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 plr-130535-07 date date legend taxpayer father mother sister trust trust bank ------- company date date date date date year year year country a country b country c state a state b dear ------------ --------------------------------------------- ---------------------- --------------------------- --------------------------------------- -------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------ ---------------------------- ------------------ ------------------- -------------------------- ------------------ ------- ------- ------- ----------- ------------------------------------------- ---------------------- ------------- ------------- this is in response to your authorized representative's submission dated date requesting rulings regarding the income gift estate and generation- skipping transfer gst tax consequences of the proposed transaction plr-130535-07 the facts submitted and representations made are as follows on date in year father and mother settlors established trust an irrevocable_trust approximately one month later in year trust was funded year is after date it is represented that trust was funded with assets that did not have a situs in the united_states except for a portion of assets consisting of securities in u s_corporations the trustee of trust is bank clause of trust provides that the trust is governed by the laws of country c the second schedule of trust provides that father and mother are entitled to a distribution of all income from investments made by the trustee together with such distributions of capital as the trustee may determine upon the death of both father and mother the beneficiaries shall be their children taxpayer and sister taxpayer and sister shall be entitled to an equal distribution of the income from investments made by the trustee as well as a distribution of capital in the amount of one-half the capital value of the trust at the time of the death of father or mother the trustee shall pay the capital distribution to these beneficiaries in such manner as it deems most effective from a tax-planning standpoint provided that the distribution is made within five years five- year distribution upon the death of taxpayer and sister the beneficiaries of the trust will be the surviving children of taxpayer and sister in equal shares each of these beneficiaries shall be entitled to the income from the investments made by the trustee together with a distribution of their proportionate share of the capital of the trust upon attaining the age of years remainder appointment clause paragraph c provides that the trustee shall pay or transfer the whole or any part or parts of the capital or income of trust to the trustees for the time being of any other trust wheresoever established or existing and whether governed by the laws of country c or by the law of any other state or territory under which any one or more of the beneficiaries are interested notwithstanding that such other trusts may also contain trust powers and provisions discretionary or otherwise in favor of some other person or persons or objects if the trustee in his or her absolute discretion considers such payment to be for the benefit of such one or more of the beneficiaries clause paragraph n provides that the term trust period means the period commencing on the date of trust and ending on whichever shall be the earlier of the following days i the day on which shall expire the period of one hundred fifty years from the effective date of trust ii such day if any earlier than i above as the trustees may at their absolute discretion by instrument in writing appoint provided however that if any trust fund owing to its character as a charitable_trust or otherwise shall not be subject_to the rule_against_perpetuities the rules against accumulations or other similar rules trust shall continue in existence in perpetuity or until all property held in trust is distributed father a citizen of country a and a resident in country b died on date mother a citizen and resident of country b died on date father and mother were plr-130535-07 survived by taxpayer and sister taxpayer resides in and is a citizen_of_the_united_states it is represented that on the dates of their respective deaths and at the time they established trust father and mother were each non-resident aliens for purposes of the federal income estate gift and generation-skipping_transfer taxes neither father nor mother was ever a citizen_of_the_united_states however from year to year father and mother resided in the united_states because father was employed in state a in year father and mother returned to country b to reside permanently it is represented that their return to country b was not motivated by a desire to avoid united_states taxes following their return to country b father and mother only spent a nominal number of days in the united_states in any given year trust was established and funded in year more than years after father and mother returned to country b upon father’s death a portion of trust consisted of securities with a situs in u s_corporations on date the executor of father’s estate filed form 706-na united_states estate and generation-skipping_transfer_tax return with the internal_revenue_service on schedule g of form 706-na the executor included one-half the value of these securities in father’s gross_estate it is represented that trust did not own any assets with a situs in the united_states at the time of mother’s death bank as trustee of trust proposes to exercise its discretion under the terms of trust to appoint taxpayer’s share of the five-year distribution and remainder appointment one-half of trust to trust an irrevocable_trust governed by the laws of state b_trust was established on date the trustee of trust is trust company article a of trust provides that the trustee of trust is authorized to pay any one or more of taxpayer and taxpayer’s descendants living from time to time so much of the net_income and principal of trust as the independent_trustee deems advisable in equal or unequal shares and to the exclusion of any one or more of them any net_income not paid to taxpayer or taxpayer’s descendants shall be accumulated and added to principal at least annually under article b the independent_trustee may exercise its power under article a to distribute net_income and principal of trust by appointing any part or all of such principal and net_income to the trustee of a_trust to benefit taxpayer and taxpayer’s descendants article c provides that notwithstanding any other provision in article during the lifetime of taxpayer the net_income and principal of trust shall be paid to or held for the benefit of any one or more of taxpayer’s descendants as taxpayer with the consent of the independent_trustee may specify and appoint by a document executed with all the formalities of a will plr-130535-07 article d provides that upon taxpayer’s death trust shall terminate and the trustees shall distribute the remaining principal and any undistributed_income to or for the benefit of any one or more of settlors’ descendants excluding taxpayer taxpayer’s estate taxpayer’s creditors and the creditors of taxpayer’s estate as taxpayer appoints by will making specific reference to this special_power_of_appointment provided however that such special power shall not be exercised in a manner that would cause the property subject_to the special power to be includible in taxpayer’s gross_estate pursuant to sec_2041 of the internal_revenue_code the trustee shall divide and set apart the balance of the principal and undistributed_income then on hand over which taxpayer does not effectively exercise the foregoing power_of_appointment per stirpes for taxpayer’s then living descendants or if there is none for the then living descendants of father as provided further in trust article iii provides that the trusts created under trust shall terminate no later than the end of the trust period as such term is defined in trust upon termination of the trust or portion thereof pursuant to the provisions of this article the property constituting the then principal of the trust together with any net_income then on hand or accrued shall be distributed a to the person for whose primary benefit such trust was created or if there is none b to the beneficiary to whom distributions of trust income might then be properly made or if there is more than one such beneficiary to such beneficiaries who are descendants of the settlors per stirpes or if none of them is a descendant of settlors in equal shares to the persons to whom the trustees may pay income article vii g provides that notwithstanding any other provision of trust no trustee may participate in any decision as a trustee to make a discretionary distribution a in his or her own favor or b discharging his or her legal obligations and no descendant of settlors who is serving as a trustee may participate in any decision as a trustee relating to discretionary distributions article xiii e defines the term independent_trustee to mean a trustee that a is not a person a beneficiary having a beneficial_interest other than as a potential appointee under a power_of_appointment held by another present or future vested or contingent direct or indirect in the income or principal of any trust created under trust b is not a person a contributor who makes or is deemed to make a gratuitous transfer to the trust and c is not related or subordinate to a beneficiary or a contributor within the meaning of sec_672 you request the following rulings neither the five-year distribution nor the remainder appointment from trust to trust will cause either of the trusts to recognize gain_or_loss for purposes of sec_1001 and the basis of the assets of trust as well as the holding_period for those assets will remain the same after the proposed distributions plr-130535-07 no aspect of either the five-year distribution or the remainder appointment will give rise to a gift_for purposes of sec_2501 as to taxpayer nor will future distributions from trust be subject_to gift_tax as to taxpayer no aspect of either the five-year distribution or the remainder appointment will cause the generation-skipping_transfer_tax under sec_2601 to apply to an otherwise taxable_termination or taxable_distribution from trust no aspect of either the five-year distribution or the remainder appointment sec_1001 provides that the amount_realized from the sale or other sec_61 of the internal_revenue_code provides that gross_income sec_1001 provides that the gain from the sale_or_other_disposition of will cause the inclusion of any part of trust in the estate of taxpayer ruling includes gains derived from dealings in property and under sec_61 from an interest in a_trust property shall be the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained issue of when a sale_or_exchange has taken place that results in realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another lender's interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court in cottage savings u s pincite concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are 499_us_554 concerns the plr-130535-07 materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if under chapter of subtitle a such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in his hands as it would have in the hands of such other person see also sec_1_1223-1 it is consistent with the supreme court's opinion in cottage savings to find that the distributions to taxpayer from trust to trust will not differ materially from her interest in trust the distributions to trust are made under the powers given to the trustees under the terms of trust accordingly based upon the facts provided and the representations made we conclude that the five-year distribution and the remainder appointment from trust to trust will not result in a material difference in_kind or extent to the legal entitlements and no gain_or_loss is realized by the beneficiaries or trust on the distribution for purposes of sec_1001 we further conclude that the basis of the assets of trust as well as the holding_period for those assets will remain the same after the proposed distributions ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident under sec_2511 the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete to the extent the donor has so parted with dominion and control as to leave in him no power to change its disposition whether for his own benefit or for the benefit of another sec_25_2511-1 provides in part that the gift_tax is applicable only to a transfer of a beneficial_interest in property it is not applicable to a transfer of bare_legal_title to a trustee plr-130535-07 sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that for purposes of sec_2514 the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor his estate his creditors or the creditors of his estate sec_2514 provides that in the case of a power_of_appointment created after date which is exercisable by the possessor only in conjunction with another person such power is not deemed a general_power_of_appointment sec_25_2514-1 provides that a power_of_appointment exercisable for the purpose of discharging a legal_obligation of the possessor for his pecuniary benefit is considered a power_of_appointment exercisable in favor of the possessor or his creditors a power_of_appointment is not a general_power_of_appointment if by its terms it is either exercisable only in favor of one or more designated persons or classes other than the possessors or his creditors or the possessor’s estate or the creditors of his estate in this case trust is an irrevocable_trust and the settlors did not retain any powers to change its disposition accordingly the settlors made completed gifts of the assets transferred to trust in year under the terms of trust the trustee of trust may direct distributions of assets pursuant to the trustee’s discretionary authority under the terms of trust taxpayer is not a trustee of trust and has no authority or discretion to direct transfers of assets from trust to a new trust accordingly no transfer of property will be deemed to occur for purposes of sec_2511 therefore based upon the facts provided and the representations made we conclude that no aspect of either the five-year distribution or the remainder appointment will give rise to a gift_for purposes of sec_2501 as to taxpayer in this case taxpayer has an inter_vivos power_of_appointment to appoint trust property to her descendants the power is not exercisable in favor of taxpayer her creditors her estate or the creditors of her estate further this power is exercisable only with the consent of the independent_trustee accordingly taxpayer’s inter_vivos power_of_appointment is not a general_power_of_appointment for purposes of sec_2514 in the event taxpayer serves as a trustee of trust taxpayer may not participate in any decision as a trustee to make a discretionary distribution in her own favor may not discharge her legal obligations and as a descendant of settlors may not participate in any decision as a trustee relating to discretionary distributions therefore based upon the facts presented and representations made we conclude that future distributions from trust will not be subject_to gift_tax as to taxpayer ruling plr-130535-07 sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 defines the term generation-skipping_transfer to include a taxable_distribution taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2632 provides in part that any portion of an individual's gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows-- a first to property which is the subject of a direct_skip occurring at such individual's death and b second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual's death sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an affirmative allocation of gst_exemption cannot be revoked but becomes effective as of and no earlier than the date of the close of the etip with respect to the trust if an allocation has not been made prior to the close of the etip an allocation of exemption is effective as of the close of the etip by reason of the death of the transferor as provided in paragraph d of this section sec_26_2632-1 provides in part that an etip is the period during which should death occur the value of transferred property would be includible other than by reason of sec_2035 in the gross_estate of the transferor sec_26_2632-1 provides that an allocation of decedent’s unused gst_exemption by the executor of the decedent’s estate is made on a form 706-na nonresidents sec_26_2632-1 provides that a decedent’s unused gst_exemption is automatically allocated on the due_date for filing form 706-na to the extent not otherwise allocated by the decedent’s executor on or before that date sec_2652 provides that the term transferor means in the case of any property subject_to the tax imposed by chapter the decedent an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_26_2652-1 provides that the individual with respect to whom property was most recently subject_to federal estate or gift_tax is the transferor of that property for purposes of chapter thus an individual may be a transferor even though there is no transfer of property under local law at the time the federal estate or gift_tax applies sec_26_2652-1 provides that a transfer is subject_to federal plr-130535-07 estate_tax if the value of the property is includible in the decedent’s gross_estate as determined under sec_2031 or sec_2103 sec_2663 provides that the secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this chapter including regulations consistent with the principles of chapter sec_11 and sec_12 providing for the application of this chapter in the case of transferors who are nonresidents not citizens of the united_states sec_26_2663-2 provides rules for applying chapter to transfers by a transferor who is a nonresident_not_a_citizen_of_the_united_states nra transferor every nra transferor is allowed a gst_exemption of dollar_figure sec_26_2663-2 provides that for purposes of this section the provisions of sec_26_2632-1 providing rules applicable in the case of an estate_tax_inclusion_period etip apply only if the property transferred by the nra transferor is subsequently included in the transferor’s gross_estate if the property is subsequently included in the gross_estate then the nontax_portion and the applicable_fraction are determined as of the date of death in example of sec_26_2663-2 t transferred property to an inter_vivos_trust the terms of which provided t with an annuity payable for years or until t’s prior death the trust also provided that at the end of the trust term the remainder will pass to gc or gc’s estate the property transferred to the trust consisted of property subject_to chapter that has a value of dollar_figure and property not subject_to chapter that has a value of dollar_figure t allocated dollar_figure of gst_exemption to the trust in year of the trust term t died at t’s death the trust corpus had a value of dollar_figure and dollar_figure was includible in t’s gross_estate as provided in sec_2103 and sec_2104 thus dollar_figure of the trust corpus is subject_to chapter and dollar_figure is not subject_to chapter in the example t allocates dollar_figure gst_exemption to the initial transfer and the applicable_fraction is determined based upon that allocation however the example also indicates that the allocations of t’s gst_exemption at death by either an affirmative allocation by the executor or an automatic allocation under sec_26_2632-1 will affect the calculation of the applicable_fraction when trust was established and funded in year a date after date father was a citizen of country a and mother was citizen of country b and both were residents of country b it is represented that father and mother were nonresident_aliens not citizens of the united_states at that time the assets transferred to trust included assets that did not have a situs in the united_states and securities in a u s_corporation the initial transfer to trust was not subject_to gift_tax because the settlors were nonresident_aliens not citizens of the united_states and the assets transferred did not have a situs in the united_states or were securities in a u s_corporation that were not subject_to gift_tax under sec_2501 see sec_25_2501-1 plr-130535-07 when father died on date a portion of his gross_estate for federal estate_tax purposes included securities in a u s_corporation under sec_2652 father is the transferor for gst tax purposes with respect to the assets included in his gross_estate the portion of trust representing the securities in the united_states_corporation is not exempt from chapter the beneficiaries of trust include nonskip persons accordingly the close of the etip period did not result in a direct_skip however trust has gst potential because some of the beneficiaries include the surviving children of taxpayer and sister ie settlor’s grandchildren accordingly a taxable_distribution might occur father’s gst_exemption was not allocated to the nonexempt_portion of trust on the date of the initial transfer the trust was subject_to the etip rules the executor did not allocate father’s gst_exemption to the nonexempt_portion of trust upon father’s death accordingly under sec_26_2632-1 father’s gst_exemption was automatically allocated to the nonexempt_portion of trust it is represented that father had sufficient gst_exemption to allocate to the nonexempt_portion of trust to produce an inclusion_ratio of zero the remaining portion of trust consisting of property that was not subject_to gift or estate_tax is exempt from chapter under sec_2663 therefore based on the facts submitted and representations made we conclude that no aspect of either the five-year distribution or the remainder appointment will cause the generation-skipping_transfer_tax under sec_2601 to apply to an otherwise taxable_termination or taxable_distribution from trust ruling sec_2031 provides that the value of the gross_estate of the decedent shall be determined by including to the extent provided for in this part the value at the time of his death of all property real or personal tangible or intangible wherever situated sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2038 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment plr-130535-07 thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent’s death sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive sec_2041 provides that the term general_power_of_appointment means a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_20_2041-1 of the estate_tax regulations provides in part that a power_of_appointment exercisable for the purpose of discharging a legal_obligation of the decedent or for his pecuniary benefit is considered a power_of_appointment exercisable in favor of the decedent or his creditors sec_20_2041-1 provides that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors or the decedent's_estate or the creditors of his estate in the present case taxpayer is a beneficiary of trust taxpayer is not the transferor of the property transferred to trust bank the trustee of trust is exercising its discretionary authority under trust to transfer property from trust to trust to benefit taxpayer therefore trust is not includible in taxpayer’s gross_estate under sec_2036 or sec_2038 further taxpayer is not currently a trustee of trust if named as a trustee taxpayer may not participate in any decision as a trustee to make discretionary distributions in her favor or to discharge her legal obligations taxpayer possesses a testamentary_power_of_appointment to appoint trust to settlors’ descendants however taxpayer may not appoint trust property to herself her creditors her estate or the creditors of her estate accordingly taxpayer’s power_of_appointment is not a general_power_of_appointment therefore trust is not includible in taxpayer’s gross_estate under sec_2041 consequently based upon the facts submitted and the representations made we conclude that no aspect of either the five-year distribution or the remainder appointment will cause the inclusion of any part of trust in the gross_estate of taxpayer plr-130535-07 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 representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------------- ------------------------------------------------------- ---------------------------------------------------------- ------------------------------- ---------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp plr-149659-06 date date ----------------------------------------- ---------------------------------------------------------- legend legend corp a ---------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------- corp b ---------------------------------------------------------------------------- -------------------------------------------------------------------- merger sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- member ---------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ membership ------------------------------------------------------------------------------- business a --------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- --------------------------- ----------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------ business b -------------------------------------------------------------------------------------------------------------------- date a -------------------------------------------------------- --------------------------- ----------------------------------------------------------------------- ----------------------- plr-149659-06 date b a b c x --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ -------------------------------------------- ----------------------------------------------------------------------- ---------------- --------------- --------- dear ------------------- this letter responds to your date request for rulings regarding certain federal_income_tax consequences of a proposed transaction the information submitted in that letter and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayers and accompanied by penalties of perjury statements executed by the appropriate parties 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 summary of facts corp a is a nonstock not-for-profit corporation that is the common parent of a group that files a consolidated federal_income_tax return corp a derives its revenues primarily from business a as a nonstock corporation corp a does not have authorized capital stock rather participation in corp a is obtained through membership interests held by members each corp a membership interest is comprised of a corp a trading right and equity_interest the corp a trading right represents certain rights and privileges that entitles its holder to access certain facilities of corp a to engage in business a the equity_interest allows the member to elect directors and to vote on any other matter at any meeting of corp a members and to share equally with other members in any liquidating_distribution in the event of any voluntary or involuntary liquidation dissolution or winding up of corp a’s affairs members and certain other individuals may also hold limited rights as expressly provided for in the bylaws and the rules of corp a to engage in specified trading activities associated with business a the corp a trading permits plr-149659-06 corp b is a publicly traded corporation that engages in business b corp b wholly owns merger sub merger sub was recently formed in order to effectuate certain steps of the proposed transaction corp a corp b and merger sub are parties to an agreement and plan of merger dated as of date a amended as of date b collectively the agreement the agreement provides for certain transactions that are intended to culminate in the combination of corp a and corp b proposed transaction to effectuate the combination the following steps collectively the proposed transaction will occur in the order listed the surviving corporation surviving corp and the separate corporate existence of corp a will cease surviving corp will continue to be a wholly owned subsidiary of corp b in the merger corp a will merge with and into merger sub merger sub will be at the effective time of the merger the effective time each outstanding equity interest will be converted into the right to receive at the election of the holder of such equity_interest either i stock consideration a a shares of newly issued fully paid and nonassessable shares of corp b common_stock plus b the right to receive in cash from corp b based on x the excess consideration if any plus c an amount equal to the amount of cash and shares of corp b common_stock allocated to a bonus pool for certain directors and employees of corp a the bonus pool that is in fact not paid to such directors or employees divided by the number of equity interests as of the effective time the additional consideration if any or ii cash consideration a the right to receive an amount of cash from corp b equal to b plus b the right to receive the excess consideration if any plus plr-149659-06 c the additional consideration if any there will be no dissenters to the transaction cash will be paid in lieu of any fractional shares of corp b common_stock the total merger consideration in the transaction will be comprised of stock consideration and cash consideration all excess consideration will be paid in cash by corp b except to the extent such excess consideration must be paid in shares of corp b common_stock as necessary to cause the merger to be treated as a reorganization under sec_368 of the internal_revenue_code the remaining merger consideration which is all of the merger consideration other than excess consideration in cash will be paid in the relative proportions based on each member’s election of cash and or shares of corp b common_stock subject_to the certain limitations including the following the sum of a the total aggregate cash consideration paid to members excluding any excess consideration paid to members in cash plus the aggregate cash paid in lieu of fractional shares and b the portion of the bonus pool that is paid in cash to corp a employees and directors may not exceed dollar_figurec based on a calculation of the merger consideration on date a this amount of cash consideration represents approximately ------ of the merger consideration at the effective time i each corp a trading right will become solely the right to access the facilities to engage in the trading rights and privileges associated with business a as operated by surviving corp a surviving corp trading right and ii each corp a trading permit will become solely the right to engage in specified trading activities associated with business a as operated by surviving corp a surviving corp trading permit the surviving corp trading rights will have rights that do not differ materially from the corp a trading rights and the surviving corp trading permits will have rights that will not differ materially from the corp a trading permits representations the following representations have been made regarding the proposed transaction a the fair_market_value of the corp b common_stock and cash from corp b received by each corp a member in the proposed transaction will be approximately equal to the fair_market_value of the corp a equity interests surrendered in exchange therefor plr-149659-06 b at the time of the proposed transaction corp a will not have outstanding any warrants options convertible securities or any type of right pursuant to which any person could acquire corp a equity interests c at least of the proprietary interest in corp a will be exchanged for corp b common_stock and will be preserved within the meaning of sec_1_368-1 d neither corp b nor any person related to corp b within the meaning of sec_1_368-1 has any plan or intention to reacquire any corp b common_stock issued in the transaction to corp a members in exchange for any consideration other than corp b common_stock e surviving corp will acquire at least of the fair_market_value of the net assets and at least of the fair_market_value of the gross assets held by corp a immediately prior to the proposed transaction for purposes of this representation amounts paid_by corp a to its members who receive cash or other_property corp a assets used to pay its reorganization expenses and all redemptions and distributions made by corp a immediately preceding the proposed transaction will be included as assets of corp a held immediately prior to the proposed transaction f prior to the proposed transaction corp b will be in control of surviving corp within the meaning of sec_368 of the code g following the proposed transaction surviving corp will not issue additional shares of its stock that would result in corp b losing control of surviving corp within the meaning of sec_368 h corp b has no plan or intention to reacquire any of its stock issued in the proposed transaction i neither corp b nor any of its affiliates has any plan or intention to liquidate surviving corp to merge surviving corp with or into another corporation or to sell or otherwise transfer or dispose_of any of the assets of corp a acquired in the proposed transaction except for transfers or dispositions made in the ordinary course of business or transfers described in sec_368 and sec_1_368-2 j the liabilities of corp a assumed by surviving corp and the liabilities to which the corp a assets are subject were incurred by corp a in the ordinary course of its business and are associated with the assets transferred k following the proposed transaction surviving corp will continue the historic_business of corp a within the meaning of sec_1_368-1 plr-149659-06 l each of corp a corp b surviving corp and the corp a members will pay their respective expenses if any incurred in connection with the proposed transaction except that i surviving corp shall pay all property and transfer_taxes imposed in connection with the proposed transaction and ii expenses_incurred in connection with the filing printing and mailing of the proxy statement and the registration_statement will be shared equally by corp a and corp b m there is no intercorporate indebtedness existing between corp a and corp b or between surviving corp and corp a that was issued acquired or will be settled at discount n none of corp a corp b or surviving corp is an investment_company as defined in sec_368 and iv o corp a is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 p none of the compensation received by any corp a member who is also an employee of corp a a member-employee will be separate consideration for or allocable to any of their equity interests and none of the shares of corp b common_stock received by any member-employee in the proposed transaction will be separate consideration for or allocable to any employment agreement q the fair_market_value of the assets of corp a transferred to surviving corp will equal or exceed the sum of the liabilities assumed by surviving corp plus the amount of liabilities if any to which the corp a assets are subject r no equity interests of surviving corp will be issued in the proposed transaction s the distribution of cash in lieu of fractional shares of corp b common_stock is undertaken solely for the purpose of saving corp b the expense and inconvenience of issuing and transferring fractional shares and is not separately bargained-for consideration t corp a corp b and surviving corp will report the proposed transaction in compliance with sec_1_368-3t a rulings based solely on the information submitted and the representations set forth above we rule as follows regarding the proposed transaction plr-149659-06 provided that the merger qualifies as a statutory merger in accordance with applicable state law the merger as described above will qualify as a reorganization within the meaning of sec_368 and sec_368 of the code corp a corp b and surviving corp will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by corp a upon the transfer of corp a assets to surviving corp in exchange for corp b common_stock cash and the assumption of corp a liabilities by surviving corp sec_361 and sec_357 no gain_or_loss will be recognized by corp b and surviving corp on the receipt by surviving corp of the assets of corp a in exchange for corp b common_stock cash and the assumption by surviving corp of the liabilities of corp a rev_rul c b the basis of the assets of corp a acquired by surviving corp will be the same as the basis of such assets in the hands of corp a immediately prior to the proposed transaction sec_362 the holding_period of the assets of corp a in the hands of surviving corp will include the period during which such assets were held by corp a sec_1223 no gain_or_loss will be recognized by the corp a members on the receipt of solely corp b common_stock in exchange for their corp a equity interests in the proposed transaction sec_354 the basis of the corp b common_stock received by the corp a members will be the same as the basis of the corp a equity_interest surrendered in exchange therefor sec_358 gain if any will be recognized by corp a members upon the receipt of corp b common_stock and cash in the proposed transaction but in an amount not in excess of the cash received sec_356 if the exchange has the effect of the distribution of a dividend determined with the application of sec_318 then the amount of the gain recognized that is not in excess of the corp a member’s ratable share of undistributed_earnings and profits will be treated as a dividend sec_356 no loss will be recognized pursuant to sec_356 the basis of the corp b common_stock received by the corp a members will be the same as the basis of the corp a equity_interest surrendered in exchange therefor decreased by the amount of money and other_property received and increased by the amount if any which is treated as a dividend and the amount of gain not including the portion of such gain which would be treated as a dividend if any that may be recognized on such exchange sec_358 plr-149659-06 provided any corp a equity_interest is held as a capital_asset at the time of the proposed transaction the holding_period of the corp b common_stock received in exchange therefor will include the holding_period of such corp b equity_interest sec_1223 corp a members who receive cash in lieu of fractional shares of corp b common_stock in the proposed transaction will be treated as though such fractional share interests were distributed as part of the proposed transaction and then redeemed the treatment of cash received by such shareholders will be determined under sec_302 surviving corp will succeed to and take into account the items of corp a described in sec_381 subject_to the provisions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and regulations thereunder sec_381 immediately after the effective time surviving corp will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of corp a as of the effective time sec_381 to the extent any corp a member receives solely cash consideration in the proposed transaction from corp b in exchange for such corp a member’s equity interests the amount of gain recognized by such corp a member will be calculated under sec_1001 and sec_1_1001-1 holders of corp a trading permits will not realize gain_or_loss on the conversion of those rights into surviving corp trading permits in the proposed transaction sec_1001 and sec_1_1001-1 holders of corp a trading rights will not realize gain_or_loss on the conversion of those rights into surviving corp trading rights in the proposed transaction sec_1001 and sec_1_1001-1 the basis of the surviving corp trading permits received by each permit holder will be the same as such holder’s basis in the corp a trading permits held immediately before the proposed transaction the basis of the surviving corp trading rights received by each corp a member will be the same as such member’s basis in the corp a trading rights held immediately before the proposed transaction provided any corp a trading right or corp a trading permit is held as a capital_asset at the time of the proposed transaction the holding_period of the surviving corp trading rights or surviving corp trading permits received in proposed plr-149659-06 transaction will include the holding_period of such corp a trading right or corp a trading permit sec_1223 caveats no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or 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 in particular no opinion is expressed and none was requested regarding the distribution of the bonus pool to the directors or employees as described above procedural statements in accordance with the powers of attorney on file in this office a copy of this letter this letter is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent is being sent to each of your authorized representatives letter to its federal_income_tax return for the taxable_year in which the proposed transaction is 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 letter_ruling each taxpayer involved in the proposed transaction should attach a copy of this sincerely ____________________________________ lewis k brickates branch chief branch office of associate chief_counsel corporate


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br 1-plr-125321-01 date date legend a b c x y trust a b c dollar_figured e f plr-125321-01 state1 year1 d1 d2 d3 d4 this letter responds to your date request for a private_letter_ruling submitted on behalf of trust requesting rulings on the transactions described below facts according to the information submitted x is a state1 corporation incorporated in year1 x elected subchapter_s status for federal tax purpose effective d1 on d2 a created five irrevocable trusts including trust trust was created for the benefit of b a then transferred to trust a shares of stock in y a corporation for which an s election was in effect trust elected to be treated as a qualified_subchapter_s_trust qsst effective d2 on d3 y merged into x and trust received b shares of x stock in exchange for its stock in y under the terms of its trust agreement if trust holds or receives stock in an s_corporation the trustee is required to hold such stock in a separate s_corporation trust for the benefit of trust’s beneficiary b all of the net_income of the s_corporation trust is required to be distributed to that beneficiary at least annually so long as the s_corporation trust holds s_corporation stock upon termination of the s_corporation trust the remaining principal and accumulated income of the trust estate is required to be distributed to trust’s beneficiary b effective d4 trust purchased c additional shares of x from c pursuant to the stock purchase agreement the stock purchase agreement required trust to execute a promissory note the terms of the promissory note required_payment of dollar_figured payable in e monthly installments the promissory note is secured_by the stock of x the stock pledge agreement in conjunction with the stock purchase agreement trust executed a separate agreement the dividend agreement which provided that monthly payments under the promissory note would be made from cash distributions received from x by trust pursuant to the stock purchase agreement if any of the x stock purchased from plr-125321-01 c is sold by trust during the period of f years following the date of purchase trust must pay c an additional_amount equal to a defined percentage of the amount in excess of the purchase_price trust has represented that no sale was contemplated by trust at the time the stock purchase agreement was signed that none of the stock purchased from c has been sold since the date of the stock purchase agreement and that trust is unlikely to sell any of the stock purchased from c within the period of f years following the date of purchase law and analysis sec_1_1361-1 provides that for purposes of sec_1361 and d a substantially separate and independent share of a_trust within the meaning of sec_663 and the regulations thereunder is treated as a separate trust for a separate share which holds s_corporation stock to qualify as a qsst the terms of the trust applicable to that separate share must meet the qsst requirements stated in sec_1_1361-1 and ii under sec_1361 if the beneficiary of a qsst makes an election under sec_1362 the qsst is treated as a_trust described in sec_1361 and the beneficiary of such trust is treated as the owner of the portion of the trust which consists of stock in an s_corporation under sec_678 sec_1361 provides that a qsst is a_trust the terms of which require that during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust any corpus distributed during the life of the current income_beneficiary may be distributed only to the beneficiary the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of the beneficiary’s death or the termination of the trust and upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to the beneficiary in addition sec_1361 provides that the qsst must distribute or be required to distribute all of its income within the meaning of sec_643 currently to one individual who is a citizen or resident_of_the_united_states sec_1_1361-1 of the income_tax regulations provides in part that if the income_beneficiary transfers or assigns the income_interest or a portion of the income_interest to another the trust may no longer qualify as a qsst depending on plr-125321-01 the facts and circumstances because the transferee of the current income beneficiary’s income_interest and any person treated as a beneficiary under sec_1_643_c_-1 will be treated as a current income_beneficiary sec_1_1361-1 provides in part that the income_beneficiary who makes the qsst election and is treated for purposes of sec_678 as the owner of that portion of the trust that consists of s_corporation stock is treated as the shareholder for purposes of sec_1361 sec_1366 sec_1367 and sec_1368 based on the information submitted and representations made we conclude that the execution of the stock purchase agreement the stock pledge agreement and the dividend agreement will not cause trust to fail to qualify as a qsst and will not terminate the election by x to be treated as an s_corporation moreover the transfer of x stock to trust and the performance of the trustee’s obligations to trust will not terminate the election by x to be treated as an s_corporation except as specifically ruled on above we express no opinion about the federal tax consequences of any aspect of the above described transaction specifically no opinion is expressed as to whether x met or continues to meet the requirements of sec_1361 of the code or whether x’s s election terminated under sec_1362 as a result of events not specifically addressed and ruled on by this letter_ruling furthermore no opinion is expressed as to whether trust met or continues to meet the requirements of sec_1361 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 the taxpayer and to the taxpayer’s second authorized representative s david r haglund sincerely senior technical reviewer office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c date cc te_ge eoeg et2 uil o f f ic e o f c h ief c o u n sel number info release date dear mr this responds to your letter dated date requesting a private_letter_ruling on whether medicare contributions were properly deducted from the earnings_of the employee a teacher formerly employed by the the schools unfortunately we are not able to issue a ruling on this issue due to the fact that your submission does not comport with the requirements for requesting a private_letter_ruling revproc_2000_1 2000_1_irb_4 sets forth procedures for requesting letter rulings we have included a copy of revproc_2000_1 for your information if you request formal guidance such as a private_letter_ruling you should follow the procedures set forth in revproc_2000_1 in the absence of a request for formal guidance we are only able to provide general information accordingly in response to your request we have reviewed the facts provided to us and set forth below general information which we hope will be of assistance to you as we understand the facts of this matter the employee was appointed to a position as a teacher in the schools effective for the period from through in april of the employee was advised that she would not be reappointed to a teaching position for the determined that the employee was eligible to collect unemployment insurance benefits and the employee began applying for other positions within the schools on school year thereafter the state the employee was appointed to a different position as a part-time teacher in the schools_for the school year taxes under the federal_insurance_contributions_act fica consist of an old-age survivors and disability oasdi portion and a hospital insurance medicare portion fica_taxes are computed as a percentage of wages paid_by the employer and received by the employee with respect to employment in general all payments of remuneration by an employer for services performed by an employee are subject_to fica_taxes unless the payments are specifically excepted from the term wages or the services are specifically excepted from the term employment sec_3121 of the code generally excludes from employment services performed in the employ of any state or any political_subdivision thereof or any wholly- owned instrumentality of any one or more of the foregoing unless an agreement under sec_218 of the social_security act sec_218 agreement is in effect section of the consolidated omnibus budget reconciliation act of amended sec_3121 of the code to apply sec_3101 and sec_3111 the medicare_tax portion of the fica to wages for services rendered after date by newly hired employees of states and political subdivisions previously most employees of states and political subdivisions were not covered under the fica as their services were excepted from the term employment by sec_3121 sec_3121 provides a limited exception to sec_3121 subjecting certain state and local_government employees to medicare taxes but not old-age survivors and disability insurance taxes under sec_3121 except in limited circumstances services performed by state and local_government employees hired after date that are not subject_to a sec_218 agreement are employment for medicare_tax purposes under sec_3121 of the code services performed by state_or_local_government employees hired on or before date continue to be exempt from medicare taxes if sec_3121 otherwise applies provided that the employees were performing regular and substantial services for remuneration for that employer before date their employment relationship with that employer was not entered into for the purpose of meeting the exception under sec_3121 and their employment relationship with that employer has not been terminated after date this is referred to as the continuing employment exception to the medicare_tax revrul_86_88 1986_2_cb_172 states the service’s position concerning the continuing employment exception to the applicability of the medicare_tax revrul_86_88 provides that the continuing employment exception does not apply to an employee that was performing regular and substantial services for remuneration prior to date and who was terminated after date and then subsequently rehired q a revrul_86_88 states the question of whether an employment relationship has been terminated is a question of fact that must be determined on the basis of all the relevant facts and circumstances great weight however will be given to the personnel rules of the state employer or political_subdivision employer to determine if an employment relationship has been terminated q a this letter provides general information only it describes well-established interpretations or principles of tax law without applying them to a specific set of facts it is advisory only and has no binding effect with the internal_revenue_service this letter is intended only to provide you with general guidance for determining how to comply with applicable law the attorney assigned to this matter is leo latella employee id he can be reached at sincerely jerry e holmes chief employment_tax branch office of the assistant chief_counsel exempt_organizations employment_tax government entities enclosure


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl plr-150894-01 date date legend taxpayer branch a b dates a b individuals a b cpa firm dear this replies to your letter dated date requesting that taxpayer be granted an extension of time under sec_301_9100-3 to file the agreement described in sec_1_1503-2 with respect to the losses of branch a occurring in the tax years ended on dates a and b and with respect to the losses of branch b for the tax_year ended on date b additional information was submitted in a letter dated date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon 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 material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process individual a is the secretary of taxpayer and individual b is a partner with cpa firm the affidavits of individuals a and b describe the circumstances surrounding the discovery and failure_to_file the agreements the affidavits and the facts submitted show that taxpayer relied on cpa firm and cpa firm failed to file the agreements with the tax returns for the tax years ended on dates a and b sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 in re plr-150894-01 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i 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 in the present situation the agreement is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to file the agreement described in sec_1 g i with respect to the losses of branch a occurring in the tax years ended on dates a and b and with respect to the losses of branch b for the tax_year ended on date b the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the agreements sec_301_9100-1 a copy of this ruling letter should be associated with the agreements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented sincerely s allen goldstein allen goldstein reviewer office of the associate chief_counsel international


t c no united_states tax_court peter m and susan l hoffman petitioners v commissioner of internal revenue respondent docket no 16028-99l filed date on date ps timely filed a joint federal_income_tax return on which they reported that they held a general_partner interest in one partnership and limited_partner interests in five partnerships and did not under sec_469 i r c materially participate in any of the partnerships on date ps filed an amended_return for reporting additional income and remitting the tax due on that additional income on date r assessed the additional tax_liability reported on the amended_return and assessed other_amounts for a penalty and interest on that additional tax_liability subsegquently r issued to ps a notice_of_intent_to_levy and ps requested and received a hearing under sec_6330 i r c at the hearing ps contended that the additional tax_liability reported in the penalty and the interest were all assessed after the expiration of the period of limitations and that they were entitled to a refund of the amount_paid with the a amended_return r rejected those arguments in a notice_of_determination issued to ps sustaining the proposed levy r determined that the applicable_period of limitations is the 6-year period under sec_6501 a i r c and that the assessment was timely because the amended_return was filed days before the expiration of the 6-year period r argues that the 6-year period applies because r asserts the reference to gross_income stated in the return in sec_6501 a i r c does not include any of the income of the partnerships given that ps neither actively nor materially participated in the trade_or_business of any of those partnerships held the 6-year period of limitations in sec_6501 e a i r c is inapplicable and the assessment made on date was untimely ps’ gross_income stated in the return is determined by reference to the information returns of the partnerships steven toscher stuart a simon and bruce i hochman for petitioners daniel m whitley and irene s carroll for respondent opinion laro judge petitioners petitioned the court under sec_6330 and the parties submitted the case to the court fully stipulated see rule we decide herein whether respondent assessed certain amounts against petitioners within the period allowed by sec_6501 we hold respondent did not unless otherwise indicated section references are to applicable versions of the internal_revenue_code rule references are to -3- the tax_court rules_of_practice and procedure petitioners resided in los angeles california when the petition was filed peter m hoffman and susan l hoffman mr hoffman and ms hoffman respectively filed a joint federal_income_tax return for before filing that return they requested from respondent two extensions of time to file both of which were granted their federal_income_tax return the original return was received by respondent on date the original return reported that either mr or ms hoffman was a partner in the following partnerships twelve star partners ltd thirteen star partners limited cabrillo palms associates desert investments joliet television stations l p and orbis television stations l p the original return reported that either mr or ms hoffman held a limited_partner interest in the partnerships except for desert investments in which the original return reported that one of petitioners was a general_partner the original return reported that neither petitioner materially participated in the activities of any of these partnerships within the meaning of sec_469 the original return reported that petitioners also were shareholders in an s_corporation cinema products corp cinema and that they did not materially participate in the activity of cinema respondent no longer has copies of any of the six partnerships’ federal tax returns for and the schedules k-1 partner’s share of income credits deductions etc are not in the record respondent has a copy of cinema’s form_1120s u s income_tax return for an s_corporation the original return reported gross_income from wages interest a state tax_refund miscellaneous income and rental income totaling dollar_figure the original return also reported long-term_capital_gain of dollar_figure from the partnerships and sec_1231 gain of dollar_figure from the s_corporation the record does not indicate the gross_income of the six partnerships on date petitioners filed an amended federal_income_tax return the amended_return that was prepared by their accountant the amended_return shows an additional tax_liability of dollar_figure without statutory additions which was based upon dollar_figure of gross_income that was omitted from the original return the amount omitted from the original return relates to cancellation_of_indebtedness_income that petitioners did not report ' respondent asserted in the answer that the amended_return was filed pursuant to a plea agreement that settled a criminal case brought against mr hoffman see united_states v hoffman no cr a -jgd c d cal the criminal case respondent later conceded that the amended_return was not filed as a condition to the plea agreement respondent never issued a notice_of_deficiency to petitioners for -5- at or about the time that petitioners filed the amended_return they remitted payment for the dollar_figure respondent assessed the additional tax shown on petitioners’ amended_return on date which i sec_59 days after the amended_return was filed on date respondent issued to petitioners a notice_of_intent_to_levy and notice of your right to a hearing notice_of_intent_to_levy the notice_of_intent_to_levy is not contained in the record the court understands that respondent proposes to effect the levy to collect interest and penalties related to the amount of additional tax_liability reported in the amended_return the record does not disclose the type of penalties respondent assessed on date petitioners timely requested a hearing under sec_6330 in their reguest petitioners stated that we are disputing any balance due and are requesting a refund of dollar_figure paid in error mr and mrs hoffman filed a form 1040x in for the year they paid dollar_figure of additional tax with this form the irs is attempting to collect accumulated interest and penalty on said amended_return sic the amended_return was filed subsequent to the expiration of the statute_of_limitations and was therefore invalid assessment of penalties and interest is incorrect the taxpayers are now aware of their error and intend to file a claim_for_refund of the dollar_figure paid utilizing the format enclosed --6- the request for a hearing was accompanied by a written request for a refund using form 1040x amended u s individual_income_tax_return for the additional dollar_figure paid with the amended_return the request for refund stated that taxpayer filed form 1040x and paid dollar_figure of additional taxes for in date this was subseguent to the tolling of statute_of_limitations and as such was not valid this form is being completed as a claim_for_refund it is being filed within the year period of remittance of the erroneous tax payment sec_6511 b b a notice_of_determination concerning collection action s under sec_6320 and or was sent to petitioners on date the appeals officer determined that petitioners raised the issue of the timely filing of your court ordered amended_return in your 2nd amended_return which sought refund of the tax paid with the court ordered amended_return the statute_of_limitations had been extended by three years to a six year statute due to an amount of unreported income which was in excess of of your agi your court ordered amended_return was filed on date exactly two days prior to the six year statute of date you have no basis for the refund of tax paid with your court ordered amended_return and accordingly no basis for relief from the interest charged on such deficiency you requested a collection_due_process_hearing your representative appeared at the hearing and indicated that you felt that the proposed levies were intrusive because you had filed your court ordered amended_return after the statute_of_limitations had expired if the statute_of_limitations had expired it would mean that the payment you made when the amended_return was filed was a voluntary payment and there was no basis for charging interest on the voluntary payments additionally you sought refund of tax paid with such court ordered amended_return in the amount of dollar_figure _7- it is determined that you have no basis for refund of dollar_figure nor is there basis for relief from the statutory interest being sought by the government you have offered no other alternative means of disposing of your liability accordingly standard collection means will be pursued in making this determination the appeals officer did not review the tax returns for the six partnerships in which petitioners were partners in this proceeding petitioners’ sole allegation is that the appeals officer erroneously determined that the assessment of the penalty and interest was proper petitioners allege that the assessments were made after the expiration of the period of limitations provided in sec_6501 we agree that the assessment was untimely any amounts assessed paid or collected after the expiration of the period of limitations are overpayments sec_6401 173_f3d_503 4th cir 44_f3d_328 5th cir bwing v united_states 914_f2d_499 4th cir 944_f2d_1063 3d cir accordingly if the period of limitations expired before either formal assessment by respondent or payment by petitioners then petitioners are not liable for any_tax on the cancellation_of_indebtedness_income 93_tc_145 38_tc_875 any payment by a taxpayer -8- of a barred tax_liability whether voluntary or involuntary automatically becomes an ‘overpayment’ and hence subject_to mandatory refund under sec_6402 if petitioners’ liability for the tax attributable to the cancellation_of_indebtedness_income was eliminated by the expiration of the period of limitations petitioners cannot be liable for any interest or a penalty respondent contends that the additions to tax were timely assessed pursuant to exceptions to the general 3-year period of limitations sec_6501 e respondent has conceded that petitioners were not contractually obligated to file the amended_return as part of the plea agreement that settled the criminal proceeding moreover respondent has conceded that petitioners are not estopped from asserting the defense of period of limitations merely because they voluntarily filed an amended_return and paid the additional tax_liability a standard of review where the validity of the underlying tax_liability is properly at issue in an appeal brought under sec_6330 the court will review the taxpayer’s liability under the de novo standard where the underlying liability is not at issue the court will review the commissioner’s administrative determination for abuse_of_discretion 114_tc_604 to determine which standard of review applies the court must decide whether petitioners’ underlying tax_liability is at issue a taxpayer may challenge the existence or amount of the underlying tax_liability for any_tax period if the taxpayer did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability sec_6330 b at the hearing petitioners questioned whether the assessment had been made within the limitations_period raising the issue of whether the limitations_period has expired constitutes a challenge to the underlying tax_liability 117_tc_127 see also macekelvain v commissioner tcmemo_2000_320 under sec_6330 b the underlying liability is properly at issue if the taxpayer did not receive any statutory_notice_of_deficiency or did not otherwise have an opportunity to dispute the tax_liability 114_tc_176 an opportunity to dispute a liability includes a prior opportunity for a conference with appeals that was offered either before or after the assessment of the liability sego v commissioner supra pincite in the instant case respondent’s assessment was the result of petitioners’ voluntarily filed amended_return no notice_of_deficiency was issued to petitioners and petitioners have not otherwise had an opportunity to dispute the tax_liability --10- accordingly whether the assessment was made during the limitations_period is reviewed de novo b period of limitations sec_6501 generally provides that a valid assessment of income_tax_liability may not be made more than years after the later of the date the tax_return was filed or the due_date of the tax_return this 3-year period as to petitioners’ taxable_year expired before respondent assessed the statutory additions at issue in order for respondent’s assessment of the statutory additions to be timely an exception to the general 3-year period of limitations must apply burden_of_proof petitioners contend that respondent assessed the relevant amounts for after the expiration of the 3-year period of limitations in sec_6501 the bar of the period of limitations is an affirmative defense and the party raising this sec_6501 provides in pertinent part as follows sec_6501 limitations on assessment and collection a general_rule ---except as otherwise provided in this section the amount of any_tax imposed by this title shall be assessed within years after the return was filed whether or not such return was filed on or after the date prescribed and no proceeding in court without assessment for the collection of such tax shall be begun after expiration of such period the original return for was filed on date and the assessments of penalties and interest were made on date --11- defense must specifically plead it and prove it rule sec_39 sec_142 a 101_tc_374 affd without published opinion 40_f3d_385 5th cir because petitioners have pleaded the defense properly we proceed to address their contention in guestioning the validity of the assessment by asserting that it was made after the expiration of the 3-year period of limitations petitioners initially must prove the filing_date of their tax_return and that respondent assessed the relevant amounts after the expiration date of the 3-year period 142_f2d_900 6th cir affg 1t c as modified by a memorandum opinion of this court dated date harlan v commissioner 1t c and cases cited therein see mecom v commissioner supra pincite respondent concedes that petitioners have proven both prongs thus petitioners have established a prima facie case that the period of limitations precludes respondent from making the relevant assessment for and the burden of going forward shifts to respondent see mecom v commissioner supra pincite respondent must introduce evidence that the assessment for is not barred by the period of limitations under sec_6501 id if respondent makes such a showing the burden of going forward with the evidence shifts back to petitioners id pincite notwithstanding the shifting of the burden of going forward the burden of ultimate persuasion --12 - never shifts from the party who pleads the bar of the period of limitations 51_f2d_1042 8th cir affg 17_bta_848 mecom v commissioner supra pincite n six-year period of limitations respondent relies on the 6-year period of limitations under sec_6501 as an exception to the general 3-year period sec_6501 generally provides that a 6-year period of limitations is applicable when a taxpayer omits_from_gross_income an amount includable therein which is greater than percent of the amount of gross_income stated in the return once sec_6501 provides in pertinent part as follows sec_6501 substantial omission of items --except as otherwise provided in subsection c -- income taxes ---in the case of any_tax imposed by subtitle a-- a general_rule ---if the taxpayer omits_from_gross_income an amount properly includible therein which is in excess of percent of the amount of gross_income stated in the return the tax may be assessed or a proceeding in court for the collection of such tax may be begun without assessment at any time within years after the return was filed for purposes of this subparagraph-- i in the case of a continued --13- petitioners establish the prima facie case that the general period of limitations has expired respondent bears the burden of going forward to establish that the amount petitioners omitted exceed sec_25 percent of the gross_income reported in their return it is well established in this court that for purposes of sec_6501 a taxpayer-partner’s return includes the information returns of partnerships of which the taxpayer was a member and that were identified on the taxpayer-partner’s return harlan v commissioner supra 48_tc_921 continued trade_or_business the term gross_income means the total of the amounts received or accrued from the sale_of_goods or services if such amounts are required to be shown on the return prior to diminution by the cost of such sales or services and in determining the amount omitted from gross_income there shall not be taken into account any amount which is omitted from gross_income stated in the return if such amount is disclosed in the return or ina statement attached to the return in a manner adequate to apprise the secretary of the nature and amount of such item -14- accordingly to satisfy the burden of going forward respondent must provide evidence to show the amounts of gross_income reported on the partnership and s_corporation returns or to show that no such returns were filed davenport v commissioner supra pincite 44_tc_80 respondent has provided none of the income_tax returns for the six partnerships of which petitioners were partners moreover respondent has not alleged much less established that any of the six partnerships failed to file returns for instead respondent alleges that his burden of going forward does not include production of the partnership returns we disagree the 6-year period of limitations provided for in sec_6501 is implicated if the taxpayer omitted from gross_income an amount greater than percent of the taxpayer’s gross_income as stated on the federal_income_tax return the amount petitioners omitted the numerator in the calculation is not in dispute in this case the amount omitted is dollar_figure the parties disagree however as to the amount of gross_income stated in their return gross_income is not defined in sec_6501 we have held however that the general definition of gross_income found in the code applies to sec_6501 except for the modification provided in sec_6501 e a n ind pub serv co --15- subs v commissioner 101_tc_294 n sec_6501 e a provides a special definition of gross_income in the context of a trade_or_business that section provides that as applied to a trade_or_business gross_income includes the total of the amounts received or accrued from the sale_of_goods or services before diminution by the cost of those sales or services sec_6501 a with regard to a taxpayer- partner we have interpreted this provision as requiring that a taxpayer’s gross_income include her share of the partnership’s gross_receipts from the sale_of_goods or services 116_tc_31 63_tc_585 n affd 537_f2d_701 2d cir in essence the taxpayer-partner’s share of the partnership’s gross_receipts is used in determining total gross_income of the taxpayer the denominator in our calculation here respondent argues that petitioners’ interests in the six partnerships do not implicate sec_6501 e a according to respondent if the partner did not actively participate in the partnership the partner is not engaged ina trade_or_business and the gross_receipts definition of sec_6501 e a not implicated thus respondent contends the general meaning of gross_income should apply and only the taxpayer-partner’s share of income from the partnership that was already included in the taxpayer-partner’s return is included in the calculation of gross_income such an approach would eliminate the need to review the partnership’s tax returns and respondent would have satisfied his burden we have not previously addressed whether sec_6501 e a is applicable only to situations in which the taxpayer-partner did materially or actively participate in the partnership we hold that it is not so limited a general_partner may be deemed to be conducting the trade_or_business activity of the partnership of which she is a member 133_f2d_173 1st cir 91_tc_222 86_tc_1326 78_tc_471 affd 722_f2d_695 11th cir hagar v commissioner 76_tc_759 20_tc_332 affd 224_f2d_547 9th cir cluet v commissioner t1t c see sec_1_702-1 income_tax regs see generally revrul_92_17 1992_1_cb_142 moreover the trade_or_business of the partnership may be imputed to a general_partner irrespective of the fact that the partner did not actively or materially participate in the partnership 31_tc_910 affd 279_f2d_115 6th cir it is also possible for the trade_or_business activity of a limited_partnership to be imputed to a limited_partner newhall unitrust v commissioner 104_tc_236 affd --l17- 105_f3d_482 9th cir 36_tc_1097 additionally an individual taxpayer may be engaged in more than one trade_or_business 138_f2d_910 4th cir affg a memorandum opinion of this court respondent argues that we should not impute the trade_or_business of a partnership to a partner limited or general who does not actively or materially participate in a partnership essentially respondent suggests sec_6501 e a does not include those activities that qualify as passive activities under sec_469 respondent has provided no support for this argument other than his view that a partner who does not materially participate in a partnership is simply an investor we see no reason to so limit the application of sec_6501 e a that provision of the code does not indicate that a partner must materially or actively participate in the trade_or_business in fact respondent has conceded that the partnerships are engaged in trade_or_business activities we hold that sec_6501 e a does not require that a partner materially participate as defined by sec_469 in the trade_or_business activity the gross_receipts definition of gross_income provided in sec_6501 e a 1s implicated and petitioners’ gross_income for purposes of that provision includes their share of the --18- partnerships’ gross_receipts respondent has not shown whether desert investments or the other partnerships filed federal_income_tax returns and if so the amount of gross_receipts reported therein we conclude that respondent has failed to meet his burden of production with respect to establishing the amount of gross_income stated on petitioners’ federal_income_tax return respondent has failed to show that the 6-year period of limitations is applicable therefore the general 3-year period of limitations is applicable sec_6501 petitioners’ return was filed on date and the 3-year period of limitations ended on date any amounts assessed paid or collected after that date are barred by expiration of the period of limitations sec_6401 thus petitioners’ liability for the tax on the cancellation_of_indebtedness_income was eliminated when the period of limitations expired before either formal assessment by respondent or payment by petitioners 93_tc_145 38_tc_875 petitioners have no liability for interest or a penalty relating to a tax_liability that was eliminated by the expiration of the period of limitations accordingly respondent’s proposal -1 q- to levy upon petitioners’ property to collect those amounts is improper decision will be entered for petitioners