t c memo united_states tax_court estate of sylvia gore deceased pamela powell personal representative petitioner v commissioner of internal revenue respondent docket no filed date paul r hodgson edith f moates and james e poe for petitioner elizabeth downs for respondent this opinion supplements our previously filed opinion in estate of gore v commissioner tcmemo_2007_169 supplemental memorandum opinion marvel judge petitioner and respondent filed computations for entry of decision under rule we must decide which party’s method of computation is appropriate in determining the amount of petitioner’s estate_tax deficiency background on date the court filed its opinion estate of gore v commissioner tcmemo_2007_169 in this estate_tax case and the related gift_tax case consolidated therewith estate of gore v commissioner docket no gift_tax case but withheld entry of decision so that the parties could submit computations under rule on september and respectively petitioner and respondent filed their computations for entry of decision in this estate_tax case because petitioner’s and respondent’s computations conflicted we scheduled a hearing on the unagreed rule_155_computations and ordered the parties to file statements detailing the items of disagreement and the reasons for the dispute on date petitioner filed a detailed statement of the items of disagreement petitioner contends that respondent’ sec_1 unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure the parties entered into an agreement resolving the computation of petitioner’s gift_tax liability and decision was entered in the gift_tax case on date rule computation raises a new issue because it eliminates the dollar_figure gift_tax deduction that respondent allowed in calculating the estate_tax deficiency he determined in the date estate_tax notice_of_deficiency petitioner argues that because respondent did not contest the gift_tax deduction before submitting his rule computation respondent’s attempt to disallow the gift_tax deduction raises a new issue which is prohibited by rule c accordingly petitioner’s rule computation begins with the deficiency set forth in the date estate_tax notice_of_deficiency dollar_figure from that amount petitioner subtracts the following credit allowed for taxes paid to oklahoma state as of statutory notice dollar_figure total state death_tax paid as of dollar_figure dollar_figure balance of state_death_tax_credit additional expense submitted to irs and accepted executors fee paid to pamela powell interest to oklahoma negotiated to one-half of billed amount dollar_figure dollar_figure dollar_figure total additional expenses without federal interest included dollar_figure tax on above amount pincite percent dollar_figure big_number balance on tax dollar_figure on date respondent filed his statement regarding the rule computation dispute respondent’s computation rule c provides that no argument will be heard upon or consideration given to the issues or matters disposed of by the court’s findings and conclusions or to any new issues reflects an increased deficiency over the amount determined in the estate_tax notice_of_deficiency because in calculating the estate_tax deficiency in the notice respondent claims he erroneously allowed a dollar_figure gift_tax deduction respondent argues that no gift_tax liability existed because decedent’s transfer of the marital fund assets to the gore family limited_partnership gflp was incomplete for gift_tax purposes respondent contends that in estate of gore v commissioner tcmemo_2007_169 we held that the alleged transfer did not constitute a gift because decedent did not relinquish control_over the marital fund assets in addition respondent argues that the decision in the gift_tax case which petitioner stipulated reflects that petitioner had no gift_tax deficiency and provides that all gift_tax payments be credited against petitioner’s estate_tax deficiency removing the gift_tax deduction from his computation and incorporating certain credits and deductions claimed by petitioner respondent determined an respondent apparently assumed that the gift_tax deficiency that was the subject of the gift_tax case would be sustained by this court and calculated the gift_tax deduction accordingly though the deduction has turned out to be erroneous at the time of its allowance it was consistent with respondent’s position in the gift_tax case it seems that respondent’s error if he committed any was in not taking an inconsistent_position in the estate_tax case to protect the revenue in his determination respondent found that petitioner had not substantiated the dollar_figure claimed as executor’s fees or dollar_figure of the dollar_figure petitioner claimed as death taxes paid continued estate_tax deficiency of dollar_figure respondent however limited the deficiency asserted in his rule computation to dollar_figure the amount determined in the estate_tax notice_of_deficiency on date we conducted a hearing on the rule computation issue counsel for both parties appeared and were heard at the hearing respondent’s counsel conceded deductions by petitioner for the dollar_figure in executor’s fees the additional dollar_figure in oklahoma estate_taxes and dollar_figure in attorney’s fees the only remaining issue is whether the erroneous gift_tax deduction allowed in the date estate_tax notice_of_deficiency should be included in the rule computation of petitioner’s estate_tax deficiency discussion under rule a after the court files its opinion determining the issues in a case the court may withhold its decision to allow the parties to submit computations of the correct amount of the taxpayer’s deficiency to be entered as the decision pursuant to the findings and conclusions of the court if the parties disagree on the amount of the deficiency to be entered as the decision either or both of them may file a computation of the deficiency they believe to be in accordance continued to the state of oklahoma with the findings and conclusions of the court at the court’s discretion the parties may then be given an opportunity to be heard in argument thereon and the court will determine the correct deficiency rule b however parties may not raise new issues or matters in their rule_155_computations see supra note see also rule c 287_us_308 the starting point for the computation is the notice_of_deficiency from which the parties compute the redetermined deficiency on the basis of matters agreed to by the parties or determined by the court see 91_tc_265 affd 875_f2d_377 2d cir petitioner contends that the issue regarding the gift_tax deduction is a new issue which respondent may not assert in his rule computation respondent concedes that he failed to recognize his computational error in the notice_of_deficiency and that he failed to plead an increased deficiency during litigation nevertheless respondent argues that the question of whether decedent’s transfer of the marital fund assets to gflp constituted a completed_transfer for gift_tax purposes was directly at issue in this estate_tax case and in the gift_tax case we agree with respondent while the notice_of_deficiency serves as a starting point for the rule computation the parties must compute the deficiency on the basis of the matters decided by the court see id petitioner cannot reasonably contend that the validity of the alleged transfer giving rise to the gift_tax deduction was not at issue at trial petitioner asserted various arguments relating to the transfer of assets to gflp but we ultimately held that decedent did not complete the transfer as claimed because the attempted transfer of the marital fund assets to gflp was not completed and did not constitute a gift a gift_tax liability attributable to the transfer of marital fund assets did not arise and no gift_tax deduction is warranted in the gift_tax case petitioner acknowledged this result by entering into an agreement recognizing that petitioner was not liable for any gift_tax deficiency and crediting all gift_taxes paid against petitioner’s estate_tax deficiency the allowance of a gift_tax deduction for dollar_figure would not reflect the findings of the court in this estate_tax case or result in a correct computation of petitioner’s estate_tax deficiency respondent’s computation incorporates the parties’ stipulations and the findings of the court and accounts for the appropriate credits and deductions claimed and substantiated by petitioner consequently we adopt respondent’s computation and conclude that petitioner’s estate_tax deficiency is dollar_figure to reflect the foregoing decision will be entered in accordance with respondent’s computation although respondent conceded several credits and expenditures at the date hearing that he did not include in his initial rule computation we note that whether or not respondent takes these additional expenses into account is irrelevant because the resulting estate_tax deficiency would still exceed dollar_figure


t c memo united_states tax_court ad investment fund llc community media inc a partner other than the tax_matters_partner petitioner v commissioner of internal revenue respondent ad global fund llc warsaw television cable corp a partner other than the tax_matters_partner petitioner v commissioner of internal revenue respondent docket nos filed date on account of ps' postdecision challenges to one of r's expert witnesses we will vacate our decisions which were substantially for r in order to reconsider our findings_of_fact and opinion upon reconsideration disregarding the challenged expert's testimony we reach the same conclusions and will reenter our decisions for r this opinion supplements our previously filed memorandum opinion ad inv fund llc tcmemo_2015_223 elliot silverman and orrin tilevitz for petitioners veronica l richards and daniel l timmons for respondent supplemental memorandum opinion halpern judge petitioners brought these cases for us to review two notices of final_partnership_administrative_adjustment fpaas we did so and reported the results of our review in our memorandum findings_of_fact and opinion memorandum opinion ad inv fund llc tcmemo_2015_ filed date we entered decisions substantially in respondent's favor on date with our permission because otherwise such motions would have been untimely see rule petitioners moved on date to vacate those decisions on the grounds that newly discovered evidence demonstrates that thomas murphy one of respondent's expert witnesses lied in both his expert report and his trial testimony as to his expert qualifications all rule references are to the tax_court rules_of_practice and procedure on date during a trial conducted by another division of the court in tucker v commissioner t c dkt no filed date voir dire of mr murphy revealed that he had not updated his curriculum vitae with respect to certain aspects of his employment history and the trials in which he had continued respondent does not object to our vacating our decisions in these cases we will vacate our decisions pursuant to rule at the suggestion of the parties we have reconsidered our findings and opinion disregarding mr murphy's expert testimony on the basis of that reconsideration for the reasons discussed below we will reenter our decisions for respondent background these cases involve six corporations that entered simultaneously into offsetting long and short currency options and then contributed the option spreads to either ad investment fund llc adi or ad global fund llc adg collectively llcs in less than a year the corporations disposed of their llc interests and reported huge tax losses from their investments on the theory that their tax bases in their llc interests equaled the cost of the long option or options that each had contributed to the llc unreduced by the offsetting short- option liability or liabilities that the llc had assumed continued testified in the prior four years as a result we did not permit mr murphy to testify in that case although petitioners did not do so we will treat petitioners as having made an untimely motion pursuant to rule for us to reconsider our findings or opinion we grant petitioners leave to so move and hereby grant the motion respondent examined the llcs' returns and by the fpaas he made adjustments to partnership items that would eliminate the losses reported by the corporations he justified his adjustments in part on the ground that the llcs had been formed and availed of solely for purposes of tax_avoidance by artificially overstating basis in the partnership interests of its purported partners because the transactions and partnership had no business_purpose other than tax_avoidance they lacked economic_substance and so respondent determined he would disregard them for tax purposes and disallow deductions for the related losses we conducted a trial in these cases and the testimony at trial consisted principally of expert testimony concerning the economics of option spreads respondent called two expert witnesses thomas murphy who was accepted by the court as an expert in valuing and trading foreign_currency options and john b finnerty ph d who was accepted by the court as an expert in finance with a particular expertise in derivatives petitioners called one expert witness scott d hakala ph d who was accepted by the court as an expert on the pricing of currency options with some familiarity with industry practice in our memorandum opinion ad inv fund llc v commissioner at we held that the llcs should not be recognized as entities for federal tax purposes and on that basis we sustained respondent's adjustments that would eliminate the loss deductions claimed by the corporations we found the evidence is overwhelming that the llcs were created and the option spread transactions were executed exclusively for tax_avoidance purposes mr haber the architect behind the llcs and the transactions at issue openly advertised the strategy as a way to generate tax losses the llcs themselves engaged in no transactions besides the economic equivalent of putting money in a bank each corporation joined and resigned from the llcs within the year participating in the transactions caused each corporation to completely offset what otherwise would have been a substantial tax_liability and if foreign_currency investing and diversification were the goal there were simpler alternatives with a higher probability of generating profit id at i findings on the basis of expert testimony discussion of those five numbered findings we made only two on the basis of expert testimony viz the llcs themselves engaged in no transactions besides the economic equivalent of putting money in a bank and if foreign_currency investing and diversification were the goal there were simpler alternatives with a higher probability of generating profit id at while mr murphy's testimony supports both of those findings there is corroborating testimony from one or both of the other expert witnesses ii essentially cash deposits mr murphy was of the opinion that the option transactions that the llcs entered into were equivalent to depositing cash in a bank the two adg option spreads and likewise the two adi option spreads were so deep in the money that they were essentially cash deposits dr finnerty was similarly of the opinion that the option transactions that the llcs entered into were so deeply in the money with fixed payoff amounts that they were effectively cash-equivalent positions dr finnerty was a credible witness and his testimony alone was sufficient for us to make our finding that the llcs engaged in no transactions besides the economic equivalent of putting money in a bank upon reconsideration we repeat that finding iii simpler alternatives likewise dr finnerty corroborated mr murphy's testimony that the option pairs acquired by the corporations were not particularly good investments as we reported in our memorandum opinion ad inv fund llc v commissioner at dr finnerty credibly testified that neither the option spreads nor their contribution to the llcs provided the corporations with any additional risk diversification hedging or profit potential when compared to purchasing a single long option and holding the option outside of the llc on the basis of his testimony we found that fxis mr haber's foreign_currency investment strategy was complex and unnecessary any actual diversification achieved was minimal and it could have easily been achieved without an llc id also on the basis of his testimony we found the yen the euro and the canadian dollar some of the currencies used to implement fxis 'are obtained and traded with ease by lay investors without the need for third-party investment management ' id dr hakala petitioners' expert did not explain why the corporations entered into more complicated transactions when simpler ones with higher probabilities of profit were available even opining that he did not see anything that suggested an intent of really beating the market at a sophisticated level id at alteration in original when asked whether he thought the purpose of the option spreads was actually to profit from foreign_currency markets in the light of the fact that the purported tax benefits made profiting immaterial he stated i understand that to some extent as i would say the tail wagged the dog id at petitioners called ronald buesinger as a fact witness he is an experienced option trader who had assisted mr haber in implementing fxis he testified that he had priced the option trades that were necessary to execute fxis and was very familiar with the economics of the trades he further testified that he had negotiated the terms of the trades with lehman brothers commercial corp lehman which was both the counterparty and the calculation agent for those trades he testified that lehman was uncomfortable with the risk that the option spreads would expire on the sweet spot the remote possibility that on the expiration of an option pair the long option is in the money but the short option is not which risk figured in setting the market spread to be taken into account in determining whether the sweet spot was hit he acknowledged that if mr haber was concerned about the net payoff amount from options trades then a simpler strategy would have been to invest in single we assume unpaired option transactions and while the existence of a sweet spot undoubtedly offered the corporations and the llcs at least the theoretical possibility of a huge payout mr buesinger analogized the probability of hitting the sweet spot to hitting the lottery or hitting the head of a pin mr murphy was certain that the sweet spot would never be hit he testified that lehman as the calculation agent had as counterparty lehman bought the options that the corporations sold it would receive payouts from the corporations if the options expired in the money and sold the options that the corporations bought it would have to make payouts to the corporations if the options expired in the money as calculation agent lehman was responsible for determining the exchange rate price when the options expired see ad inv fund llc v commissioner at n discretion to pick from a range of prices wider than the sweet spot and that under the terms of the relevant trade confirmations neither lehman or the corporations owed a fiduciary duty to the other he testified that it would be both commercially reasonable and in its interest as the counterparty to the transaction for lehman to pick a price not at the sweet spot mr murphy convinced us that lehman would not have closed a transaction on the sweet spot ad inv fund llc v commissioner at and we found that the option spreads at issue would never have expired on the 'sweet spot' id at there is however other testimony that putting aside mr murphy's testimony leads us to the same conclusion dr finnerty was of the opinion that the probability that the paired options would have expired on the sweet spot is essentially zero his reasoning was similar to mr murphy's as the calculation agent and the counterparty technically exposed to this risk ie payoff if the sweet spot is hit it seems very unlikely that lehman would allow the paired options to actually expire within the sweet spot lehman would take advantage of the flexibility that it had in determining terms dr hakala conceded that as a practical matter the option more specifically mr murphy testified that the market spread on exchange rates was three pips wide and calculation agents such as lehman would have discretion to pick a price at least within that range because the sweet spot for all of the option spreads was only one pip wide it in effect gave lehman discretion to always pick a price outside of the sweet spot spread would never actually expire on the sweet spot id at he added that he had never seen it happen and that if the option spread was close to being in the money the parties would close it out before expiration at an agreed price id and while that might mean that a spread owner could profit from a spread that was not actually in the money if it were close to being in the money near to its expiration date or might enjoy an increased profit if the spread were already in the money and close to the sweet spot near to its expiration date dr hakala did not quantify the price bonus that would be agreed upon to avoid the possibility of an option spread's expiring on the sweet spot for that reason we cannot do much with his opinion that the parties would price away the risk of a sweet spot hit and we see no reason to change our fifth numbered finding ie if foreign_currency investing and diversification were the goal there were simpler alternatives with a higher probability of generating profit disregarding mr murphy's testimony does not change our assumption expressed in that finding that there were simpler alternatives with a higher probability of generating a profit upon reconsideration of the expert testimony disregarding mr murphy's testimony we make the same fifth numbered finding that we made in our memorandum opinion ad inv fund llc v commissioner at viz if foreign_currency investing and diversification were the goal there were simpler alternatives with a higher probability of generating profit iv conclusion we will vacate our decisions in order to reconsider our memorandum opinion upon reconsideration we make the same five findings_of_fact set forth supra on which we relied in our memorandum opinion id at also we reach the same conclusions that we reached in our memorandum opinion the llcs were created solely for tax_avoidance purposes and for that reason we do not recognize them as entities for federal tax purposes since they are not tax-recognized entities they are ineligible to be classified as partnerships for federal tax purposes see sec_301_7701-3 proced admin regs because they cannot be classified as partnerships for federal tax purposes there was no partnership loss and there were no partnership deductions no contributions to the purported partnership and no distributions from a partnership to its purported partners adjustment of those partnership items to zero is appropriate tigers eye trading llc v commissioner t c pincite likewise because the llcs are not tax-recognized entities neither the corporations nor dgi or alpha could have any membership interest in the llcs in which they could have any_tax basis see logan tr v commissioner f app'x pincite emphasizing that a court is not required to shut its eyes to the legal impossibility of any partner's possessing an outside_basis greater than zero in a partnership that for tax purposes d oes not exist quoting united_states v woods u s ___ ___ 134_sct_557 except with respect to the penalties and adi's interest_expense we sustain respondent's partnership-item adjustments and partnership-level determinations id at alterations in original as stated we will reenter our decisions for respondent an appropriate order will be issued and decisions will be entered for respondent


internal_revenue_service number info release date cc psi 1-genin-155249-01 uilc dec we are responding to your correspondence requesting relief in order to establish the taxable_year as the effective year for your s_corporation_election the information submitted explains that you timely executed form_2553 but your lawyer failed to file the election although we are unable to respond to your request as submitted please read this letter carefully as it provides useful information about correcting your situation announcement copy enclosed provides guidance on seeking relief for late s_corporation elections generally to request relief for a late or invalid s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a ruling are set out in revproc_2001_1 copy enclosed in addition a proper user_fee must be submitted along with your request the fee for a ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million for the last 12-month taxable_period qualify for a reduced user_fee in the amount of dollar_figure if your business qualifies for the reduced fee your request must include a statement certifying gross_income otherwise you will be billed the higher fee please format your ruling_request as shown in appendix b of revproc_2001_1 if you decide to submit a ruling_request please provide documents supporting your intention to be an s_corporation and include the proper user_fee please refer your package to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi b1 room you may wish to visit www irs gov smallbiz for specialized tax information products forms and links relating to small businesses please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful sincerely yours s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures announcement revproc_2001_1


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 b01 plr-165861-04 date date -------------------------------------- ------------------------- legend x ------------------------------------------------- y ------------------------------------------------- country d1 d2 dear --------------------------- ---------------- ------------- --------------------------- this is in response to a letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to treat y as an entity disregarded as separate from its owner for federal tax purposes under sec_301_7701-3 facts according to the information submitted and representations made within the request x is the ultimate parent of an affiliated_group_of_corporations among this affiliated_group is y which is an entity that was formed under the laws of country on d1 due to inadvertence a form_8832 entity classification election to treat y as an entity disregarded as separate from its owner effective d2 was not filed plr-165861-04 law and analysis sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally unless the entity makes an election to be treated otherwise a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability if a foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 further provides that an entity classification election must be filed on form_8832 entity classification election and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusion based solely upon the information submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result an extension of days from the date of this letter is granted to elect to treat y as disregarded as an entity separate from its owner for federal tax purposes effective d2 the entity classification election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose plr-165861-04 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter except as expressly provided herein no opinion is expressed or implied this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_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 will be sent to your authorized representative enclosures copy of this letter copy for sec_6110 purposes cc sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries


department of the treasury internal_revenue_service washington d c 2u1u1 government entities jan uniform issue list ses tep rt legend taxpayer a individual a individual b bank m bank n iraa amount a amount b dear this is in response to a ruling_request submitted by your authorized representative dated date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the intemal revenue code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that on date individual a who had power of attomey for taxpayer a's health care and property withdrew amount a from ira a at bank m without her knowledge or consent on date individual a deposited amount a into a certificate of deposit at bank n his and his wife's name in upon discovering the withdrawal from ira a taxpayer a made arrangements to retrieve the funds from individual a at taxpayer a’s request individual a retrieved amount a from bank n in the form of a check for amount b amount a plus earned interest on august 201v16093 the check was made out to bank m fob taxpayer a individual taxpayer a's new power_of_attorney received the check for amount b on date after the day rollover period had expired on date individual b attempted to deposit amount a into an ira at bank m bank m would not accept the deposit because the day rollover period had expired based on the above facts and representations you request a ruling that the intemal revenue service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount a sec_408 d of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributes as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 a of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ra is maintained if j the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan ather than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may nat exceed the portion of the amount received which is includibte in gross_income determined without regard to sec_408 sec_408b of the code provides that sec_408 does not apply fo any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ra which was not includible in gross_income because of the application of sec_408 sec_408 3xd of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 d i of the code provides that the secretary may waive the 60-day requirement under sec_408 d a and d d of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 a the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and the documentation submitted in this case is consistent with taxpayer a’s assertion that amount a was withdrawn from ira a without taxpayer a’s knowledge or consent therefore pursuant to sec_408 d i of the code the service hereby waives the day rollover requirement with respect to the distribution of amount a from ira a taxpayer ais granted a period of days from the issuance af this ruling letter to roll over no more than amount a minus all required minimum cistributions provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contributions amount a minus all required minimum distributions will be considered rollover_contributions within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions af any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact at ee wa carlton a watkins manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice co


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi bo9 plr-161796-01 date date in re decedent spouse children grandchildren attorney date date date trust trust court state plr dear this is in response to your representative’s letter dated date and subsequent correspondence requesting an extension of time in which to sever a_trust into exempt and nonexempt trusts for purposes of the generation-skipping_transfer gst tax and to make a reverse qualified_terminable_interest_property qtip_election with respect to the exempt trust the facts and representations submitted are summarized as follows during her life decedent created trust a revocable_trust to which she transferred the bulk of her assets and trust decedent died testate on date survived by spouse children and grandchildren trust became irrevocable at her death under her will decedent bequeathed her tangible_personal_property to spouse and the residue of her estate to trust under the terms of trust as of the date of decedent's death an interest in residential_real_property was distributed to spouse and the remainder of the assets of trust was distributed outright in equal shares to decedent's children article v a of the agreement governing trust provides that the net_income of trust shall be paid to or for spouse quarter annually or at more frequent intervals article v b provides that on the death of spouse the balance of the trust estate shall be divided into equal shares for children article v b of the agreement governing trust provides that the shares allocated to each of the children shall be further divided into two shares one that is exempt for gst tax purposes the exempt trusts and one that is nonexempt for gst tax purposes the non-exempt trusts each of which is to be held administered and distributed as a separate trust article v b further provides that each child’s exempt trust shall include assets equal in value to the amount of any of decedent’s gst tax exemption that has been allocated to that child’s exempt share by the person having the authority to make that allocation on behalf of decedent article v b a of the agreement governing trust provides that the trustee shall pay to or for each child the entire net_income of that child’s trusts if the trustee deems the income to be insufficient the trustee shall also invade the principal of the trusts as the trustee in the trustee’s discretion deems necessary for the child’s proper support maintenance health and education articles v b b and v b a provide that upon the death of a child if no other child of decedent remains living the deceased child’s trusts shall terminate and the balance of the trusts shall be distributed free of trust to the then living issue of such child by right of representation or if none to the then living issue of decedent by right of representation articles v b b and v b b provide that if upon the death of a child any other child of decedent remains living the remaining balance in the deceased child’s trusts shall be retained in trust for the benefit of that child’s issue the grandchildren if the deceased child has no living issue the remaining balance in that child’s trust shall be distributed to decedent’s then living issue by right of representation if a part of that balance would otherwise be distributed to a person for whose benefit a_trust is then being administered under article that part shall instead be added to that trust and administered according to its terms plr article vii f of the agreement governing trust provides that in any case in which the trustee is required pursuant to the provisions of trust to divide any trust property into parts or shares for the purpose of distributions or otherwise the trustee is authorized to make the division and distribution_in_kind including undivided interests in any property or partly in_kind and partly in cash in making distributions in_kind or partly in_kind the trustee may take into consideration the basis for income_tax purposes of the property to be distributed to any beneficiary and the potential income_tax burden to be borne by a beneficiary as a result of distribution_in_kind on date decedent’s estate timely filed a form_706 estate and generation- skipping transfer_tax return prepared by attorney on schedule m of the form_706 attorney made an election under sec_2056 of the internal_revenue_code to treat the entire value of trust as qtip property and claimed a deduction in this amount attorney did not make a reverse_qtip_election under sec_2652 to treat decedent as the transferor of any portion of trust for gst tax purposes and did not make an effective allocation of decedent’s gst tax exemption to any portion of trust attorney represents in an affidavit that she neither advised spouse as personal representative of decedent’s estate that trust could or should be divided into gst tax exempt and nonexempt trusts nor that a reverse_qtip_election under sec_2652 could or should be made for any portion of trust spouse as trustee of trust filed a petition with state court requesting reformation to divide trust to reduce taxes as of decedent’s death into two trusts one that is exempt from imposition of the gst tax and a second trust consisting of the balance that is nonexempt the petition stated that the language of trust 1's governing instrument shows decedent's intention to plan her estate to take advantage of the gst tax exemption provided by the code and that in order to fully and effectively use her entire gst tax exemption trust should be divided into gst-exempt and nonexempt shares to be held as separate trusts and a reverse_qtip_election should be made for decedent's_estate with respect to the gst-exempt share the petition proposed that the gst exempt trust would consist of that portion of the assets of trust equal in value to dollar_figure that the gst non-exempt trust would consist of the remainder of the assets of trust and that the personal representative of decedent's_estate then would apply all of her dollar_figure gst tax exemption to the gst exempt trust each trust would be governed in accordance with the provisions governing trust on date state court issued an order pursuant to state law effective as of the date of decedent’s death granting the petition to reform trust by directing the trustee to divide trust into two separate trusts pursuant to that order the gst exempt trust is to consist of assets equal in value to the amount of decedent’s unused federal gst tax exemption at the date of death and the gst non-exempt trust is to consist of the balance of the assets of trust the funding of these two trusts may be made on a nonpro rata basis provided funding is based on the fair_market_value of the assets on plr the date of funding the order stated that the reformation and division of trust was directed in order to protect the rights of beneficiaries and accomplish the purposes of decedent it is represented that no additional contributions have been made to trust since decedent contributed her assets to trust prior to her death it is further represented that all of decedent’s children survived her that the required distributions from trust to spouse and children were made effective as of decedent’s date of death and that no other potential generation-skipping trusts existed at or after decedent’s death decedent’s estate requests an extension of time under sec_301 of the procedure and administration regulations in which to sever trust pursuant to sec_26_2652-2 of the gst tax regulations into gst tax exempt and nonexempt trusts and to make a sec_2652 reverse_qtip_election with respect to the exempt trust sec_2001 of the code imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2044 provides that the value of the gross_estate shall include the value of any property to which this section applies in which the decedent had a qualifying_income_interest_for_life sec_2044 provides in relevant part that sec_2044 applies to any property if a deduction was allowed with respect to the transfer of such property to the decedent under sec_2056 by reason of subsection b thereof sec_2044 provides that for purposes of chapter and chapter property includible in the gross_estate of the decedent under sec_2044 shall be treated as property passing from the decedent sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is determined except as limited by sec_2056 by deducting from the value of the gross_estate an amount equal to the value of any interest in property which passes or has passed_from_the_decedent_to_his_surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides in pertinent part that where on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur an interest passing to the surviving_spouse will terminate or fail no deduction shall be allowed with respect to such interest sec_2056 provides that in the case of qualified_terminable_interest_property such property shall be treated as passing to the surviving_spouse for purposes plr of sec_2056 and no part of such property shall be treated as passing to any person other than the surviving_spouse for purposes of sec_2056 sec_2056 provides that the term qualified_terminable_interest_property means property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life and iii to which an election under sec_2056 applies sec_2056 provides that the surviving_spouse has a qualifying_income_interest_for_life if i the surviving_spouse is entitled to all the income from the property payable annually or at more frequent intervals or has a usufruct interest for life in the property and ii no person has a power to appoint any part of the property to any person other than the surviving_spouse sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 a qtip_election such an election once made shall be irrevocable sec_2601 provides that a tax is imposed on every generation-skipping_transfer sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion ration every individual shall be allowed a gst tax exemption of dollar_figure 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 that any allocation by an individual of his gst tax exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 redesignated as sec_2632 by the economic_growth_and_tax_relief_reconciliation_act_of_2001 pub_l_no provides that any portion of an individual’s gst tax exemption which has not been allocated within the time prescribed by subsection a 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 no automatic allocation of gst tax exemption is made to a_trust that will plr have a new transferor with respect to the entire trust prior to the occurrence of any generation-skipping_transfer with respect to the trust sec_2652 provides that for purposes of chapter the term transferor means - a in the case of any property subject_to the tax imposed by chapter the decedent and b in the case of any property subject_to the tax imposed by chapter the donor an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides in pertinent part that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 the estate of the decedent may elect to treat all of the property in such trust for purposes of chapter as if the election to be treated as qualified_terminable_interest_property had not been made a reverse_qtip_election the consequence of a reverse_qtip_election is that the decedent remains for gst tax purposes the transferor of the qtip_trust for which the election is made as a result the decedent's gst tax exemption may be allocated to the qtip_trust sec_26_2652-2 provides that a reverse_qtip_election is made on the return on which the qtip_election is made sec_26_2654-1 provides that the severance of a_trust that is included in the transferor’s gross_estate or created under the transferor’s will into two or more trusts is recognized for purposes of chapter if - i the trust is severed pursuant to a direction in the governing instrument providing that the trust is to be divided upon the death of the transferor or ii the governing instrument does not require or otherwise direct severance but the trust is severed pursuant to discretionary authority granted either under the governing instrument or under local law and a the terms of the new trusts provide in the aggregate for the same succession of interests and beneficiaries as are provided in the original trust b the severance occurs or a reformation proceeding if required is commenced prior to the date prescribed for filing the federal estate_tax_return including extensions actually granted for the estate of the transferor and c either - the new trusts are severed on a fractional basis if severed on a fractional basis the separate trusts need not be funded with a pro_rata portion of each asset held by the undivided trust the trusts may be funded on a non pro_rata basis provided funding is based on either the fair_market_value of the assets on the date of funding or in a manner that fairly reflects the net appreciation or depreciation in the value of the assets measured from the valuation_date to the date of funding or if the severance is required by the terms of the governing instrument to be made on the basis of a pecuniary amount the pecuniary payment is satisfied in a manner that would meet the requirements of sec_26_2654-1 if it were paid to an individual sec_301_9100-1 of the procedure and administration regulations provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory plr election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-2 provides an automatic_extension of time for making certain elections section a provides that in general requests for extensions of time for regulatory elections which do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9001-3 requests for relief subject_to this section will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government section b v provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election state law provides that on petition by a trustee personal representative beneficiary or a party in interest after notice to affected parties as the court may direct and for good cause shown a court may i divide a_trust into or more separate trusts or ii consolidate or more trusts into a single trust state law further provides that a court may divide a_trust or consolidate trusts on terms and conditions as the court considers appropriate and if the court is satisfied that a division of a_trust or consolidation of trusts will not defeat or materially impair the accomplishment of trust purposes or the interests of the beneficiaries in this case because a qtip_election was made on decedent’s form_706 with respect to trust the assets of trust will be included spouse’s gross_estate under sec_2044 at his death unless there is a disposition under sec_2519 spouse is considered the transferor of such property for gst tax purposes thereby initially precluding the allocation of decedent’s unused gst tax exemption to any portion of trust if decedent’s estate is allowed to make a reverse_qtip_election under sec_2652 and sec_26_2652-2 with respect to any portion of the assets of trust however decedent will be treated as the transferor of such assets for gst tax purposes based on the facts and representations submitted the requirements of sec_26_2654-1 and sec_301_9100-3 have been satisfied the severance of trust into a gst exempt trust and a gst nonexempt trust will be recognized for gst tax purposes accordingly an extension of time is granted to date for the severance an extension of time also is granted until days from the date of this letter for making a reverse_qtip_election under sec_2652 with respect to the gst exempt trust the election should be made on a supplemental form_706 filed with the appropriate service plr center a copy of this letter should be attached to the supplemental form_706 and a copy is enclosed for that purpose 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 we note however that an extension of time in which to make a reverse_qtip_election under sec_2652 does not extend the time in which to allocate any of decedent’s gst tax exemption remaining unused at her death in this case no allocation of gst tax exemption was made on decedent’s estate_tax_return accordingly in view of the reverse_qtip_election decedent’s unused gst tax exemption is allocated in accordance with the rules of sec_2632 and sec_26_2632-1 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being sent to the taxpayer's authorized representatives sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


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 psi b03 plr-112199-11 date date company ----------------------------------------------------------- ------ trust ---------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- ------------------------ -------- ----------------- ------------------- -------------------------- state a b c dear ------------ we received a letter dated date submitted on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code this letter responds to that request facts company was formed on a under the laws of state and elected to be as s_corporation effective b on c one of company’s shareholders sold company stock to trust which company represents qualifies as an electing_small_business_trust esbt within the meaning of sec_1361 however no esbt election was properly filed for plr-112199-11 trust with respect to the company stock as a result company’s s_corporation_election terminated on c company represents that the circumstances resulting in the termination of company’s s_corporation_election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning company and its shareholders have agreed to make such adjustments consistent with the treatment of company as an s_corporation as may be required by the service law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that for purposes of sec_1361 an esbt may be a shareholder sec_1361 provides that for purposes of sec_1361 except as provided in sec_1361 the term electing_small_business_trust means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1_1361-1 of the income_tax regulations provides in part that the trustee of the trust must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 sec_1362 provides that a in general an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small plr-112199-11 business corporation and b any termination shall be effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1362-4 provides in pertinent part that for purposes of sec_1 a the determination of whether a termination was inadvertent is made by the commissioner the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should determine that the termination was inadvertent the fact that the terminating event was not reasonably within the control of the corporation and was not part of a plan to terminate the election or the fact that the terminating event or circumstance took place without the knowledge of the corporation notwithstanding its due diligence to safeguard itself against such an event or circumstance tends to establish that the termination of the election was inadvertent sec_1_1362-4 provides in pertinent part that the commissioner may require any adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner in the case of stock held by an ineligible shareholder that causes an inadvertent termination for an s_corporation under ' f the commissioner may require the ineligible shareholder to be treated as a shareholder of the s_corporation during the period the ineligible shareholder actually held stock in the corporation moreover the commissioner may require protective adjustments that prevent the loss of any revenue due to the holding of stock by an ineligible shareholder for example a nonresident_alien conclusion based solely on the facts submitted and representations made we conclude that company’s election to be treated as an s_corporation terminated on c upon the failure to properly file an esbt election for trust we also conclude that the termination constituted an inadvertent termination within the meaning of sec_1362 accordingly plr-112199-11 company will be treated as continuing to be an s_corporation from c and thereafter provided that company’s s_corporation_election is not otherwise terminated under sec_1362 moreover trust will be treated as an esbt from c and thereafter provided trust files income_tax returns for this period consistent with the trustee of trust having made an esbt election for trust this ruling is contingent on company and all its shareholders treating company as having been an s_corporation for the period beginning on c and thereafter the shareholders of company must include their pro_rata share of the separately_stated and nonseparately computed items of income loss deduction or credit as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by company as provided in sec_1368 this ruling is also contingent on the trustee of trust filing an esbt election effective c with the appropriate service_center the esbt election and any amended returns must be filed within days following the date of this letter and a copy of this letter should be attached to such election and returns if company or its shareholders fail to treat themselves as described above this ruling shall be null and void except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion regarding whether company is otherwise eligible to be treated as an s_corporation or whether trust is eligible to be treated as an esbt this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to company’s authorized representative sincerely s james a quinn senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


number release date internal_revenue_service 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 b07 plr-157457-05 date date we received a letter dated date from your authorized ------------------------------------ ------------- ----- -- --------- --------- ----------- -------- -------- legend legend corporation state a b c d e f g dear --------------- representative requesting rulings regarding the application of sec_216 of the internal_revenue_code this letter responds to that request corporation organized under the laws of state corporation owns land and a building which consists of a residential units and a ground floor that contains b commercial unit and a parking garage currently c shares of common_stock of corporation are issued and outstanding out of a total of d authorized shares all of the outstanding common_stock has been allocated to the residential units no stock has been allocated to the commercial unit or the garage the total square footage of the residential units is e the square footage of the commercial unit is f corporation proposes to allocate g shares of its authorized but unissued stock to the commercial unit new shares corporation represents that the shares allocated to the commercial unit will bear a reasonable relationship to the ratio of the value of the represented facts are as follows corporation is a cooperative housing the proprietary lease will entitle the purchaser of the additional shares corporation further proposes to form a limited_liability_company llc with plr-157457-05 corporation’s equity in the commercial unit to the value of the corporation’s equity in the land building and garage attributable to the commercial unit to occupy the unit for dwelling purposes solely by reason of the ownership of such shares the owner of the commercial unit will be entitled to install facilities in commercial unit for cooking sleeping and sanitation normally found in residence corporation as the sole member corporation will transfer the new shares to llc and then distribute all of the membership interests in llc pro_rata to corporation’s tenant- stockholders llc will elect to be classified as a partnership currently permit modification of the commercial unit to residential use as a matter of right corporation submits facts and representations to show that it would be reasonable to convert the commercial unit to residential use the size and location of the commercial unit are such that with certain modifications it could be converted into residential apartments the cost of adding sleeping and cooking facilities to the commercial unit would be approximately percent of the fair_market_value the commercial unit would have if it was sold as a residential unit corporation represents that the local zoning law and building regulations you have specifically requested the following rulings initially llc will be treated as a disregarded_entity accordingly corporation will be treated as the owner for federal tax purposes of the new shares held by llc the distribution by corporation of the llc interests will be treated as a distribution by corporation of the llc assets the new shares immediately after the distribution the stockholders of corporation will be treated as contributing the new shares to llc unless it elects otherwise llc will be treated as a partnership for federal tax purposes following the distribution of the new shares to corporation’s stockholders the issuance of shares allocated to the commercial unit and the possible nonresidential use of the commercial unit will not prevent corporation from qualifying as a cooperative_housing_corporation under sec_216 for purposes of sec_216 the income corporation receives from llc will be income derived from tenant-stockholders the deemed_distribution by corporation of the new shares will not be treated as a distribution to the tenant-stockholders to which sec_301 applies by reason of sec_305 or c but will constitute a distribution to which sec_305 applies thus the plr-157457-05 distribution will not result in taxable_income to any of the corporation’s shareholders further the basis of the stock in corporation held by a shareholder immediately prior to the distribution of the shares will be allocated between the stock immediately prior to the distribution of the shares and the new shares deemed received in the distribution in proportion to the fair_market_value of the stocks of each immediately after the distribution in accordance with sec_307 no gain_or_loss will be recognized to corporation upon the deemed_distribution of the new shares in accordance with sec_311 the deemed transfer to llc by corporation’s shareholders of their newly received shares will have no adverse effect upon any of the above conclusions ruling_request sec_301_7701-3 of the procedure and administration regulations provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner elections are necessary only when an eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that unless it elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner in revrul_99_5 1999_1_cb_434 situation llc which for federal tax purposes is disregarded as an entity separate from its owner is converted to a partnership when the new member b purchases an interest in the disregarded_entity from the owner a b's purchase of of a's ownership_interest in llc is treated as the purchase of a interest in each of the llc's assets which are treated as held directly by a for federal tax purposes immediately thereafter a and b are treated as contributing their respective interests in those assets to a partnership in exchange for ownership interests in the partnership initially llc will be treated as an entity disregarded from its owner accordingly corporation will be treated as the owner for federal tax purposes of the new shares held by llc the distribution by corporation of the llc interests will be treated as a distribution by corporation of the llc assets new shares immediately after the distribution the stockholders of corporation will be treated as contributing the new plr-157457-05 shares to llc unless it elects otherwise llc will be treated as a partnership for federal tax purposes ruling_request sec_2 sec_216 provides that the term cooperative_housing_corporation sec_1_216-1 provides in relevant part that in order to qualify as a sec_216 provides that the term tenant-stockholder means a person means a corporation - a having one and only one class of stock outstanding b each of the stockholders of which is entitled solely by reason of his ownership of stock in the corporation to occupy for dwelling purposes a house or an apartment in a building owned or leased by such corporation c no stockholder of which is entitled either conditionally or unconditionally to receive any distribution not out of earnings_and_profits of the corporation except on a complete or partial_liquidation of the corporation and d percent or more of the gross_income of which for the taxable_year in which the taxes and interest described in sec_216 are paid_or_incurred is derived from tenant- stockholders who is a stockholder in a cooperative_housing_corporation and whose stock is fully paid-up in an amount not less than an amount shown to the satisfaction of the secretary as bearing a reasonable relationship to the portion of the value of the corporation’s equity in the houses or apartment building and the land on which situated which is attributable to the house or apartment which such person is entitled to occupy cooperative_housing_corporation under sec_216 each stockholder of the corporation whether or not the stockholder qualifies as a tenant-stockholder under sec_216 and sec_1_216-1 must be entitled to occupy for dwelling purposes an apartment in a building or a unit in a housing development owned or leased by such corporation the stockholder is not required to occupy the premises the right as against the corporation to occupy the premises is sufficient such right must be conferred on each stockholder solely by reasons of his or her ownership of stock in the corporation that is the stock must entitle the owner thereof either to occupy the premises or to a lease of the premises the fact that the right to continue to occupy the premises is dependent upon the payment of charges to the corporation in the nature of rentals or assessments is immaterial revrul_74_241 1974_1_cb_68 provides that for purposes of sec_216 the term apartment in a building means an independent housekeeping unit consisting of one or more rooms containing facilities for cooking sleeping and sanitation normally found in a principal_residence that a unit presently contain all the facilities normally found in a principal_residence in order to constitute an apartment in a building for purposes of sec_216 a unit will revrul_90_35 1990_1_cb_48 provides that revrul_74_241 does not require plr-157457-05 be treated as meeting that definition if the stockholder is entitled to convert the unit to an apartment as defined in revrul_74_241 solely by reason of ownership of stock in the cooperative_housing_corporation the conversion of the unit would be reasonable under all the facts and circumstances including structural feasibility and cost and the applicable zoning building and fire codes permit both the conversion and residential use of the unit as a matter of right subject_to the limitation below and based solely upon those representations we conclude that provided corporation satisfies the requirements of sec_216 c and d neither the issuance of stock by corporation to be allocated to the commercial unit nor the possible nonresidential use of the unit will prevent corporation from qualifying as a cooperative_housing_corporation within the meaning of sec_216 we also conclude that for purposes of sec_216 the income corporation receives from llc will be income derived from tenant-stockholders provided that the fully paid-up requirement of sec_216 is met applying the above standards to the facts and representations submitted and ruling_request sec_4 sec_305 provides that except as otherwise provided gross_income does not include the amount of any distribution of the stock of a corporation made by such corporation to its shareholders with respect to its stock sec_305 provides that distributions in lieu of money disproportionate distributions distributions of common_stock and preferred_stock distributions on preferred_stock and distributions of convertible preferred_stock are treated as sec_301 distributions of property under sec_305 and sec_1_305-7 a change in conversion ratio a change in redemption price a difference between redemption price and issue_price a redemption which is treated as a distribution to which sec_301 applies or any transaction having a similar effect on the interest of any shareholder may be treated as a distribution with respect to any shareholder whose proportionate interest in the earnings_and_profits or assets of the corporation is increased by such change difference redemption or similar transaction sec_307 provides that if a shareholder in a corporation receives its stock new stock in a distribution to which sec_305 applies then the basis of such new stock and of the stock with respect to which it is distributed old stock respectively shall in the shareholder's hands be determined by allocating between the old stock and the new stock the adjusted_basis of the old stock sec_1_307-1 provides that if a shareholder receives stock as a distribution on stock previously held and under sec_305 such distribution is not includible in gross plr-157457-05 income the basis of the stock with respect to which the distribution was made shall be allocated between the old and new stocks in proportion to the fair market values of each on the date of distribution sec_311 provides that no gain_or_loss shall be recognized to a corporation on the distribution not in complete_liquidation with respect to its stock of its stock sec_301_7701-2 provides that if an entity is disregarded its activities are treated in the same manner as a sole_proprietorship branch or division of the owner since llc will be a disregarded_entity sec_301_7701-2 will treat corporation as the owner of llc’s assets ie the new shares as such corporation’s distribution of the llc shares will be treated as a distribution of the new shares because of corporation’s pro-rata distribution of common_stock to its tenant-stockholders the recipients of the llc shares will not include the shares into gross_income under sec_305 under sec_307 and sec_1_307-1 the tenant-stockholders will allocate basis between their previously held shares and the new shares in proportion to the fair market values of each on the date of distribution finally there will be no gain_or_loss to corporation on the distribution of its common_stock under sec_311 accordingly we conclude that the deemed_distribution by corporation of the new shares will not be treated as a distribution to the tenant-stockholders to which sec_301 applies by reason of sec_305 or c but will constitute a distribution to which sec_305 applies thus the distribution will not result in taxable_income to any of the corporation’s shareholders further the basis of the stock in corporation held by a tenant-stockholder immediately prior to the deemed_distribution by corporation of the new shares will be allocated between the corporation stock held immediately prior to the distribution and the new shares received in the distribution in proportion to the fair_market_value of the stocks of each immediately after the distribution in accordance with sec_307 we also conclude that the deemed_distribution by corporation of the new shares will not result in the recognition of gain_or_loss by corporation under sec_311 ruling_request based on the information submitted and representations made we conclude that the transfer to a newly formed llc by corporation’s shareholders of their newly received shares will have no adverse affect upon ruling_request sec_1 or except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter further we express or imply no opinion whether corporation otherwise meets the requirements of sec_216 this ruling is directed only to the taxpayer requesting it sec_6110 specifically we express or imply no opinion as to whether corporation meets the plr-157457-05 requirements of sec_216 concerning whether the stock bears a reasonable relationship to the portion of the value of the corporation’s equity in the building and land which is attributable to the unit which the purchaser is entitled to occupy provides that it may not be used or cited as precedent representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination copies of this letter to your authorized representatives a copy of this ruling must be attached to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office we are sending the rulings contained in this letter are based upon information and sincerely s joseph h makurath senior technician reviewer branch office of associate chief_counsel passthroughs special industries-


department of the treasury internal_revenue_service washington d c date apr -3 lath ui7g stl contact person identification_number telephone number t - g2 employer_identification_number dear sir or madam this is in reply to your letter of date concerning the reversion of x's assets to you as the sponsoring employer of a welfare_benefit_plan you have been recognized as exempt under sec_501 of the internal_revenue_code and are other than a private_foundation within the meaning of sec_509 because you are a hospital within the meaning of sec_509 and sec_170 a iii you established x to provide post-retirement benefits to your employees x has been recognized as exempt under sec_501 of the code because of changes in the government policy in determining capitation rates your for-profit subsidiaries have ceased operations these subsidiaries never generated a profit or taxable_income and never contributed any monies to the benefit plan employees of the for-profit subsidiaries were not eligible to participate in x x currently has only a few remaining covered participants you propose to establish a new plan for the benefit of the remaining participants and will fund it with the amount which has been determined by an actuary to be adequate to meet all future claims you will then amend x's trust documents to permit the reversion of its remaining assets to you as the sponsoring employer and it will then be terminated you have requested rulings that the return of surplus assets to you will not retroactively revoke x's tax-exempt status nor trigger the imposition of the sec_4976 excise_tax on you further you have requested that we rule that the reversion of assets will not be taxed as unrelated_business_income to either x or yourself sec_501 of the code provides for the exemption from federal_income_tax of voluntary_employees'_beneficiary_associations providing for the payment of life sick accident or other_benefits to the members of such association or their dependents or designated beneficiaries if no part of the net_earnings of such association inures other than through such payments to the benefit of any private_shareholder_or_individual we re sec_1 c -i of the income_tax regulations provides that for an organization to be described in sec_501 it must be an employees’ association membership in the association must be voluntary the organization must provide for the payment of life sick accident or other_benefits to its members and there can be no inurement other than by payment of permitted benefits to the benefit of any private_shareholder_or_individual sec_1_501_c_9_-4 of the regulations provides that no part of the net_earnings of an employees' association may inure to the benefit of any private_shareholder_or_individual other than through the payment of permissible benefits whether prohibited inurement has occurred is a question to be determined with regard to all the facts and circumstances sec_1 -4 d of the regulations provides that it will not constitute prohibited inurement if on termination of a plan established by an employer and funded through an association described in sec_501 any assets remaining in the association after the satisfaction of all liabilities to existing beneficiaries of the plan are applied to provide either directly or through the purchase of insurance life sick accident or other_benefits within the meaning of section t 50i c -3 pursuant to criteria that do not provide for disproportionate benefits to officers shareholders or highly compensated employees of the employer similarly a distribution to members upon the dissolution of the association will not constitute prohibited inurement if the amount distributed to members are determined pursuant to the terms of a collective bargaining agreement or on the basis of objective and reasonable standards which do not result in either unequal payment to similarly situated members or in disproportionate payments to officers shareholders or highly compensated employees of any employer contributing to or other funding the employees' association except as otherwise provided in the first sentence of this paragraph if the association's corporate charter articles of association trust instrument or other written instrument by which the association was created as amended from time to time provides that on dissolution its assets will be distributed to its member's contributing employers or if in the absence of such provision the law of the state in which the association was created provides for such distribution to the contributing employers the association is not described in sec_501 sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as gross_income derived by any organization from any unrelated_trade_or_business as defined in sec_513 regularly carried on by it less allowable deductions directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_513 of the code provides that the term unrelated_trade_or_business means any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of exemption under sec_501 its charitable educational or other purpose or function constituting the basis for its sec_4976 of the code imposes an excise_tax on an employer equal to percent of any disqualified_benefit provided by an employer-maintained welfare_benefit_fund sec_4976 c of the code defines disqualified_benefit to include any portion of a welfare_benefit_fund reverting to the benefit of the employer us re the information submitted establishes that because of an adverse change in government funding for your health care programs you wish to use x's assets to continue your programs therefore you will establish a new trust to continue to provide benefits to the few remaining participants in the welfare_benefit_plan and terminate x's operations the remaining funds held by x will revert to you to be used to carry on your own charitable programs because upon the dissolution of x some of the assets will be distributed to you x will be disqualified under sec_50i c see section 50i c -4 d of the regulations although the amendment of x's trust documents and transfer of assets will affect its tax-exempt status they will not affect in any manner its tax-exempt status prior to the adoption of the proposed amendment and subsequent transfer of assets as a general_rule the return of any portion of the funds held in a welfare_benefit_fund for the benefit of an employer is a disqualified_benefit and subjects the plan_sponsor to the sec_4976 excise_tax however the sec_4976 excise_tax was enacted to establish a meaningful sanction that would prohibit an employer from accumulating funds in a qualifying trust on a tax free basis and subsequently modifying the plan so it would cease to qualify for exemption it was felt the previously existing sanctions loss of exemption or deductions from future contributions were insufficient determents but no tax deduction is possible for an exempt_organization for a contribution to a veba other than in connection with an unrelated_trade_or_business and earnings on amounts held by the tax-exempt employer are not taxed whether or not transferred to a veba in the case of a tax-exempt employer therefore we conclude that amounts contributed to a fund unless directly connected with an unrelated_trade_or_business are not allowable as a deduction under sec_419 within the meaning of sec_4976 accordingly sec_4976 does not apply to any assets that may revert to you accordingly based on the information submitted and the representations you have made we rule that the return of surplus assets to you will not retroactively revoke x's tax-exempt status under sec_50i c of the code nor trigger the imposition of the sec_4976 excise_tax further the reversion of assets will not be taxed as unrelated_business_income to either x or yourself this ruling is directed only to the organization that requested it sec_64 k of the code provides that it may not be used or cited as precedent we are informing the ohic te_ge customer service office of this ruling because this letter could help resolve any questions about your exempt status a copy of it should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely berkovsky terrell m manager exempt_organizations technical group ji