internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp 1-plr-113979-00 date date legend distributing controlled business state shareholder a shareholder b shareholder c trust d trust e trust f dear this letter is in response to your letter dated date requesting rulings regarding the tax consequences of a proposed transaction you submitted additional information in letters dated september and date the information submitted is summarized below distributing is a state corporation engaged in business distributing is an s_corporation that utilizes the cash_method_of_accounting and has a december taxable_year end distributing is owned by shareholder a by shareholder b and by shareholder c shareholder a holds his shares as trustee of trust d shareholder b holds his shares as trustee of trust e shareholder c holds his shares as trustee of trust f trust d trust e and trust f are grantor trusts controlled is a state corporation wholly owned by distributing controlled is a qualified_subchapter_s_subsidiary qsub the taxpayer has submitted financial information indicating that distributing has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the last five years on the date of the proposed transaction controlled will have assets and employees necessary for the active_conduct of business disputes have arisen between shareholder a and shareholder b that are negatively impacting business to eliminate these disputes the taxpayers propose that shareholder b will surrender to distributing all of his distributing stock in exchange for all the stock of controlled the taxpayers have made the following representations about the proposed transaction a b c d e f g the fair_market_value of the controlled stock received by shareholder b will be approximately equal to the fair_market_value of the distributing stock surrendered by shareholder b in the exchange no part of the consideration distributed by distributing will be received by shareholder b as a creditor employee or in any capacity other than that of a shareholder of distributing the five years of financial information submitted on behalf of distributing is representative of the corporation’s present operation and with regard to distributing there have been no substantial operational changes since the date of the last financial statements submitted following the transaction distributing and controlled each will continue independently and with its separate employees the active_conduct of its share of all the integrated activities of the business conducted by distributing prior to consummation of the transaction the distribution of controlled stock is being carried out for the following corporate business purposes to resolve shareholder conflict to accommodate different goals or business techniques of each shareholder and to maximize profit potential the transaction is motivated in whole or substantial part by these corporate business purposes there is no plan or intention by the shareholders of distributing to sell exchange transfer by gift or otherwise dispose_of their stock in either distributing or controlled after the transaction there is no plan or intention by distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 1996_1_cb_696 h i j k l m there is no plan or intention for distributing or controlled to liquidate to merge with any other corporation or to sell or otherwise dispose_of the assets of any corporation after the transaction except in the ordinary course of business controlled will not assume any liabilities in the transaction no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of the controlled stock no parties to the transaction are investment companies as defined in sec_368 and iv of the internal_revenue_code payments made in all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length distributing is an s_corporation controlled is a qualified_subchapter_s_subsidiary controlled will elect to be an s_corporation on the first available date after the distribution and there is no plan or intent to revoke or otherwise terminate the s_corporation_election of either distributing or controlled based solely on the information submitted and the representations set forth above we rule as follows distributing will recognize no gain_or_loss upon the distribution of all the controlled stock sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the distributing shareholders upon the receipt of the controlled stock by shareholder b or the retention of distributing stock by shareholder a and shareholder c sec_355 the basis of the stock of controlled in the hands of shareholder b will be the same as the aggregate basis of the distributing stock surrendered in exchange therefor sec_358 the transaction will have no effect on shareholder a or shareholder c’s bases in their distributing stock the holding_period of controlled stock received by shareholder b will include the holding_period of distributing stock surrendered in exchange therefor provided that the distributing stock is held as a capital_asset on the date of the exchange sec_1223 the transaction will have no effect on the holding_period in the distributing stock held by shareholder a and shareholder c 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 this office has not verified any of the material submitted in support of the request for rulings and such information is therefore subject_to verification on examination except as expressly provided herein we express no opinion 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 taxpayers on whose behalf it was requested sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely associate chief_counsel corporate by theresa abell acting senior technician reviewer branch


department of the treasury employer_identification_number contact person - id number contact telephone number vil internal_revenue_service p o box cincinnati oh release number release date date date legend x program y entities e scholarship f scholarship c dollar amount dear you asked for advance approval of your employer-related scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scnoiarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding employer-related scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding employer-related scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures will not be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provided in code sec_117 description of your request your lener indicates you will operate an employer-related scholarship program called x the purpose of x is to support the intellectual and personal development of the employees of y and their dependents through ongoing education and training and to advance the candidate’s personal commitment to improving the lives of others through service and responsibility the x consists of e and f letter catalog number 58264e terms of the scholarship program you will offer academic scholarships to qualified employees of y and their dependents the program will not be used by y to recruit employees or to induce employees to continue their employment selection of recipients will be by an independent committee consisting of individuals who are not shareholders officers employees or dependents of such individuals recipients will receive a one-time grant award of c dollars the x is intended to help an employee or dependent of the employee to pursue his or her academic endeavors and or advance personal interests the educational studies need not relate to the employee’s current position or responsibilities x may take classes in person or online at any trade school_college_or_university alternatively x may take classes at a community -based organization or use the funds to attend a conference the funds from x are used to cover the cost of tuition registration fees academic tutoring academic counseling services test preparation courses and testing fees college or graduate school application fees books or study materials each recipient of x must sign a scholarship agreement and adhere to its terms and conditions qualifications and criteria to be eligible for e the candidate must be a current full-time_employee of the employer there is no minimum employment period of employment required for eligibility for e to be eligible for f the candidate must be a child including adopted step child of an employee of y who at the time of his or her application is a high school senior or graduate from high school your selection committee will consider the candidate’s prior academic performance at the highest level of education they have completed high school college and or graduate as well as the rigor of the proposed studies a scoring sheet will be used to rank and rate the applicants based on the following criteria o o strong desire to advance through education willingness to serve others and benefit the community letter catalog number 58264e o exemplary character integrity and ethics as reflected in the candidate's essay and recommendation o howdo the candidate’s essay recommendation and resume convey a passion and commitment to personal achievement demonstrated through hard work consistent effort and performance both in school and the community the best candidates will be individuals who have demonstrated the personal qualities described below and who are most likely to achieve personal success through their own efforts and initiatives with your financial support applicants for e and f will be required to submit to you the following o o o o completed application that includes a personal essay resume letter of recommendation - by an individual unrelated to the candidate who is qualified to comment on the candidate’s academic merit exemplary character integrity and ethics and demonstrated willingness to serve others and benefit the community through volunteer and work experience official transcript s for current studies the recipient must demonstrate the following personal characteristics o o o o exemplary character integrity and ethics a passion and commitment to personal achievement demonstrated through hard work consistent effort and performance in school and the community strong desire to advance through education and demonstrated willingness to serve others benefits the community through volunteer and work experience it is your philosophy that every hand up is from one who has achieved requires another hand to be extended down to the next person each applicant shall submit a written application to you which sets forth the characteristics listed above the application shall include a personally written_statement of intent that expresses the background and educational goals of the applicant such statement must include a personal commitment to use the scholarship award to his or her best ability and to extend help to others as the recipient may be able to do in the future at the completion of the studies the recipient must submit a final report demonstrating that the studies were completed and a passing grade received every applicant must be a citizen or legal resident_of_the_united_states letter catalog number 58264e the applicant must certify that he or she has not been convicted of any felony is not currently and will not in the future utilize non-prescribed narcotics or prohibited substances and will not drive while intoxicated or have consumed liquor beyond the legal limits of the state in which he or she is driving you will not terminate a qualified_scholarship because the parent terminates employment with y limitations any violation of the above terms qualifications and criteria during the period of the scholarship will be grounds for suspension or termination of funding scholarships awarded but remaining unused or unclaimed by the end of six months are abandoned and the funds made available to other applicants no transferring of scholarship funds to any other individual or educational_institution scholarships for e shall not exceed either of the following criteria e e e the number of grants awarded under the scholarship program in any year to such children does not exceed of the number of employees’ children who i were eligible ii were applicants of such grants and iii were considered by your selection committee in selecting the recipients of grants in that year or ten percent of the number of employees’ children who can be shown to be eligible for grants regardless of whether they submitted an application in that year the number of e and f scholarships that will awarded each year will be determined by your board_of directors and will meet the required_percentage test no more than ten percent of qualified e applicants will be awarded scholarships no more than percent of qualified f applicants will be awarded scholarships or ten percent of the number of eligible dependents funding scholarship payments are made directly to the educational_institution for the benefit of the recipient upon submission of an invoice from the educational_institution or vendor reporting letter catalog number 58264e e the recipient is required to provide to you a certified school transcript of confirmation of completion from the institution where the studies were completed publicizing the scholarship program you will publicize the scholarship program through e e e e e flyer will be posted a minimum of one month in advance of the open e-mail -a month in advance of the open application period all staff will be e- mailed copies of the applications with an overview of the application process qualifications and criteria flyer a application period in the common areas of all y offices an electronic version of the flyer will be included in the all staff e-mail brown bag lunch - your executive director will hold a firm-wide video conference to discuss the program application process as well as the qualifications and criteria one month before the open application period e-blast -an article about the program will be included in a monthly firm wide e- blast that highlights philanthropy and employee volunteerism the month prior to the open application period studio talk a month in advance of the open application period program information with a link to the applications are posted on y’s intranet basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 a ii revproc_76_47 1976_2_cb_670 provides guidelines to determine whether grants a private_foundation makes under an employer-related program to employees or children of employees are scholarship or fellowship grants subject_to the provisions of code sec_117 if the program satisfies the seven conditions in sections dollar_figure through dollar_figure of revproc_76_47 and meets the applicable_percentage tests described in section dollar_figure of revproc_76_47 we will assume the grants are subject_to the provisions of code sec_117 you represented that your grant program will meet the requirements of either the percent or percent percentage_test in revproc_76_47 these tests require that letter catalog number 58264e tne number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants were applicants for grants and were considered by the selection committee for grants or the number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants whether or not they submitted an application or the number of grants awarded to employees in any year will not exceed percent of the number of employees who were eligible for grants were applicants for grants and were considered by the selection committee for grants you further represented that you will include only children who meet the eligibility standards described in revproc_85_51 1985_2_cb_717 when applying the percent test applicable to employees’ children in determining how many employee children are eligible for a scholarship under the percent test a private_foundation may include only those children who submit a written_statement or who meet the foundation's eligibility requirements they must also satisfy certain enrollment conditions you represented that your procedures for awarding grants under this program will meet the requirements of revproc_76_47 in particular an independent selection committee whose members are separate from you your creator and the employer will select individual grant recipients you will not use grants to recruit employees nor will you end a grant if the employee leaves the employer you will not limit the recipient to a course of study that would particularly benefit you or the employer other conditions that apply to this determination this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures do not differ significantly from those described in your original request this determination is in effect as long as your procedures comply with sections dollar_figure through dollar_figure of revproc_76_47 and with either of the percentage tests of sec_4 if you establish another program covering the same individuals that program must also meet the percentage_test this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the office of at letter catalog number 58264e internal_revenue_service e e e you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 b yuu should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely holly o paz director exempt_organizations rulings and agreements letter catalog number 58264e


internal_revenue_service number release date index number ---------------------------------- ----------------- --------------- ----------------------- --------------------------------------- ----------------------------------------------- ------------------------ ----------------------------------- ------------------------------------------------ ------------------------ ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------------------------- telephone number --------------------- refer reply to cc psi b04 plr-129540-09 date date legend husband -------------- wife son son ----------------------- ----------------- ------------------ grandchild ------------------ grandchild ---------------------- grandchild ----------------------- grandchild ------------------------------------ grandchild -------------------- grandchild ----------------------- grandchild ------------------------ grandchild ---------------------- company -------------------------------- plr-129540-09 company ------------------------- bank ---------------------------- trust ------------------------------------------------------ -------------------------------------------------------- trust ------------------------------------------------------ ----------------------------------------------------------------- trust ------------------------------------------------------ ------------------------------------------------------------------- trust ----------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------ foundation ---------------------------------------- ------------------------------------------------------------------------------ court ---------------------------------------------------------------------- ---------------------------------------------------------------- son 1’s will ------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------------------- settlement agreement ----------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ -------------------------------------------------------------------- settlement agreement ----------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- --------------------------------------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- date date ---------------------- ----------------- plr-129540-09 date date date date year d e w x m y z n s t ------------------ ------------------ -------------------- --------------------------- ------- ------------ ------------- ----------------- -------------- ------------- -------------- ------------- ------------- ----- -- state ------------------ state statute ---------------------------------------------------------- state statute ---------------------------------------------------------- state statute ------------------------------------------------------------ dear --------------- this responds to a letter dated date and other correspondence requesting rulings on behalf of trust and trust and son regarding the gift and plr-129540-09 generation-skipping_transfer gst tax consequences of settlement agreement which provides for the division of trust and trust and for an equitable_adjustment of the trusts’ state tax savings facts the facts submitted and representations made are as follows husband was one of the founders of company before date husband created trust and wife created trust irrevocable and substantially identical trusts husband also created trust and trust irrevocable and substantially identical trusts all four trusts trusts were funded with company stock stock husband and wife created foundation an organization described in sec_501 and sec_509 of the internal_revenue_code husband and wife both died and were survived by their two children son and son and their then living descendants all of these events occurred before date and no additions have been made to trusts since that date article third of trust and of trust directs the trustees to hold one-half of the principal for son and pay the net_income to him quarterly for life son has a testamentary power to appoint the net_income of his one-half share among the grantor’s descendants other than the powerholder their spouses and charities for the period beginning with son 1’s death and ending when the trust terminates any income he fails to appoint will be distributed per stirpes to his issue or if none to issue of the grantor or other family members then entitled to receive income under article fourth or if none to charities selected by trustees other than the grantor’s spouse son also has a testamentary power to appoint his one-half share of principal among family members other than the powerholder and charities to be distributed upon termination of the trust any principal he fails to appoint will be distributed per stirpes to his issue or if none to issue of the grantor or other family members then entitled to receive principal under article fourth or if none to charities selected by the trustees other than the grantor’s spouse article fourth contains substantially identical provisions for son trust and trust terminate years after the death of the last survivor of wife son son and each person living at the trust’s inception who shall become the widow of either son or son article first of trust and of trust directs the trustees to pay all of the trust’s net_income to charities selected by a committee of trustees and public members provided for under article second until years after the death of the survivor of son and son from that point until the trust terminates under article fifth a one-half of the net_income will be paid to such persons as son appoints in his will and under article fifth b one-half of the net_income will be paid to such persons as son appoints in his will upon termination of the trust under article sixth a one-half of the principal will be paid to such persons as son appoints in his will and under article sixth b one-half of the principal will be paid to such persons as son appoints in his will to the extent son or son does not exercise his power over income or over plr-129540-09 principal his issue have the respective power to appoint their respective shares the donee of a power cannot appoint income or principal to the donee the donee’s creditors the donee’s estate or the creditors of the donee’s estate any income or principal not appointed under articles fifth and sixth respectively will be distributed among the descendants of husband per stirpes or if none to foundation or if it is not then in existence to charities selected by the trustees trust and trust terminate years after the death of the last survivor of son son five named grandchildren of husband and each person living at the trust’s inception who shall become the widow or widower of such individuals son died on date survived by his three children grandchild grandchild and grandchild and their then living children in article viii of his will son appointed his one-half share of net_income of trust and trust respectively as appointed son 1’s share of net_income is to be divided into three equal shares one share for each of his three sons and the son’s respective family family share payable from son 1’s death until the respective termination of trust and trust each family share of income is to be distributed under a detailed formula among the named son or the son’s surviving_spouse and the son’s descendants under article viii a of son 1’s will any income payable to a beneficiary who is under age is to be held in trust for that beneficiary article viii a trusts son appointed his one-half share of principal of trust and trust respectively to foundation to be paid upon the termination of trust sec_1 and in article ix of his will son appointed his one-half share of income of trust and trust respectively to foundation as appointed the income from each trust will be paid for a period commencing years after son 2’s death and ending on the termination of trust sec_1 and he also appointed his share of net_income from trust and trust for the period that commences upon the termination of trust and trust and ends on the termination of trust sec_3 and the income will be distributed in three equal shares one share for each of his three sons and the son’s respective family family share payable from the termination of trust sec_1 and until trust sec_3 and terminate each family share of income is to be distributed under a detailed formula among the named son or the son’s surviving_spouse and the son’s descendants under article ix a of son 1’s will any income payable to a beneficiary who is under age is to be held in trust for that beneficiary son appointed his one-half share of principal of trust and trust respectively to be paid to foundation at the termination of trust and trust the current trustees of all four trusts are grandchild grandchild grandchild son and bank plr-129540-09 the trustees of trusts have sold portions of stock on a few occasions to pay expenses on date in year company purchased all of the outstanding_stock of company date sale before the date sale trusts held only stock and relatively small amounts of cash in the date sale trusts sold all of their stock trust and trust 2’s gross_proceeds from the date sale were approximately dollar_figurew and dollar_figurex respectively for state_income_tax purposes trust and trust realized net capital_gains from the date sale of approximately dollar_figurem in the aggregate trust and trust 4’s gross_proceeds from the date sale were approximately dollar_figurey and dollar_figurez respectively for state_income_tax purposes trust and trust realized net capital_gains from the date sale of approximately dollar_figuren in the aggregate state_income_tax law provides a charitable set-aside deduction from income_tax for the taxable_income of a_trust required to be set_aside for ultimate distribution to charity since son 1’s death one-half of the principal remainder of each trust has been irrevocably set_aside for charity pursuant to son 1’s exercise of his powers of appointment over the principal of trusts the trustees of trusts have claimed the state charitable set-aside income_tax deduction for one-half of the capital_gains recognized by trusts in the aggregate in some past years for a total state tax saving of dollar_figured for the years since son 1’s death the trustees of trusts have not claimed a federal charitable set-aside deduction under sec_642 for any capital_gains recognized and they will not claim one for the date sale the trustees of trusts will claim the state charitable set- aside deduction for one-half of the capital_gains recognized by each trust in the date sale for a total state tax savings in year of approximately dollar_figuree for all four trusts in the aggregate son his spouse and his children grandchild grandchild grandchild grandchild and grandchild and numerous grandchildren of son are currently living after stock was sold differing investment preferences emerged between the families of son and son and differences in charitable preferences gained importance further the capital_gains trusts realized between son 1’s death and the date sale were nominal in comparison to the very substantial capital_gains the trusts realized in the date sale in light of these substantial capital_gains realized in the date sale a controversy arose among the families of son and son and the trustees over the tax_benefit attributable to the state charitable set-aside deduction resulting for year from son 1’s exercise of his powers of appointment the year state tax savings and whether it should be allocated equally between both halves of each trust or should be allocated solely to the half of each trust subject_to son 1’s exercise of his powers of appointment between date and date pursuant to state statute settlement agreement was executed regarding trust sec_1 and and settlement agreement was executed regarding trust sec_3 and plr-129540-09 under settlement agreement the trustees of trust sec_3 and with the approval of court will exercise their power under state statute to divide each trust into two trusts each of trust sec_3 and will be divided into a trusts trust 3a and trust 4a consisting of that portion of the principal of each trust currently administered under article first of the respective trust for the benefit of charitable beneficiaries which after the charitable period will be administered under articles fifth and sixth for the benefit of the appointees of son each of trust sec_3 and will be divided into b trusts trust 1b and trust 2b consisting of that portion of principal of each trust currently administered under article first of the respective trust for the benefit of charitable beneficiaries which after the charitable period will be administered under articles fifth and sixth for the benefit of son and his family son 2’s future potential appointees and charity subject_to the equitable_adjustment every asset and every liability including running account for trust other than tax_liabilities of each of trust sec_3 and will be divided into equal fractional shares one fractional share will be allocated to the respective a_trust and one fractional share will be allocated to the respective b_trust federal tax_liabilities deductions and credits of each of trust sec_3 and will be allocated equally between the respective a and b trusts settlement agreement also provides for the equitable_adjustment of the year state tax savings in conjunction with the division of trust sec_3 and the trustees will implement this equitable_adjustment as follows by allocating s percent of the trust year state tax savings to trust 3a and t percent of the trust year state tax savings to trust 3b and by allocating s percent of the trust year state tax savings to trust 4a and t percent of the trust year state tax savings to trust 4b all other state tax_liabilities deductions and credits of each of trust sec_3 and will be allocated equally between the respective a and b trusts all of the principal of trust sec_3a and sec_4a will be administered and distributed under the terms of articles fifth a and sixth a of each of trust sec_3 and respectively as modified by son 1’s exercise of his powers of appointment all of the principal of trust sec_3b and sec_4b will be administered and distributed under the terms of articles fifth b and sixth b of each of trust sec_3 and respectively subject_to any later modification by son 2’s exercise of his powers of appointment state statute provides for a binding nonjudicial procedure to resolve matters pertaining to trusts through a written_agreement the following parties executed settlement agreement grandchild individually as trustee of trust sec_3 and and as trustee of trust sec_3a and sec_4a the spouses of grandchild and individually the adult children of grandchild and individually son individually as trustee of trust sec_3 and and as trustee of trust sec_3b and sec_4b grandchild individually grandchild as trustee of trust sec_3b and sec_4b the adult children of grandchild and individually plr-129540-09 bank as trustee of trust sec_3 and and as trustee of trust sec_3a sec_3b sec_4a and sec_4b and foundation all individuals also executed settlement agreement as virtual representatives of minor unborn or unascertained beneficiaries under state statute on date the attorney_general of state issued a statement that he does not object to settlement agreement settlement agreement is subject_to the approval of court and to the receipt of a favorable ruling from the internal_revenue_service settlement agreement will become effective upon a date that is agreed upon by the trustees and is within a reasonable_time after the court has approved the agreement effective date the parties to settlement agreement and the current trustees of trust sec_3 and petitioned court for an order approving settlement agreement and dividing each of trust sec_3 and as of effective date in the manner described in the agreement the office of the attorney_general of state filed a statement that the attorney_general did not object to court’s granting relief on date court issued an order approving settlement agreement in all respects and ordering that each of trust sec_3 and is to be divided on effective date in the manner described in the agreement the taxpayers have requested the following rulings the implementation of settlement agreement under which an equitable_adjustment would be made for state tax savings in year will not be treated as a modification that would cause either trust or trust to lose its exemption from the gst tax the division of trust and of trust in a manner consistent with settlement agreement will not cause either trust or trust to lose its exemption from the gst tax the implementation of settlement agreement will not subject son to federal gift_tax ruling_request sec_2601 imposes a tax on each generation-skipping_transfer made by a transferor to a skip_person under a of the tax_reform_act_of_1986 the generation-skipping_transfer_tax is generally applicable to generation-skipping transfers made after date however under b a of the tax reform act and sec_26_2601-1 the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused plr-129540-09 inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are generally applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes unless noted otherwise the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a court-approved settlement of a bona_fide issue regarding the administration of a_trust or the construction of the terms of the governing instrument will not cause an exempt trust to be subject_to the provisions of chapter if - the settlement is the product of arm's length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties' assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes in this case trust sec_3 and were created and irrevocable before date it is represented that no additions actual or constructive have been made to trust sec_3 and after that date we conclude that settlement agreement constitutes a settlement of bona_fide issues regarding the administration of trust sec_3 and and regarding the construction of the terms of trust sec_3 and we also conclude that the terms of settlement agreement are the product of arm's length negotiations and represent a compromise that reflects the parties' assessments of the relative strengths of the positions of the families of son sec_1 and further the terms of settlement agreement are within the range of reasonable outcomes under the governing instrument and the applicable state law addressing the issues resolved by settlement agreement accordingly based on the facts submitted and the representations made we rule as follows the implementation of settlement agreement under which an equitable_adjustment would be made for state tax savings in year will not be treated as a modification that would cause either trust or trust to lose its exemption from the gst tax plr-129540-09 the division of trust and of trust in a manner consistent with settlement agreement will not cause either trust or trust to lose its exemption from the gst tax ruling sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year sec_2511 provides that the gift_tax applies 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_2511-1 of the gift_tax regulations provides that as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in him or her no power to change its disposition whether for his or her own benefit or for the benefit of another the gift is complete but if upon a transfer a donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the fact in the particular case sec_25_2511-1 provides that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax whether an agreement settling a dispute is effective for gift_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of each party's claim if it is determined that each party has a valid claim the service must determine that the distribution under the settlement reflects the result that would apply under state law if there is a difference it is necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated as discussed above settlement agreement represents the resolution of a bona_fide controversy between the families of son sec_1 and all interested parties who hold or may hold an interest in trust sec_3 and including any minors and unborn heirs have been represented in the proceedings that culminated in the date order approving the agreement further based on the facts as presented the terms of settlement agreement are the product of arm’s length negotiations among all the interested parties we conclude that settlement agreement reflects the rights of the parties plr-129540-09 under the applicable law of state that would be applied by the highest court of state accordingly based on the facts submitted and representations made we rule that implementation of settlement agreement will not subject son to federal gift_tax except as specifically ruled herein we express no opinion on the federal tax consequences of the proposed modifications of trust sec_3 and under settlement agreement under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely _________________________ james hogan senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


oo department of the treasury internal_revenue_service washington d c t e ’ l a’ ai- government entities division feb uniform issue list haararhararniie deine tanita harare eaaarer legend taxpayer ira a account a amount whekeraaneaaets hakareaaaaaaeee weeeeeetknratay wrackwhrerrarer financial_institution a herrarreuucrkied financial_institution b dear hark aeaerarene this is in response to your request dated steaxeseaeeeee os supplemented by communication on in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer age represents that in she received a distribution from her individual_retirement_account ira a totaling amount from financial_institution a taxpayer asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to taxpayer's health condition and the failure of financial_institution b to follow the taxpayer's instructions taxpayer further represents that amount has not been used for any purpose in taxpayer represents that she received a distribution from ira a of amount order to rollover the funds into another ira account with a better rate of returm upon receiving the distribution taxpayer attempted to deposit the funds into an ira with financial_institution b despite her attempts to communicate her intentions to a representative from financial_institution b amount was deposited into account a a non-qualified account taxpayer has included a letter from her doctor citing the possibility that taxpayer's medication may have prevented her from making her intentions clear to the representative of financial_institution b based on the above facts and representations you request a ruling that the internal_revenue_service service waive the 60-day rollover requirement with respect to amount contained in sec_408 of the code in this instance sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 d of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the ind ividual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of day after the date on which the such individual not later than the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 d sec_408 of the code provides that sec_408 d does not apply to any amount described in sec_408 d 3a xi 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 a i from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 e of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 i of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer is consistent with her assertion that her failure to accomplish a timely rollover was caused by the failure of financial_institution b to follow her instructions due to taxpayer's medical_condition therefore pursuant to sec_408i of the code the service hereby waives the 60-day rollover requirement with respect to amount from ira a is granted a period of days from the issuance of this ruling letter taxpayer a to contribute amount requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto into an eligible_retirement_plan provided all other this letter is directed only to the taxpayer who requested it sec_6110 k of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact setenireesieeee identification_number at - _ please address all correspondence to hnrnwhekrnaari sincerely yours wallen carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


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-123442-18 date date parent distributing distributing controlled controlled controlled sub ----------------------------------------------------------- ---------------------------------------------------- -------------------------------- ---------------------------------------------------- ---------------------------------------------- ---------------------------------- ------------------------------- --------------------------------------------------- ------------------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------------------------- ----------------------------------------------------------- ----------- -------------------------------------------------- -------------------------------------------------------- --------------------------- ------------------------------------------- --------------------------------------------------------- ------------------------------------------- -------------------------------------------------- -------------------------------------------------------------- plr-123442-18 ------------------------------- -------------------------------------------------------------------- ------------------------------------------------ ---------------------------- --------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------- -------------------- -------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------- --------------------------- ----------------------------------------------------------- ---------------------------------------------------- ------------------------------------------------------ -------------------------------------------------------------- --------------------------------------- ----------------------- ------------ ----------------------- sub sub de de business a business b country a country b dear -------------- this letter responds to your letter dated date requesting rulings on certain federal_income_tax consequences of a series of transactions the proposed transaction as defined below the material information submitted in that request and subsequent correspondence is summarized below the rulings contained in this letter are based upon facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party the office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process plr-123442-18 this letter is issued pursuant to revproc_2017_52 2017_41_irb_283 regarding one or more covered transactions under sec_355 and sec_368 of the internal_revenue_code the code and one or more significant issues under sec_351 and sec_355 of the code that only address one or more discrete legal issues involved in the transaction this office has made no determination regarding whether each of the distributions as defined below i satisfies the business_purpose requirement of sec_1 b ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation or any predecessor or successor of the distributing_corporation or the controlled_corporation within the meaning of sec_1_355-8t see sec_355 and sec_1_355-7 summary of facts parent is the common parent of an affiliated_group_of_corporations whose includible corporations join in filing a consolidated federal_income_tax return parent is engaged in business a and business b through direct and indirect domestic and foreign subsidiaries parent owns all of the stock of distributing and sub both domestic corporations sub owns directly and indirectly all of the stock and interests in entities all of which are engaged in the conduct of business b distributing owns all of the stock of distributing a country a corporation sub and de a country b limited_company treated as a disregarded_entity for us federal_income_tax purposes a disregarded_entity distributing owns all the stock of controlled a country a limited_company treated as a corporation for us federal_income_tax purposes as well as numerous other country a subsidiaries engaged in business a de owns all the stock of sub financial information has been submitted indicating each of business a and business b has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years plr-123442-18 proposed transaction prior to engaging in the proposed transaction as defined below parent will execute certain steps in country b that are not within the scope of this ruling in particular these steps will separate the entities in country b that operate business a from the entities in country b that operate business b at the conclusion of these steps distributing will directly own all of the stock of sub for what are represented to be valid business purposes parent proposes to engage in the following transactions to separate business a from business b such steps comprise the proposed transaction i ii iii iv parent will transfer its stock of sub to distributing the sub contribution the sub contribution will be undertaken in connection with satisfying certain requirements under country a law with respect to step iv distributing will form controlled distributing will contribute sub sub and sub to controlled the controlled contribution pursuant to a binding agreement to undertake a three-party exchange the country a separation a controlled will form de a country a company treated as a disregarded_entity for us federal_income_tax purposes distributing will amend its articles of incorporation and issue new common shares and new preferred shares to distributing in exchange for all the existing distributing shares de will issue common shares to controlled controlled will issue common shares to distributing and distributing will transfer the preferred shares of distributing to de distributing will transfer the shares of controlled and cash to de in exchange for i the assumption_of_liabilities if any associated with the transferred business and ii preferred shares of de de will redeem the preferred shares held by distributing solely in exchange for a demand promissory note distributing will redeem the preferred shares held by de solely in exchange for a demand promissory note and pursuant to an off-set agreement the notes owed between de and distributing will be off-set and cancelled b c d e f g plr-123442-18 the country a separation is intended to be characterized as a distribution of controlled stock by distributing to distributing distribution immediately followed by a contribution of the controlled stock by distributing to controlled as part of the controlled contribution distributing will distribute its shares of controlled to parent distribution parent will form controlled controlled will borrow cash from third-party lenders parent will contribute the stock of controlled to controlled in exchange for controlled stock controlled securities and the cash received in step vii the controlled contribution parent will distribute the stock of controlled pro_rata to its shareholders and transfer the cash received in step vii and the controlled securities to its creditors the external distribution v vi vii viii ix in connection with steps viii and ix parent and controlled may consummate a debt exchange the debt-for-debt exchange in the debt-for-debt exchange one or more investment banks the exchange banks may purchase a portion of parent’s outstanding indebtedness the exchange debt on the open market acting as principals on their own account and not as agents of parent thereafter the exchange banks or their affiliates may sell the controlled securities to third-party investors representations with respect to the country a separation except as set forth below distributing has made all of the representations in sec_3 of the appendix to revproc_2017_52 2017_41_irb_283 distributing has made the following alternative representations representation sec_3 a a a a a and a distributing has not made the following representations which do not apply to the country a separation representations and distributing has modified the following representations the country a separation is intended to be characterized as distribution followed by the controlled contribution thus distribution is a deemed transaction for federal_income_tax purposes as such all representations in sec_3 of the appendix to revproc_2017_52 regarding distribution and the part of the controlled contribution that includes the country a plr-123442-18 separation are modified to include the language deemed where applicable with respect to distribution except as set forth below distributing has made all of the representations in sec_3 of the appendix to revproc_2017_52 2017_41_irb_283 distributing has made the following alternative representations representation sec_3 a a a a a and a distributing has not made the following representations which do not apply to distribution representations and distributing has not made the following representation representation with respect to the external distribution except as set forth below parent has made all of the representations in sec_3 of the appendix to revproc_2017_52 2017_41_irb_283 parent has made the following alternative representations representation sec_3 a a a a and a parent has not made the following representations which do not apply to the external distribution representations and parent has not made the following representation representation in addition except as set forth below parent has made all of the representations in dollar_figure of revproc_2018_53 2018_43_irb_667 parent has made the following modified representation representation the exchange banks will not acquire the exchange debt from parent controlled or any related_person neither parent controlled nor any related_person will participate in any profit gained by the exchange banks upon an exchange of sec_361 consideration as plr-123442-18 defined in revproc_2018_53 2018_43_irb_667 sec_2 nor will any such profit be limited by agreement or other arrangement the value of the sec_361 consideration received by the exchange banks in satisfaction of the exchange debt will be approximately equal to the fair_market_value of the exchange debt determined pursuant to arm’s length negotiations parent has made the following additional representation for purposes of sec_1_367_b_-5 distributing 2’s predistribution amount with respect to distributing or controlled will not exceed distributing 2’s postdistribution amount with respect to both entities or if the predistribution amount does exceed the postdistribution amount distributing will reduce its basis or include an amount in income as a deemed_dividend to the extent provided in sec_1_367_b_-5 based solely on the information submitted and representations made we rule as follows rulings the country a separation for federal_income_tax purposes the country a separation described in step iv will be treated as distribution followed by the contribution of controlled to controlled as part of the controlled contribution distribution will qualify as a tax-free distribution sec_355 no gain_or_loss will be recognized by distributing sec_355 no gain_or_loss will be recognized by and no amount will be included in the income of distributing as a result distribution sec_355 the aggregate basis of the distributing stock and the controlled stock in the hands of distributing immediately after distribution will be the same as the aggregate basis of the distributing stock held by distributing immediately before distribution sec_358 such basis will be allocated between the distributing and controlled stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 and sec_358 and c the holding_period of the controlled stock received by distributing will include the holding_period of the distributing stock with respect to which distribution is made provided that such distributing stock is held as a capital_asset on the date of distribution sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 the sub contribution plr-123442-18 the sub contribution will be treated as a separate transaction from distribution and will be treated as occurring prior to step iv distribution the controlled contribution together with distribution will be a reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on the controlled contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the controlled contribution sec_1032 controlled 2’s basis in each asset received in the controlled contribution will be the same as the basis of that asset in the hands of distributing immediately before the controlled contribution sec_362 controlled 2’s holding_period in each asset received from distributing in the controlled contribution will include the period during which distributing held that asset sec_1223 no gain_or_loss will be recognized by and no amount will be included in the income of parent on its receipt of the controlled stock on distribution sec_355 no gain_or_loss will be recognized by distributing on distribution sec_361 the holding_period of the controlled stock received by parent in distribution will include the holding_period of the distributing stock with respect to which distribution is made provided that such distributing stock is held as a capital_asset on the date of distribution sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 the external distribution the controlled contribution together with the external distribution will be a reorganization within the meaning of sec_368 parent and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by parent on the controlled contribution sec_361 sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the controlled contribution sec_1032 plr-123442-18 controlled 3’s basis in each asset received in the controlled contribution will be the same as the basis of that asset in the hands of parent immediately before the controlled contribution sec_362 controlled 3’s holding_period in each asset received from parent in the controlled contribution will include the period during which parent held that asset sec_1223 no gain_or_loss will be recognized by and no amount will be included in the income of parent’s public shareholders on their receipt of the controlled stock in the external distribution sec_355 no gain_or_loss will be recognized by parent on the external distribution sec_361 the aggregate basis of the parent stock and the controlled stock in the hands of parent’s public shareholders immediately after the external distribution will be the same as the aggregate basis of the parent stock held by parent’s public shareholders immediately before the external distribution sec_358 such basis will be allocated between the parent stock and the controlled stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 and sec_358 and c the holding_period of the controlled stock received by parent’s public shareholders in the external distribution will include the holding_period of the parent stock with respect to which the external distribution is made provided that such parent stock is held as a capital_asset on the date of the external distribution sec_1223 earnings_and_profits will be allocated between parent and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 parent will recognize no income gain deduction or loss upon the debt-for-debt exchange other than any i deductions attributable to the redemption of any exchange debt at a premium ii income attributable to the redemption of exchange debt at a discount and iii interest_expense accrued with respect to the exchange debt sec_361 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transaction under any provision of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above rulings plr-123442-18 procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely _______________________________ mark j weiss chief branch office of associate chief_counsel corporate cc


department of the treasury internal_revenue_service washington d c -- q q ocr -7 2p uniform issue list se t-ep- fats legend individual a company b _ plan x employer p distribution d date m date n date o dear this is in response to your letter of june19 as supplemented by a letter of date in which your authorized representative requested a waiver of the 60-day rollover requirement contained in sec_402 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury to support the ruling requested page individual a was employed by employer p and participated plan x individual a terminated employment with employer p on date m individual a received distribution d in the form of stock of employer p individual a received no information from employer p with regard to the action necessary to roll over the stock into an ira nor did individual a receive a notice as required by sec_402 of the code on date n individual a met with a financial advisor of company b concerning the stock_distribution and was advised that the 60-day period for making a rollover into an ira had expired individual a still has the stock he received as distribution d on date o individual a received a second distribution from plan x in the form of employer p stock this second distribution was rolled into an ira within days from date o based on the above facts and representations you request that the service waive the 60-day rollover requirement contained in sec_402 of the code with respect to distribution d because the failure to waive such requirement would be against equity or good conscience sec_402 of the code provides that except as otherwise provided in this section any amount actually distributed to any distributee by any employees’ trust described in sec_401 which is exempt from tax under sec_501 shall be taxable to the distributee in the taxable_year of the distributee in which distributed under sec_72 sec_402 of the code concerning rules applicable to rollovers from exempt trusts provides that if a any portion of the balance_to_the_credit of an employee is paid to the employee in an eligible_rollover_distribution b the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan and c in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent so transferred shall not be includible in gross_income for the taxable_year in which paid in general sec_402 provides that sec_402 shall not apply sec_402 of the code provides that the transfer must be made within days of receipt to any transfer made after the day following the day on which the distributee received the property distributed sec_402 b provides that the secretary may waive the 60-day requirement under sec_402 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_402 of the code revproc_2003_16 2003_4_irb_359 provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 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 rage 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 demonstrates that individual a received no information from employer p with regard to the requirements for rolling over the distribution of stock into it was not until individual a met with a financial advisor of company b that he an ira became aware of the rollover requirements with respect to distributions of stock individual a’s inexperience in this type of financial transaction and lack of investment advice prevented individual a from rolling over distribution d into an ira within days therefore pursuant to sec_402 of the code the service hereby waives the 60-day rollover requirement with respect to distribution d individual a period of days from the date_of_issuance of this ruling letter to contribute the stock received in distribution d into an ira provided all other requirements of sec_402 of the code are otherwise satisfied except the 60-day requirement distribution d will be considered a rollover_contribution within the meaning of sec_402 of the code is granted a no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions please contact sincerely yours s donzell littlejohn manager employee_plans technical group


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 b03 plr-106090-08 date date x ------------------------------------------------------------------------------------------------------ legend ------------------------- state ----------- date -------------------------- dear ------------- this letter responds to the letter dated date submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under the laws of state x’s shareholders represent that they intended for x to be an s_corporation as of date however form_2553 election by a small_business_corporation was not timely filed x represents that both x and its shareholders have reported their income consistent with x’s intended status as an s_corporation x requests a ruling that it will be recognized as an s_corporation effective date law and analysis plr-106090-08 sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b such election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then such election shall be treated as made for the following taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply conclusion based solely on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make a timely s_corporation_election thus we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective date within days following the date of this letter we rule that the election shall be treated as timely made a copy of this letter should be attached to the form_2553 except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed or implied regarding as to whether x otherwise qualifies as a subchapter_s_corporation under 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 the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination plr-106090-08 under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely s tara p volungis senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes cc


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b06 nmmulleneaux postn-135470-09 uilc 199263a 263a date date to charles e buxbaum attorney washington large mid-size business from jeffrey g mitchell branch chief branch income_tax accounting subject request for cca regarding allocating cost_of_goods_sold that includes post- production_costs this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issue a taxpayer incurs direct and indirect_costs that are includible in inventory costs under sec_263a of the internal_revenue_code some of the costs incurred and capitalizable in the current_year are attributable to events that occurred prior to the effective date of sec_199 sales of the inventory_items generate domestic_production_gross_receipts dpgr does sec_1_199-4 of the income_tax regulations require or permit the taxpayer to allocate some of the cost_of_goods_sold cgs to non-domestic production gross_receipts non-dpgr conclusion sec_1_199-4 does not require or permit taxpayers to allocate part of the cgs of an inventory_item to non-dpgr when the gross_receipts from the sale of that item are treated as dpgr because the costs at issue are properly capitalizable to current_year production pursuant to sec_263a they must be included in determining cgs allocable to dpgr for the taxable_year in which the costs are incurred and allocated to dpgr using a reasonable method pursuant to sec_1_199-4 application of a postn-135470-09 reasonable method results in the entire amount of the costs at issue being allocated to dpgr facts corporation x manufactured product a from through and product b from through in the united_states product a and product b are similar in all important respects product b is the next generation of product a at the beginning of its taxable_year corporation x had no goods in inventory during corporation x manufactured big_number units of product b corporation x sold units of product b during and of the gross_receipts recognized by corporation x in qualified as dpgr to account for inventory costs under sec_471 and sec_263a corporation x uses both a standard_cost_method and the simplified_production_method the standard cost of one unit of product b in was dollar_figure including dollar_figure of materials dollar_figure in labor costs and dollar_figure in overhead expenses which includes worker’s compensation payments corporation x had no variances to allocate in in corporation x incurred additional sec_263a costs of dollar_figure or dollar_figure per unit which includes retiree medical_expenses and environmental remediation costs employee was involved in corporation x’s production process until he retired from corporation x in in corporation x paid dollar_figure of employee 1’s medical_expenses pursuant to an existing medical plan for retired corporation x employees those expenses were subject_to capitalization under sec_263a for purposes of computing corporation x’s taxable_income employee has been involved in corporation x’s production process her entire career and was injured in while manufacturing product a in corporation x paid employee dollar_figure of worker’s compensation payments for her injuries suffered in those expenses were subject_to capitalization under sec_263a for purposes of computing corporation x’s taxable_income products a and b were manufactured at the same factory from through production activities related to the manufacture of product a discharged hazardous waste at the factory as a result in corporation x incurred dollar_figure in environmental remediation costs to clean up the factory and surrounding land these expenses were subject_to capitalization under sec_263a for purposes of computing taxable_income in beginning in corporation x properly disposed of hazardous waste resulting from its production process and properly capitalized its waste removal costs to inventory under sec_263a these costs are not part of the dollar_figure in environmental remediation costs paid in as a result of corporation x’s production activities from through postn-135470-09 corporation x asserts that pursuant to sec_1_199-4 a portion of its cgs the portion attributable to environmental remediation worker’s compensation and retiree medical benefits expenses_incurred in collectively expenses must be allocated to non-dpgr because such costs relate to activities generating gross_receipts in years prior to the effective date of sec_199 law and analysis sec_199 allows a deduction equal to a specified percentage of income attributable to domestic_production activities under sec_199 the deduction is generally limited to a percentage of the lesser_of the taxpayer’s a qualified_production_activities_income qpai or b taxable_income for the taxable_year sec_199 is effective for tax years beginning after date sec_199 generally provides that qpai is the excess of the taxpayer’s domestic_production_gross_receipts for the taxable_year over the sum of the cgs allocable to such receipts and other expenses losses and deductions determined without regard to sec_199 properly allocable to such receipts sec_1_199-1 provides that a taxpayer must determine the portion of its gross_receipts for the taxable_year that is dpgr and the portion of its gross_receipts that is non-dpgr sec_1_199-1 provides that factors taken into consideration in determining whether the taxpayer's method of allocating gross_receipts between dpgr and non- dpgr is reasonable include whether the taxpayer uses the most accurate information available and the accuracy of the method chosen as compared with other possible methods thus if a taxpayer has the information readily available and can without undue burden or expense specifically identify whether the gross_receipts derived from an item are dpgr then the taxpayer must use that specific identification to determine dpgr sec_1_199-4 provides that in the case of a sale exchange or other_disposition of inventory cgs is equal to beginning_inventory plus purchases and production_costs incurred during the taxable_year and included in inventory costs less ending inventory cgs is determined under the methods_of_accounting that the taxpayer uses to compute taxable_income pursuant to sec_263a sec_471 and sec_472 if sec_263a requires a taxpayer to include additional sec_263a costs in inventory additional sec_263a costs must be included in determining cgs sec_1_199-4 also provides that cgs allocable to dpgr for a taxable_year includes the inventory cost and adjusted_basis of qualifying_production_property qpp postn-135470-09 that will generate or have generated dpgr notwithstanding that the gross_receipts attributable to the disposition of the qpp will be or have been included in the computation of gross_income for a different taxable_year for example advance_payments that are dpgr may be included in gross_income under sec_1_451-5 in a different taxable_year than the related cgs allocable to that dpgr sec_1_199-4 provides that a taxpayer must use a reasonable method that is satisfactory to the secretary based on all of the facts and circumstances to allocate cgs between dpgr and non-dpgr depending on the facts and circumstances reasonable methods may include methods based on gross_receipts number of units sold number of units produced or total production_costs ordinarily if a taxpayer uses a method to allocate gross_receipts between dpgr and non-dpgr then the use of a different method to allocate cgs that is not demonstrably more accurate than the method used to allocate gross_receipts will not be considered reasonable however if a taxpayer has information readily available to specifically identify cgs allocable to dpgr and can specifically identify that amount without undue burden or expense cgs allocable to dpgr is that amount irrespective of whether the taxpayer uses another allocation method to allocate gross_receipts between dpgr and non-dpgr sec_1_199-4 provides that generally if a taxpayer recognizes and reports gross_receipts on a federal_income_tax return for a taxable_year and incurs cgs related to such gross_receipts in a subsequent taxable_year then regardless of whether the gross_receipts ultimately qualify as dpgr the taxpayer must allocate the cgs to-- a dpgr if the taxpayer identified the related gross_receipts as dpgr in the prior taxable_year or b non-dpgr if the taxpayer identified the related gross_receipts as non-dpgr in the prior taxable_year or if the taxpayer recognized under the taxpayer's methods_of_accounting those gross_receipts in a taxable_year to which sec_199 does not apply sec_263a provides that taxpayers must capitalize their direct costs and a properly allocable share of their indirect_costs to inventory sec_1_263a-1 provides that to determine these capitalizable costs taxpayers must allocate or apportion costs to various activities including production activities in the case of a manufacturer after sec_263a costs are allocated to production activities these costs are generally allocated to the items of property produced during the taxable_year and capitalized to the items that remain on hand at the end of the taxable_year sec_1_263a-1 provides that capitalize means in the case of property that is inventory in the hands of a taxpayer to include in inventory costs sec_1_263a-1 provides that the amount of any cost required to be capitalized under sec_263a may not be included in inventory or charged to capital postn-135470-09 accounts or basis any earlier than the taxable_year during which the amount is incurred within the meaning of sec_1_446-1 sec_1_446-1 provides that a liability is incurred and generally is taken into account for federal_income_tax purposes in the taxable_year in which all the events have occurred that establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability sec_1_263a-1 provides that indirect_costs are properly allocable to property produced when the costs directly benefit or are incurred by reason of the performance of production or resale activities sec_1_263a-1 provides that pension and other related costs are indirect_costs required to be capitalized sec_1_263a-1 further provides that contributions to employee_plans representing past services must be capitalized in the same manner as amounts contributed for current service sec_1_263a-1 provides that generally all other employee benefit expenses not described in sec_1_263a-1 including worker’s compensation payments pursuant to a wage_continuation_plan under sec_105 as it existed prior to its repeal in and benefits provided for employees such as medical treatment are indirect_costs required to be capitalized sec_1_263a-2 provides that producers generally must capitalize direct and indirect_costs properly allocable to property produced under sec_263a without regard to whether those costs are incurred before during or after the production_period revrul_2005_42 2005_2_cb_67 holds that environmental remediation costs incurred to clean up land that a taxpayer contaminated with hazardous waste as a result of the taxpayer’s manufacturing activities are incurred by reason of production activities and are properly allocable under sec_263a to the inventory produced during the taxable_year the costs are incurred for purposes of computing qpai under sec_199 cgs is determined using the methods_of_accounting that the taxpayer uses to compute taxable_income sec_1_199-4 additional sec_263a costs must be included in determining cgs allocable to dpgr if a taxpayer is required to include such costs in inventory pursuant to sec_263a accordingly to the extent corporation x’s expenses are properly excluded from inventoriable costs these expenses may be excluded for purposes of determining cgs allocable to dpgr sec_263a and the related regulations however require a properly allocable share of indirect_costs to be included in the inventory cost of goods produced during the taxable_year in the case of a manufacturer thus as described in more detail below the expenses are properly treated as the cost_of_producing property in the current taxable_year are required to be included in inventory costs under sec_263a and are included in inventory costs under corporation x’s methods_of_accounting postn-135470-09 for pension and other related expenses contributions for past services must be capitalized in the same manner as amounts contributed for current services sec_1 263a- e ii c furthermore sec_1_263a-1 provides that all other employee benefit expenses not described in sec_1_263a-1 should be capitalized to the extent allowable as deductions such costs specifically include payments for the benefit of former employees such as worker’s compensation benefits which often involve payments of benefits years after the end of the period of employment as well as payments pursuant to a sec_105 wage_continuation_plan which involve payments to former employees who retired on disability sec_1_263a-1 accordingly the retiree medical_expenses paid_by corporation x which are employee benefit costs should be capitalized to property produced in pursuant to sec_1 263a- e ii d this regulation applies broadly to employee benefit expenses and specifically includes examples of expenses which arise from services performed by an employee in a prior year worker’s compensation expenses paid_by corporation x are subject_to capitalization pursuant to sec_1_263a-1 and should also be capitalized to property produced in additionally revrul_2005_42 holds that environmental remediation costs incurred by a taxpayer to clean up land are costs that directly benefit or are incurred by reason of current production activities even if the costs are necessitated by the use of facilities for the production of property in a prior taxable_period thus the environmental remediation costs incurred by corporation x in are capitalizable to property produced during because sec_263a and the associated regulations require the expenses to be capitalized to property produced in the current_year and because the treatment of sec_199 expenses are generally required to conform to the treatment of sec_263a costs the expenses likewise must be included in determining cgs allocable to dpgr pursuant to sec_1_199-4 cgs is then allocated to dpgr using a reasonable method the most reasonable method for allocating cgs under these facts is the specific_identification_method all of the units of product b sold by corporation x generated dpgr therefore the inventory cost of each unit of product b sold should be allocated to dpgr a taxpayer’s methods_of_accounting under sec_263a and sec_471 determine the inventory cost of each unit_of_property the unit cost of product b is dollar_figure dollar_figure of sec_471 costs dollar_figure of additional sec_263a costs other reasonable methods described in sec_1 b i - allocation based on gross_receipts number of units sold number of units produced and total production_costs - would yield the same result corporation x asserts that sec_1_199-4 requires the expenses to be allocated to non-dpgr as it believes these expenses are related to gross_receipts received in a year prior to the effective date of sec_199 the expenses however are not related to gross_receipts received in a prior year rather the expenses are included in the inventory cost of property produced in the current_year and thus are related to the gross_receipts generated from sale of those goods as discussed postn-135470-09 previously inventory costs incurred in the current_year are generally allocated to property produced in the current_year and the treatment of sec_199 expenses are generally required to conform to the treatment of sec_263a costs accordingly corporation x’s reading of the regulation is contrary to the cost allocation_methods contained in the sec_199 regulations and by extension sec_263a and the associated regulations sec_1_199-4 plainly requires the taxpayer to determine cgs allocable to dpgr under the same methods_of_accounting used to compute taxable_income pursuant to sec_263a sec_471 and sec_472 by arguing that the expenses should be allocated to non-dpgr corporation x proposes to segregate each unit of product b into its component costs and then allocate those costs between dpgr and non-dpgr notwithstanding the fact that the sale of the unit generated dpgr we do not believe that sec_1_199-4 allows taxpayers or the service to segregate the cost of a unit of inventory into component costs and then allocate those component costs between cgs allocable to dpgr and cgs allocable to non-dpgr rather we believe sec_1_199-4 addresses the allocation of cgs determined on the basis of unit costs when gross_receipts from the sale of those units are received in a prior year there is no language in sec_1_199-4 indicating that the component costs rather than the unit costs of property are to be allocated to the contrary the fact that a taxpayer’s sec_263a and sec_471 methods determine the unit cost of property and the requirement to use those methods to compute cgs for purposes of sec_199 indicates that the allocation of cgs between dpgr and non-dpgr is premised on unit costing our view is reinforced by sec_1_199-1 which requires a taxpayer that can specifically identify whether gross_receipts derived from an item are dpgr to use a specific_identification_method for determining the portion of its gross_receipts that are dpgr sec_1_199-4 generally requires a taxpayer to use the same method of allocating cgs that is used for allocating gross_receipts read together sec_1_199-1 and sec_1_199-4 indicate that a taxpayer that can determine through specific identification that gross_receipts from disposition of a unit_of_property qualify as dpgr and that can determine the inventory cost per unit of that property must allocate the gross_receipts to dpgr and the corresponding inventory cost of the unit to dpgr the theme of sec_1_199-4 is that the cost of property should be allocated to the type of receipts dpgr or non-dpgr that the sale of the property generated paragraph b ii of sec_1_199-4 is consistent with that theme sec_1_199-4 applies in limited circumstances not applicable to corporation x such as when a taxpayer receives an advance_payment or uses the cash_receipts_and_disbursements_method pursuant to sec_1_199-4 advance_payments that qualify as dpgr may be included in gross_income in a different taxable_year than the related cgs allocable to that dpgr sec_1_199-4 then clarifies how to allocate the related cgs for purposes of sec_199 example of sec_1_199-4 illustrates the application of sec_1_199-4 in the example a furniture manufacturer receives an advance_payment and incurs costs related to the advance_payment when it manufactures the furniture in a subsequent postn-135470-09 year the example refers the reader to sec_1_199-4 for rules regarding gross_receipts and costs recognized in different taxable years accordingly sec_1_199-2 is not applicable to the facts described above and all of corporation x’s cgs which includes a portion of the expenses must be allocated to dpgr please contact natasha mulleneaux on if you have any further questions