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 b1 plr-133292-08 date date legend llc ------------------------------------------------------------ ------------------------------------ a ------------------------------------------------------------- --------------------- b ------------------------------------------------------------ ---------------------------------------- date date date ----------------------- --------------------- ---------------- dear ------------------ this letter responds to a letter dated date submitted on behalf of llc requesting a rulings under sec_301_7701-3 of the procedure and administration regulations specifically llc requests the service's consent to change its classification from that of an association_taxable_as_a_corporation to that of a partnership facts llc was formed on date on date a was the sole owner of llc although llc was a domestic eligible_entity llc did not make an initial classification election plr-133292-08 llc elected to be treated as an association_taxable_as_a_corporation on date on date b entered into a purchase agreement to become the percent owner of llc conditional upon the issuance of a favorable private_letter_ruling allowing llc to change its classification llc intends to elect to be classified as a partnership on a date within sixty months of llc's previous entity classification election on date llc now requests the service's consent under sec_301_7701-3 to change its entity classification to a partnership law sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that except as provided in sec_301 c iv and v an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 entity classification election with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_7701-3 provides that if an eligible_entity makes an election under sec_301_7701-3 to change its classification the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election however the commissioner may permit the entity to change its classification by election within sixty months if more than fifty percent of the ownership_interest in the entity as of the effective date of the subsequent election are owned by persons that did not own any interests in the entity on the filing_date or on the effective date of the entity's prior election conclusion based on the facts submitted and the representations made we consent to llc changing its classification for federal tax purposes less than months after its previous plr-133292-08 classification change as a result x may file form_8832 with the appropriate service_center to elect to be classified as a partnership a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly set forth above we express or imply no opinion concerning the federal tax consequences of the facts discussed above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely david r haglund david r haglund senior technician reviewer branch associate chief_counsel passthroughs special industries cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc fip 4-plr-135727-03 date date date a taxpayer location b location c number d state e number f number g dear this is in reply to the date a letter submitted on behalf of taxpayer a non-profit fraternal benefit society organized under the laws of state e the letter requests that we rule that for purposes of applying the diversification requirements of sec_817 of the internal_revenue_code to the investments supporting taxpayer’s variable life_insurance contracts and variable annuities taxpayer’s tax-exempt status as a fraternal benefit society under sec_501 will not cause the beneficial interests of a regulated_investment_company ric used by taxpayer and other insurance_companies to support variable_contracts to be ineligible for look-through treatment pursuant to sec_817 and sec_1_817-5 the provisions of which require that all of the beneficial interests in the ric be held by one or more insurance_company segregated_asset accounts to be eligible for look-through treatment facts taxpayer is a fraternal beneficiary society that operates under the lodge_system taxpayer is exempt from tax under sec_501 and is therefore not subject_to tax as an insurance_company under subchapter_l of the internal_revenue_code taxpayer plr-135727-03 files its federal information returns with the irs service_center in location b and is subject_to the audit jurisdiction of the director in location c taxpayer is engaged in numerous charitable and fraternal activities and also consistent with its purpose issues life_insurance and annuity_contracts to its members and their dependents taxpayer is licensed to issue insurance contracts in number d states and the district of columbia taxpayer represents that more than half of its activities consist of the issuing of insurance or annuity_contracts taxpayer further represents that more than percent of taxpayer’s total_reserves within the meaning of sec_816 consist of life_insurance_reserves within the meaning of sec_816 taxpayer’s issuance of life_insurance and annuity_contracts is regulated by state laws governing fraternal_benefit_societies collectively referred to as the fraternal law of state e and as well as each of the other jurisdictions in which taxpayer is licensed to transact business these laws governing issuance of insurance contracts by fraternal beneficiary societies are comparable to the laws governing life_insurance and annuity_contracts issued by stock and mutual life_insurance_companies among other things taxpayer is subject_to nonforfeiture and reserve requirements the provisions governing fraternal beneficiary societies also permit those entities in a manner parallel to the rules applicable to stock and mutual life_insurance_companies to establish separate_accounts and to issue variable life_insurance and annuity_contracts supported by those accounts the requirements applicable to these separate_accounts once established are the same requirements applicable to separate_accounts established by insurance_companies until now taxpayer has offered only life_insurance and annuity_contracts based on its general account taxpayer is however currently in the process of developing variable life_insurance and annuity_contracts and making the necessary financial and legal arrangements for distributing those types of contracts to its members among other steps taxpayer has obtained the necessary authority in its domiciliary state and all but three jurisdictions taxpayer is in the process of obtaining authority to issue variable_contracts in the remaining three jurisdictions taxpayer’s variable_contracts have been approved in number f states including the domicile state and approval is pending in number g states taxpayer intends to offer holders of its variable_contracts a choice of broadly defined investment options allowing them to allocate the assets underlying their contracts among these options to support these investment options taxpayer has established two separate_accounts one for variable_annuity contracts and one for variable life_insurance contracts each separate_account will be divided into subaccounts each of which will pursue a specified broadly defined investment strategy rather than directly managing a portfolio of investments in the subaccounts or retaining an independent investment_advisor to do so taxpayer will take advantage of the economies of scale afforded by using rics that are managed by recognized plr-135727-03 investment management firms unaffiliated with taxpayer each of the subaccounts of taxpayer’s two separate_accounts will invest exclusively in shares of a particular ric that pursues the same investment strategy as established for the subaccount this is known as a unit_investment_trust structure and is widely used throughout the life_insurance industry taxpayer intends that the subaccounts supporting its variable_contracts invest only in insurance-dedicated rics ie rics that satisfy the requirements set forth in sec_1_817-5 for look-through treatment under sec_817 and sec_1_817-5 specifically sec_1_817-5 provides that in order for owners of interests in the ric to be able to look through the ric to its underlying assets two requirements must be satisfied first except as otherwise permitted under sec_1_817-5 all of the beneficial interests in the ric must be held solely by one or more segregated_asset accounts of one or more insurance_companies second public access to the ric must be available exclusively through the purchase of a variable_contract within the meaning of sec_817 in the course of negotiating participation agreements with various insurance- dedicated rics the rics have questioned whether the holding by taxpayer’s separate_accounts of beneficial interests in the rics will render the rics ineligible for look- through treatment this issue arises because as noted above taxpayer is not subject_to tax as an insurance_company under subchapter_l of the code but rather is a fraternal beneficiary society exempt from tax under sec_501 if look-through treatment of a ric is not available due to taxpayer’s tax-exempt status the shares of the ric will be treated as a single investment for purposes of applying the diversification requirements of sec_817 taxpayer requests that the service rule that a ric will not be ineligible for look- through treatment merely because one of the subaccounts underlying taxpayer’s variable_contracts holds shares of such ric because public access to the rics offered through taxpayer’s variable_contracts is available exclusively through the purchase of a variable_contract the focus of this ruling_request is whether taxpayer’s status as a fraternal beneficiary society exempt from tax under sec_501 will prevent the rics from meeting the restriction of sec_817 and sec_1_817-5 ie the requirement that all of the beneficial interests in a ric eligible for look-through treatment be held by one or more insurance_company segregated_asset accounts in support of this ruling_request taxpayer represents assuming that the rics in which it intends to hold interests otherwise qualify for look-through treatment under sec_817 and sec_1_817-5 that the variable life_insurance contracts that taxpayer intends to offer will qualify as life_insurance contracts within the meaning of sec_7702 the variable_annuity contracts it intends to offer will be considered to be annuity plr-135727-03 contracts in accordance with the customary practice of life_insurance_companies will contain the language required by sec_72 and will be treated as annuity_contracts not as debt instruments under sec_1275 and the variable_contracts taxpayer will offer will qualify as variable_contracts under sec_817 ie the variable_contracts will provide for the allocation of all or part of the amounts received under the contract to an account which pursuant to state law or regulations will be segregated from taxpayer’s general asset accounts the variable_contracts will provide for the payment of annuities or qualify as life_insurance contracts under the variable_annuity contracts the amounts paid out will reflect the investment return and the market_value of a taxpayer segregated_asset_account and under the variable life_insurance contracts the amount of the death_benefit or the period of coverage will be adjusted on the basis of the investment return and the market_value of a taxpayer segregated_asset_account law under sec_817 a non-qualified variable life_insurance or annuity_contract is not treated for federal tax purposes as a life_insurance or annuity_contract as the case may be unless the investments made by the segregated_asset_account on which the contract is based are adequately diversified in accordance with sec_1_817-5 sec_817 and sec_1_817-5 generally provide that if a ric satisfies certain conditions the diversification requirements are applied by looking through the ric ie by taking into account the assets held by the ric rather than treating the ric shares as a single investment under sec_1_817-5 a ric can be looked through by the holders if a all the beneficial interests in the ric are held by one or more insurance_company segregated_asset accounts and b public access to the ric is available exclusively through the purchase of a variable_contract taxpayer’s variable_contracts and other variable_contracts investing in rics in which taxpayer’s variable_contracts have invested are able to use the look-through_rule for those rics only if taxpayer itself is an insurance_company for purposes of sec_1_817-5 such that access to the ric through taxpayer’s variable_contracts will not violate the public access requirement in the present case taxpayer is not taxed as an insurance_company for federal tax purposes but rather is a fraternal benefit society exempt from tax under sec_501 the issue therefore is whether taxpayer’s tax-exempt status affects its status as an insurance_company for purposes of sec_1_817-5 the issue is whether taxpayer is an insurance_company for this purpose or whether this regulation requires that the entity be taxed under subchapter_l sec_1_801-3 defines an insurance_company as- a company whose primary and predominant business activity during the taxable plr-135727-03 year is the issuing of insurance or annuity_contracts or the reinsuring of risks underwritten by insurance_companies this definition applies for purposes of part i subchapter_l chapter i of the code which includes sec_817 a more stringent definition is provided for a life_insurance_company under sec_816 which specifies that the taxpayer must be an insurance_company more than half of the business of which is the issuing of insurance or annuity_contracts or the reinsuring of risks underwritten by insurance_companies taxpayer has represented that it factually satisfies both of these federal tax requirements for treatment as an insurance_company taxpayer therefore meets the available definitions of an insurance_company for purposes of sec_817 and the regulations thereunder and nothing in the definitions precludes that status simply because taxpayer is not taxed as an insurance_company by virtue of its fraternal activities and lodge_system of organization moreover there are a variety of contexts outside of subchapter_l in which fraternal beneficiary societies that also qualify as insurance_companies have been treated identically for federal tax purposes for example the irs has recognized that a fraternal beneficiary society may consistent with its tax-exempt status under sec_501 issue whole_life_insurance contracts with cash surrender and loan values revrul_86_75 1986_1_cb_245 proceeds of life_insurance contracts issued by fraternal beneficiary societies are treated as the proceeds of life_insurance contracts for purposes of determining the value of a taxpayer’s gross_estate under sec_2042 sec_20_2042-1 for purposes of testing diversification under sec_817 there is no material difference between taxpayer and an insurance_company subject_to tax under subchapter_l of the code other than that taxpayer qualifies for exemption from federal tax as a fraternal beneficiary society under sec_501 we do not believe that exemption from tax at the entity level should preclude application of the look-through_rule whose requirements are based on participation solely by insurance_companies and through products sold by insurance_companies conclusion accordingly based upon the facts submitted and the representations made by taxpayer a regulated_investment_company within the meaning of sec_851 will not be ineligible for application of the look-through_rule set forth in sec_817 and sec_1_817-5 merely because beneficial interests in the ric are held by one or more of taxpayer’s segregated_asset accounts ie a subaccount of taxpayer’s separate_accounts supporting variable life_insurance or annuity_contracts issued by taxpayer except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it plr-135727-03 sec_6110 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 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely gary e geisler assistant to the branch chief branch associate chief_counsel financial institutions products


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division may uniform issue list file’ fi ty legend taxpayer a taxpayer b company c company d individual e amount amount amount ira x ira y ira z page dear - this is in response to your letter dated date as supplemented by correspondence and communications dated date and date 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 in support of the ruling requested in early taxpayer a maintained two in date taxpayer a is married to taxpayer b individual_retirement_arrangements iras ira x and ira y taxpayer a withdrew amount and amount from ira x ahd ira y respectively and intended to place such amounts in ira accounts with company c taxpayer a and taxpayer b collectively taxpayers were unaware that the amounts withdrawn from ira x and ira y were in fact placed into taxable non-ira accounts with company c taxpayers realized this error in date when taxpayer a withdrew amounts from the accounts with company c upon withdrawal from the accounts with company c taxpayer a utilized the services of individual e of company d in order to contribute amount which is less than the sum of amount and amount into ira z individual e represents that taxpayer a took his minimum_required_distribution under sec_401 of the code for the distributions from ira x and ira y of amount and amount respectively were made entirely in cash and the contribution of amount to ira z was also made entirely in cash taxpayers were unaware that the contributions to the accounts with company c were made to taxable non-ira accounts until after the 60-day rollover period had expired taxpayers represent that the distributions of amount and amount occurred more than one year after the date of any other distribution from ira x and ira y respectively that was rolled over into any ira and that no other amount was distributed from any other ira within these 1-year periods and rolled over into ira x or ira y respectively based on the above facts and representations you request that the service waive the 60-day rollover requirement with respect to the distribution of amount and amount because the failure to waive such requirement would be against equity or good conscience 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 page - by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the paynieént or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may-be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual _teceived any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers oo sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b 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 - _ page - whether the check was cashed and the time elapsed since the distribution occurred the information presented by taxpayers demonstrates hardship and indicates that the taxpayers could not reasonably satisfy the requirement that amount and amount be deposited in an ira within days of the distributions from ira x and ira y respectively the failure to deposit amount and amount into one or more iras within the 60-day period was beyond the reasonable control of taxpayers and the failure to waive the 60-day requirement would be against equity or good conscience therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount and amount provided all other requirements of sec_408 of the code are satisfied except the 60-day requirement the contribution of amount to ira z will be considered a valid rollover_contribution within the meaning of sec_408 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 this letter is directed only to the taxpayers who requested it sec_6110 of the code provides that it may not be used or cited as precedent if vou wish to inquire about this ruling please contact d at please address all correspondence to t ep ra t4 sincerely yours dar fe alan c pipkin manager technical group employee_plans enclosures deleted copy of ruling letter notice of intention to disclose -


internal_revenue_service number release date index number ---------------------- ------- ------------------------------------------------------------ -------------------------------------------- ----------------------------- in re ------------------------------------------------------------ --------------------------- 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 ita b02 plr-116769-14 date date legend taxpayer corporation date1 date2 cpa taxable_year ---------------------------------------------- ------------------------------------------------------------ -------------------------------------------------- -------------------------- ---------------------- ---------------------- dear ----------------- this ruling is in response to a letter dated date requesting permission to attach an election statement to taxpayer’s originally filed federal tax_return for taxable_year the election statement was not included with the return although it was required in order for taxpayer to use a safe_harbor method_of_accounting for success-based fees under revproc_2011_29 2011_18_irb_746 the request is made in accordance with sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations facts taxpayer incurred transaction costs including success-based fees upon closing on date1 in taxable_year related to the purchase of corporation taxpayer capitalized the transaction costs in accordance with sec_263 of the internal_revenue_code and sec_1_263_a_-2 and sec_1_263_a_-5 of the income_tax regulations taxpayer capitalized percent of the success-based fees and deducted the remaining percent on its timely filed return for taxable_year which is consistent with the safe_harbor election provided in revproc_2011_29 although the tax_return was timely filed it did not include the mandatory statement required under revproc_2011_29 for taxpayers electing to use the safe_harbor method plr-116769-14 of allocating success based fees the return was prepared and reviewed by taxpayer’s trusted cpa but taxpayer failed to attach the statement cpa discovered this oversight on date2 and immediately informed taxpayer who instructed cpa to contact the service and expeditiously rectify the oversight accordingly taxpayer requests an extension of time be granted for the purpose of allowing taxpayer to attach to its taxable_year return the mandatory statement regarding the election to use the safe_harbor method of allocating success-based fees sec_263 and sec_1_263_a_-2 provide that no deduction shall be allowed for any amount_paid out for property having a useful_life substantially beyond the taxable_year in the case of an acquisition or reorganization of a business_entity costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized 503_us_79 397_us_572 under sec_1_263_a_-5 of the regulations a taxpayer must capitalize an amount_paid to facilitate a business acquisition or reorganization transaction described in sec_1 a - a an amount is paid to facilitate a transaction described in sec_1_263_a_-5 if the amount is paid in the process of investigating or otherwise pursuing the transaction under sec_1_263_a_-5 an amount that is contingent on the successful closing of a transaction described in sec_1_263_a_-5 success-based_fee is presumed to facilitate the transaction and thus must be capitalized a taxpayer may rebut the presumption by maintaining sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction and thus may be deductible a taxpayer’s method for determining the portion of a success-based_fee that facilitates a transaction and the portion that does not facilitate the transaction is a method_of_accounting under sec_446 because the treatment of success-based fees was a continuing subject of controversy between taxpayers and the service the service published revproc_2011_29 revproc_11_29 provides a safe_harbor method_of_accounting for allocating success-based fees paid in business_acquisitions or reorganizations described in regulations sec_1_263_a_-5 in lieu of maintaining the documentation required by sec_1_263_a_-5 this safe_harbor permits electing taxpayers to treat percent of the success-based_fee as an amount that does not facilitate the transaction that is amounts that can be deducted the remaining portion of the fee must be capitalized as an amount that facilitates the transaction section dollar_figure of revproc_2011_29 allows the taxpayer to make a safe_harbor election with respect to success-based fees section dollar_figure provides that the service will not challenge the taxpayer’s allocation of success-based fees between activities that plr-116769-14 facilitate a transaction described in sec_1_263_a_-5 costs that must be capitalized and activities that do not facilitate the transaction costs that may be deductible if the taxpayer does three things first the taxpayer must treat percent of the amount of the success-based_fee as an amount that does not facilitate the transaction and thus may be deductible second the taxpayer must capitalize the remaining amount of the success-based_fee as an amount which does facilitate the transaction finally the taxpayer must attach a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success-based_fee amounts that are deducted treated as not facilitating the transaction and capitalized treated as facilitating the transaction it is this last requirement that taxpayer requests permission to accomplish with this ruling_request taxpayer requests permission with this ruling_request to attach the statement required by section dollar_figure of revproc_2011_29 to its return by amending its original filed return and superseding it with a return with the proper election statement completed and attached sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting the relief will not prejudice the interests of the government sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment plr-116769-14 sec_301_9100-3 provides special rules for accounting_method regulatory elections sec_301_9100-3 provides that the interests of the government are deemed prejudiced except in unusual or compelling circumstances if the accounting_method regulatory election for which relief is requested is subject_to the advance consent procedures for method changes requires a sec_481 adjustment would permit a change from an impermissible method_of_accounting that is an issue under consideration by examination or in any other setting or provides a more favorable method_of_accounting if the election is made by a certain date or taxable_year conclusion based upon on the information submitted and representations made we concluded that taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government therefore the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file its mandatory statement as required by section dollar_figure of revproc_2011_29 stating that it is electing the safe_harbor for success-based fees identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether taxpayer properly included the correct costs as its success-based fees subject_to the retroactive election or whether taxpayer’s transaction was within the scope of revproc_2011_29 this ruling is directed only to the taxpayer requesting it under sec_6110 this ruling may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively a taxpayer filing its return electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely __________________________ thomas d moffitt chief branch associate chief_counsel income_tax accounting


internal_revenue_service number release date index number ------------------------------------------------------------ ------------------------ -------------------------------------------- ------------------- ------------------------------------------ department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------- id no ------------------ telephone number ---------------------- refer reply to cc fip b04 plr-101288-19 date august taxpayers ------------------------------------------------------------------- parent -------------------------------------------------------------------- dear ------------------ this letter responds to taxpayer’s request for a letter_ruling that the payment of certain investment advisory fees from an annuity_contract will not be treated as an amount received by the owner of that annuity_contract for purposes of sec_72 of the internal_revenue_code facts taxpayer is a life_insurance_company within the meaning of sec_816 and is a wholly-owned subsidiary of a company which in turn is a wholly-owned subsidiary of parent taxpayer joins in the filing of a life nonlife consolidated federal_income_tax return with parent on a calendar yearly basis using an accrual_method of accounting taxpayer intends to offer two non-qualified deferred_annuity contracts referred to herein as the contract the contract will be issued to and owned by an individual or issued to and owned by a_trust or other entity as an agent for a natural_person within the meaning of sec_72 the owner the contract is an annuity_contract under the law of the jurisdiction where issued the contract qualifies for treatment as an annuity_contract for federal_income_tax purposes including by complying with the requirements of sec_72 one of the contracts is a plr-101288-19 variable_contract under sec_817 while the other contract is not a variable_contract under sec_817 the contract is not part of any qualified_retirement_plan within the meaning of sec_4974 the contract is comprised of an accumulation_phase and a payout phase during the accumulation_phase the cash_value of the contract is credited with earnings or interest based on options the owner selects from a menu provided by taxpayer the options consistent with applicable nonforfeiture law the contract is designed for owners who will receive ongoing investment advice from an investment adviser the adviser on how to allocate the contract’s cash_value within the meaning of sec_72 among the available options the adviser is expected to take into account factors such as the owner’s personal risk tolerance and investment timeline the interest rate and market environment the menu of options available under the contract and the various other_benefits and features available under the contract the adviser will be an appropriately licensed professional who is in the business of providing investment advice in consideration for its advice the owner will authorize investment advisory fees the fees to be paid periodically to the adviser from the contract’s cash_value the authorization the fees will be determined based on an arms-length transaction between the owner and the adviser the fees will not exceed an amount equal to an annual rate of of the contract’s cash_value within the meaning of sec_72 determined at the time and in the manner provided in the authorization or other written_agreement with the adviser but in all events based on such cash_value during the period to which the fees relate the fees will compensate the adviser only for investment advice that the adviser provides to the owner with respect to the contract and not for any other services the fees will not result in any reduction in fees related to any other asset or for any other service taxpayer will pay the fees directly to the adviser during any period for which the authorization is in effect the contract will be solely liable for paying the fees and the fees will not be paid directly by the owner the owner will not have the right to direct payment of the fees for any other purpose or to any other person the adviser will not receive a commission for the sale of the contract from taxpayers requested ruling taxpayer requests a ruling that the fees taxpayer deducts from the contract’s cash_value and remit to the adviser will not be treated as an amount received by the owner of the contract for purposes of sec_72 plr-101288-19 law law and analysis sec_72 distinguishes between an amount_received_as_an_annuity under an annuity endowment or life_insurance_contract and an amount not received as an annuity under those contracts sec_1_72-1 of the income_tax regulations the regulations provides that amounts received as an annuity are amounts which are payable at regular intervals over a period of more than one full year from the date on which they are deemed to begin provided the total of the amounts so payable or the period for which they are to be paid can be determined as of that date see sec_1_72-1 and of the regulations any other_amounts to which the provisions of sec_72 apply are considered to be amounts_not_received_as_an_annuity sec_1_72-2 of the regulations provides that amounts are considered amounts received as an annuity only in the event that the following tests are met i they must be received on or after the annuity_starting_date as that term is defined in paragraph b of sec_1_72-4 of the regulations the first day of the first period for which an amount is received as an annuity under the contract ii they must be payable in periodic installments at regular intervals whether annually semiannually quarterly monthly weekly or otherwise over a period of more than one full year from the annuity_starting_date and iii except as indicated in subparagraph b of the regulations relating to variable_contracts the total of the amounts payable must be determinable at the annuity_starting_date either directly from the terms of the contract or indirectly by the use of either mortality tables or compound interest computations or both in conjunction with such terms and in accordance with sound actuarial theory sec_1_72-11 of the regulations describes amounts_not_received_as_an_annuity as any amount received under an annuity_contract if the amount i does not meet the requirements set forth in sec_1_72-2 of the regulations for amounts received as an annuity ii meets the requirements of sec_1_72-2 of the regulations for amounts received as an annuity but the annuity payments received differ in either amount duration or both from those originally provided under the contract or iii meets the requirements of sec_1_72-2 of the regulations for amounts received as an annuity but the annuity payments are received by a beneficiary plr-101288-19 after the death of an annuitant or annuitants in full discharge of the obligation under the contract and solely because of a guarantee sec_72 applies to any amount not received as an annuity under an annuity endowment or life_insurance_contract sec_72 provides that if any amount which is not received as an annuity is received on or after the annuity_starting_date it is included in gross_income sec_72 provides that if any amount which is not received as an annuity is received before the annuity_starting_date it is included in gross_income to the extent allocable to income_on_the_contract and is not included in gross_income to the extent allocable to the investment_in_the_contract analysis in this case the fees are integral to the operation of the contract during any period for which the authorization is in effect the owner will receive ongoing investment advice from the adviser with respect to the contract so that the owner may properly utilize the contract the adviser is expected to help the owner select options related to the contract taxpayer has represented that the fees will not serve as consideration for anything other than investment advice provided by the adviser in relation to the contract furthermore taxpayer has represented that the fees will not exceed an annual rate of of the contract’s cash_value based on the period in which the fees related based on taxpayer’s representations the fees will only be used to pay for investment advisory services relating to the contract because the contracts are designed to work with an adviser the contract is solely liable for the fees based on the facts above the fees do not constitute compensation to the advisor for services related to any assets of the owner other than the contract or any services other than investment advice services with respect to the contract therefore the fees are an expense of the contract not a distribution to the owner ruling based solely on the information submitted and the representations made the fees taxpayer deducts from the contract’s cash_value and remit to the adviser will not be treated as an amount received by the owner of the contract for purposes of sec_72 caveats the ruling contained in this letter is based upon information and representations taxpayer submitted accompanied by penalty of perjury statements executed by appropriate parties this office has not verified any of the material submitted in support of the ruling_request and it is subject_to verification on examination plr-101288-19 the ruling contained in this letter does not apply to any amount_paid by taxpayer that compensate the advisor for services related to assets other than the contract or for any services provided other than investment advice services with respect to the contract any such amount would be an amount received by the owner of the contract for purposes of sec_72 no opinion is expressed as to the tax treatment of the transaction under the provisions of any of the other sections of the code and regulations which may also be applicable thereto or to the tax treatment of any conditions existing at the time of or effects resulting from the transaction which are not specifically covered by the above rulings this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax return of taxpayers for the taxable_year in which the transaction covered by this ruling is consummated pursuant to a power_of_attorney on file in this office a copy of this ruling is being furnished to your authorized representatives sincerely john glover senior counsel branch associate chief_counsel financial institutions and products


t c memo united_states tax_court timothy e butler petitioner v commissioner of internal revenue respondent docket no filed date timothy e butler pro_se michael o'donnell and george w bezold for respondent memorandum findings_of_fact and opinion armen special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated all section references are to the internal_revenue_code in effect for and the taxable years in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies in petitioner's federal income taxes for the taxable years and in the amounts of dollar_figure and dollar_figure respectively respondent also determined accuracy-related_penalties under sec_6662 for negligence or intentional disregard of rules or regulations for the same taxable years in the amounts of dollar_figure and dollar_figure respectively after concessions by the parties the issues for decision are as follows whether petitioner is entitled to dependency_exemptions for three individuals in and one individual in we hold that he is not whether petitioner qualifies for head-of-household filing_status in and we hold that he does not petitioner concedes that he received unreported rental income in the amounts of dollar_figure in and dollar_figure in that he received state_income_tax refunds in the amounts of dollar_figure in and dollar_figure in and that he paid mortgage interest and real_estate_taxes in the respective amounts of dollar_figure and dollar_figure in respondent concedes that petitioner's state_income_tax refund received in is not taxable if petitioner did not receive a tax_benefit in respect of such tax ie if petitioner's itemized_deductions for do not exceed the standard_deduction for that petitioner's mortgage interest and real_estate_taxes should be allocated equally between schedule a and schedule e in and that petitioner is entitled to schedule e deductions in for cleaning and maintenance in the amount of dollar_figure and repairs in the amount of dollar_figure whether petitioner is entitled to itemized_deductions for charitable_contributions in and we hold that he is not whether petitioner is entitled to an itemized_deduction for gambling_losses in we hold that he is not whether petitioner is entitled to an itemized_deduction for union dues in we hold that he is not whether petitioner must include in gross_income refunds of state income taxes he received in and we hold that he must include the refund received in but not the refund received in whether petitioner is entitled to schedule e deductions in for cleaning and maintenance and for repairs in excess of the amounts conceded by respondent we hold that he is not whether petitioner is entitled to a schedule e deduction for utilities in we hold that he is to the extent provided herein whether petitioner is liable for the accuracy-related_penalty under sec_6662 for negligence or intentional disregard of rules or regulations in and we hold that he is to the extent provided herein findings_of_fact some of the facts have been stipulated and they are so found petitioner resided in milwaukee wisconsin at the time that his petition was filed with the court during the years in issue petitioner was employed as a local bus driver by milwaukee transport services inc and received wages in the amount of dollar_figure in and dollar_figure in as a bus driver petitioner was a member of local of the amalgamated transit union afl-cio and paid union dues in the amounts of dollar_figure in and dollar_figure in during the years in issue petitioner owned a duplex house located pincite north 40th street in milwaukee the duplex petitioner used part of the duplex as his personal_residence and rented the other part to a third party petitioner was not married during the years in issue however during part of he lived with a woman by the name of marie and her three children lynn who wa sec_12 bob who wa sec_11 and robin who was petitioner is neither the adoptive father nor the foster father of any of these children during the latter part of some turmoil developed between petitioner and marie as a consequence marie permanently left the household with her three children at or about the time of the turmoil with marie petitioner became involved with another woman by the name of alisha petitioner lived with alisha and her son james who wa sec_5 in through the end of the calendar_year petitioner is neither the adoptive father nor the foster father of james petitioner filed an income_tax return form_1040 for on his return for that year petitioner claimed head-of-household filing_status and also claimed a total of three dependency_exemptions one each for lynn and robin whom petitioner identified as his daughters and one for bob whom petitioner identified as his son petitioner reported adjusted_gross_income agi in the amount of dollar_figure ie the amount of his wages from working as a bus driver petitioner attached schedule a itemized_deductions to his return and claimed the following deductions state local_income_taxes dollar_figure charitable_contributions contributions by cash or check dollar_figure other than by cash or check big_number union dues gambling loss big_number petitioner did not report any gambling income on his return petitioner received a refund of state_income_tax in the amount of dollar_figure in petitioner did not report the receipt of this refund on his return petitioner failed to report rental income in the amount of dollar_figure on his return petitioner also filed a form_1040 for on his return for that year petitioner claimed head-of-household filing_status and also claimed a dependency_exemption for james whom petitioner identified as his infant son petitioner attached schedule a to his return included among the deductions claimed on schedule a were the following real_estate_taxes dollar_figure home mortgage interest big_number charitable_contributions contributions by cash or check dollar_figure other than by cash or check petitioner also attached schedule e supplemental income and loss to his return and reported rents received in the amount of dollar_figure and expenses with respect to the duplex petitioner underreported rents received by dollar_figure among the deductions claimed on schedule e were the following cleaning maintenance dollar_figure mortgage interest big_number repairs big_number taxe sec_981 utilities petitioner duplicated deductions for home mortgage interest and real_estate_taxes claimed on his schedule a and schedule e for in this regard during petitioner paid mortgage interest in the total amount of dollar_figure and real_estate_taxes in the total amount of dollar_figure petitioner deducted each of those amounts in its entirety as an itemized_deduction on schedule a and one-half of each of those amounts as a rental expense on schedule e petitioner received a refund of state_income_tax in the amount of dollar_figure in petitioner did not report the receipt of this refund on his income_tax return petitioner relied upon a commercial service to prepare his income_tax returns for and in the notice_of_deficiency respondent determined inter alia petitioner is not entitled to any dependency_exemptions for and petitioner is entitled to single filing_status rather than head-of-household filing_status in and petitioner failed to substantiate the payment of any a charitable_contributions in and and b union dues in petitioner is not entitled to deduct any gambling_losses in petitioner failed to substantiate the payment of any claimed rental expenses in for cleaning and maintenance repairs and utilities petitioner duplicated deductions in for mortgage interest and real_estate_taxes on his schedules a and e petitioner failed to report the refund of state income taxes in and and petitioner is liable for the accuracy-related_penalty under sec_6662 for negligence or intentional disregard of rules or regulations opinion generally the commissioner's determinations are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a 503_us_79 290_us_111 issue dependency_exemptions - and a taxpayer is allowed as a deduction an exemption for each dependent sec_151 a dependent is defined as an individual over half of whose total support is received from the taxpayer sec_152 in order to qualify as a dependent an individual must also be related to either the taxpayer in one of the ways enumerated in sec_152 through or a member of the taxpayer's household within the meaning of sec_152 a son or daughter or a stepson or a stepdaughter of a taxpayer may qualify as a dependent sec_152 and a child legally adopted by a taxpayer is treated as the taxpayer's child sec_152 a foster_child is also treated as the taxpayer's child if such child is a member of the taxpayer's household within the meaning of sec_152 id petitioner claimed dependency_exemptions for lynn bob and robin in and for james in although petitioner identified these individuals on his returns as his children he is not related to them by blood or marriage nor is he their adoptive or foster father accordingly petitioner must establish inter alia that these individuals were members of petitioner's household within the meaning of sec_152 sec_1_152-1 income_tax regs provides that sec_152 applies to an individual who lived with the taxpayer and was a member of the taxpayer's household during the entire taxable_year of the taxpayer because lynn bob and robin did not live with petitioner and were not members of petitioner's household during the entire calendar_year they do not qualify as petitioner's dependents for that year accordingly we sustain respondent's determination on this matter james may have lived with petitioner and may have been a member of petitioner's household during the entire calendar_year assuming arguendo that such was the case james still does not qualify as petitioner's dependent because petitioner failed to establish that he provided more than half of james' support in applying the support_test we evaluate the amount of support furnished by the taxpayer as compared to the total amount of support received by the claimed dependent from all sources 554_f2d_564 2d cir affg 64_tc_720 sec_1_152-1 income_tax regs in other words in order to establish that the taxpayer provided more than half of the claimed dependent's support the taxpayer must first show by competent evidence the total amount of support received by the claimed dependent from all sources during the year in issue otherwise the taxpayer cannot be said to have established that he or she provided more than half of the support for the claimed dependent e g 56_tc_512 50_tc_756 46_tc_515 at trial petitioner offered nothing other than unsupported and conclusory statements that he supported james such proof which adds nothing to the claim made by petitioner on his return is insufficient to carry petitioner's burden cf 28_tc_1034 a taxpayer's income_tax return is a self-serving declaration that may not be accepted as proof for the deduction or exclusion claimed by the taxpayer 7_tc_245 same affd 175_f2d_500 2d cir accordingly we sustain respondent's determination on this matter issue filing_status - and in order to qualify for head-of-household filing_status petitioner must satisfy the requirements of sec_2 pursuant to that section and as relevant herein an individual qualifies as a head_of_household if the individual is not married at the close of the taxable_year and maintains as his home a household that constitutes for more than one-half of the taxable_year the principal_place_of_abode of an individual who qualifies as the taxpayer's dependent within the meaning of sec_151 sec_2 however a taxpayer is not considered to be a head_of_household by reason of an individual who would not be a dependent for the taxable_year but for sec_152 sec_2 we have previously held that petitioner is not entitled to dependency_exemptions for lynn bob and robin in and for james in accordingly petitioner does not qualify as a head_of_household however even if we had held that petitioner is entitled to dependency_exemptions under sec_152 petitioner would still not qualify as a matter of law as a head_of_household because of the limitation set forth in sec_2 accordingly we sustain respondent's determination that petitioner is not entitled to head_of_household filing_status but rather single filing_status issue charitable_contributions - and charitable_contributions are deductible under sec_170 only if verified under regulations prescribed by the secretary sec_170 under the applicable regulations contributions of money are required to be substantiated by one of the following a canceled check a receipt from the donee charitable_organization showing the name of the donee the date and amount of the contribution or in the absence of a canceled check or receipt other reliable written records showing the name of the donee the date and amount of the contribution sec_1_170a-13 income_tax regs see thorpe v commissioner tcmemo_1998_123 contributions of property other than money are required to be substantiated by a receipt from the donee charitable_organization showing the name and address of the donee the date and location of the contribution and a description of the property in detail reasonably sufficient under the circumstances sec_1_170a-13 income_tax regs see thorpe v commissioner supra where it is impractical to obtain a receipt taxpayers must maintain reliable written records of their donations sec_1_170a-13 see daniel v commissioner tcmemo_1997_328 at trial petitioner alleged that he made donations to the unification church in mequon wisconsin according to petitioner he would deliver a check to the church to be held as collateral for a few days until he came back with cash at which time the church would return his check uncashed as a receipt the following testimony by petitioner portrays the alleged arrangement i gave it my check to the individuals the clergy to hold for me because they didn't have a check -- a receipt program of their own so with my good_faith i said hold the check i'm going to bring you the money in just a couple days to help you then you can stamp the check paid that i gave you the money and i'll take my check it will act as our receipt and that's the way we did our business like that in response to the question why the church did not cash the check and thereby let the canceled check serve as a receipt petitioner testified because i had other plans for my funds in the bank and i wanted to bring them the cash petitioner testified further that he obtained cash from people that either owed him money or would lend him money thus q where did you get the money the cash money that you gave to these preachers and other individuals where would that come from a well it would come from a number of sources people that owe me money different people you know i have a number of friends that own tractor- trailers i have a number of friends that would tell me or i'll lend you the money because it's something i really wanted q they would lend you the money to give to a charity a yes because if i -- because i had other plans for my money in the bank q even though you had sufficient amounts in your checking account to cover the check a i had a sufficient amount -- in the checking account q but you go and borrow the money rather than have them cash the check a right because there are other things i want to do with it we are unable to accept petitioner's testimony at face value see 87_tc_74 the court is not required to accept a taxpayer's testimony as gospel regardless petitioner's testimony which was uncorroborated does not satisfy the substantiation requirements of sec_170 and sec_1_170a-13 and b income_tax regs under other circumstances we might be inclined to estimate the amount of contributions made by a taxpayer see 39_f2d_540 2d cir in order to do so however we must have some basis in fact upon which an estimate can be made 85_tc_731 otherwise any allowance would amount to unguided largesse 245_f2d_559 5th cir here however we have no basis whatsoever on which to make a reasonable estimate accordingly we sustain respondent's determination on this issue issue gambling loss - petitioner claimed a deduction for a gambling loss in the amount of dollar_figure on his schedule a for petitioner contends that he lost money gambling in and is therefore entitled to deduct his loss respondent contends inter alia that because petitioner did not report any gambling winnings in petitioner is not entitled to deduct any gambling loss for that year we agree with respondent sec_165 provides for a deduction for losses from gambling transactions but only to the extent of gains from such transactions sec_165 sec_1_165-10 income_tax regs in other words a taxpayer is not entitled as a matter of law to deduct a net gambling loss therefore because petitioner did not report any gambling winnings on his income_tax return for he is not entitled to any deduction for a gambling loss in that year issue union dues - petitioner claimed a deduction for union dues in the amount of dollar_figure on his schedule a for documentary_evidence introduced by petitioner at trial establishes that petitioner paid union dues to local of the amalgamated transit union afl-cio in the amount of dollar_figure in petitioner contends that his exhibit contains a typographical error and that the amount actually paid was the amount claimed on his return however the matter is moot because of the 2-percent floor on miscellaneous_itemized_deductions prescribed by sec_67 sec_67 provides that in the case of an individual miscellaneous_itemized_deductions are allowable only to the extent that the aggregate of such deductions exceed sec_2 percent of the individual's agi a deduction for union dues constitutes a miscellaneous itemized_deduction sec_67 in petitioner's case the deduction for union dues is petitioner's only miscellaneous itemized_deduction in and percent of petitioner's agi for that year exceeds the amount that petitioner seeks to deduct accordingly no deduction is allowable issue state_income_tax refunds petitioner received refunds of state income taxes in the amount of dollar_figure in and in the amount of dollar_figure in neither of which was reported in income generally pursuant to sec_111 and the regulations thereunder if state_income_tax was deducted on a federal_income_tax return for a prior taxable_year and if such deduction resulted in a tax_benefit to the taxpayer ie a reduction of federal_income_tax for such prior taxable_year then a subsequent recovery by the taxpayer ie a refund of such state_income_tax must be included in the taxpayer's gross_income for federal tax purposes in the year in which the recovery is received kadunc v commissioner tcmemo_1997_92 and cases cited therein petitioner presented no evidence to show that he did not realize a tax_benefit from the deduction of state_income_tax on his federal_income_tax return for accordingly we sustain respondent's determination that the refund of state_income_tax in the amount of dollar_figure in is includable in petitioner's gross_income for that year in contrast the record demonstrates that petitioner will not receive a tax_benefit from the deduction of state_income_tax on his federal_income_tax return for because the standard_deduction to which he is entitled for exceeds the amount of itemized_deductions that are allowable for that year accordingly the refund of state_income_tax in the amount of dollar_figure in is not includable in petitioner's gross_income for that year issues and schedule e deductions - respondent disallowed entirely schedule e deductions claimed by petitioner in for cleaning and maintenance repairs and utilities at trial respondent conceded that petitioner had substantiated and was therefore entitled to deduct expenses for cleaning and maintenance in the amount of dollar_figure and repairs in the amount of dollar_figure the balance of such deductions and the entire deduction claimed for utilities remain in issue at trial petitioner introduced no persuasive evidence that he is entitled to deductions for cleaning and maintenance and for repairs in excess of the amounts conceded by respondent accordingly we sustain respondent's determination as modified by respondent's concession at trial insofar as the deduction for utilities is concerned the record does not permit a finding that petitioner expended the amount claimed on his return ie dollar_figure however we are satisfied that petitioner did in fact incur expenses for for an individual with a single filing_status is entitled to a standard_deduction in the amount of dollar_figure sec_63 this amount exceeds petitioner's allowable itemized_deductions ie state_income_tax in the amount of dollar_figure see supra note utilities in respect of the rental portion of the duplex accordingly applying the rationale of cohan v commissioner f 2d pincite and using our best judgment in the absence of documentary_evidence we conclude that petitioner is entitled to a deduction for utilities in the amount of dollar_figure issue accuracy-related_penalty sec_6662 and b provides that if any portion of an underpayment_of_tax is attributable to negligence or disregard of rules or regulations then there shall be added to the tax an amount equal to percent of the amount of the underpayment that is so attributable the term negligence includes any failure to make a reasonable attempt to comply with the statute and the term disregard includes any careless reckless or intentional disregard sec_6662 by virtue of sec_6664 the accuracy-related_penalty is not imposed with respect to any portion of an underpayment if it is shown that there was a reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to such portion whether a taxpayer acted in good_faith depends upon the pertinent facts and circumstances 104_tc_352 revd in part on another ground and remanded 124_f3d_699 5th cir sec_1_6664-4 income_tax regs the most important factor is the extent of the taxpayer's effort to assess his or her proper tax_liability beard v commissioner tcmemo_1995_41 sec_1_6664-4 income_tax regs the record in this case amply demonstrates negligence in the preparation of petitioner's and income_tax returns for example petitioner failed to report any rental income in and he underreported a significant percentage of rental income in however the fact remains that petitioner's and income_tax returns were prepared by a commercial service we therefore analyze whether this fact relieves petitioner from liability in whole or in part for any penalty as a general_rule the duty_of filing accurate tax returns cannot be avoided by placing responsibility on an agent 88_tc_654 63_tc_149 however a taxpayer may avoid the accuracy-related_penalty by showing that his reliance on the advice of a professional such as a commercial return preparer was reasonable and in good_faith sec_1_6664-4 income_tax regs specifically the taxpayer must establish that complete and correct information was provided to the return preparer and that the item incorrectly claimed or reported on the return was the result of the preparer's error see 70_tc_158 a taxpayer's reliance on the advice of a preparer is not reasonable or in good_faith where a cursory review of the taxpayer's return would reveal an omission_from_income metra chem corp v commissioner supra although petitioner relied on a commercial service to prepare his and income_tax returns the record does not establish that petitioner provided complete and correct information to the preparer there is no basis therefore to completely absolve petitioner from liability for the accuracy- related penalty however we think that petitioner should not be liable for the accuracy-related_penalty insofar as the underpayment_of_tax for is attributable to the disallowed deduction for the gambling loss a return preparer should know that as a matter of law losses from wagering transactions are allowable only to the extent of the gains from such transactions sec_165 petitioner was not aware of this provision and in view of the particular facts and circumstances of this case we do not think that petitioner could be expected to have been aware of such provision therefore even though the record does not establish that petitioner provided complete and correct information to his return preparer the deduction claimed for the dollar_figure net gambling loss was the result of the preparer's error accordingly to this extent respondent's determination is not sustained conclusion to reflect our disposition of the disputed issues as well as the parties' concessions decision will be entered under rule in giving effect to petitioner's concession of unreported rental income in see supra note the parties are directed to allow as an offset for allocable expenses the amount of dollar_figure 39_f2d_540 2d cir


department of the treasury employer_identification_number contact person -id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend c country d country e country x program y bank z program dear you asked for advance approval of your employer-related scholarship procedures under sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship 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 you will operate an employer-related scholarship program called x to provide scholarships to defray the cost of attendance for recipients at an educational_institution you will publicize the program in announcements toy employees on they intranet in newsletters and email blasts such announcements will provide information on the availability of grants solicit applicants provide information about the application process and announce the names of recipients all communications will identify you as the grantor letter catalog number 58264e of the awards you have not yet finalized your application_for x but you anticipate that the application will be substantially_similar to the application you currently use for your z each applicant must satisfy minimum eligibility requirements for scholarship consideration the applicant must be the child of a current officer_or_employee of y with at least three years_of_service or a former officer_or_employee of y who died while so employed regardless of length of service notwithstanding the foregoing if a grant is awarded for one academic year and the recipient reapplies for a grant to continue studies for a subsequent year the recipient shall not be considered ineligible for a further grant based on the parent's employment status with y if an awarded grant is for a period of more than one academic year subject_to renewal renewal shall not be denied solely on the recipient's parent's employment status withy the applicant must also be a full time undergraduate or graduate student at an accredited college or university located in the us c d or e and that maintains a regular faculty and curriculum provide your committee with a copy of a letter of acceptance from such an institution at which the applicant intends to matriculate as a full-time_student with respect to an upcoming academic semester or year complete sign and return to the secretary of your selection committee an application together with all supporting reports transcripts or other documentation specified on the application by the established deadline be unrelated to any current member of your selection committee and shall not otherwise be a disqualified_person with respect to you as defined by sec_4946 if an applicant cannot be expected reasonably to attend the required educational_institution you will not consider their eligibility even if he or she satisfies the minimum eligibility requirements at the time of application furthermore you will not base eligibility on any other employment-related factors such as they employee-parent's position services or duties except to the extent if any that such services or duties with respect to you may affect the applicant's status as a disqualified_person the selection of recipients shall be based solely upon such objective criteria as may be established from time to time by the your board provided that all such criteria shall be completely unrelated to the employment of the recipient's parent or parents to y or any y lines of business such criteria shall include but not be limited to the following prior academic performance as reflected on a transcript of the applicant's grades for the preceding academic year or such other period specified or by the receipt of academic awards or prizes performance on tests designed to measure ability and aptitude for higher education written recommendations from instructors or other individuals not related to the applicant letter catalog number 58264e financial need as evidenced by a student financial aid report a proposed budget showing both educational expenses and all sources of income and the family circumstances of the applicant eg number of siblings then enrolled or expected to be enrolled at an accredited college or university during the forthcoming academic year conclusions drawn from personal interviews personal essays written by the applicant or other sources regarding the applicant's motivation character and potential as evidenced by the applicant's career plans and goals extracurricular activities community service or involvement ability to overcome personal or family adversity and similar factors solely in those instances where your committee has identified two or more potential recipients of a scholarship who are in your committee's opinion equally qualified in light of all the relevant selection criteria awards are given in the following descending order of preference an applicant who is the child of a y officer_or_employee who died while acting in the course of his or her employment an applicant who is the child of a y officer_or_employee who died while employed byy applicant who has previously did not receive a program grant you will provide your committee with an annual budget for scholarships and an estimated number of scholarships based on your current_assets and income you will make awards in the order recommended by your committee the number of grants awarded may be reduced by your board but may not be increased from the number recommended by your committee only your committee may vary the amounts of the grants awarded in addition your committee may select a recipient for a one-year award or for a scholarship to cover multiple academic years you will pay scholarships directly to the educational_institution of the recipient you will require the educational_institution receiving the scholarship to agree in writing to use funds for educational_purposes on behalf of the recipient further the educational_institution shall agree in writing that in the event the recipient fails to satisfy the criteria contained in the preceding sentence with respect to enrollment and standing the institution will return to you any portion of the grant not yet expended on behalf of or paid to the recipient by the institution if you award a scholarship for a period of more than one academic year the recipient must remain in good academic standing to receive funds for a subsequent academic year and your committee may require the grantee to maintain a minimum grade point average specified at the time of the grant award your committee is composed of not fewer than three and not more than five individuals selected annually by and serving at the pleasure of your board at least two members of your committee shall be individuals knowledgeable in the field of education letter catalog number 58264e no member of your committee may be one of your current or former officers or directors a committee member may not be a current or former officer employee or director of y or any other person who may have such a substantial personal or financial connection with you or y as would reasonably call into question the ability of that person to make independent objective and nondiscriminatory decisions relating to the selection of scholarship recipients x is designed to provide grants to the children of current or former employees of y x shall also satisfy the requirements of revproc_76_47 as follows you or y will not use the program as an inducement to recruit employees or to induce employees to continue their employment withy or otherwise follow a course of action sought by y you will use a selection committee consisting wholly of individuals totally independent except for participation on the committee and separate from you and y at least two of the committee's members must be individuals knowledgeable in the education field ensuring that the committee will have the background and knowledge when evaluating the potential of the applicants you will announce the awards to the public and awarded in the order recommended by the committee you will impose identifiable minimum requirements for grant eligibility that are related to the purpose of x and limits your committee's consideration to those applicants who meet the minimum standards for admission to an educational_institution described you will satisfy one of the two alternative percentage tests as required by revproc_76_47 you will have y employees who may have children eligible complete an annual questionnaire used in determining the number of scholarships 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 c b provides guidelines to determine whether grants a private_foundation makes under an employer-related program to employees or letter catalog number 58264e 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 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 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 letter catalog number 58264e 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 cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh 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 you 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 director exempt_organizations enclosures notice redacted letter letter catalog number 58264e


department of the treasury int ernal revenue service washington d c date o f f i c e o f c h i e f c o u n s e l number release date cc corp b05 tl-n-1525-00 uilc internal_revenue_service national_office field_service_advice memorandum for john moriarty assistant to the chief cc corp b05 from subject request for field_service_advice this chief_counsel_advice responds to your memorandum dated date f in accordance with internal_revenue_code code sec_6110 this chief_counsel_advice should not be cited as precedent legend parent sub sub sub company x date a date b date c year d tl-n-15265-00 year e date f_r s t u v w x y z q p n state x issue sec_1 whether the transfer of assets from sub to sub qualifies as a reorganization under sec_368 if the transaction qualifies as an f reorganization whether sub must reduce the basis of the assets it received from sub pursuant to sec_108 and sec_1017 conclusion sec_1 in a title_11_case if a transaction qualifies as a reorganization under both sec_368 an f reorganization and sec_368 a g reorganization sec_368 gives the type_g_reorganization exclusive jurisdiction over the transaction accordingly the transaction in this case is subject_to the g reorganization rules tl-n-15265-00 pursuant to the g reorganization provisions under sec_108 and sec_1017 sub would not be required to reduce the basis of the assets it received from sub facts on date a parent formed two wholly owned subsidiaries sub and sub parent contributed r real properties with liabilities in excess of bases in an aggregate amount of approximately dollar_figures to sub parent contributed t real properties with no excess liabilities to sub on date b sub filed a petition for relief under chapter of the u s bankruptcy code sub 1's plan_of_reorganization the plan was confirmed on date c as a result of the bankruptcy proceeding liabilities of sub in the amount of dollar_figureu owed primarily to its third party creditor company x were discharged company x also received v of sub 1's r real properties under the plan a new corporation sub was formed in state y and the remaining w real properties of sub with aggregate adjusted bases of dollar_figurex were transferred free of liabilities to sub sub was formed to accommodate company x sub had insufficient funds to pay its undischarged debts company x agreed to take a promissory note from a parent affiliate but not from sub because of sub 1's poor financial standing consequently sub was formed sub executed a promissory note in favor of company x in the amount of approximately dollar_figurey in addition sub drew approximately dollar_figurez against a line of credit from a foreign_affiliate and paid this amount to company x company x provided all the funds needed to pay sub 1's undischarged debts for a total amount of dollar_figureq the taxpayer’s year d tax_return shows a reduction of nols attributable to sub in the amount of dollar_figurep to offset the u cancellation of indebtedness cod however the remaining dollar_figuren cod did not reduce any other tax_attributes law and analysis under sec_61 gross_income generally includes income_from_discharge_of_indebtedness sec_108 excepts from this rule discharges of indebtedness in a title_11_case sec_108 however provides for a reduction of tax_attributes including nols sec_108 and basis of the property of the taxpayer sec_108 if cod income is excluded from gross_income sub 1's only tax_attributes during year d were an nol of dollar_figurep and its bases in real properties under sec_108 a reduction to the basis of the property of taxpayer is made pursuant to the rules of sec_1017 sec_1017 provides that a reduction to basis_of_property is applied to the property at the beginning of the taxable_year following the taxable_year in which the discharge occurs sub claims to have sold all of its assets at a loss to sub for dollar_figureq at the end of year d tl-n-15265-00 and therefore not to have any assets the basis of which could have been reduced in year e your office suggests that the sale by sub of its assets to sub qualifies as a reorganization under sec_368 pursuant to sec_1_381_b_-1 of the income_tax regulations in an f reorganization the acquiring_corporation is treated for purposes of sec_381 just as the transferor_corporation would have been treated if there had been no reorganization the taxable_year of the transferor does not end on the date of the transfer of assets merely because of the transfer and the tax_attributes of the transferor are taken into account by the acquiring_corporation as if there had been no reorganization thus if the transaction were subject_to the f reorganization rules sub would be required to reduce its basis of dollar_figurex in the assets acquired in the f reorganization at the beginning of year e by dollar_figuren sec_368 defines an f reorganization as a mere change in identity form or place of organization of one corporation however effected sec_368 defines a g reorganization as a transfer by a corporation of all or part of its assets to another corporation in a title_11_or_similar_case but only if in pursuance of the plan stock_or_securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under sec_354 sec_355 or sec_356 each of the requirements set forth in sec_368 excluding the title aspect is subsumed in the requirements of sec_368 sec_368 provides that if a transaction would otherwise qualify both under sec_368 and sec_368 then such transaction shall be treated as qualifying only under sec_368 thus in the instant case even if the transaction otherwise qualifies as an f reorganization its qualification as a g reorganization is controlling as a g reorganization the taxable_year of the transferor_corporation sub ended on the date of the transfer see sec_1_381_b_-1 at the beginning of year e sub held no assets the basis of which could be reduced the failure of the sec_108 reduction of tax_attributes in the context of a g reorganization has been noted see bittker eustice federal income_taxation of corporations and shareholders dollar_figure seventh ed when the insolvent corporation does recognize cod income and such income is excluded by sec_108 the concomitant attribute reduction occurs in the transferring corporation’s subsequent year when it generally no longer has any attributes to reduce case development hazards and other consideration sec_1 for example the g reorganization requirement found in sec_354 that substantially_all of the assets be received by the transferee corporation in the g reorganization is a less stringent requirement than that implied in the mere change_of one corporation language of sec_368 tl-n-15265-00 this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views should you have any additional questions please contact at associate chief_counsel corporate by john moriarty assistant to the chief branch


internal_revenue_service number info release date cc psi 1-genin-119995-03 april uilc dear we are responding to correspondence submitted on your behalf by requesting late s_corporation relief in order to establish date as the effective date for your election in certain situations the internal_revenue_service may grant automatic relief for late s_corporation elections it appears that you are qualified for automatic relief under section dollar_figure of revproc_97_48 we have intervened on your behalf and asked the service_center to update your account to reflect s_corporation status effective back to your date of incorporation you should receive an acceptance notice from the irs regarding this change within days from this letter if you fail to receive such notice please contact the person named above for further assistance in addition the irs has two free cd-roms to help educate small_business owners on their tax responsibilities introduction to federal taxes for small_business self-employed and a virtual small_business workshop these items can be ordered by calling the irs also provides a special website www irs gov smallbiz which is dedicated to providing information to small businesses please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful sincerely yours s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries