction of a low-income_housing building under sec_42 if it is included in the adjusted_basis of depreciable_property subject_to sec_168 and the property qualifies as residential_rental_property under sec_103 or included in the adjusted_basis of depreciable_property subject_to sec_168 that is used in a common area or provided as a comparable amenity to all residential rental units in the building the taxpayer contends that each state housing_credit_agency determines what costs are includable in eligible_basis when determining the financial feasibility of a project under sec_42 consequently the taxpayer concludes that once the agency has verified and accepted the taxpayer’s costs the service is bound by the agency’s determination we disagree sec_42 provides in part that the housing_credit_dollar_amount allocated to a project shall not exceed the amount the housing_credit_agency determines is necessary for the financial feasibility of the project and its viability as a qualified_low-income_housing_project through the credit_period a state housing_credit agency’s responsibility under sec_42 to determine the financial feasibility and viability of a project in no way abrogates the service’s authority and responsibility to administer the low-income_housing tax_credit and its various provisions tam-100727-00 the taxpayer also cites notice_88_116 1988_2_cb_449 as authority for its position that all construction costs are costs includable in eligible_basis the taxpayer’s interpretation of notice_88_116 is misplaced notice_88_116 in part provides guidance on what costs will be considered construction reconstruction or rehabilitation costs for the limited purpose of qualifying certain buildings for post-1989 credits after the then sec_42 statutory sunset of a state’s authority to allocate post-1989 credit for this limited purpose the notice provides that certain costs would satisfy the definition of construction reconstruction or rehabilitation costs- but only if these costs are included in the eligible_basis of the building in other words under the notice a condition to qualifying a new_building for post-1989 credit was that construction costs must also be included in eligible_basis the notice does not define what costs are included in eligible_basis nor as the taxpayer proposes does it stand for the proposition that all construction-related costs are included in eligible_basis land preparation costs the taxpayer incurred a variety of land preparation costs in constructing the project that the taxpayer included in the eligible_basis of the project buildings under sec_42 these costs included the following land surveys boundary topographic mortgage tree architectural gopher tortoise alta and recordation of the final plat the taxpayer also incurred costs for the following environmental surveys percolation tests soil borings geotechnical investigations contamination studies and suitability study additionally the taxpayer incurred costs for architectural services and traffic engineering services the following is a general discussion of when land preparation costs are depreciable and consequently may qualify for inclusion in eligible_basis whether the taxpayer’s specific costs are includable in eligible_basis will depend upon further factual development by the revenue_agent sec_167 provides that there shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion wear_and_tear including a reasonable allowance for obsolescence of property_used_in_the_trade_or_business of the taxpayer or of property_held_for_the_production_of_income sec_1_167_a_-2 provides that the depreciation allowance in the case of tangible_property applies only to that part of the property which is subject_to wear_and_tear to decay or decline from natural causes to exhaustion and to obsolescence the allowance does not apply to land apart from the improvements of physical development added to it tam-100727-00 generally the depreciation deduction provided by sec_167 for tangible_property is determined under sec_168 by using the applicable_depreciation_method the applicable_recovery_period and the applicable convention in the case of residential_rental_property the applicable_depreciation_method is the straight_line method sec_168 the applicable_recovery_period i sec_27 years sec_168 and the applicable convention is the mid-month_convention sec_168 land improvements whether sec_1245 property or sec_1250 property are included in asset class land improvements of revproc_87_56 1987_2_cb_674 and have a class_life of years for the general depreciation system thus for land improvements the applicable_depreciation_method is the percent declining balance method sec_168 the applicable_recovery_period i sec_15 years sec_168 and the applicable convention is the half-year_convention sec_168 the grading of land involves moving soil for the purpose of changing the ground surface it produces a more level surface and generally provides an improvement that adds value to the land revrul_65_265 1965_2_cb_52 clarified by revrul_68_193 1968_1_cb_79 holds that such expenditures are inextricably associated with the land and therefore fall within the rule that land is a nondepreciable asset revrul_65_265 further holds that excavating grading and removal costs directly associated with the construction of buildings and paved roadways are not inextricably associated with the land and should be included in the depreciable basis of the buildings and roadways accordingly the costs attributable to the general grading of the land not done to provide a proper setting for a building or a paved roadway become a part of the cost_basis of the land and therefore are not subject_to a depreciation allowance see 29_tc_1205 acq 1958_2_cb_4 as such the costs are not includable in eligible_basis under sec_42 revrul_74_265 1974_1_cb_56 involves the issue of whether landscaping for an apartment complex is depreciable_property the area surrounding the apartment complex was landscaped according to an architect’s plan to conform it to the general design of the apartment complex the expenditures_for landscaping included the cost of top soil seeding clearing and grading and planting of perennial shrubbery and ornamental trees around the perimeter of the tract of land and also immediately adjacent to the buildings the replacement of these apartment buildings will destroy the immediately adjacent landscaping consisting of perennial shrubbery and ornamental trees this revenue_ruling held that land preparation costs may be subject_to a depreciation allowance if such costs are so closely associated with a depreciable asset so that it is possible to establish a determinable period over which the preparation will be useful in a particular trade_or_business a useful_life for land preparation is established if it will be replaced contemporaneously with the related depreciable asset whether land preparation will be replaced contemporaneously with the related depreciable asset is necessarily a question of fact but if the replacement of the tam-100727-00 depreciable asset will require the physical destruction of the land preparation this test will be considered satisfied accordingly landscaping consisting of the perennial shrubbery and ornamental trees immediately adjacent to the apartment buildings is depreciable_property because the replacement of the buildings will destroy the landscaping however the balance of the landscaping including the necessary clearing and general grading top soil seeding finish grading and planting of perennial shrubbery and ornamental trees around the perimeter of the tract of land is general land improvements that will be unaffected by the replacement of the apartment buildings and therefore will not be replaced contemporaneously therewith accordingly these types of property are not depreciable_property but rather are considered inextricably associated with the land and as such are not includable in eligible_basis under sec_42 revrul_80_93 1980_1_cb_50 involves the issue of whether a taxpayer is allowed to take a depreciation deduction for costs incurred in the construction of electrical and natural_gas distribution systems and for land preparation costs incurred in connection with the development of a mobile home park regarding the distribution systems the taxpayer made expenditures_for the distribution systems but the utility company retained full ownership of them and would repair and replace the systems as necessary the taxpayer also incurred costs for the clearing grubbing cutting filling and rough grading necessary to bring the land to a suitable grade in addition the land preparation costs incurred in the digging and the rough and finish grading necessary to construct certain depreciable assets will not be repeated when the depreciable assets are replaced however the excavation and backfilling required for the construction of the laundry facilities and the storm sewer system are so closely associated with those depreciable assets that replacement of the depreciable assets will require the physical destruction of that land preparation this revenue_ruling held that the land preparation costs clearing grubbing cutting filling rough and finish grading and digging that are unaffected by replacement of the components of the mobile home park and will not be replaced contemporaneously therewith are nonrecurring general land improvement costs and therefore are considered to be inextricably associated with the land and are added to the taxpayer’s cost_basis in the land these land preparation costs are not depreciable and therefore not includable in eligible_basis under sec_42 however the land preparation costs that are so closely associated with depreciable assets laundry facilities and storm sewer system such that the land preparation will be retired abandoned or replaced contemporaneously with those depreciable assets are capitalized and depreciated over the estimated useful lives of the assets with which they are associated the amounts paid to the utility for the electrical and natural_gas distribution systems are nonrecurring costs for betterments that increase the value of the land and are includable in the taxpayer’s cost_basis of the land these costs likewise are not depreciable and not includable in eligible_basis under sec_42 tam-100727-00 in eastwood mall inc v u s ustc big_number n d ohio aff’d by unpublished disposition 59_f3d_170 6th cir the issue before the court was whether the taxpayer a developer should depreciate the cost of reshaping land as part of the cost of a building the court stated that costs for land preparation may or may not be depreciable depending on whether the costs incurred are inextricably associated with the land nondepreciable or with the buildings constructed thereon depreciable it further asserted that the key test for determining whether land preparation costs are associated with nondepreciable land or the depreciable building thereon is whether these costs will be reincurred if the building were replaced or rebuilt land preparation costs for improvements that will continue to be useful when the existing_building is replaced or rebuilt are considered inextricably associated with the land and therefore are to be added to the taxpayer’s cost_basis in the land and are not depreciable on the other hand land preparation costs for improvements that are so closely associated with a particular building that they necessarily will be retired abandoned or replaced contemporaneously with the building are considered associated with the building and therefore are added to the taxpayer’s cost_basis in the building and are depreciable the cost of a land preparation inextricably associated with the land is added to a taxpayer’s cost_basis in the land and is not depreciable_property see revrul_65_265 algernon blair eastwood mall land preparation costs that are nonrecurring or that will continue to be useful when the related depreciable asset is replaced or rebuilt are considered to be inextricably associated with the land see revrul_80_93 eastwood mall however the cost of a land preparation inextricably associated with a particular depreciable asset for example an apartment building is added to a taxpayer’s cost_basis in that depreciable asset and is depreciable_property the cost of a land preparation that is so closely associated with a particular depreciable asset that the land preparation will be retired abandoned or replaced contemporaneously with that depreciable asset is considered inextricably associated with the depreciable asset see revrul_74_265 revrul_80_93 eastwood mall in applying this standard the issue of whether a land preparation will be retired abandoned or replaced contemporaneously with a particular depreciable asset is a question of fact in the present case further factual development is needed to determine whether each land preparation cost at issue is so closely associated with a particular depreciable asset for example building that the land preparation will be retired abandoned or replaced contemporaneously with that depreciable asset this test is satisfied if it is reasonable to assume the replacement of the depreciable asset will require the actual physical destruction of the land preparation see revrul_74_265 it is irrelevant that a state housing_credit_agency may require a taxpayer to incur a particular land preparation cost for example the planting of trees on the perimeter of the tract of land similarly it is irrelevant that an ordinance may require a taxpayer to tam-100727-00 incur a particular land preparation cost for example tree preservation or endangered species survey under these guidelines the costs of clearing grubbing and general grading to prepare a site suitable for any type of structure are inextricably associated with the land and are added to the cost of land and therefore are not depreciable similarly costs incurred for fill dirt that is used to raise the level of the site are considered to be inextricably associated with the land and therefore are not depreciable therefore the costs are not includable in eligible_basis under sec_42 however earth-moving costs incurred for digging spaces and trenches for a building’s foundation and utilities generally are considered to be inextricably associated with the building and are added to the cost of the building and therefore are depreciable similarly costs incurred for fill dirt that is used to set the foundation of a depreciable asset generally are considered to be inextricably associated with the related depreciable asset and therefore are depreciable land and environmental surveys are generally conducted over the entire property of the development not just where the buildings and improvements will specifically be placed some surveys such as boundary or mortgage surveys help to define the property whereas other surveys such as percolation tests and contamination studies are used to determine if the improvements can properly be built on the site costs incurred for the former type of survey are clearly related to the land itself and are inextricably associated thereto and therefore are not depreciable and not includable in eligible_basis under sec_42 the latter type of survey is performed on the land to determine its suitability for supporting the improvements to be constructed thereon if this type of survey will not necessarily need to be redone contemporaneously when the depreciable improvement is replaced the costs incurred for the survey are inextricably associated with the land and therefore are not depreciable and not includable in eligible_basis under sec_42 a survey is considered to be redone contemporaneously with the replacement of the depreciable improvement if the physical replacement of the depreciable improvement mandates a reperformance of the survey although an ordinance may require reperformance of the survey such requirement is irrelevant as to whether the physical replacement of a depreciable improvement necessarily mandates a reperformance of the survey if a cost of land preparation is associated with both nondepreciable_property for example land and depreciable_property for example building the cost should be allocated among the nondepreciable_property and depreciable_property using any reasonable method for example if staking costs are incurred to demarcate a variety of items related to the development of the project and such items may be depreciable improvements for example sidewalks and nondepreciable improvements for example landscaping not immediately adjacent to a building the staking costs should be allocated among the depreciable and nondepreciable assets similarly if engineering services are performed partly for nondepreciable assets and partly for tam-100727-00 depreciable assets the cost of such services should be allocated among the nondepreciable and depreciable assets the taxpayer’s main argument as to why the land preparation costs should be depreciable_property is that without construction of the buildings and other infrastructure for the project none of these expenses would have been incurred however the court in eastwood mall specifically denounced this argument as being incorrect the court noted that in almost every instance some costs-whether it be the cost of moving a single tree or the larger costs of raising a site-will be incurred in preparing the land for the construction of the building the court further noted that under the taxpayer’s argument all costs incurred in preparing a site are depreciable and that the only situation where land preparation costs would not be depreciable is where nothing is constructed on the land the court stated that t his interpretation is illogical and contrary to the law eastwood mall at para juxtaposing the taxpayer’s main argument with the argument made by the taxpayer in eastwood mall the arguments are the same thus the taxpayer’s main argument is without merit the taxpayer further asserts that some of the land preparation costs may need to be redone if the building was replaced due to possible changes in applicable ordinances the court in eastwood mall stated that land preparation costs for improvements that are so closely associated with a particular building that they necessarily will be retired abandoned or replaced contemporaneously with the building are considered associated with the building eastwood mall at para see also revrul_74_265 and revrul_80_93 the taxpayer’s argument however does not satisfy the test that the costs necessarily will be replaced contemporaneously with the building the fact that an ordinance may require a taxpayer to incur a particular land preparation cost does not mean that it thereby is considered to be inextricably associated with a building based upon the above once a land preparation cost is determined to be depreciable that cost may be included in eligible_basis to the extent it is treated as part of the adjusted_basis of sec_168 property that qualifies as residential_rental_property under sec_103 or sec_168 property used in a common area or provided as a comparable amenity to all residential rental units in the building bond issuance costs funding for the project was sourced in part by dollar_figurea in proceeds from a 30-year tax-exempt_bond the bond proceeds were received when construction of the project began and were used as the construction loan when construction was completed the proceeds were used for permanent financing the costs associated with issuing the tax-exempt_bond bond issuance costs included fhfa fees state board fees rating agency fees trustee fees underwriter fees investment fees legal counsel fees bank inspector fees and costs for photos prints and renderings the bond issuance costs tam-100727-00 totaled dollar_figureb of this amount the taxpayer included dollar_figurec as eligible_basis costs in their final costs certification the taxpayer contends that the bond proceeds were used to fund both the construction loan and a permanent loan which were separately negotiated loans and any and all costs associated with the construction loan are includable in eligible_basis costs incurred in obtaining a loan or tax-exempt_bond are capitalized and amortized over the life of the loan or bond see 57_tc_781 acq on this issue 1974_2_cb_2 see also revrul_70_360 1970_2_cb_103 revrul_75_172 1975_1_cb_145 and revrul_81_160 1981_1_cb_312 accordingly the bond issuance costs incurred by the taxpayer in obtaining the tax- exempt bond for the project are not capitalized to depreciable_property but are treated as an amortizable sec_167 intangible sec_42 defines a qualified_low-income_building as a building subject_to section a of the act only property subject_to sec_168 is subject_to section a property amortizable under sec_167 such as intangibles cannot be depreciated under sec_168 accordingly property not subject_to depreciation under sec_168 such as the taxpayer's bond issuance costs intangible cannot be included in the project’s eligible_basis under sec_42 nevertheless an argument can be made under sec_263a that an allocable portion of indirect_costs of real or tangible_personal_property produced by a taxpayer can be capitalized to the property produced indirect_costs that should be capitalized under sec_263a to produced property are those that are properly allocable to the property these are costs that directly benefit or are incurred by reason of the production of property in this case the taxpayers' bond issuance costs were used in part to fund construction activities these costs would not have been incurred by the taxpayer but for its housing construction activities thus the costs were incurred by reason of the production of property and under the general rules of sec_263a could reasonably be allocated to the property produced as indirect_costs however notwithstanding the general_rule of sec_263a we believe these bond issuance costs are not includable in eligible_basis under the specific requirements of sec_42 sec_103 provides that gross_income does not include interest on any state_or_local_bond sec_103 however provides that the exclusion does not apply to any private_activity_bond unless it is one of the qualified bonds under sec_141 among these qualified bonds are exempt facility bonds sec_142 describes an exempt_facility_bond as any bond issued as part of an issue of bonds if percent or more of the net_proceeds of the issue are to be used tam-100727-00 to provide listed types of projects or facilities within the list in sec_142 are qualified residential rental projects sec_142 defines a qualified_residential_rental_project as a project for residential_rental_property that houses occupants who meet one of the alternative income tests at all times throughout a qualified_project_period in the act vol c b congress reorganized sec_103 and sec_103a of the code of the code regarding tax-exempt_bonds into sec_103 and sec_141 through of the code of congress intended that to the extent not amended by the act all principles of pre-1986 act law would continue to apply to the reorganized provisions h_r conf_rep no 99th cong 2d sess ii-686 vol c b conference_report because no income_tax regulations have been promulgated under sec_142 the regulations promulgated pursuant to sec_103 of the code continue to apply to residential_rental_property except as otherwise modified by the act and subsequent law as stated above sec_42 and its legislative_history make clear that a necessary condition for tax_credit eligibility is that the costs be included as part of the adjusted_basis of depreciable_property subject_to sec_168 that is residential_rental_property or depreciable_property subject_to sec_168 that is used in a common area or provided as a comparable amenity to all residential rental units in the building furthermore the legislative_history of sec_142 provides that bond issuance costs cannot be paid from the portion of the issue conf rpt at ii-729 here the exempt_purpose to which the test is applied is for qualified residential rental projects sec_142 provides in part that the term qualified_residential_rental_project means any project for residential_rental_property since bond issuance costs are not costs used for qualified residential rental projects and since residential rental projects must be projects for residential_rental_property we conclude that bond issuance costs are not residential_rental_property or costs used to provide residential_rental_property since bond issuance costs are not residential_rental_property or costs used for residential_rental_property within the meaning of sec_142 nor do we believe these costs are depreciable_property subject_to sec_168 that is used in a common area or provided as comparable amenities to all residential rental units in the building-- such as a stove or refrigerator and since residential_rental_property has the same meaning under sec_42 as it does for sec_142 no sec_42 credit may be claimed for these costs nothing in sec_1_103-8 which applies to both sec_42 and sec_142 or the legislative_history to sec_42 includes bond issuance costs within the definition of residential_rental_property thereby preempting an argument that residential_rental_property has a broader meaning than residential_rental_project and that bond issuance costs fall within the definition of residential_rental_property but not within the definition of residential_rental_project tam-100727-00 congress has determined that bond issuance costs the components of which are identified in the legislative_history to sec_142 are not costs sufficiently associated with providing residential rental housing to satisfy the exempt_purpose of the offering characterizing a certain portion of bond issuance costs under sec_263a as satisfying the exempt_purpose of the offering is directly contrary to this specific congressional determination permitting such a sec_263a characterization of bond issuance costs for purposes of sec_42 would result in the disparate treatment of the term residential_rental_property between sec_42 and sec_142 this result is contrary to the statutory and legislative_history construct governing sec_42 that requires that residential_rental_property have the same meaning for purposes of both sec_42 and sec_142 accordingly notwithstanding the general_rule of sec_263a no portion of bond issuance costs as these costs are described in the legislative_history to sec_142 are included in eligible_basis for purposes of sec_42 caveat no opinion is expressed on whether the project otherwise qualifies for the low- income housing tax_credit under sec_42 a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 provides that it may not be used or cited as precedent - end -


internal_revenue_service number release date index number ------------------- ---------- ----------------------- ---------------------------------------------- ------------------------- ---------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------------- id no ----------------- telephone number -------------------- refer reply to cc ita b04 plr-115844-12 date date in re --------------------------------------------------- ------------------------------------------------------- ----------------------- legend taxpayer ---------------------------------------------- state ---------- agency --------------------------------------------------------------- board ---------------------------------------------- statute ------------------------------------------------------------------------ program ------------------------------------------------------- b ------------------------------------------------------ c -------------------------------------------------------- d ---------------------------------------------------------------- e ------------------------------------------------------------------- x ---------- dear ---------------- this is in reply to taxpayer’s request for a ruling that it is not subject_to an information reporting obligation under sec_6041 of the internal_revenue_code with respect to property plr-115844-12 owners for rehabilitations of b located on their property under the program because the rehabilitations will not result in gross_income to the owners under sec_61 facts taxpayer a political_subdivision of state owns and operates a c taxpayer was created by state to abate d during major storms with significant or intense rainfall periods of elevated tidal flooding or periods of unusually high groundwater elevation taxpayer occasionally experiences e which violates statute and subjects taxpayer to potential monetary penalties taxpayer has negotiated a consent order with the agency to address past and future e in addition taxpayer is a party to a special order by consent with the board that requires taxpayer to implement the program which is intended to alleviate the consequences of e under the program taxpayer will rehabilitate b located on certain owners’ property rehabilitation of b is typically the most economical way for taxpayer to address e because it minimizes taxpayer’s future capital expenditures and reduces ongoing operation and maintenance_costs because there will be less inflow into taxpayer’s c under the program privately-owned b that contribute significantly to e will be rehabilitated if the process would be cost effective subject_to the consent of the property owners where the b are located areas selected for rehabilitation will be based solely on providing taxpayer with the greatest return on its financial investment taxpayer does not have the legal authority to compel a property owner to participate in the program thus a property owner’s participation in the program is voluntary however a property owner is eligible to participate in the program only if the owner lives in an area selected by taxpayer based on areas that provide the greatest benefit to taxpayer and only if taxpayer determines that the b significantly infiltrate taxpayer’s system taxpayer will direct and control all work related to the rehabilitation of b located on an owner’s property the contracts for the work will be between taxpayer and the contractors which taxpayer will select hire and compensate taxpayer represents that property owners will not have any dominion and control_over the type and extent of the rehabilitation of b on their property in addition the property owners will not be told of the cost of the rehabilitation of their b in certain cases the rehabilitation of b may have incidental beneficial or adverse effects on an owner’s property for example it may eliminate x backup on a property and may cause another property to drain less effectively taxpayer however does not consider these effects in deciding whether to rehabilitate b taxpayer represents that all benefits of the program are intended for taxpayer and other governmental entities the program will help taxpayer and other local governments to avoid straining existing system capacity avoid investment in additional capacity better manage operating and plr-115844-12 maintenance_expenses of taxpayer’s c and avoid future state and federal government enforcement actions and penalties law and analysis sec_6041 requires all persons engaged in a trade_or_business who in the course of that trade_or_business pay another person fixed and determinable gains profits and income aggregating dollar_figure or more in any taxable_year to file an information_return for each calendar_year in which they make such payments and furnish a copy of the information_return to that person see sec_6041 and d and sec_1_6041-1 and b of the income_tax regulations although the word income as used in sec_6041 is not defined by statute or regulation its appearance in the phrase fixed or determinable gains profits and income indicates that it refers to gross_income not the gross amount_paid thus sec_6041 requires a payor to report only those payments aggregating dollar_figure or more that are includible in the recipient’s gross_income under sec_61 gross_income means all income from whatever source derived gross_income extends to undeniable accessions to wealth clearly realized over which the taxpayers have complete dominion 348_us_426 taxpayer’s program is for its benefit for example the program will enable taxpayer to avoid monetary penalties under state and federal_law and will reduce taxpayer’s current costs as well as its future capital expenditures taxpayer bases its decisions on whether to rehabilitate b located on an owner’s property based on providing taxpayer with the greatest return on its financial investment moreover taxpayer controls the rehabilitation process it hires and pays the contractors performing the work and determines the extent of each rehabilitation project in addition the rehabilitation of b located on an owner’s property is being undertaken to abate d a public purpose without regard to whether the rehabilitation is requested by property owners or beneficially or adversely affects their property under these facts the rehabilitation of b does not give rise to income to the property owners under sec_61 because there is no income under sec_61 taxpayer does not have an information reporting obligation under sec_6041 with respect to property owners whose b are rehabilitated in the program conclusion based strictly on the information submitted and representations made we conclude that taxpayer does not have an information reporting obligation under sec_6041 with respect to property owners for the rehabilitation of b located on their property under the program because the rehabilitation will not result in gross_income to the property owners under sec_61 plr-115844-12 this letter_ruling is directed only to the taxpayer requesting it and does not express or imply an opinion on the federal tax consequences of any aspect of this transaction other than that expressed in the preceding sentence sec_6110 k provides that this letter_ruling may not be used or cited as precedent the rulings contained in this letter are based upon information and representations that taxpayer submitted under penalties of perjury 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 taxpayer must attach to any income_tax return to which it is relevant a copy of this letter or if it files its returns electronically include a statement providing the date and control number of this letter_ruling in accordance with a power_of_attorney on file on this office we are sending a copy of this letter to your authorized representative sincerely michael j montemurro branch chief office of associate chief_counsel income_tax accounting


internal_revenue_service number release date index number --------------------------------------------- -------------- ----------------------------------------------- -------------------------------- x -------------- ----------------------- ------------- department of the treasury washington dc person to contact ----------------------------------------- telephone number --------------------- refer reply to cc psi b01 - plr-105656-04 date date ------------------- state a date dear ---------------- correspondence written on behalf of x requesting a ruling under sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to elect to be treated as an association_taxable_as_a_corporation under sec_301 c facts this letter responds to a letter dated date and subsequent according to the information submitted x a state a limited_liability_company was formed on date x desires to be treated as an association_taxable_as_a_corporation for federal tax purposes as of date due to inadvertence x failed to file a timely election form_8832 entity classification election effective date law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in this section an eligible_entity with more than one owner can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership plr-105656-04 sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the service_center designated on the form sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic_extension of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusions based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-3 as a result x is granted an extension of time of sixty days from the date of this letter to file a properly executed form_8832 with the appropriate service_center electing to be treated as an association effective date that purpose concerning the federal tax consequences of the facts described above under any other provision of the code a copy of this letter should be attached to the election a copy is enclosed for except as specifically set forth above no opinion is expressed or implied plr-105656-04 of the internal_revenue_code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer who requested it sec_6110 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes