internal_revenue_service number release date index number ------------------------------------------------------------ --------------------------------- ------------------------------------ ------------------------ ------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b09 plr-136850-04 date may legend trust ----- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- ----------------------- ------------------------ decedent ------------------- date ------------------ date ------------------ date ----- x ----------------------- son grandchild ----------------------- y grandchild ---------------------------- grandchild -------------------------------- date date date court date z date dear ---------- subsequent correspondence requesting rulings regarding the income estate gift and generation-skipping_transfer gst tax consequences of two beneficiaries’ renunciation of their interests in trust ------------------ -------------------------- --------------------------- ------------------------------------------------------- --------------------- ----------- ------------------- this is in response to your representative’s letter dated date and item iii of decedent’s will established trust section d of item iii directs the plr-136850-04 the facts submitted and the representations made are summarized as follows decedent executed her last will and testament on date and a codicil to the will on date decedent died on date trustee to pay dollar_figurex each to son and to grandchild per month in addition the trustee is directed to pay dollar_figurey each to grandchild and to grandchild per month section f generally provides that after son’s death and when the youngest grandchild reaches the age of forty years the trustee shall distribute one-third of the assets to grandchild the remaining assets shall continue in trust and grandchild and grandchild shall each continue to receive dollar_figurey per month during their lives upon the death of either grandchild or grandchild one-half of the assets in trust shall be distributed equally to grandchild 1’s children upon the death of the survivor of grandchild and grandchild trust shall terminate and the remaining trust assets shall be distributed equally among grandchild 1’s children the distribution of one-third of the trust assets in accordance with section f trust was modified by an agreement on date a corresponding judgment was entered by court on date date is prior to date the date court order required the distribution of all but dollar_figurez of the trust assets paragraph of the order provides that dollar_figurez of the trust assets shall continue to be held in trust paragraph a of the order provides that grandchild and grandchild shall each receive dollar_figurey per month in addition the remaining net_income from trust shall be distributed among grandchild 1’s children paragraph b of the order provides that upon the death of the first to die of grandchild and grandchild one-half of the trust principal shall be distributed equally among grandchild 1’s children upon the death of the survivor of grandchild and grandchild the remaining trust assets shall be distributed equally among grandchild 1’s children son died on date the youngest grandchild reached age forty on date after there have been no additions actual or constructive to the corpus of trust since grandchild and grandchild propose to renounce their interests in trust in date accordance with a date order by court the renunciation by both grandchildren of their interests in trust will terminate trust and the remaining trust principal will be distributed to grandchild 1’s children the trustee of trust has requested a ruling that the proposed renunciation of the grandchildren’s interests will constitute present_interest gifts for purposes of the gift_tax annual exclusions under sec_2503 the trustee further requests a ruling that the proposed renunciations will not affect trust’s status as exempt from the gst tax finally the trustee requests a ruling that the renunciations will not have any income_tax consequences to grandchild grandchild or the residuary beneficiaries sec_25_2503-3 of the gift_tax regulations provides that the term future sec_2503 provides generally that in the case of gifts other than gifts of sec_2501 imposes a tax on the transfer of property by gift by an individual sec_2503 provides that the term taxable_gifts means the total amount of plr-136850-04 characterization of gifts sec_2502 provides that the payment of the gift_tax is the liability of the donor gifts made during the calendar_year less the deductions provided in subchapter_c future interests in property made to any person by the donor during the calendar_year the first dollar_figure adjusted for inflation as provided in sec_2503 of such gifts to such person shall not be included in the total_amount_of_gifts made during the year interest includes reversions remainders and other interests or estates whether vested or contingent and whether or not supported by a particular interest or estate which are limited to commence in use possession or enjoyment at some future date or time sec_25_2503-3 defines a present_interest in property as an unrestricted right to immediate use possession or enjoyment of property or the income from property such as a life_estate or term certain sec_2511 provides that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money or money’s worth the amount by which the value of the property exceeds the value of the consideration is deemed a gift sec_25_2511-2 provides that the gift_tax is a primary and personal liability of the donor is an excise upon his act of making the transfer is measured by the value of the property passing from the donor and attaches regardless of the fact that the identity of the donee may not then be known or ascertainable relinquishes an annuity life_estate remainder or reversion that the donor holds by virtue of a transfer previously made by the donor or another the value_of_the_gift is the value of the interest transferred grandchild’s renunciation of these interests constitutes a gift_for gift_tax purposes under sec_2501 of the value of the renounced interests under the terms of the trust agreement and in accordance with the date court order after both grandchildren’s renunciation of their interests trust will terminate and the interests renounced by each grandchild will pass to the residuary beneficiaries accordingly the value of the renounced sec_25_2512-5 provides that in general if the donor assigns or in this case each grandchild will renounce their interests in trust each sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 defines the term generation-skipping_transfer to include a plr-136850-04 interests will qualify for the gift_tax annual exclusion under sec_2503 as gifts of present interests trust’s status as exempt from the gst tax taxable_distribution 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 gst tax provisions do not apply to any gst under a_trust as defined in sec_2652 that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that except as provided in sec_26 b ii b or c any trust in existence on date is considered an irrevocable_trust except as provided in sec_26_2601-1 or c which relate to property includible in a grantor’s gross_estate under sec_2038 and sec_2042 in the present case trust is considered to have been irrevocable on date because neither sec_2038 nor sec_2042 applies under sec_26_2601-1 if an addition is made after date to an irrevocable_trust that is excluded from chapter under sec_26_2601-1 a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter if an addition is made the trust is thereafter deemed to consist of two portions a portion not subject_to chapter the non-chapter portion and a portion subject_to chapter the chapter portion each with a separate inclusion_ratio as defined in sec_2642 the non-chapter portion represents the value of the assets of the trust as it existed on date the applicable_fraction as defined in sec_2642 for the non-chapter portion is deemed to be and the inclusion_ratio is zero the chapter portion of the trust represents the value of all additions made to the trust after date the inclusion_ratio for the chapter portion is determined under sec_2642 the regulation further provides that a constructive_addition under sec_26_2601-1 is treated as an addition sec_26_2601-1 and c provides rules for determining the pro_rata portion of a gst that is subject_to gst tax where a post- date addition is made to a_trust that was irrevocable on or before date b v a provides that where any portion of a_trust remains in the trust after the release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse is treated to any extent as a taxable transfer under sec_26_2601-1 discusses constructive additions to trusts section plr-136850-04 chapter or chapter the value of the entire portion of the trust subject_to the power that was released exercised or lapsed will be treated as an addition to the trust the creator of the power will be considered the transferor of the addition except to the extent that the release exercise or lapse of the power is treated as a taxable transfer under chapter or chapter in the latter case the transferor for purposes of chapter or chapter is the transferor for purposes of chapter sec_26_2601-1 example considers a situation where a pre- trust provides that the trustee shall distribute the entire income from the trust annually to t’s spouse s during s’s life at s’s death the remainder is to be distributed to t and s’s grandchild gc s also possesses a general_power_of_appointment over one-half of the trust assets on date when the value of the trust corpus is dollar_figure s died without having exercised the general_power_of_appointment the value of one-half of the trust corpus dollar_figure is included in s’s gross_estate under sec_2041 and is subject_to estate_tax under chapter because the value of one-half of the trust corpus is subject_to tax under chapter with respect to s’s estate s is treated as the transferor of that property for purposes of chapter see sec_2652 for purposes of the gst tax the lapse of s’s power_of_appointment is treated as if dollar_figure had been distributed to s and then transferred back to the trust thus s is considered to have added dollar_figure to the trust at the date of s’s death because this constructive_addition occurred after date fifty percent of the corpus of the trust became subject_to chapter at s’s death in this case trust is a gst_trust because it provides for distributions to more than one generation of beneficiaries below the grantor’s generation trust was last modified on date prior to date and trust was irrevocable on date prior to the grandchildren’s renunciation of their interests therefore trust is exempt from the gst tax pursuant to sec_26_2601-1 that is subject_to the gift_tax under chapter further by declining to accept trust payments they are otherwise entitled to receive each grandchild is making a constructive_addition to trust that is similar to the constructive_addition illustrated in sec_26_2601-1 example accordingly each grandchild is treated as making a constructive_addition to trust after date of an amount equal to the value of the interests in trust that each grandchild is renouncing as a result of the proposed renunciation by grandchild and grandchild a pro_rata portion of trust will be subject_to the provisions of chapter such pro_rata portion is determined in accordance with sec_26_2601-1 b and c each grandchild is treated as the transferor for gst tax purposes of such pro_rata portion under sec_2652 however provided the subsequent distributions made from trust will be made to individuals who are not or more generations below the generation assignment of the transferor each grandchild with respect to the pro_rata portion the distributions will not be taxable events for gst tax purposes the remaining pro_rata portion of trust and terminations as discussed above each grandchild by renouncing his interests is making a gift sec_61 provides in part that gross_income means all income from under 281_us_111 income must be taxed to the one who plr-136850-04 with respect to trust will remain exempt from the provisions of chapter in accordance with sec_26_2601-1 income_tax consequences to annuitants whatever source derived including income from an interest in an estate_or_trust earns it and income may not be avoided by assignment to another the crucial question in assignment_of_income cases is whether the assignor relinquishes sufficient power and control_over the assigned_property or over receipt of the income to make it reasonable to treat the assignee as the recipient of the income for tax purposes see 333_us_591 in 300_us_5 1937_1_cb_175 the supreme court holds that a life beneficiary's assignment of specified annual amounts of trust income to his children was not an assignment_of_income because the taxpayer had assigned not merely the right to receive the income but the taxpayer's entire_interest in the trust corpus see revrul_55_38 1955_1_cb_389 generally holding that in the case of an irrevocable assignment valid under local law of trust income for a period of not less than years such income will be taxable to the assignee rather than the assignor in trust and in effect make an absolute irrevocable assignment_of_income of their entire_interest to residuary beneficiaries therefore assuming the proposed renouncement will be valid under local law the transaction will satisfy the conditions of blair and the post-renunciation income will not be taxable to grandchild or grandchild income_tax consequences to primary beneficiaries derived sec_61 provides that gross_income includes gains derived from dealings in property by gift bequest devise or inheritance however sec_102 provides that sec_102 does not exclude from gross_income income from any property referred to in subsection a or where the gift bequest devise or inheritance is of income from property the amount of such income sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_102 in general excludes from gross_income the value of property acquired in the present case each grandchild proposes to renounce his respective interests sec_61 provides that gross_income means all income from whatever source sec_1001 provides that the amount_realized from the sale or other sec_1001 provides that except as otherwise provided in subtitle a the entire in order for a transaction to be a realization event under sec_1001 the transaction plr-136850-04 sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized disposition of property shall be the sum of any money received plus the fair_market_value of the property amount of the gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained must be a sale exchange or other_disposition and if an exchange the exchange must result in the receipt of property that is materially different from the relinquished_property 499_us_554 beneficiaries did not obtain the grandchildren’s renunciation and the accelerated distribution of trust in return for any consideration or relinquishing any of their trust interests cf 313_us_247 holding that without the reciprocal transfer of property there can be no exchange under sec_1001 instead the residuary beneficiaries will receive the trust distributions upon termination of the trust by virtue of their status as heirs see sec_102 because there will be no sale exchange or other_disposition of property the grandchildren’s renunciation and the accelerated distribution of the trust termination will not result in a realization event to the residuary beneficiaries for purposes of sec_1001 concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular we express or imply no opinion on the value of each grandchild’s gift to trust 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 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer s requesting it sec_6110 in the present case there will be no sale_or_exchange because the residuary except as expressly provided herein no opinion is expressed or implied the rulings contained in this letter are based upon information and plr-136850-04 to the taxpayer’s representative pursuant to the power_of_attorney on file with this office this letter is being sent sincerely melissa c liquerman melissa c liquerman branch chief branch passthroughs special industries enclosure cc copy of this letter 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 ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-146644-09 date march re -------------------------------------- ---------------------- legend decedent trust trust date date date date daughter grandchild grandchild grandchild grandchild attorney -------------------------------------------------------- ------------------------------------------------------------------- ----------------------------------------------------------------------------- ------------------------- ----------------------- ------------------- ----------------------- ---------------------- ---------------------- --------------------- --------------------------- --------------------- -------------------------- dear ------------------ this responds to your letter dated date requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations to file a qualified physician's certification with respect to the decedent's incompetency as required by sec_26_2601-1 of the generation-skipping_transfer_tax regulations the facts submitted and representations made are summarized as follows decedent created trust on date trust was revocable during the lifetime of decedent trust provides in relevant part that all income is to be paid to daughter for her lifetime upon daughter’s death the assets are to be held in trust for the benefit plr-146644-09 of daughter’s children grandchild grandchild grandchild and grandchild until they reach the age of when each grandchild reaches the age of each grandchild is to receive his share of the principal of trust trust has never been amended or modified on date decedent executed her will which devised her entire residuary_estate to trust trust provides in relevant part that all income is to be paid to daughter upon daughter’s death the assets of trust are to be distributed to the issue of decedent decedent’s surviving issue are grandchildren - decedent died on date upon her death trust was included in her gross_estate no additions were made to trust from date to date decedent’s executor hired attorney to file a form_706 united_states estate and generation-skipping_transfer_tax return for decedent’s estate the form_706 was timely filed on date no physician’s certificate or other evidence of decedent’s mental incompetency were attached to the form_706 it is represented that decedent was incompetent at all times on and after date and did not regain competency to modify or revoke the terms of her will or trust before her death the trustees of trust have requested an extension of time under sec_301_9100-3 to file one or more qualified physician's certifications and other evidence as required by sec_26_2601-1 stating that decedent was under a mental_disability on date and at all times thereafter until her death sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip under b c of the tax_reform_act_of_1986 and sec_26_2601-1 if an individual was under a mental_disability to change the disposition of the individual's property continuously from date until the date of death the provisions of chapter do not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 to the extent such trust consists of property or the proceeds of property the value of which was included in the gross_estate of the individual sec_26_2601-1 defines the term mental_disability as mental incompetence to execute an instrument governing the disposition of the decedent's property whether or not there was an adjudication of incompetence and whether or not there has been an appointment of a guardian fiduciary or other person charged with either the care of the decedent or care of the decedent's property sec_26_2601-1 provides that if a decedent has not been adjudged plr-146644-09 mentally incompetent by a court the executor must file with form_706 either - a certification from a qualified physician stating that the decedent was mentally incompetent at all times on and after date and did not regain competence to modify or revoke the terms of the trust or will prior to his or her death or sufficient other evidence demonstrating that the decedent was mentally incompetent at all times on and after date as well as a statement explaining why no certification is available from a physician sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been met consequently we grant an extension of time of days from the date of this letter for filing the required physician’s certification the physician’s certification should be attached to a supplemental form_706 for decedent the form_706 should be filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should also be attached to the supplemental form_706 a copy of this letter is enclosed for this purpose in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives 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 specifically we express no opinion as to whether decedent was under a mental_disability within the meaning of sec_26_2601-1 on and after date resolution of this factual matter would be under the audit jurisdiction of the area director 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 plr-146644-09 the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs and special industries by _________________________ leslie h finlow acting senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


department of the treasury internal_revenue_service washington d c mar tax_exempt_and_government_entities_division uniform issue list ep qa j legend taxpayer a ira b financial_institution c account dear i this is in response to your request for a private_letter_ruling dated date as supplemented by correspondence dated january and date from your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that he received a distribution of amount from ira b taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to taxpayer a's ongoing medical_condition which impaired his ability to manage his financial affairs taxpayer a further represents that amount has not been used for any other purpose taxpayer a maintained ira b with financial_institution c since as the result of an assault taxpayer a has been suffering from memory and impulse issues in addition in early taxpayer a suffered concussions page on date days after his second concussion taxpayer a took a distribution of amount from ira b taxpayer a deposited amount ira account during a meeting with his certified_public_accountant in july taxpayer a was unable to articulate the reason he withdrew amount from ira b on date amount was redeposited into ira b after the expiration of the 60-day rollover period in a non- coinciding with the distribution taxpayer a was dealing with his and several members of his family’s medical problems the ruling_request is accompanied by letters from taxpayer a’s physicians which describe taxpayer a’s state of confusion and emotional and mental stress they conclude that due to the combined effect of his three concussions and the strain caused by his family’s medical issues taxpayer a lacks the full ability to properly recall dates times and details of events and therefore is incapable of making simple decisions and managing his financial affairs based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such page receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a are consistent with his assertion that his failure to accomplish a timely rollover of amount was due to taxpayer a's ongoing medical_condition which impaired his ability to manage his financial affairs therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira b provided all other requirements of sec_408 of the code except the 60-day requirement were met with respect to the contribution of amount into ira b on date such contribution will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code on page no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter_ruling has been sent to your authorized representative pursuant to a power_of_attorney on file in this office this ruling please contact i d if you wish to inquire about at or sincerely yours cotte a webhrs manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


internal_revenue_service number release date index number ------------------- ------ ---------------------------------------- ---------------- ----------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ---------------- telephone number ------------------ refer reply to cc corp br plr-125468-15 date date ty ------ legend ---------------------------------------- -------------------------------- ---------------------- -------------------------------------- --------------------------------------------------------------------------------- -------------------- ---------------------- ----------------------------------- ---------------------------------------- ---------------------- ------------------------------------------------------------- ---------------------------------------------------------------- ---------------------- -------------------------------------- ---------------------------------------------------------------- ---------------------- --------------------------------------------------------------------------------- -------------------------------------------------------------- ---------------------- distributing controlled fsub1 fsub2 fsub3 fsub4 fsub5 ---------------------------------------------------------------- -------------------------------------------------------------------- ---------------------- plr-125468-15 fde1 ----------------------------------------------------------------- ------------------------------------------------------------------- ---------------- ---------------------- fde2 fde3 fde4 fde5 fde6 fde7 ------------------------------------------------------------ ----------------------------------------------------------------------- ---------------------- ------------------------------------------------------------ ------------------------------------------------------------------------ ---------------------- ------------------------------- ----------------------------------------------------------------------- ---------------------- ------------------------------------------------------ ---------------------------------------------------------------------- --------------------- ----------------------- -------------------------------------------------- ------------------------------------------------------------------------ ---------------------- ------------------------------------------------------ ----------------------------------------------------------------------- ---------------------- llc ---------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------------- ---------------------- ------------------------- ----------------------------- ---------------------- ussub1 ussub2 --------------------------------------------------------- ----------------------------- ---------------------- plr-125468-15 state x country a country b country c country d country e country f country g business a ------------- ------------ ----------- ---------------- --------- --------------------- ------------- ------- ------------------------------------------------------------------------------ ------------------------------------------------------------------ business b --------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- --------- --------------------------------------------------- dear --------------- this letter responds to your authorized representatives’ letter dated date requesting rulings on certain federal_income_tax consequences of a proposed transaction the proposed transaction the information provided in that letter and in later correspondence is summarized below 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 this letter and the ruling contained herein are issued pursuant to section dollar_figure of revproc_2015_1 2015_1_irb_1 regarding a significant issue under sec_355 and only addresses a discrete legal issue involved in the transaction this office expresses no opinion as to the overall tax consequences of the transaction described in this letter or as to any issue not specifically addressed by the ruling below plr-125468-15 facts distributing is a state x corporation that is publicly traded and is the common parent of an affiliated_group the includible corporations of which join in the filing of a consolidated federal_income_tax return distributing wholly owns fsub1 a country a entity treated as a corporation for federal_income_tax purposes and llc fsub1 wholly owns fsub2 a country b entity treated as a corporation for federal_income_tax purposes fsub2 owns fde1 a country c entity treated as a disregarded_entity for federal_income_tax purposes a disregarded_entity fde2 a country d disregarded_entity and fde5 a country e disregarded_entity fde1 and fde2 cumulatively own all of the interests in fde3 a country d disregarded_entity fde3 wholly owns fde4 a country d disregarded_entity fde4 wholly owns fsub3 a country d corporation fsub3 wholly owns fde6 a country f disregarded_entity fde6 wholly owns fde7 a country g disregarded_entity fde6 also wholly owns fsub4 a country g corporation llc wholly owns ussub1 ussub1 wholly owns ussub2 ussub2 wholly owns fsub5 a country f corporation distributing has been engaged in the conduct of business a and business b proposed transaction distributing is entering into the proposed transaction in order to separate business a from business b in country g the relevant steps of the proposed transaction are set forth below i ii iii iv distributing will form controlled fde7 and fsub4 will distribute cash and or reserves to fde6 under country g law fde6 will contribute all of the shares of fsub4 to fde7 in exchange for additional shares in fde7 fde7 will elect to be regarded as a corporation for federal_income_tax purposes fde6 will sell the shares of fde7 to fsub5 in exchange for an unsecured interest-bearing note with a principal_amount equal to the fair_market_value of percent of the shares of fde7 the note plr-125468-15 v vi fde will distribute the note through the corporate ownership chain through each intermediary holding_company to distributing in a series of distributions as follows a fde6 will distribute the note to fsub3 b fsub3 will distribute the note to fde4 c fde4 will transfer the note to fde5 in partial payment of pre-existing debt owed by fde4 to fde5 d fde5 will distribute the note to fsub2 e fsub2 will distribute the note to fsub1 f fsub1 will distribute the note to distributing distributing will contribute the note down through the corporate ownership chain through each intermediary company to fsub5 in a series of contributions as follows a distributing will contribute the note to llc for no consideration b llc will contribute the note to ussub1 for no consideration c ussub1 will contribute the note to ussub2 for no consideration d ussub2 will contribute the note to its wholly owned subsidiary fsub5 in exchange for additional shares in fsub5 which it already wholly owned the note in the hands of fsub5 will be cancelled vii distributing will contribute llc to controlled viii distributing will distribute the stock of controlled to distributing’s shareholders representations a the note issued as part of the proposed transaction by fsub5 to fde6 will not constitute stock_or_securities for federal_income_tax purposes b steps iv v and vi will each occur pursuant to a binding commitment ruling based solely on the information submitted and the representations set forth above we rule that for federal_income_tax purposes the transactions described in steps iv through vi are circular and therefore disregarded for federal_income_tax purposes see revrul_77_191 1977_1_cb_94 revrul_57_311 1957_2_cb_243 and revrul_83_142 1983_2_cb_68 accordingly the transaction in steps iv through vi will be treated as if a fsub3 distributed the shares of fde7 to fsub2 b fsub2 distributed the shares of fde7 to fsub1 plr-125468-15 c fsub1 distributed the shares of fde7 to distributing d distributing contributed the shares of fde7 to ussub1 e ussub1 contributed the shares of fde7 to ussub2 f ussub2 contributed the shares of fde7 to fsub5 caveats except as expressly stated in the ruling section 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 procedural statements 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _mark j weiss_______ mark j weiss chief branch office of associate chief_counsel corporate cc


internal_revenue_service department of the treasury number release date index number 468a 468a washington dc person to contact telephone number refer reply to cc psi 6-plr-112185-02 date date re request for a revised schedule of ruling amounts taxpayer utility parent subsidiary plant location commission fund dear this letter responds to the request of taxpayer dated date and supplemental information as submitted by taxpayer for a revised schedule of ruling amounts in accordance with sec_1_468a-3 and sec_1_468a-6 of the income_tax regulations the request is the result of the commission decreasing the decommissioning costs utility was previously granted a revised schedule of ruling amounts by letter dated date information was submitted in accordance with sec_1_468a-3 taxpayer owns percent of the plant which is situated in location the proposed method of decommissioning the plant is prompt removal dismantling the license for the plant expires on on the commission issued order no approving an increase in the annual decommissioning costs included in cost of service for the plant plr-112185-02 to dollar_figure this increase was due to the completion of an independent site-specific study of the taxpayer’s plant for decommissioning purposes the nuclear regulatory commission nrc permits utilities to use such studies in place of its generic decommissioning formulas which were used previously in calculating the decommissioning cost for taxpayer on the utility entered into a settlement agreement before the commission that specified the framework for deregulation of the utility’s electric generation business this agreement also provides for the collection and recovery_of decommissioning costs relating to deregulated nuclear generation assets as part of the utility’s unbundled delivery service rates as part of that settlement agreement annual decommissioning costs for the plant were reduced to dollar_figure on utility transferred the plant the qualified nuclear decommissioning trust funds and its rights to recover decommissioning costs to taxpayer in exchange for the stock of taxpayer pursuant to a tax-free reorganization that qualified under sec_355 and sec_368 of the code the utility then distributed the stock of taxpayer to parent parent then contributed the stock of taxpayer to subsidiary all the parties involved are members of the same consolidated_group in connection with this restructuring parent taxpayer and utility received a private_letter_ruling from the internal_revenue_service dated date plr which stated in part that following the transfer of the plant and nuclear decommissioning funds to taxpayer taxpayer will be considered as the eligible_taxpayer and electing taxpayer with respect to the nuclear decommissioning funds as a result taxpayer may make deductible contributions to its qualified nuclear decommissioning funds in an amount consistent with sec_468a of the code and the regulations thereunder this ruling was expressly conditioned on the utility receiving an order from the commission requiring that it collect decommissioning costs as an agent for the taxpayer and pay all such collections to the taxpayer and on the continued direct or indirect ownership of the taxpayer by parent or subsidiary the estimated cost of decommissioning the plant is dollar_figure dollars which includes percent of the cost of decommissioning the isfsi which is equally shared with the estimated future cost of decommissioning the plant escalated at percent annually is dollar_figure dollars the funding_period and levelized funding limitation period began on plr-112185-02 and ends on the assumed after-tax rate of return to be earned on the assets of the fund is percent the estimated date on which the plant will no longer be included in taxpayer’s rate base is pursuant to the utility’s previous election under sec_1_468a-8 of the regulations the estimated period for which the fund will be in effect is years through and the estimated_useful_life of the plant is years through therefore the qualifying percentage is percent no proceedings are pending before the commission that may result in an increase or decrease in the amount of decommissioning costs for the plant to be included in taxpayer's cost of service for ratemaking purposes sec_468a of the code provides that a taxpayer may elect to deduct the amount of payments made to a qualified nuclear decommissioning fund however sec_468a limits the amount_paid into the fund for any_tax year to the lesser_of the amount of nuclear decommissioning costs allocable to the fund that is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to that year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code defines the term nuclear_powerplant as including any unit thereof sec_1_468a-1 of the regulations further defines the term nuclear power plant as any nuclear power reactor that is used predominantly in the trade_or_business of the furnishing or sale of electric energy if the rates for such furnishing or sale as the case may be have been established or approved by a public_utility commission each unit ie nuclear reactor located on a multi-unit site is a separate nuclear power plant plr-112185-02 sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the tax_year if the payment is made on account of this tax_year within months after the close of the tax_year sec_1_468a-1 of the regulations provides in part that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 is a taxpayer that has a qualifying interest in a nuclear power plant as defined under sec_1_468a-1 a qualifying interest is among other things a direct ownership_interest including an interest held as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides in part that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such tax_year ii or the ruling_amount applicable to the nuclear decommissioning fund for such tax_year sec_1_468a-3 of the regulations generally provides in part that a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of sec_1_468a-3 each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission s in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes taking into account amounts that are otherwise required to be included in the taxpayer’s income under sec_88 of the code and the regulations thereunder thus for example each schedule of ruling amounts shall be based on the public_utility commission’s reasonable assumptions concerning i the after-tax rate of return to be earned by the amounts collected for decommissioning ii the total estimated cost of decommissioning the nuclear power plant and iii the frequency of contributions to the nuclear decommissioning fund for a tax_year under sec_1_468a-3 of the regulations the service shall provide a schedule of ruling amounts that is identical to the schedule proposed by the taxpayer plr-112185-02 but no such schedule shall be provided unless the taxpayer’s proposed schedule is consistent with the principles and provisions of sec_1_468a-3 sec_1_468a-3 of the regulations provides that the ruling_amount specified in a schedule of ruling amounts for any_tax year in the level_funding limitation period shall not be less than the ruling_amount specified in such schedule for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the tax_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer’s share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides in part that the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning the plant multiplied by the taxpayer’s qualifying interest in the plant sec_1_468a-3 of the regulations provides that the qualifying percentage for any nuclear decommissioning fund is equal to the fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable nuclear power plant under the special elective transition rule_of sec_1_468a-8 of the regulations for purposes of sec_1_468a-3 the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the taxable_year that includes the date that the nuclear power plant began commercial operations or the first day of the taxable_year that includes date under the special elective transition rule_of sec_1_468a-8 for purposes of section plr-112185-02 468a-3 d ii and iii the estimated period for which the nuclear decommissioning fund is to be in effect and the estimated_useful_life of the nuclear plant both end on the earlier of the last day of the taxable_year in which it is estimated that decommissioning will begin or the last day of the taxable_year that includes the expiration date of the nuclear regulatory commission operating license as in effect on date without regard to any extensions or amendments thereto sec_1_468a-3 of the regulations provides that for purposes of sec_1_468a-3 and iii the estimated date on which the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer’s rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer’s rate base sec_1_468a-3 of the regulations provides that the service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant to which the nuclear decommissioning fund relates has determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 of the regulations enumerates the information required to be submitted by a taxpayer in order to receive a ruling_amount for any_tax year sec_1_468a-3 of the regulations provides that a taxpayer is required to request a revised schedule of ruling amounts for a nuclear decommissioning fund if a any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by a nuclear power plant to which the nuclear decommissioning fund relates increases the proposed period over which decommissioning costs of the nuclear power plant will be included in cost of service for ratemaking purposes adjust the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes or reduces the amount of decommissioning costs to be included in cost of service for any taxable_year and b the taxpayer’s most recent request for a schedule of ruling amounts did not provide notice to the service of the action by the public_utility commission plr-112185-02 sec_1_468a-3 of the regulations provides that any taxpayer that has obtained a schedule of ruling amounts pursuant to sec_1_468a-3 can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 thus the service shall not provide a revised ruling_amount applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sec_1_468a-6 generally provides rules for the transfer of an interest in a nuclear power plant and transfer of the qualified_fund where after the transfer the transferee is an eligible_taxpayer under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a sec_1_468a-6 of the regulations provides that a transferee of a qualifying interest in a nuclear power plant must file a request for a revised schedule of ruling amounts with respect to that interest on or before the deemed payment deadline for the first taxable_year of the transferee beginning after the disposition see sec_1_468a-2 if the transferee does not timely file such a request the transferee’s ruling_amount with respect to that interest for the affected year or years will be zero unless the internal_revenue_service waives the application of sec_1 468a- e ii upon a showing of good cause for the delay sec_1_468a-7 of the regulations provides in general that an eligible_taxpayer is allowed a deduction for the taxable_year in which the taxpayer makes a cash payment or is deemed to make a cash payment to a nuclear decommissioning fund only if the taxpayer elects the application of sec_468a a separate election is required for each nuclear decommissioning fund and for each taxable_year with respect to which payments are to be deducted under sec_468a in the case of an affiliated_group_of_corporations that join in filing a consolidated_return for a taxable_year the common parent must make a separate election on behalf of each member whose payments to a nuclear decommissioning fund during such taxable_year are to be deducted under sec_468a the election under sec_468a for any taxable_year is irrevocable and must be made by attaching a statement election statement and a copy of the schedule of ruling amounts provided pursuant to the rules of sec_1_468a-3 to the taxpayer's federal_income_tax return or in the case of an affiliated_group_of_corporations that join in filing a consolidated_return the consolidated_return for such taxable_year the return to which the election statement and a copy of the schedule of ruling amounts is attached must be filed on or before the time prescribed by plr-112185-02 law including extensions for filing the return for the taxable_year with respect to which payments are to be deducted under sec_468a we have examined the representations submitted by the taxpayer based solely on these representations we reach the following conclusions the taxpayer has a qualifying interest in the plant and therefore will be treated as an eligible_taxpayer under sec_1_468a-1 and of the regulations as required by sec_1_468a-3 of the regulations the commission has authorized decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes this authorization is effective only during such period as the utility is authorized to collect decommissioning costs and is obligated to pay such amounts to the taxpayer the taxpayer was eligible for and properly elected the special transition_rules of sec_1_468a-8 of the regulations the taxpayer’s qualifying percentage under sec_1_468a-3 is percent the taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by the commission and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund based on the above determinations we conclude that the taxpayer’s revised schedule of ruling amounts satisfies the requirements of sec_468a of the code approved schedule of ruling amounts tax years through year amount dollar_figure plr-112185-02 each year through approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time this ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts under sec_1_468a-3 the taxpayer is required to file such a request on or before the deemed payment deadline date for the first tax_year in which the rates reflecting such action became effective in addition approval of the schedule of ruling amounts is expressly conditioned on the continued existence of the commission order requiring that the utility collect decommissioning costs as an agent for the taxpayer and pay all such collections to the taxpayer and on the continued direct or indirect ownership of the taxpayer by parent or subsidiary the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code as stated above payments made to the fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to the fund or the ruling amounts applicable to the fund in the tax_year further approval of the schedule of ruling amounts is contingent on the continued direct or indirect ownership and control of taxpayer by the parent or its subsidiary except as specifically set forth above no opinion is expressed concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations in particular no opinion is expressed or implied concerning whether the collection of decommissioning costs by the utility and payment of those collections to the taxpayer is includible in the gross_income of and deductible by any entity other than the taxpayer this letter_ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that this ruling may not be used or cited as precedent pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer’s federal_income_tax plr-112185-02 return for each tax_year in which the taxpayer claims a deduction for payments made to the fund copies of this letter are being sent to your authorized representatives and to the industry director natural_resources lm nr sincerely yours peter c friedman senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries cc


office_of_chief_counsel internal_revenue_service memorandum number release date cc intl b03 bafelker postu-123423-12 uilc date date to fred savaglio supervisory internal revenue_agent large business international international business compliance west territory from barbara a felker chief branch office of the associate chief_counsel international subject treatment under sec_482 and sec_901 of transactions with foreign branches or disregarded entities this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issues this non-taxpayer-specific chief_counsel_advice addresses the proper reporting of u s taxable_income and the proper standard for determining the compulsory amount of creditable_foreign_taxes imposed with respect to transactions between a u s_corporation and its foreign disregarded_entity de or unincorporated branch operation branch and between a u s_corporation and an affiliated u s corporation’s foreign_branch or de law and analysis transactions between a foreign_branch or de and its u s tax owner a foreign de is treated as a foreign_branch for u s tax purposes see sec_301_7701-3 all of the income of a foreign_branch or de is included in the taxable_income of its owner for u s tax purposes regardless of whether any of the income is remitted to the owner in the year earned transactions between a foreign_branch or de and its owner do not give rise to offsetting amounts of income or expense for u s tax purposes rather postu-123423-12 such transactions and therefore the resulting interbranch payments are generally disregarded for tax purposes although a payment from the foreign_branch or de to its owner may be treated as a branch remittance requiring recognition of currency gain_or_loss under sec_987 the arm’s length standard is a regulatory implementation of the authority under sec_482 to clearly reflect income attributable to the pricing of transactions between controlled taxpayers see sec_1_482-1 because a foreign_branch or de and its owner are treated as a single entity and transactions between them do not give rise to income or expense for u s tax purposes an application of the arm’s length standard of the sec_482 regulations to such disregarded transactions would not affect the amount of taxable_income the u s owner recognizes for u s tax purposes and so generally is not meaningful for u s tax purposes however as discussed below u s transfer_pricing principles may be relevant in determining whether non- arm’s length transfer prices in transactions between a foreign_branch or de and its u s owner result in noncompulsory payments of foreign tax that are not eligible for a u s foreign_tax_credit to the extent foreign tax law as modified by tax_treaties to which the foreign_country is a party includes similar arm’s length principles as most do transactions between a foreign_branch or de of a member of a u s consolidated_group and another member a transaction between a foreign_branch or de of a member of a consolidated_group and another member of the same group is a transaction between related parties that has effect for u s tax purposes sec_482 applies to these intercompany_transactions as well as to transactions between members of a controlled_group that are not members of the same consolidated_group such as between a domestic_corporation and its controlled_foreign_corporation cfc however sec_482 adjustments to such intercompany_transactions generally will not have current tax effects as discussed below transactions between members of a consolidated_group are intercompany_transactions subject_to sec_1_1502-13 under that regulation the amount and location of intercompany items are determined on a separate_entity basis but the timing character source and other attributes of the intercompany items and corresponding items are adjusted to produce the effect of transactions between divisions of a single corporation see eg sec_1_1502-13 and sec_1_1502-13 examples source_of_income from intercompany sales of inventory and timing source and character of gain on sale of cfc in addition sec_864 and the regulations under that section often operate to eliminate the effect of intercompany_transactions in determining the consolidated group’s relative amounts of u s and foreign source gross_income and the allocation of the corresponding intercompany expense in determining the group’s foreign_tax_credit limitations under sec_904 see eg sec_1_861-11t intercompany interest_income is included in the same class_of_gross_income as that from which the borrower deducted the interest_expense sec_1 14t c i interaffiliate stock and loans gross_income or sales are eliminated in postu-123423-12 determining apportionment fractions for expenses apportioned on the basis of group- wide assets gross_income or sales respectively as a result adjustments to the transfer price of a transaction between a u s_corporation and another consolidated_group member’s foreign_branch or de generally would result in offsetting amounts of gross_income and expense or adjustments to amounts attributable to intercompany_transactions that are not currently taken into account for u s tax purposes such transfer_pricing adjustments would not change the total amount of worldwide taxable_income recognized by the u s consolidated_group in the year to which the transfer_pricing adjustments relate moreover such adjustments generally would not affect the relative amounts of the group’s u s and foreign source gross_income or the relative amounts of the group’s deductible expenses and losses that are allocated and apportioned to u s and foreign source gross_income for example assume that in year domestic_corporation s sells inventory with a dollar_figure cost_of_goods_sold for a transfer price of dollar_figure to a foreign de of b another member of s’s consolidated_group and the de then sells the inventory outside the group for dollar_figure under sec_1_1502-13 the source of the group’s total dollar_figure of gross_income dollar_figure gross_receipts - dollar_figure cost_of_goods_sold will be redetermined to produce the same effect as if s and b were divisions of a single corporation that did not recognize taxable_income or loss on the dollar_figure intercompany sale accordingly the group’s dollar_figure of gross_income recognized in connection with the sale of inventory outside the group will have the same source regardless of whether the arm’s length intercompany sales_price between s and b is dollar_figure or a different amount as noted above a payment from a foreign_branch or de to its tax owner may be treated as a branch remittance that may require an owner to recognize currency gain_or_loss under sec_987 however transactions between a foreign_branch or de and another member of the consolidated_group that includes the owner of the foreign_branch or de generally do not result in remittances requiring recognition of currency gain_or_loss under sec_987 although they may affect the portion of the total profit or loss taken into account by each member noncompulsory foreign tax_payments transactions that are generally disregarded for u s tax purposes because they occur between entities that are disregarded as separate entities from one another may nevertheless significantly impact foreign taxes for example a foreign de that is party to a transaction may be treated for foreign tax purposes as a corporation separate from its counterparty in the transaction the primary concern raised by non-arm’s length transfer prices in these disregarded transactions is generally not the under-reporting of u s taxable_income because as detailed above the total amount of u s taxable_income in the year of the interbranch or intercompany_transaction is not affected by an adjustment to the amount of the transfer price rather the primary concern is often that through the use of a non-arm’s length transfer price the u s taxpayer operating through a foreign_branch or its de may report too much income to the foreign_country or countries in which it operates resulting in an overpayment of foreign_income_tax similarly a controlled_foreign_corporation in postu-123423-12 one country that operates through a branch or de in a foreign third country may report too much income and overpay its foreign taxes in either its home_country or the third country the legal basis for disallowing credit for overpayments of foreign_income_taxes attributable to non-arm’s length transfer prices in these situations as in the case of transactions between separately regarded entities is not sec_482 but rather the noncompulsory payment rule_of sec_1_901-2 that regulation provides that a foreign tax is not considered paid for purposes of sec_901 to the extent that the amount_paid exceeds the amount of liability under foreign law for tax under the regulation the amount of taxable_income reported on the foreign tax_return must be computed in accordance with a reasonable interpretation of foreign tax law as modified by applicable tax_treaties in the case of a foreign de from a foreign tax law perspective the de is a separately regarded related_entity and thus transactions between the de and its u s tax owner are respected as transactions between related parties the domestic laws of most foreign countries apply arm’s length principles to the pricing of transactions between separately regarded entities in the case of a foreign_branch or partnership certain foreign countries also apply arm’s length transfer_pricing principles in addition certain u s tax_treaties with foreign countries allow u s taxpayers to apply transfer_pricing principles even where the domestic laws of those countries would not otherwise do so in all such cases just as in the case of a transaction between entities that are separately regarded for u s tax purposes if the foreign de branch or partnership fails to use an arm’s length transfer price to compute the income reported on a foreign tax_return it may have overstated the profits subject_to foreign tax and made a noncompulsory payment that is not eligible for a u s foreign_tax_credit under the noncompulsory payment rules as well as sec_905 and the regulations under that section a taxpayer must substantiate that its or its de's foreign tax_return was prepared in accordance with a reasonable interpretation and application of the substantive and procedural provisions of foreign tax law including with reference to applicable tax_treaties in such a way as to reduce over time its reasonably expected liability under foreign law for tax in addition the taxpayer must show that it exhausted all effective and practical remedies including invocation of competent_authority procedures if available to minimize its foreign tax_liability in appropriate cases the service may require the taxpayer to provide translated copies of the foreign law and relevant foreign law authorities as well as opinions of foreign tax law advisors to whom the taxpayer has disclosed the relevant facts to substantiate that it has met this burden once on notice that a higher or lower transfer price should have been reported to reduce the taxable_income reported on the foreign tax_return a taxpayer must act to preserve its administrative remedies under foreign law or treaties to file an amended foreign tax_return reflecting reduced profits and claiming refunds of the overpaid foreign tax the noncompulsory payment rules do not require the taxpayer to waste time and postu-123423-12 money in a futile proceeding but if there is a reasonable prospect of relief the credit may be disallowed if the taxpayer chooses not to pursue it in summary u s transfer_pricing principles may be relevant in determining whether non-arm’s length transfer prices result in noncompulsory payments of foreign tax to the extent foreign tax law as modified by tax_treaties to which the foreign_country is a party includes similar arm’s length principles as most do taxpayers have the burden to establish to the satisfaction of the service that they have properly minimized their creditable_foreign_tax liability by exhausting all effective and practical remedies including resort to competent_authority proceedings where available to reduce over time their liability for foreign tax transactions involving foreign branches or de’s of controlled_foreign_corporations similar issues involving noncompulsory payments of foreign tax may arise in cases involving a controlled_foreign_corporation that is the u s tax owner of a foreign_branch or de where the foreign_branch or de engages in transactions with its tax owner a related but separately regarded controlled_foreign_corporation a united_states_shareholder of the controlled_foreign_corporation tax owner or a united_states_shareholder of a related but separately regarded controlled_foreign_corporation in such cases the application of arm’s length transfer_pricing principles to transactions between the foreign_branch or de and its controlled_foreign_corporation tax owner will not affect the amount of the controlled foreign corporation’s income or earnings_and_profits for u s tax purposes however the application of such principles to transactions between the foreign_branch or de and a related but separately regarded controlled_foreign_corporation a united_states_shareholder of the branch or de’s tax owner or a united_states_shareholder of a related but separately regarded controlled_foreign_corporation may result in adjustments to the income or earnings_and_profits of the controlled_foreign_corporation s and united_states_shareholder s for u s tax purposes in the case of transactions between a foreign_branch or de of a controlled_foreign_corporation and both separately and non-separately regarded entities the foreign_income_taxes at issue are often those paid_or_accrued by the foreign_corporation and included in the computation of foreign taxes deemed paid_by a united_states_shareholder of the foreign_corporation under sec_902 sec_960 or sec_962 the noncompulsory payment rules of sec_1_901-2 including the obligation to exhaust remedies to reduce foreign tax_liabilities over time apply to the same extent to taxes paid_or_accrued by foreign_corporations that may be deemed paid_by their united_states_shareholders taxpayers have the burden to establish to the satisfaction of the service that claims based on deemed-paid credits include only foreign taxes that were properly accrued and paid within the meaning of the applicable regulations see sec_902 sec_902 and sec_905 and sec_1_901-2 sec_1_902-1 sec_1_902-1 and sec_1_905-2 under sec_902 and sec_960 credits for foreign taxes deemed paid are based on multi-year pools of the foreign corporation’s earnings and taxes accumulated in post-1986 taxable years because the united_states_shareholder is eligible to claim a deemed_paid_foreign_tax_credit only in connection with a distribution or postu-123423-12 inclusion from the foreign_corporation the credit must be substantiated in the taxable_year the foreign taxes deemed paid are claimed as a credit without regard to the year or years in which the foreign taxes were paid_or_accrued by the foreign_corporation transactions involving the u s branch or de of a foreign_corporation this cca addresses the determination of creditable_foreign_taxes of u s_corporations or cfcs with foreign des or branches accordingly this cca does not address a foreign corporation’s computation of income that is effectively connected or treated as effectively connected with its conduct_of_a_trade_or_business within the united_states however as is the case with foreign des transactions between a foreign_corporation and its u s branch or de are generally disregarded for u s federal_income_tax purposes foreign_corporations engaged in trade_or_business_within_the_united_states are subject_to tax on gross_income that is effectively connected with their conduct_of_a_trade_or_business within the united_states eci and are allowed deductions that are properly allocated and apportioned to such eci sec_882 sec_1_882-4 because transactions between a branch or de and its owner are typically disregarded for federal_income_tax purposes they do not give rise to eci or to deductions that are properly allocated and apportioned to eci however in limited circumstances disregarded transactions between the foreign home_office of a foreign_corporation and its u s de or u s branch which do not give rise to eci or deductible expenses may nonetheless be given effect for limited u s income_tax purposes for example a transaction between a u s branch and its foreign home_office may affect the determination of the source of certain income derived from sources within and without the united_states see eg sec_1_863-3 sourcing certain inventory sales income by reference to an entity’s books certain u s tax_treaties adopt the oecd's approach to attributing profits to a permanent_establishment and therefore generally compute business profits of a foreign_corporation that are taxable in the united_states by reference to the assets used risks assumed and functions performed by the u s permanent_establishment see eg technical explanation of the protocol done at chelsea on date amending the convention between the united_states of america and canada with respect to taxes on income and on capital done at washington on date as amended by the protocols done on date date date and date and the exchange of notes dated date under the convention between the government of the united_states of america and the government of the united kingdom of great britain and northern ireland for the avoidance of double_taxation and the prevention of fiscal evasion with respect to taxes on income and on capital_gains each providing that the oecd transfer_pricing guidelines will apply by analogy for the purposes of determining the profits attributable to a permanent_establishment under these treaties profits of a u s permanent_establishment may be determined based on all of the permanent establishment's dealings including transactions between a u s permanent_establishment and the foreign_corporation of which it is a part or another branch of the foreign_corporation postu-123423-12 this is true even though such interbranch dealings would not give rise to income gain profits or loss of that foreign_corporation under the code please call if you have further questions with respect to noncompulsory payments of foreign tax or for questions with respect to sec_987 or the computation of effectively-connected income


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person telephone number identification_number employer_identification_number release number release date date date u i l legend m n o m n dear this letter is in reference to the letter from the authorized representative of m in which m requested rulings that neither its formation of n nor m’s restructuring will adversely affect m’s tax exempt status under sec_501 of the internal_revenue_code m is an organization recognized by the internal_revenue_service as exempt from federal_income_tax as a charitable_organization under sec_501 of the code m is a nonprofit membership corporation under state law with members world-wide engaged in charitable and educational activities regarding m and the treatment of n conditions products focusing on the latest scientific and professional information as well as reports on m diagnoses treatment and research and hosts the largest annual international gathering of physicians researchers and academics in the fields of m m also publishes two journals as well as several smaller periodicals over the past several years m’s members have expressed an interest in forming a trade_association business league organization to which m could transfer certain of its activities that are similar to business league activities because of the various limitations imposed on organizations exempt under sec_501 of the code m’s membership determined that the formation of a new organization under sec_501 would allow m to pursue its charitable activities while allowing the new organization to expand the services provided to the m currently conducts activities such as continuing medical education programs and the reorganized system will be established as follows n the new m will serve as the accordingly a new non-stock nonprofit corporation was formed this organization was o will transfer certain activities it has been performing to the new m that are traditionally membership m states that a new organization could also provide new activities designed to improve the common business_interest of its members named n n has been recognized by the service as an exempt_organization described in sec_501 of the code subsequent to the receipt of this ruling m will amend its articles of incorporation to change its name to o to better reflect and symbolize the charitable purposes that it serves in addition n will amend its articles of incorporation to change its name to m so that each of the organizations’ names best reflects their purposes and activities sole corporate member of o and will have the right to appoint and remove the board_of trustees of o the former members of m will become members of the new m the board_of directors of each organization will not be identical but there will be substantial overlap on the boards carried on by trade associations such as member advocacy through lobbying at both the state and federal levels other activities that will be transferred include membership activities such as the collection and processing of dues and the public affairs committee m anticipates that some employees will be provided by o to the new m pursuant to an administrative services agreement on a cost_basis the new m will lease space from an independent party m has stated that the organization exempt under sec_501 of the code will appoint a committee to review all proposed transactions between the sec_501 organization and the sec_501 organization from the standpoint of fairness to the sec_501 organization and consistency with charitable purposes the committee will be charged with protecting the charitable assets of the sec_501 organization described above will adversely affect the tax-exempt status of m as an organization described in sec_501 of the code sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable scientific or educational_purposes provided no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual business_leagues chambers_of_commerce real-estate boards or boards_of_trade not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose m has requested a ruling that neither the formation of n nor the restructuring and transfers sec_501 of the code provides for the exemption from federal_income_tax of sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense and is therefore not to be construed as limited by the separate enumeration in sec_501 of other tax-exempt purposes which may fall within the broad outlines of charity as developed by judicial decisions sec_1_501_c_3_-1 of the regulations provides in part that the term educational as used in sec_501 of the code relates to the instruction or training of the individual for the purpose of improving or developing his capabilities one example is an organization whose activities consist of presenting public discussion groups forums panels lectures or other similar programs sec_1_501_c_6_-1 of the regulations provides that a business league is an association subsequent to the proposed reorganization n the new m will continue to operate as a of persons having some common business_interest the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit it is an organization of the same general class as a chamber of commerce or board_of trade thus its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons business league within the meaning of sec_501 of the code o the old m will continue to operate for charitable and educational_purposes within the meaning of sec_501 the transfer of activities and actions described above will have no adverse effect on a determination of exempt status exempt under sec_501 to act as its parent without jeopardizing its exempt status however the sec_501 organization must not give up control of its charitable and educational_purposes or activities to the sec_501 parent the activities being transferred membership services including collecting and processing of dues member advocacy through lobbying and a public affairs committee do not constitute in and of themselves the charitable or educational_purposes or activities of o accordingly based on the facts and circumstances concerning the proposed transaction we rule that neither the formation of n nor the restructuring and transfers described above will adversely affect the tax-exempt status of m as an organization described in sec_501 of the code an organization exempt under sec_501 of the code may create an organization this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records except as we have specifically ruled herein we express no opinion as to the consequences of this transaction under the cited provisions or under any other provision of the code this ruling is directed only to the organization that requested it sec_6110 of the as provided by section dollar_figure of revproc_2007_4 2007_1_irb_118 comfort letter if there are any questions about this ruling please contact the person whose name and code provides that it may not be used or cited as precedent telephone number are shown in the heading of this letter rulings will not be issued where a transaction is addressed by established precedent enclosure notice sincerely yours debra j kawecki manager exempt_organizations technical group


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend dear we have considered your request for advance approval of your grant-making program under sec_4945 of the internal_revenue_code dated date our records indicate that x was recognized as exempt from federal_income_tax under sec_501 of the code and that it is classified as a private_foundation as defined in sec_509 your letter indicates that x will operate a grant-making program called y the y program will provide educational scholarships to adult working students attending z each academic quarter the primary purpose of the y is to provide and encourage higher education for working adults by helping to lessen the financial burden of going to college the scholarship in the amount of x will be disbursed directly to z on the recipient’s behalf in two increments one installment at the start of the recipient’s second academic quarter and the second installment at the start of the recipient’s third academic quarter the amount of the award may change in the future currently one scholarship will be awarded each academic quarter for each z location the scholarships are publicized in z catalogs at each college location informing the students of the availability of the scholarships the specific criteria used to determine who is eligible for an award includes e the recipient must complete and submit an application e e e e e e e the recipient must be enrolled full-time in a program of study at z the recipient must be a u s citizen or serving have served in the u s military the recipient must have dollar_figure expected family contribution efc as determined under the u s department of education’s ed regulations the recipient’s efc will be determined based on the recipient’s information used to apply for federal student financial aid in his or her first academic year of study at z the recipient must be enrolled full-time in a program of study at z at the time of each disbursement of the y award the recipient must be classified as an independent student under the ed’s federal student financial aid regulations the recipient must be making satisfactory academic progress in his or her program of study at z at the time of each disbursement of the y award a recipient is only eligible to receive one award unless specifically authorized by x any subsequent disbursement s of the y with respect to the recipient will be cancelled if the recipient fails at any time to be enrolled full-time in a program of study at z during the recipient’s first academic year of study at z relatives of members of the selection committee or of x’s officers directors or substantial contributors are not eligible for an award the selection committee is comprised of the trustees of x no direct or indirect benefit accrues to any member of the selection committee if certain potential grantees are selected over others the specific criteria used to select recipients will be the recipient’s information obtained from his or her application including satisfactory academic progress employment experience career objectives financial and personal challenges and positive letters of recommendation the procedures for supervising the scholarship involve payment of the award to z on behalf of the recipient z pursuant to an arrangement with x will apply the award to the recipient’s tuition only if the student meets the criteria at the time of the award and at the time the award is to be applied to his or her tuition at z x agrees to maintain records that include the following i information used to evaluate the qualification of potential grantees ii identification of the grantees including any relationship of any grantee to the private_foundation iii the amount and purpose of each grant and iv all grantee reports and other follow-up data obtained in administering the private foundation’s grant program sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i its grant procedure includes an objective and nondiscriminatory selection process ii such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are excludable from the gross_income of the recipients subject_to the limitations provided by sec_117 of the code this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements