internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp - plr-102748-00 date date in re acquiring target shareholder a shareholder b shareholder c business a business b country a plr-102748-00 date a date b date c date d a b c d e dear this is in reply to your letter dated date requesting that we rule on certain federal_income_tax consequences of a transaction the information submitted in that request and in subsequent correspondence is substantially as set forth below target a country a corporation was engaged in business a target had issued and outstanding a single class of voting common_stock as of date a acquiring a country a corporation engaged in business b owned approximately a percent of target’s outstanding shares shareholder a a u s_corporation owned approximately b percent of target’s outstanding shares shareholder b a u s_corporation owned c percent of target’s outstanding shares shareholder c a country a corporation owned approximately d percent of target’s outstanding shares the employees of target and acquiring owned approximately e percent of target’s outstanding shares target’s remaining shares were widely dispersed among hundreds of shareholders shareholder a and shareholder b were both customers of target for what is represented to be a valid business_purpose target merged into acquiring under the laws of country a on date b in the merger all of target’s shareholders were required to exchange their shares in target solely in exchange for voting common_stock in acquiring following the exchange of shares target dissolved and acquiring succeeded to and became the legal owner of all of the assets of target target’s board_of directors approved the merger on date c and target’s shareholders approved the merger on date d the following representations have been made in connection with the plr-102748-00 transaction a b c d the fair_market_value of the acquiring voting_stock received by each target shareholder was approximately equal to the fair_market_value of the target common_stock surrendered in the exchange acquiring received all of the assets of target and thus acquired at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets held by target immediately prior to the transaction for purposes of this representation amounts paid_by target to dissenters amounts used by target to pay its reorganization expenses amounts paid_by target to shareholders who receive cash or other_property and all redemptions and distributions except for regular normal dividends made by target immediately preceding the transfer are included as assets of target held immediately prior to the transaction during the 5-year period beginning on the date of the transaction there is no plan or intention for acquiring or any person related as defined in sec_1_368-1 to acquiring to acquire with consideration other than acquiring voting_stock acquiring voting_stock furnished in exchange for a proprietary interest in target in the transaction either directly or through any transaction agreement or arrangement with any other person except for cash in lieu of fractional shares paid in the transaction during the 5-year period ending on the date of the transaction i neither acquiring nor any person related as defined in sec_1_368-1 to acquiring will have acquired target stock with consideration other than acquiring voting_stock excluding exchanges by acquiring of target stock for a direct interest in the target enterprise ii neither target nor any person related as defined in sec_1_368-1 determined without regard to sec_1_368-1 to target will have acquired target stock with consideration other than acquiring voting_stock or target stock and iii no distributions will have been made with respect to target stock other than ordinary normal regular dividend distributions made pursuant to target’s historic dividend paying practice either directly or through any transaction agreement or arrangement with any other person except for i certain acquisitions by acquiring of target stock in connection with capital calls and pro_rata stock_dividends and ii acquisitions by shareholder c e the aggregate value of the acquisitions redemptions and distributions described in paragraphs c and d does not exceed percent of the value without giving effect to the acquisitions redemptions and plr-102748-00 f g h i j k l m n o distributions of the proprietary interests in target on date c shareholder a shareholder b target acquiring and to the best of the knowledge and belief of the taxpayer any other shareholder that is a u s citizen or resident will treat the acquisition of target by acquiring as a tax- free reorganization under sec_368 of the internal_revenue_code to the best of taxpayer’s knowledge it is unlikely that any shareholder of target paid an amount for its stock in target that exceeded the fair_market_value of the acquiring voting_stock that such shareholder received in the transaction acquiring has no plan or intention to sell or otherwise dispose_of any of the assets of target acquired in the transaction except for dispositions made in the ordinary course of business target did not distribute any property as part of or as a result of the transaction except in the ordinary course of business pursuant to the plan_of_reorganization the assets of target became the assets of acquiring in addition under the plan_of_reorganization target did not receive any shares of acquiring rather each of target’s shareholders received its proportionate number of acquiring voting shares under the applicable merger procedures the liabilities of target assumed by acquiring and the liabilities to which the transferred assets were subject were incurred by target in the ordinary course of its business following the transaction acquiring will continue the historic_business of target acquiring target and the shareholders of target paid their respective expenses if any incurred in connection with the transaction there was no intercorporate indebtedness existing between acquiring and target that was issued acquired or settled at a discount neither target nor acquiring was an investment_company as defined in sec_368 and iv the fair_market_value of the assets of target transferred to acquiring equaled or exceeded the sum of the liabilities assumed by acquiring plus the amount of liabilities if any to which the transferred assets were subject plr-102748-00 p q r s t u target was not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 the payment of cash in lieu of fractional share interests of acquiring voting_stock was solely to avoid the expense and inconvenience to acquiring of issuing fractional share interests and did not represent separately bargained for consideration the total cash consideration that was paid in the transaction to target shareholders instead of issuing fractional shares of acquiring voting_stock did not exceed percent of the total consideration that was issued in the transaction to target shareholders in exchange for their shares of target stock the fractional share interests of each target shareholder were aggregated and no target shareholder received cash in an amount equal to or greater than the value of one full share of acquiring voting_stock acquiring has not transferred and has no plan or intention of transferring any of the assets received from target in the merger to any of its subsidiaries pursuant to sec_368 target was not a controlled_foreign_corporation within the meaning of sec_957 at the time of target’s merger with and into acquiring or at any time during the year period immediately preceding the merger as part of the merger of target with and into acquiring target did not transfer to acquiring any united_states real_property interests as such term is defined in sec_897 target never has been engaged in a u s trade_or_business within the meaning of sec_882 based solely on the information submitted and on the representations set forth above and on notice_2000_1 2000_2_irb_288 date it is held as follows for federal_income_tax purposes the transaction described above is treated as the transfer by target of substantially_all of its assets to acquiring solely in exchange for acquiring voting_stock and the assumption of the liabilities of target followed by the distribution by target of the acquiring voting_stock to its shareholders in complete_liquidation the acquisition by acquiring of substantially_all of the assets of target in exchange for acquiring voting_stock and the assumption by acquiring of the liabilities of target followed by target's distribution of the acquiring plr-102748-00 voting common_stock in liquidation constitutes a reorganization within the meaning of sec_368 for purposes of this ruling substantially_all means at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets of target target and acquiring are each a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss was recognized by target on the transfer of substantially_all of its assets to acquiring solely in exchange for shares of acquiring voting_stock and the assumption by acquiring of the liabilities of target or on the deemed_distribution of the acquiring voting_stock to target’s shareholders sec_357 sec_361 and sec_361 no gain_or_loss was recognized by acquiring on the receipt of target's assets solely in exchange for shares of acquiring voting_stock sec_1032 the basis of the assets of target in the hands of acquiring is the same as the basis of those assets in the hands of target immediately prior to the transaction sec_362 the holding_period for the assets of target in the hands of acquiring includes the period during which those assets were held by target sec_1223 no gain_or_loss was recognized by the shareholders of target on the exchange of their stock in target for shares of acquiring voting_stock sec_354 the basis of the acquiring voting_stock including any fractional shares interests of stock deemed received received by shareholders of target is the same as the basis of the target stock surrendered in exchange therefor sec_358 the holding_period of the acquiring voting_stock including any fractional share interests of stock deemed received received by shareholders of target includes the holding_period of the target stock surrendered in exchange therefor provided the target stock was held as a capital_asset on the date of the exchange sec_1223 the taxable_year of target ended on the effective date of the transaction sec_1_381_b_-1 of the income_tax regulations and as provided in sec_381 and sec_1 a - acquiring succeeded to and took into account those attributes of target described in sec_381 subject_to the provisions plr-102748-00 and limitations specified in sec_381 sec_382 sec_383 and sec_384 if applicable and the regulations thereunder pursuant to sec_381 and sec_1_381_c_2_-1 acquiring succeeded to and took into account the earnings_and_profits or deficit in earnings_and_profits of target as of the date of transfer any deficit in earnings_and_profits of either target or acquiring will be used only to offset the earnings_and_profits accumulated after the date of the transfer no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings specifically no opinion is expressed whether any or all of the above-referenced foreign_corporations are passive foreign investment companies within the meaning of sec_1297 of the code and regulations to be promulgated thereunder if it is determined that any or all of the above-referenced corporations are passive foreign investment companies no opinion is expressed with respect to the application of sec_1291 through to the proposed transactions in particular in a transaction in which gain is not otherwise recognized regulations under sec_1291 may require gain recognition notwithstanding any other provision of the code this ruling letter is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated pursuant to the power_of_attorney on file in this office copies of this letter have been sent to the taxpayer and the taxpayer’s representative sincerely yours assistant chief_counsel corporate by charles whedbee senior technical reviewer branch


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom fi p 4-plr-106213-99 date july in re legend date rr taxpayer parent policy a years s b c x y state dear this is in further response to your letter dated date rr and supplemental submissions requesting a ruling that waivers be granted pursuant to sec_101 plr-106213-99 and f of the internal_revenue_code as applicable with regard to the failure of certain contracts to satisfy the guideline_premium_limitation under sec_101 and sec_7702 as applicable a ruling letter ltr was issued to taxpayer on date granting waivers pursuant to sec_101 and sec_7702 as applicable with regard to the failure of x contracts listed in exhibit a of that ruling this ruling letter applies to the y contracts the contracts listed in exhibit of this ruling facts taxpayer represents that it is a stock_life_insurance_company organized and operated under the laws of state and that it is a life_insurance_company within the meaning of sec_816 of the code taxpayer further represents that it is a wholly-owned subsidiary of parent taxpayer represents that parent is a life_insurance_company within the meaning of sec_816 of the code and that taxpayer joins in the filing of a consolidated federal_income_tax return with parent the facts are generally the same as in ltr additional facts that were not stated in ltr and certain particularly relevant facts that were stated in ltr are noted herein this request for waivers relates to policy a flexible premium universal life contracts that were issued by taxpayer in years s policies issued on or before date were intended to comply with sec_101 of the code by satisfying both the guideline_premium_limitation of sec_101 and and the applicable_percentage requirements of sec_101 and c policies issued after date were intended to comply with sec_7702 of the code by both satisfying the guideline premium requirements of sec_7702 and c and falling within the cash_value corridor of sec_7702 and d taxpayer represents that due to an error discussed below premiums_paid with respect to the contracts were accepted in excess of the applicable guideline_premium_limitation and that such excess premiums were not refunded with interest within days of the end of the contract_year in which they were accepted in accordance with sec_101 and sec_7702 of the code whichever was applicable_taxpayer represents that the error causing the contracts to fail to meet the requirements of sec_101 or sec_7702 of the code as applicable was the result of the failure of certain of taxpayer’s computer technicians to correctly implement programming instructions in connection with updates and modifications made to taxpayer’s computerized system for checking compliance with the requirements of sec_7702 the programming instructions to the technicians were based on proper plr-106213-99 interpretations of sec_101 and sec_7702 and the technicians did not misunderstand the instructions hence if taxpayer’s computer system had been programmed in accordance with these instructions the mechanical programming errors would not have occurred however the technicians made certain inadvertent errors in programming into the computer the commands necessary to properly implement the instructions as a result the computerized checking system determined the guideline_premium_limitation for contracts affected by these programming errors to be higher than it should have been one such mechanical programming error which taxpayer represents caused the contracts to fail to meet the requirements of sec_101 or sec_7702 of the code as applicable involved the computer program’s failure to reflect the correct monthly expense charge in the guideline_premium_limitation taxpayer’s computer was instead inadvertently programmed to compute the guideline_premium_limitation using a monthly expense charge equal to the annual amount of the expense charge thus the guideline_premium_limitation reflected an amount allocable to expenses that was twelve times greater than it should have been taxpayer further represents that the contracts would have been in compliance with sec_101 or sec_7702 of the code as applicable but for the mechanical programming error concerning the monthly expense charge all y of the contracts that are the subject of this ruling letter have terminated as a result of the death of the insured further for each of the y contracts as of the date of the insured’s death the sum of the premiums_paid exceeded the contract’s guideline_premium_limitation as of the date in the case of b of the contracts the insured was the policyowner in the case of c of the contracts the beneficiary who was not the insured was the policyowner taxpayer proposes to remedy the failure of the contracts by providing to the beneficiary or beneficiaries under each contract an amount equal to the excess of the sum of the premiums_paid under the contract on the date of the insured’s death over the contract’s guideline_premium_limitation on that date with interest at the policy’s crediting rate taxpayer represents that it will take this action within days of the date of this letter_ruling taxpayer has also represented that it has eliminated the monthly expense charge error from its computer_program for checking compliance with sec_101 and sec_7702 of the code plr-106213-99 law and analysis sec_101 of the code requires a flexible_premium_life_insurance_contract to satisfy either of two tests in order for the death_benefit thereunder to be excludable under sec_101 as the proceeds of a life_insurance_contract a guideline_premium_limitation coupled with an applicable_percentage requirement set forth in sec_101 or a cash_value test set forth in sec_101 sec_101 applies only to flexible premium life_insurance contracts issued before date sec_7702 of the code contains a definition of the term life_insurance_contract for all purposes of the code under sec_7702 in order to be considered a life_insurance_contract for federal tax purposes a contract which is a life_insurance_contract under applicable law must either satisfy the cash_value_accumulation_test set forth in sec_7702 and b or both meet the guideline premium requirements set forth in sec_7702 and c and fall within the cash_value corridor pursuant to sec_7702 and d in general sec_7702 applies to all life_insurance contracts issued after date sec_101 of the code provides that if in order to comply with the requirements of sec_101 any portion of any premium paid during any contract_year is returned by the insurance_company with interest within days after the end of the contract_year then the amount so returned excluding interest will be deemed to reduce the sum of the premiums_paid under the contract during such year similarly sec_7702 of the code provides that if in order to comply with the requirements of sec_7702 any portion of any premium paid during any contract_year is returned by the insurance_company with interest within days after the end of the contract_year then the amount so returned excluding interest will be deemed to reduce the sum of the premiums_paid under the contract during such year sec_101 and sec_7702 of the code provide that the secretary_of_the_treasury may waive a taxpayer’s failure to satisfy the requirements of sec_101 and sec_7702 respectively if the taxpayer establishes to the satisfaction of the secretary that the failure was due to reasonable error and that reasonable steps are being taken to remedy the error the mechanical programming error involving the monthly expense charge was attributable to a human error that was clerical in nature further taxpayer has represented that it has eliminated this error from its computer_program for checking compliance with sec_101 and sec_7702 of the code taxpayer has also as stated above represented that it will promptly refund excess premiums with interest to the beneficiaries of the contracts after consideration of all the facts and circumstances we find that the failure of plr-106213-99 the y contracts to satisfy the applicable_requirements of sec_101 or sec_7702 of the code as set forth in this ruling was due to reasonable error and that taxpayer is taking reasonable steps to remedy the error conclusion taxpayer is granted a waiver under sec_101 and sec_7702 of the code for the failure of the y contracts listed in exhibit to satisfy the applicable_requirements of sec_101 and sec_7702 the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see section dollar_figure of revproc_99_1 1999_1_irb_6 however when the criteria in section dollar_figure of revproc_99_1 i r b pincite are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances a copy of this letter must be attached to any income_tax return to which it is relevant plr-106213-99 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely assistant chief_counsel financial institutions products senior technician reviewer by s donald j drees jr branch plr-106213-99 exhibit


internal_revenue_service number release date index number -------------------------- ------------------------------ --------------------- -------------------------------------- legend 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 intl b01 plr-103263-14 date date parent ------------------------------------------------------------------- --------------------------- foreign corp ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- ----------------------------------------------------------------------- foreign corp ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- ----------------------------------------------------------------------- foreign corp ------- ------------------------------------------------------------------- ----------------------------------------------------------------------- foreign corp ----------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- foreign corp ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- ----------------------------------------------------------------------- foreign corp ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- ----------------------------------------------------------------------- foreign corp ---------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------- plr-103263-14 ------------------------------------------------------------------- domestic sub ------------------------------------------------------------------- ---------------------------------- domestic sub ------------------------------------------------------------------- ------------------------------------- domestic sub ------------------------------------------------------------------- -------------------------------------------- domestic sub ------------------------------------------------------------------- ------------------------------------------ domestic sub ------------------------------------------------------------------- ---------------------------------- domestic sub ------------------------------------------------------------------- --------------------------------------- domestic sub ------------------------------------------------------------------- ------------------------------------- shareholder shareholder shareholder shareholder country x country y country z state a state b treasurer tax professional a ------------------------------------------ ------------------------------------ --------------------------------------------- ---------------------------------------------------- -------------------------- ----------- ------------------ ---------- --------- ------------------------------ --------------------------- plr-103263-14 tax professional b cpa firm tax software date a date b date c date d date e tax_year dear ------------------------------ ---------------------- ----------------------- ---------------------------- ----------------------- ---------------------- -------------------------- -------------------------- -------------------------- ------------------------------------------------- this letter responds to a letter dated date submitted by parent on behalf of the domestic subs requesting an extension of time pursuant to sec_301_9100-3 to file respective forms consent to extend time to assess the branch_profits_tax under regulations sec_1_884-2t and c for the tax_year the rulings contained in this letter are based upon information and representations submitted by the parent 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 parent and domestic subs are domestic corporations organized in state a each domestic sub is in the business of owning commercial real_estate in state a and leasing such real_estate to unrelated third parties parent is a holding_company that holds all of the issued and outstanding shares of the domestic subs parent and domestic subs are members of an affiliated_group_of_corporations that is headed by the parent and that files consolidated federal_income_tax returns form_1120 u s_corporation income_tax return parent timely filed the consolidated form_1120 for the tax_year plr-103263-14 prior to date a the commercial real_estate owned and leased by each domestic sub were owned and leased by respective foreign corps the foreign corps were foreign_corporations organized in country x a country that has not entered into an income_tax treaty with the united_states each foreign corp was owned by the shareholders shareholder is a foreign_corporation organized in country y and shareholder is a foreign individual that is a resident of country z shareholder is a limited_liability_company of state b and shareholder is a limited_liability_company of state a none of the foreign corps is a controlled_foreign_corporation under sec_957 on date a in order to provide more efficient and cost effective operations of the commercial real_estate owned by each foreign corp and to position the real_estate for easier refinancing since the subsequent owner of the commercial real_estate in state a would be a state a corporation rather than a foreign_corporation each foreign corp domesticated into respective domestic subs ie foreign corp domesticating into domestic sub foreign corp domesticating into domestic sub etc under the general corporation law of state a parent represents that the domestication of each foreign corp into a domestic sub on date a qualified as a reorganization under sec_368 shortly after domestication the shareholders contributed their shares in the domestic subs to parent on date b solely in exchange for shares of parent under sec_351 parent represents that all applicable_requirements under sec_1_897-6t sec_1_897-5t sec_1_1445-2 sec_1 b and notice_2006_46 have been satisfied with respect to the transfer of any united_states_real_property_interest pursuant to the domestication of each foreign corp into a respective domestic sub on date a and each shareholder’s contribution of his or its respective shares in the domestic subs to the parent in exchange for shares of the parent on date b the domestication on date a of each foreign corp resulted in a sec_381 transaction as defined by sec_1_884-2t for all tax years prior to date a cpa firm filed forms 1120-f u s income_tax return of a foreign_corporation for each foreign corp to report the income it derived from its commercial real_estate in state a as income effectively connected with the conduct_of_a_trade_or_business within the united_states under sec_882 pursuant to the election of sec_882 and its branch_profits_tax liability if any under sec_884 cpa firm also prepared the form 1120-f for each foreign corp and computed the amount of u_s_net_equity and dividend_equivalent_amount for each foreign corp for the tax_year ending with the domestication on date a in accordance with the provisions of sec_1_884-2t cpa firm included in the form 1120-f filed for each foreign corp a statement to the effect that the respective domestic sub as the transferee of u_s_assets in a section plr-103263-14 a transaction would file form_8848 with the consolidated form_1120 filed by the parent for the tax_year as required by sec_1_884-2 tax professional a the partner in cpa firm who oversaw the preparation of the filed forms 1120-f and the consolidated form_1120 also advised treasurer of parent that each domestic sub would have to file a form_8848 in order for each respective foreign corp to determine its u_s_net_equity in accordance with the provisions of sec_1_884-2t on or about date c tax professional a reviewed the electronic file copy of the consolidated form_1120 filed by parent for the tax_year and realized the forms of each domestic sub were not included as part of that filed return on date d tax professional a met with treasurer and notified her of the noncompliance treasurer stated during this meeting that she specifically recalled discussing the forms and executing those forms as part of the consolidated form_1120 filed by parent for the tax_year on date e tax professional b an employee of cpa firm called the technical support line of the vendor of tax software that cpa firm used for preparing the consolidated form_1120 filed by parent for the tax_year based on discussions tax professional b had with a customer representative of tax software vendor it became apparent that a technical glitch in the tax software prevented the forms from being printed and included at the consolidated_return level the customer representative of the tax software vendor acknowledged the malfunction and would report the issue as a problem the irs did not discover the domestic subs failure to timely file the required statements with the parent’s filed consolidated form_1120 for the tax_year before this request for relief was filed parent on behalf of the domestic subs is now requesting an extension of time pursuant to sec_301_9100-3 to file respective forms for the tax_year to support the foreign corps’ respective determinations of u_s_net_equity for their tax years ending on date a in accordance with the provisions of sec_1 2t c i pursuant to sec_1_884-2t a transferor’s u_s_net_equity as of the close of the taxable_year in which a sec_381 transaction occurs shall be determined without regard to any transfer in that taxable_year of u_s_assets to or from the transferee pursuant to the sec_381 transaction and without regard to any u_s_liabilities assumed or acquired by the transferee from the transferor in that taxable_year pursuant to the sec_381 transaction provided that in the case of a transferee that is a domestic_corporation the transferee files a form_2045 transferee agreement and a waiver of period of limitations with its timely filed including extensions income_tax plr-103263-14 return for the taxable_year in which the sec_381 transaction occurs as required by sec_1_884-2 the waiver shall be executed on form_8848 or substitute form and shall extend the period for assessment of any additional branch_profits_tax for the taxable_year in which the sec_381 transaction occurs to a date not earlier than the close of the sixth taxable_year following the transaction pursuant to sec_1_884-2t the transferor’s effectively_connected_earnings_and_profits and non-previously taxed accumulated_effectively_connected_earnings_and_profits aecep carry over to the transferee under sec_381 and c reduced by the transferor’s dividend_equivalent_amount for the taxable_year in which the sec_381 transaction occurs pursuant to sec_1_884-2t in the case of a domestic transferee distributions out of the transferee’s aecep qualify for treaty benefits only if both the actual distributees the former shareholders of the transferor would qualify for treaty benefits and the foreign transferor would have qualified for treaty benefits if the aecep had been reflected in a dividend_equivalent_amount for the taxable_year in which the sec_381 transaction occurs in addition distributions out of such aecep retain their character in the hands of any domestic distributee up a chain of corporate shareholders for purposes of applying this rule see sec_1_884-2t for additional information regarding distributions to a foreign_distributee out of aecep and other_earnings_and_profits of the domestic transferee sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the standards set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides standards for extensions of time for making regulatory elections when the deadline for making the election is other than a due_date prescribed by statute sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-103263-14 in the present situation sec_1_884-2 fixes the time to file form_8848 therefore the commissioner has discretionary authority under sec_301 c to grant the domestic subs an extension of time provided that the domestic subs as the transferees in a sec_381 transaction under sec_1_884-2t and foreign corps as the transferors in a sec_381 transaction under sec_1_884-2t satisfy the standards set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that the domestic subs and foreign corps satisfy sec_301_9100-3 accordingly the domestic subs are granted an extension of time until days from the date of this ruling letter to file their respective forms for the tax_year the forms must be filed by attachment to an amended consolidated federal tax_return filed by the parent for the tax_year and individually marked filed pursuant to sec_301_9100-3 at the top a copy of this letter must also be attached to such amended consolidated federal tax_return filed by the parent the granting of an extension of time is not a determination that the foreign corps are otherwise eligible to determine their respective amounts of u_s_net_equity in accordance with the provisions of sec_1_884-2t for their tax years ending on date a sec_301_9100-1 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely elizabeth k karzon chief branch international


department of the treasury internal_revenue_service washington d c date number release date uil cc ebeo wta-n-119639-99 memorandum for clarence walker program analyst collection op co c ie from subject jerry e holmes chief cc ebeo does joint_and_several_liability apply to fica tax on unreported tips this is in response to your inquiry of date concerning whether joint_and_several_liability applies to unpaid fica tax because this memorandum will be forwarded to a field_office it constitutes conduit chief_counsel_advice and is subject_to the disclosure provisions of code sec_6110 question in a case where a husband and wife have filed a joint federal_income_tax return do the spouses have joint_and_several_liability for the employee fica_taxes of one spouse that are attributable to unreported tips brief answer joint_and_several_liability does not apply to unpaid employee fica tax on unreported tips joint_and_several_liability arises when a joint_return is filed sec_6013 a joint_return may be made with respect to income taxes under subtitle a of the code sec_6013 fica tax is an employment_tax imposed by subtitle c hence joint_and_several_liability does not apply to employee fica tax law and analysis code sec_6013 provides that a husband and wife may make a single return jointly of income taxes under subtitle a sec_6013 provides that if a joint_return is made the liability with respect to the tax shall be joint_and_several wta-n-119639-99 sec_3101 imposes fica tax on the income of employees as a percentage of wages fica_taxes are not income taxes under subtitle a but employment_taxes under subtitle c employers of tipped employees withhold and pay employee fica tax on tips under rules which are specific to tip_income sec_6053 requires tipped employees to report tips which are wages to their employers in written statements the employers are required to withhold and pay the employee portion of the fica tax only on tips which are reported pursuant to sec_6053 and only to the extent of the employee wages excluding tips under their control sec_3102 sec_3102 of the code imposes a liability on the employee to pay the employee’s fica tax if the employee has tip_income that was not reported to the employer sec_31_6011_a_-1 of the employment_tax regulations provides that an employee shall file a form_1040 for the calendar_year in respect of the tax imposed on tips by sec_3101 of the code that cannot be collected by the employer sec_3121 defines all tips received by an employee as remuneration for employment and deems unreported tips to be paid at the time received thus for employment_tax purposes tipped employees are required to report unreported tips for the taxable_year in which they are received revrul_95_7 1995_1_cb_185 states that the employee is liable for the employee portion of the fica tax on unreported tips the employee pays the employee portion of the fica tax by completing form_4137 social_security_tax on unreported tip_income and filing it with form_1040 u s individual_income_tax_return revrul_79_39 1979_1_cb_435 states that the income_tax imposed by sec_1 and the fica tax imposed by sec_3101 are separate and distinct taxes the requirements for filing a return apply separately to each class of tax even though provision has been made for reporting both classes of tax on form_1040 form_4137 on which unreported tip_income must be reported for social_security_tax purposes is an attachment to form_1040 form_4137 constitutes the fica tax_return for purposes of the statute_of_limitations while there are no cases or revenue rulings dealing directly with joint_and_several_liability for employee fica tax it is an established principle that fica tax_liability applies to the wages of the employee who earned them revrul_71_116 1971_1_cb_277 holding that fica tax applies to the wages of the spouse who earned them regardless of the fact that the wages are community_property under state law similarly even in community_property states seca_tax applies to the wta-n-119639-99 net_earnings_from_self-employment of the spouse carrying on the trade_or_business revrul_82_39 1982_1_cb_19 under sec_6013 a husband and wife who file a joint_return are jointly liable only for the income taxes imposed by subtitle a the employee fica tax is an employment_tax imposed by subtitle c thus it is not a tax with respect to which the service may impose joint liability on a husband and wife conclusion under these facts sec_6013 imposes joint liability only with respect to income taxes spouses are individually liable for employee fica tax on tips


internal_revenue_service department of the treasury cid number release date index no washington dc person to contact identifying number telephone number refer reply to cc dom it a - plr-100146-00 date date legend taxpayer b c dear this responds to your request of date for a private_letter_ruling that taxpayer's business_expense reimbursement program satisfies the substantiation requirements of sec_274 and the accountable_plan requirements of sec_62 of the internal_revenue_code facts the facts are represented to be as follows taxpayer is a c that provides a diverse range of services and products taxpayer uses a business_expense reimbursement program the current program under which b provides a business charge card to taxpayer's employees who are likely to incur business_expenses each card is issued in the individual employee's name and may be used for business purposes only the employee may charge business travel and entertainment_expenses to the charge card use the card to obtain cash advances at automatic teller machines to pay for business travel and entertainment_expenses or pay for such expenses with the employee's own funds employees who use the business charge card receive a monthly billing statement from b and are personally responsible for the charges billed as well as any late payment charges if an employee has submitted an expense report to taxpayer taxpayer will pay the charges for expenses but not for late payment to b directly within a reasonable_time after an employee incurs a business travel or entertainment expense the employee must submit an expense report to taxpayer the expense report must provide in detail information about the elements of each expenditure for expenditures_for travel the expense report must show the business_purpose of the trip the amount of each separate expenditure the travel dates and the travel locations for expenditures_for entertainment the expense report must show the business_purpose of plr-100146-00 the entertainment including the business activity conducted the identity of the person or persons entertained sufficient to establish a business relationship with taxpayer the amount of each expenditure and the date place and type of entertainment if not apparent from the place of entertainment if the entertainment immediately precedes or follows a business_discussion the expense report must also show the date place nature and identify of the persons participating in the business_discussion an employee may enter an expense report on-line through a computer terminal or mail it to the processing location the employee must also submit paper receipts for all expenditures of dollar_figure or more and all expenditures_for lodging an employee who misrepresents the amount or nature of a business_expense violates taxpayer’s business code of ethics and is subject_to immediate dismissal each expense report must be reviewed and approved for payment by the employee’s manager one of the manager’s primary responsibilities is to ensure that the charges are appropriate for the work performed are charged to the correct matter or department and are consistent with taxpayer’s reimbursement guidelines after approval by the manager the expense report is reviewed by taxpayer’s expense reimbursement processing department which verifies that the business_purpose for and amount of each expense above a certain defined threshold is reasonable if the business_purpose is unclear or questionable the employee is notified and reimbursement is suspended an expense amount that exceeds the lower_of two defined thresholds is questioned and reimbursement is suspended if the amount exceeds the higher threshold if the employee’s travel and entertainment_expenses are supported by the expense report and receipts taxpayer will pay b directly for expenses_incurred with the charge card or cash advances used for these expenses and will reimburse the employee for expenses paid from the employee’s own funds if cash advances or charges exceed substantiated expenses the employee alone is responsible to pay b for the excess after reimbursement taxpayer’s internal audit department audits expense reports on a random basis or as the result of certain triggering factors the random audits are conducted of a representative sampling of reports and on a statistically sound basis the triggering factors include a large dollar amount either on a single expense report or on multiple reports from the same employee a past pattern of errors or that the employee’s department has exceeded its expense budget if an audit determines that an expense is excessive the employee and or the employee’s manager is asked for additional information if the auditors conclude that the expense is not justified the employee will be required to repay taxpayer taxpayer plans to modify its expense reimbursement system to obtain electronic receipts directly from b and to reduce employees’ submission of paper receipts the enhanced program these electronic receipts will consist primarily of records of plr-100146-00 charges made to the employee’s charge card with b and will provide the name of the vendor and date place and amount of the transaction certain receipts will include additional information such as expense type ground travel car rental airfare etc car rental agreement number airline ticket number and airline itinerary under the enhanced program employees will not be required to submit paper receipts to substantiate charges on their b charge card if the nature of the charge is clear on its face such as a car rental or the nature of the charge is not clear on its face such as a non-itemized hotel charge but the employee completes and submits an itemized breakdown of the expense on the expense report employees will continue to be required to submit paper receipts for all expenses of dollar_figure or more and all expenditures_for lodging if the expense does not meet one of the above criteria or if the expense was not charged to the b charge card taxpayer’s employees will be required to obtain and retain for at least four years all paper receipts for expenses of dollar_figure or more or for lodging whether or not receipts were submitted electronically that are not submitted with an expense report the audit program under the enhanced program will verify that the expenses reported by the employee without accompanying paper receipts conform to amounts reported to b by the vendors and is consistent with profile information such as standard room rates built into the computer_program if any item in an expense report exceeds these standards or if any expense item is not fully identified ie is charged to the category other the reimbursement process will be suspended and the employee will be required to produce a receipt in all other respects the enhanced program will be identical to the current program as a c taxpayer is subject_to extensive government regulation taxpayer is required to operate a security program to identify employees who engage in fraudulent acts and to conduct regular audits of all aspects of its business taxpayer is also subject_to government audits that include reviewing taxpayer's fraud prevention activities taxpayer's use and retention of electronic records under both the current and enhanced programs meet or will meet the requirements of revproc_98_25 1998_11_irb_7 ruling requested taxpayer requests a ruling that the current program and the enhanced program satisfy the substantiation requirements of sec_274 and qualify as accountable plans under sec_62 law sec_162 of the internal_revenue_code permits deduction of ordinary and necessary business_expenses including expenses for entertainment and for traveling plr-100146-00 while away from home sec_274 disallows a deduction under sec_162 for expenses for travel including meals_and_lodging entertainment gifts or listed_property unless the taxpayer substantiates by adequate_records or by other_sufficient_evidence corroborating the taxpayer's own statement the amount time place and business_purpose of the expense and business relationship of persons entertained sec_1_274-5 and sec_1_274-5t together provide the regulations under this provision sec_1_274-5t requires that to meet the adequate_records requirements of sec_274 a taxpayer must maintain an account book diary log statement of expense trip sheets or other similar record and documentary_evidence which in combination are sufficient to establish each element of an expenditure or use set forth in sec_1 5t b sec_1_274-5 provides that documentary_evidence such as receipts paid bills or similar sufficient evidence is required for a any expenditure for lodging and b any other expenditure of dollar_figure or more except that for transportation charges documentary_evidence will not be required if not readily available the commissioner may prescribe rules waiving the requirement to provide documentary_evidence in circumstances in which the commissioner determines it is impracticable sec_1_274-5 further provides that ordinarily documentary_evidence will be considered adequate to support an expenditure if it includes sufficient information to establish the amount date place and essential character of the expenditure for example a hotel receipt is sufficient to support an expenditure for business travel if it contains the following information name location date and separate amounts for charges such as lodging meals and telephone a restaurant receipt is sufficient to support an expenditure for a business meal if it includes the following name and location of the restaurant date and amount of the expenditure number of people served and an indication that a charge was made for an item other than meals and beverages if such was the case sec_1_274-5 requires an employee to substantiate or make an adequate_accounting of expenses to his employer by submitting to the employer records that satisfy the adequate_records requirement of sec_274 as defined in sec_1_274-5 however sec_1_274-5 authorizes the commissioner to prescribe rules under which an employee may substantiate his expenses to his employer by submitting an expense account alone without submitting documentary_evidence if the procedures used by the employer for the reporting substantiation and reimbursement of expenses of employees include internal controls specified in the rules sec_62 generally defines adjusted_gross_income as gross_income minus certain above-the-line deductions sec_62 allows an employee an above-the- line deduction for expenses paid_or_incurred by the employee in connection with his or plr-100146-00 her performance of services as an employee under a reimbursement or other expense allowance arrangement with his or her employer sec_62 provides that an arrangement will not be treated as a reimbursement or other expense allowance arrangement for purposes of sec_62 if such arrangement does not require the employee to substantiate the expenses covered by the arrangement to the person providing the reimbursement or such arrangement provides the employee with the right to retain any amount in excess of the substantiated expenses covered under the arrangement sec_1_62-2 provides that reimbursements by an employer to an employee for business_expenses paid_or_incurred by the employee are paid under an accountable_plan if the reimbursement arrangement meets the requirements of business connection substantiation and returning amounts in excess of expenses under sec_1_62-2 amounts failing to meet these requirements are treated as paid under a non-accountable plan an arrangement meets the business connection requirement if it provides advances allowances including per_diem allowances allowances for meals and incidental_expenses and mileage allowances or reimbursements for business_expenses that are allowable as deductions under sec_161 through of the code and that are paid_or_incurred by the employee in_connection_with_the_performance_of_services as an employee sec_1_62-2 the payment by an employer its agent or a third party of amounts charged by an employee directly or indirectly to the payor through a credit card system constitutes a reimbursement or other expense allowance arrangement provided that the employee is personally liable to the credit card issuer for such expenses sec_1_62-2 of the regulations provides that the substantiation requirement is met if the arrangement requires each business_expense to be substantiated to the payor within a reasonable period of time sec_1_62-2 provides that an employee who is reimbursed under an accountable_plan for expenses covered by sec_274 may satisfy the substantiation requirement of sec_1_62-2 by substantiating the expenses to his employer in accordance with sec_274 and the regulations thereunder sec_1_62-2 provides that the requirement that amounts in excess of expenses must be returned to the payor is met if the arrangement requires the employee to return to the payor within a reasonable period of time any amount_paid under the arrangement in excess of the expenses substantiated analysis under both the current and enhanced programs taxpayer reimburse sec_1 employees only cid cid for convenience we will use the present tense in discussing both programs plr-100146-00 for expenses that meet the requirement of business_purpose and requires employees to repay reimbursements that exceed proper expenditures accordingly the programs satisfy two of the three requirements of sec_62 and sec_1_62-2 business_purpose and returning amounts in excess of expenses the programs also require employees to submit expense reports and documentary_evidence that conform to the substantiation requirements of sec_274 and sec_1 5t c and f except with respect to documentation of lodging_expenses under the enhanced program employees are not required to submit documentary_evidence of lodging_expenses that itemizes the types of expenses included in the total charges as specified in sec_1_274-5t rather charges for lodging are substantiated by a charge card record that states a total amount charged by the lodging vendor only the employee's expense report specifies the types of charges included in the lodging bill in many situations a credit card statement charge record may constitute sufficient documentary_evidence of an expense for example the nature of an expense paid to a car rental company is ordinarily clear on its face however in the case of charges at lodging establishments a credit card statement or charge record unlike a hotel bill normally will not segregate deductible lodging_expenses from other business_expenses that may not be deductible in full such as meals and entertainment subject_to the partial deduction disallowance of sec_274 or from personal expenses such as personal phone calls or gift purchases that are not deductible business_expenses therefore a credit card statement or charge record alone generally will not constitute acceptable documentary_evidence of the amount of a lodging expense nonetheless there may be circumstances when certain business_expense reimbursement procedures contain sufficient safeguards to provide a high degree of certainty that only proper expenses will be reimbursed in those cases the commissioner's authority may be exercised under sec_1_274-5 by prescribing rules that relax the requirement that documentary_evidence of a lodging expense such as an itemized bill must be submitted in all situations for example in revproc_97_45 1997_2_cb_499 we described procedures that federal government agencies can adopt under which an employee may adequately account for expenses of travel away from home without providing documentary_evidence although taxpayer's business_expense reimbursement procedures are similar in many respects to the procedures specified in revproc_97_45 there is currently no similar revenue_procedure applicable to taxpayer accordingly we hold that taxpayer's current program for reimbursing employee business_expenses satisfies the substantiation requirements of sec_274 and qualifies as an accountable_plan under sec_62 however taxpayer's enhanced program does not satisfy the substantiation requirements of sec_274 in that it does not require that employees submit documentary_evidence of lodging_expenses that itemizes the charges therefore it does not qualify as an accountable_plan under sec_62 plr-100146-00 caveats a copy of this letter must be attached to any income_tax return to which it is relevant except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel income_tax accounting by george baker assistant to branch chief branch


department of the treasury internal_revenue_service washington d c date number info release date cc tege eoeg et1 - genin-122323-03 uilc memorandum for director internal_revenue_service center cincinnati oh attn technical unit from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - genin-122323-03 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business became an employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that became an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business will e mcleod 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 psi b05 plr-154777-06 date date -------------------------------------------------------- -------------------------------------------------- ---------------------------------------- ---------- legend taxpayer --------------------------------------------------------------- state a sub sub city city name dear ------------------ -------------------- ------------------------- ---------------------------------- this is in response to a request for a ruling dated date submitted on behalf of taxpayer by your authorized representative the ruling concerns the application of cooperative tax law to a transaction described below taxpayer was incorporated in -------- pursuant to the state a cooperative statute taxpayer is a rural telephone company operated on a cooperative non-profit basis for the plr-154777-06 mutual benefit of its members it serves --------access lines in rural agricultural western state a effective ----------------------- taxpayer was granted exemption under sec_501 of the internal_revenue_code taxpayer has failed tax exemption each year from ------- through ------- because in each year it has received less than percent of its income from members as required by the code while taxpayer’s primary business_purpose is to provide each of its approximately -- --------active members local exchange telephone carrier services it also provides internet services doing business as name and rents leases and sells telephone security systems taxpayer’s wholly-owned subsidiary sub offers telecommunications services as a competitive local exchange carrier within and around city sub 1’s wholly-owned subsidiary sub provides telecommunication services within and around city under taxpayer’s restated articles of incorporation taxpayer is organized as a cooperative to provide communications and related_services further taxpayer’s articles provide that the cooperative shall have no capital stock taxpayer’s bylaws provide the requisite provisions for an organization to be operating_on_a_cooperative_basis including democratic control the requirement to pay patronage net_earnings in accordance with each member’s patronage and provisions in the event of liquidation on date the rural telephone bank rtb or bank was established by amendment to the rural electrification act re act as a source of supplemental financing for telecommunications companies and rural telephone cooperatives eligible to borrow under the re act’s telephone loan program a board_of directors was appointed to manage the operations of the bank and the employees of rural electrification administration now usda rural development utilities programs performed the bank’s day to day operations by establishing a capital structure which provided for a mixed federal and private ownership the bank was designed to assure rural telephone systems access to private sources of capital by establishing a supplemental credit mechanism to which borrower systems could turn for all or part of their future capital requirements the capital structure of the bank consists of three classes of stock class a class b and class c class a stock was issued by the bank in exchange for approximately dollar_figure million of capital provided by various taxpayers this provided the bank with its initial seed money to begin its lending operations the bank paid an annual dividend of two percent on class a stock plr-154777-06 class b stock was required to be purchased by recipients of rtb loans in an amount equal to five percent of the face value of the loan class b stock did not earn a cash dividend but bank borrowers acquired additional shares of class b stock through annual patronage refunds class c stock was acquired through the conversion of class b stock after repayment of the loans associated with the class b stock and earned a cash dividend at a rate determined by the board_of directors since the class b stock paid no cash dividends and could not be otherwise redeemed conversion was the only route available to borrowers that extinguished their loans class c stock was also available for purchase by bank borrowers and by organizations controlled by bank borrowers however such voluntary transactions were extremely rare because no borrower would want to invest in instruments that have no schedule of principal repayment in addition to providing for a mixed-ownership through the a b and c classes of stock the re act amendment also provided that the ownership control and operation of the bank be transferred to the class b and class c stockholders after a percent of the class a stock was retired known as privatization of the bank the retirement of class a stock began in fiscal_year in date the fiscal_year federal budget proposed the dissolution of the rtb the rtb’s board_of directors unanimously approved resolutions to liquidate and dissolve the bank on date after more than nine months of congressional negotiations the bill was signed into law on date authorizing the initiation of the liquidation and dissolution process stock_redemption agreements were sent to shareholders beginning on date for final consideration and ratification by borrowers’ boards of directors the dissolution process is expected to be largely completed by the end of fiscal_year taxpayer first borrowed money from the rtb in ------- and continued to have outstanding loans until -------------- taxpayer purchased ------------shares of rtb class b stock and -- shares of class c stock during the period it held loans with the rtb the rtb class b stock_dividends received by taxpayer over the years totaled dollar_figure------------- making a total amount of class b stock owned of --------------shares taxpayer extinguished its loan balance with the rtb and converted ----------------- shares of class b stock into rtb class c stock taxpayer received the proposed liquidation and stock_redemption agreements from the rtb on ---------------------- taxpayer’s board_of directors ratified the agreement on -------- ------------------------ the total amount of class b stock redeemed was ------------shares and plr-154777-06 the total amount of class c stock redeemed was ---------shares taxpayer received rtb liquidation funds in the amount of dollar_figure--------------on ------------------- taxpayer does not expect any additional payments relating to the liquidation based on the foregoing taxpayer requests a ruling that the income realized by taxpayer by the liquidation payment for class b and c stock of the rtb constitutes patronage-sourced income which may be excluded from its gross_income when allocated to taxpayer’s patrons by a true patronage_dividend in the event a rural telephone cooperative such as taxpayer loses its tax-exempt status sec_501 of the code no longer applies until such time as the cooperative again satisfies the requirements for exemption during any taxable_period the rules applicable to the telephone cooperative depend on the reasons why it failed its exemption tests if exemption was lost because the company failed to operate on a cooperative basis then it will be taxed under the same rules applicable to for-profit corporations alternatively if the cooperative becomes taxable because it failed the so-called percent income test imposed by sec_501 then the organization will be taxed as a cooperative while the requirements of subchapter_c of the code regarding corporate_distributions and adjustments and other provisions are generally applicable to nonexempt cooperatives these entities are distinguished from other types of corporations by a specific body of tax law the scheme of taxation for nonexempt cooperatives was developed from the administrative pronouncements of the service and decision of the judiciary over a fifty-year period these rules for tax treatment of most nonexempt cooperatives and their patrons were finally codified with the enactment subchapter_t of the code as part of the revenue act of pub_l_no h_r with passage of subchapter_t the rules for deduction of patronage_dividends and the treatment of patronage_dividends in the hands of a cooperative’s patrons were defined however sec_1381 of the code states that subchapter_t is not applicable to organization engaged in furnishing electric energy or providing telephone service to persons in rural areas according to the senate_finance_committee report accompanying the act the intent of congress was that nonexempt rural electric and telephone cooperatives would continue to be treated as under present law in its report accompanying the legislation the senate_finance_committee described present law as follows plr-154777-06 under present law patronage_dividends paid_by taxable cooperatives result in a reduction in the cooperative’s taxable_income only if they are paid during the taxable_year in which the patronage occurred or within the period in the next year elapsing before the prior year’s income_tax return is required to be filed including any extensions of time granted s rep no 87th cong 1st sess under this earlier body of tax law applicable to nonexempt telephone cooperatives a cooperative may reduce its taxable_income by any qualifying patronage_dividends paid to their members patrons further under pre-1962 cooperative rules the term paid means paid in cash or paid_by notice of allocation see also revrul_83_135 1983_2_cb_149 a taxable cooperative not subject_to the provisions of subchapter_t of the code may exclude from gross_income the patronage_dividends paid or allocated to its patrons in accordance with its by-laws while subchapter_t does not control the taxation of nonexempt telephone cooperatives its foundations rest upon pre-1962 cooperative tax law as a result there are certain basic parallels between the tax treatment of nonexempt utility cooperatives and treatment of other cooperative organizations under subchapter_t therefore to extent that subchapter_t reflects cooperative taxation as it existed prior to it is in instructive resolving certain issues facing rural telephone cooperatives this is because congress stated that in enacting subchapter_t it was merely codifying the long common_law history of cooperative taxation with the exception of ensuring at least one annual level of tax at the cooperative or patron level see s rep no 87th cong 1st sess and arguably the case law post-enactment is merely a continuation and refinement of the pre-enactment common_law this is particularly true with respect to defining certain terms such as operating_on_a_cooperative_basis and patronage income perhaps the most succinct definition of the term cooperative for federal_income_tax purposes was provided by the u s tax_court in 44_tc_305 acq 1966_1_cb_3 the tax_court said under the cooperative association form or organization on the other hand the worker-members of the association supply their own capital at their own risk select their own management and supply their own direction for the enterprise through worker meetings conducted on a democratic basis and then themselves receive the fruits of their cooperative endeavors through allocations of the same among themselves as co-workers in proportion to the amounts of their active_participation in the cooperative undertaking the tax_court went on to describe three guiding principles at the core of economic cooperative theory as plr-154777-06 subordination of capital both as regards control_over the cooperative undertaking and as regards the ownership of the pecuniary benefits arising therefrom democratic control by the worker-members themselves and the vesting in and allocation among the worker-members of all fruits and increases arising from their cooperative endeavor ie the excess of operating revenues over the costs incurred in generating those revenues in proportion to the worker- members’ active_participation in the cooperative endeavor t c pincite the mechanism by which telephone cooperative achieve operation at cost is the patronage_dividend or capital credit since the payment of patronage_dividends and operation at cost is so critical to achieving cooperative status as defined by puget sound it is important to analyze this issue rural telephone cooperatives perform a final accounting at year-end to determine the net margin derived from their members’ patronage during the course of the year then the excess over cost collected from members is returned to them by a capital credit allocation based on each member’s patronage those capital credits are typically paid_by allocations of capital credit certificates or notices of allocation rather than in cash the capital credits retained form the foundation for the organization’s equity_capital a true patronage_dividend that may be excluded from the income of a rural it must be made subject_to a preexisting legal_obligation telephone cooperative must meet the three tests set forth in farmers cooperative co v birmingham f_supp n d ia and 31_tc_674 acq aod 1959_2_cb_6 those tests are the margins allocated must be derived from the profits generated from patrons’ dealings with the cooperative the allocation must be made on the basis of patronage and although the code does not provide specific guidance as to what constitutes patronage-sourced income for a nonexempt telephone cooperative regulations and rulings address the issues for cooperatives governed by subchapter_t of the code while not directly applicable to taxable utility cooperatives per se arguably they reflect the correct analysis with respect patronage income of cooperatives subject_to pre-1962 law the senate committee report accompanying the cooperative provisions in the revenue act of indicated that the congress intended to tax ordinary ie non-farmer cooperatives for non-operating income not derived from patronage as for example in the case plr-154777-06 of interest or rental income even if distributed to patrons on a pro_rata basis s rep no 82d cong 1st sess in response to that guidance of congress the service promulgated regulations distinguishing nonpatronage income from that which is patronage derived sec_1388 of the code specifies that a patronage_dividend must be determined by reference to the net_earnings of the organization from business done with or for its patrons that section further provides that the term patronage_dividend does not include any amount_paid to a patron to the extent that such amount is out earnings other than from business done with or for patrons further it does not include earnings from business done with or for other customers to whom no amounts are paid or to whom smaller amounts are paid with respect to substantially identical transactions in revrul_69_576 1969_2_cb_166 a nonexempt farmers’ cooperative borrowed money from a bank for cooperatives itself a cooperative to finance the acquisition of agricultural supplies for resale to its members the bank for cooperatives allocated and paid interest from its net_earnings to the nonexempt farmers’ cooperative which it in turn allocated to its members states in determining whether the allocation was from patronage sources the ruling the classification of an item_of_income as from either patronage or nonpatronage sources is dependent on the relationship of the activity generating the income to the marketing purchasing or service activities of the cooperative if the income is produced by a transaction which actually facilitates the accomplishment of the cooperative's marketing purchasing or service activities the income is from patronage sources however if the transaction producing the income does not actually facilitate the accomplishment of these activities but merely enhances the overall profitability of the cooperative being merely incidental to the association's cooperative operation the income is from nonpatronage sources revrul_69_576 pincite the ruling concluded that in as much as the income received by the nonexempt_cooperative from the bank for cooperatives resulted from a transaction that financed the acquisition of agricultural supplies which were sold to its members thereby directly facilitating the accomplishment of the cooperative’s marketing purchasing or service activities the income was patronage sourced sources other than patronage nonpatronage income to mean incidental income derived from sources not directly related to the marketing purchasing or service sec_1_1382-3 of the income_tax regulations defines income from plr-154777-06 in twin county grocers inc v united_states cl_ct a nonexempt in st louis bank for cooperatives v united_states ct_cl f 2d activities of the cooperative association such as income derived from lease of premises from investment in securities or from the sale_or_exchange of capital assets cl_ct the court held that interest on demand deposits in farm credit banks or on loans to brokerage funds received by st louis bank for cooperatives was patronage sourced income the court stated that a particular item_of_income is patronage sourced when the transactions involved are directly related to the marketing purchasing or service activities of the cooperative association f 2d pincite cooperative was denied deductions for patronage_dividends for interest on a certificate of deposit bought from a nonpatron bank because the dividend income was not patronage sourced the court held that the relation of income activity to the cooperative’s business was too tenuous courts have ruled in several instances that income from corporations organized by cooperatives to conduct activities related to the cooperative business is patronage sourced in farmland industries v commissioner 78_tcm_846 acq aod citing 765_f2d_1102 675_f2d_988 8th cir 88_tc_238 87_tc_435 the taxpayer a cooperative organized for the purpose of providing petroleum products to its patrons sought to have the proceeds from the disposition of its stock in three subsidiaries classified as patronage-sourced income in reaching its decision the court stated that its task was to determine whether each of the gains and losses at issue was realized in a transaction that was directly related to the cooperative enterprise or in one which generated incidental income that contributed to the overall profitability of the cooperative but did not actually facilitate the accomplishment of the cooperative s marketing purchasing or servicing activities on behalf of its patrons t c m pincite in land o’lakes inc supra the court held that dividends received by the nonexempt_cooperative from the st paul bank for cooperatives was patronage derived and could be allocated to land o’lakes patrons as deductible patronage_dividends the court noted that the taxpayer was required to acquire and hold the stock to obtain a loan the proceeds of which were used to finance cooperative activities on favorable terms finding that the subject transaction was not significantly distinguishable from the transaction in revrul_69_576 in the instant case taxpayer borrowed from the congressionally established rtb pursuant to the re act’s purposes as a result it was required to purchase the class b stock and pursuant to the bank’s regulations have that class b stock plr-154777-06 converted to class c stock when its loans were repaid these loans and stock acquisitions were directly related to taxpayer’s cooperative purpose in providing telephone service to rural customers its member patrons further in light of the fact that the federal government has caused the dissolution of the rtb the redemption of taxpayer’s class b and class c stock in liquidation of the rtb also can be seen as directly related to taxpayer’s cooperative purposes accordingly based solely on the foregoing we rule that the income realized by taxpayer by the liquidation payment for the class b and class c stock of the rtb constitutes patronage-sourced income which may be excluded from its gross_income when allocated to taxpayer’s patrons by a true patronage_dividend however to the extent if any that taxpayer conducted telecommunications or related business with nonmembers or on a noncooperative basis it is required to make an allocation of the income between patronage and nonpatronage sources based on the proportion of business conducted with members and nonmembers and between its cooperative and noncooperative activities this ruling is directed only to the taxpayer that requested it under sec_6110 of the code it may not be used or cited as precedent in accordance with a power_of_attorney filed with the request a copy of the ruling is being sent to your authorized representative sincerely yours s paul f handleman senior technician reviewer branch office of the associate chief_counsel passthroughs special industries


id office uilc cca_2012091912125725 -------------- number release date from ----------------- sent wednesday date pm to --------------- cc -------------------------------------------------------------------- subject re question re levy on pension benefits ------ - as you know a levy attaches to all of the taxpayer's property and rights to property except exempt_property pursuant to sec_6331 with respect to pension plans the federal_tax_lien ftl attaches to a participant's interest in a plan if the participant has a vested benefit which would be when the participant has acquired a nonforfeitable right to part or all of the accrued_benefits the ftl attaches to all present rights the taxpayer has under the plan including the participant's present right to payment the present right to payment in the future and the present right to elect a form of distribution even if presently unexercised in your case because the taxpayer has the right to receive monthly annuity payments from the plan the government's levy reaches such distributions and neither the taxpayer nor the plan_administrator may thwart collection by alleging a lack of authorization the ro need not wait for an election by the taxpayer to receive payments the only two defenses to levy are that the person is not in possession of the taxpayer's property or rights to property or the property or rights to property are subject_to prior judicial attachment see u s v nat'l bank of commerce 472_us_713 neither defense seems applicable here ------------------------------------------------------------------------------the plan_administrator faces personal liability for failing to honor a levy pursuant to sec_6332 possibly including the penalty under sec_6332 see u s v donahue industries 905_f2d_1325 9th cir feel free to call me directly if you have any questions or further want to discuss regards --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- ------------------------------------


significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division sep yilivg t cb patal in re this letter constitutes notice that with respect to the above-named defined benefit pension_plan we have granted a waiver of the minimum_funding_standard for the plan_year ended date this waiver for the plan_year ended date has been granted in accordance with sec_412 of the internal_revenue_code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the waived amount is the contribution which would otherwise be required to reduce the balance in the funding_standard_account to zero as of the end of the plan_year for which this conditional waiver has been granted the company has a calendar_year fiscal_year the company had negative earnings in and the company did show a profit for even though it had a marked drop off in revenue the company also had completed a restructuring in that was costly as of date the value of the assets of the plan was equal to of the plan's current_liability your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to other retirement plans maintained by the company or to the company’s profit sharing plan to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year ended date the date of this letter should be entered on schedule b actuarial information a copy of this letter is being sent to the manager employee_plans classification in a copy of this letter should be furnished to the enrolled_actuary for the plan if you have any questions on this ruling letter please contact sincerely pmer lecce norman greenberg acting manager actuarial group -


internal_revenue_service number release date index numbers ------------------------ -------------------------- ---------------------------------------- ---------------------------- ----------------------------- 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 plr-127568-08 date september legend parent ------------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------ sub -------------------------------- ------------------------------------------------------------------- ----------------------------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------ sub ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------- plr-127568-08 llc ------------------------------------------------------------------------------------ --------------------------------------------------- ----------------------- llc llc llc ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- business a -------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- --------------------------------------------------- a year date a date b date c date d date e state x -- ------- ---------------- ------------------- --------------------- ------------------ ---------------------- ------------- dear ----------------- this letter responds to your letter dated date requesting rulings regarding certain federal_income_tax consequences of the proposed transactions defined below the information submitted in that letter is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts plr-127568-08 parent is the common parent of an affiliated_group whose includible corporations join in filing a consolidated federal_income_tax return the parent group parent’s outstanding_stock is publicly traded and widely held parent is engaged through its subsidiaries in business a completed transactions in year parent acquired the stock of sub sub owned all of the outstanding_stock of sub which owned all of the outstanding_stock of sub on date a sub sub and sub became members of the parent group from date a through date e the following transactions occurred involving the distribution contribution and liquidation of member stock the completed transactions on date a sub distributed the stock of sub to sub the distribution sub recognized gain on the distribution of the sub stock under sec_311 of the internal_revenue_code and such gain was deferred under sec_1_1502-13 of the income_tax regulations the deferred gain immediately following distribution on date a sub distributed the stock of sub to parent the distribution sub did not recognize any gain under sec_311 prior to date a parent owned all of the outstanding_stock of sub immediately following distribution parent contributed the stock of sub to sub in a tax-free sec_351 exchange prior to date b parent owned all of the outstanding_stock of sub on date b parent contributed the stock of sub to sub in a tax-free sec_351 exchange on date c sub changed its name to sub on date d sub distributed to parent all of its assets and parent assumed all of sub 4’s liabilities in a complete_liquidation under sec_332 the sub liquidation on date e sub converted under state x law into llc an entity disregarded as separate from its owner for federal_income_tax purposes under sec_301_7701-3 of the procedure and administrative regulations a disregarded_entity the sub conversion the sub conversion will qualify as a complete_liquidation under sec_332 of sub into parent proposed transactions for what have been represented as valid business purposes the following series of related transactions has been proposed collectively the proposed transactions i sub will convert under applicable state law into llc the sub conversion which will be a disregarded_entity plr-127568-08 ii iii immediately following the sub conversion sub will convert under applicable state law into llc the sub conversion llc will be a disregarded_entity at least a days after the sub conversion and the sub conversion sub will convert under applicable state law into llc the sub conversion llc will be a disregarded_entity representations the following representations have been made regarding the proposed transactions a parent will remain the common parent of the current parent group until after the date on which the proposed transactions are completed b each share of the stock of each member which reflects intercompany gain from any of the completed transactions has been held by members of the parent group continuously since such gain arose and will be held by members of the parent group continuously until the completion of the proposed transactions c the contribution of sub stock by parent to sub will qualify as a tax- free exchange within the meaning of sec_351 d the contribution of sub stock by parent to sub will qualify as a tax- free exchange within the meaning of sec_351 e the sub liquidation will qualify as a complete_liquidation of sub into parent within the meaning of sec_332 f the sub conversion will qualify as a complete_liquidation of sub into parent within the meaning of sec_332 g the sub conversion will qualify as a complete_liquidation of sub into sub within the meaning of sec_332 h the sub conversion will qualify as a complete_liquidation of sub into parent within the meaning of sec_332 i the sub conversion will qualify as a complete_liquidation of sub into parent within the meaning of sec_332 plr-127568-08 j the effects of the completed and proposed transactions have not been taken into account by any member of the parent group in any taxable or nontaxable_transaction other than as described herein k immediately before the deferred gain is taken into account pursuant to the proposed transactions parent will be treated for federal_income_tax purposes as the owner of the sub stock l as a result of the sub conversion parent’s basis in the sub stock that reflects the deferred gain that is taken into account will be eliminated without the recognition of gain_or_loss and such eliminated basis will not be reflected in the basis of any successor asset m the parent group has not and will not derive any federal_income_tax benefit within the meaning of sec_1_1502-13t c ii c from the completed transactions that gave rise to intercompany gain or the redetermination of intercompany gain including any adjustment to basis in member stock under sec_1 n the effects of the completed transactions have not previously been reflected directly or indirectly on the parent group’s consolidated_return o on its consolidated federal_income_tax return that included date parent made an election for the parent group under sec_1_1502-13 which applies sec_1_1502-13 effective for taxable years beginning on or after date to stock elimination transactions to which prior_law would otherwise apply rulings based solely on the information submitted and the representations set forth above we rule as follows parent as a successor to sub and to sub under sec_1_1502-13 will take into account the deferred gain on the sub conversion sec_1_1502-13 and such deferred gain will be determined to be excluded from gross_income under sec_1_1502-13t c ii c caveats we express no opinion about the tax treatment of the proposed transactions under other provisions of the code and regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above ruling in particular we express no plr-127568-08 opinion regarding whether any of the conversions or liquidations satisfies the requirements of sec_332 or whether any contribution satisfies the requirements of sec_351 procedural statements this ruling letter is directed only to the taxpayer who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent a copy of this ruling letter should be attached to the federal_income_tax return of each taxpayer involved for the taxable_year in which the transactions covered by this ruling letter are completed 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 ruling letter under the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives sincerely ______________________________ marie c milnes-vasquez acting chief branch office of associate chief_counsel corporate