he significant index no p - department of the treasury internal_revenue_service - washington d c jan tip rad uk tax exempt and gove rnment entities sn re union - industry this letter constitutes notice that your request for an extension of the amortization period for unfunded liabilities described in sec_412 of the internal_revenue_code code and sec_302 of the employee_retirement_income_security_act_of_1974 erisa for the above-named plan for the plan_year ending april has been denied sec_412 of the code and sec_304 of erisa authorize the extension of the period of time required to amortize any unfunded_liability described in sec_412 of the code and sec_302 of erisa of a plan for a period of time not in excess of years if the secretary determines that such extension would carry out the purposes of erisa and would provide adequate protection for participants under the plan and their beneficiaries and if the secretary determines that the failure to permit such extension would result in a a substantial risk to the voluntary continuation of the plan or b a substantial curtailment of pension benefit levels or employee compensation and be adverse to the interests of plan participants in the aggregate sec_101 of reorganization plan no of 1979_1_cb_480 transferred the authority for issuing rulings under sec_304 of erisa from the secretary of labor to the secretary_of_the_treasury the plan is a multiemployer defined_benefit_plan jointly sponsored by the union and employers in the industry as of date the plan was projected to have a minimum_funding deficiency by date however the results of the date actuarial valuation for the plan show that if the plan avails itself of the 5-year extension for the amortization of charge bases under the pension_protection_act of ppa and if the credit bases are combined no funding deficiency is projected accordingly the extension would not carry out any purpose of erisa therefore the extension of the amortization period for unfunded liabilities has been denied this ruling is directed only to the taxpayer that requested it sec_64 k of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the manager ep classification in ran to the manager ep compliance unit in - _ and to your authorized representative pursuant to a power of attomey on file in this office if you require further assistance in this matter please contact sincerely yours james e holland jr manager employee_plans technical


internal_revenue_service number release date index numbers ----------------------------------- ------------------------------------------------- ------------------------------------------------ ---------------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b01 plr-140076-12 date february legend x ----------------------------------------------------- ----------------------------------- d country --------------------------- ----------------------- dear ------------- this is in response to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes law and analysis 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 an eligible_entity with at least two members can elect to be classified as either an association or a partnership plr-140076-12 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with two or more members having limited_liability may elect to be treated as a partnership pursuant to the rules of sec_301 c sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective d x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form 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 plr-140076-12 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely curt g wilson associate chief_counsel passthroughs special industries by david r haglund david r haglund branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index no p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi - plr-111171-02 date december re legend trust trust husband wife husband’s trust agreement wife’s trust agreement son son 1’s spouse son 1’s daughter son 1’s son son daughter foundation bank individual year plr-111171-02 year year date agreement trust_indenture for family of son 1's daughter trust_indenture for family of son 1's son state corporation successor_corporation dear this is in response to a letter dated date and subsequent correspondence requesting rulings regarding the income gift and generation-skipping_transfer gst tax consequences of the proposed merger of two trusts and the subsequent division of the resulting trust facts the facts submitted and representations made are as follows in husband executed an irrevocable_trust agreement husband’s trust agreement creating four separate trusts one for the benefit of foundation and one for each of his children son son and daughter and their families on the same date wife executed a substantially identical irrevocable_trust agreement wife’s trust agreement creating four trusts for the benefit of the same three individuals and foundation trust was established under husband’s trust agreement and trust was established under wife’s trust agreement both trusts were established for the benefit of son son 1’s spouse son 1’s daughter son 1’s son any afterborn children of son son 1’s grandchildren and their issue trust sec_1 and are the subjects of this ruling_request the terms of trust and trust as provided under husband’s trust agreement and wife’s trust agreement respectively are substantially identical the net_income of each trust may be distributed to any of the beneficiaries at any time and in any amounts as the corporate trustee determines in it’s discretion taking into account the circumstances of the beneficiaries and all other income and benefits each is receiving from all sources known to the corporate trustee if at any time before each trust terminates none of the individuals for whose benefit it was established are then plr-111171-02 living the corpus and accumulated income will be divided equally among and distributed to the trusts provided under the trust agreement for son and daughter and their families if there are no family trusts then existing then until final distribution the income of each trust must be distributed to the trust for foundation the trustees may distribute principal for the proper support comfort education maintenance or assistance of any beneficiary entitled to receive income from each trust or to enable any such beneficiary to meet any accident emergency or misfortune no individual trustee can participate in any decision to make these discretionary principal distributions a discretionary principal distribution to an income_beneficiary will be treated as an advancement and will be charged against the share of that beneficiary or that beneficiary’s descendants when the trust terminates trust sec_1 and must terminate no later than the date twenty-one years after the death of the last survivor of a group consisting of the settlor husband or wife respectively son son 1’s spouse son 1’s daughter son 1’s son son son 2‘s spouse son 2's daughter and son and daughter and her spouse upon the termination of trust sec_1 and the assets of each trust will be distributed outright to son 1’s then living descendants per stirpes husband’s trust agreement and wife’s trust agreement provide that if upon final termination of the trusts for the families of son son and daughter there are no then living descendants of son son and daughter the assets of trust sec_1 and and of the trusts for son 2's family and daughter’s family will be distributed outright to foundation or if it is not then a charity to a charity selected by the trustees the terms of trust and trust require that each trust have three individuals and one corporation serving as trustees at all times the initial individual trustees may appoint their own successors successor individual trustees must be appointed by the remaining individual trustees or if none by a majority of the income beneficiaries all individual trustees may remove and replace a corporate trustee any domestic_corporation that is a bank or trust company with capital and surplus of at least dollar_figure million is qualified to serve as a corporate trustee bank son 1’s daughter son 1’s son and individual are currently serving as the trustees of both trust and trust husband and wife both died before date daughter died in year prior to date with no surviving_spouse or descendants the trusts for her family were divided between the trusts for son 1's family and the trusts for son 2's family created under husband’s and wife’s trust agreements son died in year survived by two children who now have their own children son died in year survived by his spouse and his two children who now have children the current beneficiaries of trust sec_1 and are son 1's spouse son 1's son and his four adult children and minor grandchildren and son 1's daughter and her two adult children and one minor grandchild plr-111171-02 no additions actual or constructive were made to trust sec_1 and after date it is represented that approximately twenty-five years ago trust sec_1 and made distributions of stock over several years one-half of each distribution was paid in equal shares to the children of son 1's son and the other one-half of each distribution was paid to the children of son 1's daughter in equal shares no other distributions have been made from trust sec_1 and son 1's daughter and son 1's son have different investment philosophies this has led the current trustees of trust sec_1 and to implement a reorganization of trust sec_1 and on date the current trustees of trust sec_1 and and all of the adult beneficiaries of trust sec_1 and executed agreement agreement provides that subject_to the receipt of a favorable ruling from the internal_revenue_service trust sec_1 and will be merged and simultaneously divided equally into two separate trusts one trust for the benefit of son 1's spouse son 1's daughter and her family new trust for family of son 1's daughter and the other trust for the benefit of son 1's spouse son 1's son and his family new trust for family of son 1's son referred to under agreement as the new trusts it is represented that to implement agreement the trustees will merge all of the assets of trust sec_1 and and immediately divide them pro_rata between the two new trusts in addition agreement amends the provisions of trust sec_1 and and provides that the new trusts will have the same provisions as trust sec_1 and as amended under agreement on date the current trustees of trust sec_1 and and all of the adult beneficiaries of trust sec_1 and also executed trust_indenture for family of son 1's daughter and trust_indenture for family of son 1's son each of these trust indentures contains provisions identical to those of trust sec_1 and as amended under agreement the provisions of new trusts differ from those of trust sec_1 and as follows the new trusts must each have one corporate trustee and no fewer than two and no more than four individual trustees a corporate trustee of a new trust will not be related or subordinate within the meaning of sec_672 to any of the beneficiaries of the trust any domestic_corporation that is a bank or trust company with capital and surplus in excess of dollar_figure million is qualified to serve as a corporate trustee initially the trustees of the new trust for family of son 1's daughter will be bank son 1's daughter and her spouse the trustees of the new trust for family of son 1's son will be bank son 1's son and his spouse the initial individual trustees of the new trusts may appoint their own successors in addition to the broad investment powers the trustees have under trust sec_1 and the new trusts authorize the trustees to select any investments of their choice including a list of specified investments plr-111171-02 trust sec_1 and provide that all stock in corporation must be voted exclusively by the individual trustees the new trusts provide that only the individual trustees are entitled to vote any securities of the successor to corporation successor_corporation and any successor corporations held by the new trusts if at any time during its term a new trust has no then living beneficiaries the assets of that trust will be distributed to the other new trust if then existing and if not then existing in equal parts to the trusts for son 2's family if then existing if the trusts for son 2's family are not then existing then until final distribution the income of the new trust will be distributed to the trust for foundation however instead the trustees in their discretion may decide to distribute all of the assets of the new trust outright to a charity they select under the provisions of trust sec_1 and the trustees are authorized to appoint investment advisors but are not relieved of responsibility for following the advisors’ advice the provisions of the new trusts hold the trustees harmless for following any advice of an investment_advisor it is represented that under state law the trustees and adult beneficiaries of trust sec_1 and may effect the merger simultaneous division and amendment of trust sec_1 and by executing agreement in lieu of obtaining a court order we have been asked to rule as follows the merger of trust sec_1 and into a single trust and the division of that trust into new trusts will not constitute a sale or other taxable disposition of assets of trust sec_1 and under sec_1001 of the code the merger of trust sec_1 and into a single trust and the division of that trust into new trusts will not result in a transfer by any of the beneficiaries that is subject_to gift_tax under sec_2501 after the merger of trust sec_1 and into a single trust and the division of that trust into new trusts each of the new trusts will be considered to have been created and to have become irrevocable before date and will be exempt from generation-skipping_transfer_tax under chapter plr-111171-02 ruling_request sec_61 provides that gross_income means all income from whatever source derived including gains derived from dealings in property sec_1_61-1 of the income_tax regulations provides that gross_income means all income from whatever source derived unless excluded by law gross_income includes income realized in any form whether in money property or services sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 over the amount_realized under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1011 on the sale_or_exchange of property is recognized section a provides that except as otherwise provided in subtitle a of the code the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained in 499_us_554 the issue was whether a financial_institution realized tax deductible losses when it exchanged percent participation interests in one group of residential mortgages for another lender’ sec_90 percent participation interests in a different group of residential mortgages the supreme court of the united_states reasoned that because the participation agreements exchanged derived from loans made by different obligors and were secured_by different homes the interests exchanged embodied legally distinct entitlements and hence were materially different therefore the court held that the taxpayer sustained tax deductible losses unlike the facts presented in cottage savings the facts presented here involve a merger of trust sec_1 and and the simultaneous pro_rata division of trust assets into two new trusts under state law revrul_56_437 1956_2_cb_507 concludes that a severance by partition of jointly owned property is not a sale_or_other_disposition if there is no new or additional interest acquired as a result of the severance similar to the situation outlined in the revenue_ruling no new or additional interest is created as a result of the proposed transaction based on the information submitted and the representations made and assuming the transaction is carried out and is effective under state law we conclude that the merger of trust sec_1 and into one resulting trust and the simultaneous pro_rata division of the trust assets into the new trusts is not a sale_or_other_disposition under sec_1001 the trustees and beneficiaries will hold the same bundle of rights before and after the proposed reorganization plr-111171-02 ruling_request sec_2501 imposes a tax on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift shall be considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than an adequate_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration is deemed a gift in this case the terms of trust and trust are identical each distribution made from trust and from trust was divided equally among the children of son 1's son and the children of son 1's daughter the dispositive provisions of the new trusts will be identical to those of trust and trust except as noted above except that each new trust will be established for the benefit of a single family based on the facts submitted and the representations made and assuming the transaction is carried out and is effective under state law we conclude that the merger of trust sec_1 and into a single trust and simultaneous pro_rata division of that trust’s assets into new trusts will not result in a transfer by any of the beneficiaries that is subject_to federal gift_tax under sec_2501 ruling_request sec_2601 imposes a tax on each generation-skipping_transfer made by a transferor to a skip_person under a of the tax_reform_act_of_1986 the generation-skipping_transfer_tax is generally applicable to generation-skipping transfers made after date however under b a of the tax reform act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under sec_26 b ii any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes the rules do not apply in plr-111171-02 determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust example contained in sec_26_2601-1 considers a situation where in grantor established an irrevocable_trust for the benefit of his two children a and b and their issue under the terms of the trust the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a 's issue and one for the benefit of b and b 's issue the trust for a and a 's issue provides that the trustee has the discretion to distribute trust income and principal to a and a 's issue in such amounts as the trustee deems appropriate on a 's death the trust principal is to be distributed equally to a 's issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b's issue the trust for b and b 's issue is identical except for the beneficiaries and terminates at b 's death at which time the trust principalis to be distributed equally to b 's issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a's issue the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter example contained in sec_26_2601-1 considers a situation where in grantor established an irrevocable_trust for grantor's child and the child's issue in grantor's spouse also established a separate irrevocable_trust for the benefit of the same child and issue the terms of the spouse's trust and grantor's trust are identical in the appropriate local court approved the merger of the two trusts into plr-111171-02 one trust to save administrative costs and enhance the management of the investments the merger of the two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the merger in addition the merger does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust that resulted from the merger will not be subject_to the provisions of chapter in the present case trust sec_1 and were irrevocable on date it is represented that no additions actual or constructive were made to trust sec_1 and after that date the merger of trust sec_1 and into a single trust is substantially_similar to the situation described in example of sec_26_2601-1 the simultaneous division of the resulting single trust into the two new trusts is substantially_similar to the situation described in example of sec_26_2601-1 the merger of trust sec_1 and and the division of the merged trusts into new trusts will not result in a shift of any beneficial_interest in the trust assets to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the reorganization new trusts must terminate on the same date that trust sec_1 and were required to terminate thus the merger and division will not extend the time for vesting of any beneficial_interest in the new trusts beyond the period provided for in trust sec_1 and the modifications to new trusts regarding the number of individual trustees the nature of the corporate trustees the appointment of successor individual trustees the liability of the trustees and their investment powers and the reference to successor_corporation are administrative in nature the modifications granting the trustees discretion to alter the timing and the beneficiary of charitable distributions will not result in any shift in the beneficial interests in trust to lower generation beneficaries accordingly based on the facts submitted and the representations made and assuming the transaction is carried out and is effective under state law we rule that after the merger of trust sec_1 and into a single trust and the division of that trust into new trusts each of the new trusts will be considered to have been created and to have become irrevocable before date and will be exempt from generation-skipping_transfer_tax under chapter except as specifically ruled herein we express no opinion on the federal tax consequences of the modification under the cited provisions or under any other provisions of the code plr-111171-02 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours chief branch george l masnik office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl br1-plr-136241-01 date date legend a date b country c dear this is in response to a’s letter dated date requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of long-term_resident status did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below 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 a ruling it is subject_to verification on examination a is a long-term permanent resident_of_the_united_states within the meaning of sec_877 who relinquished her u s lawful permanent resident status expatriated a became a permanent resident_of_the_united_states and obtained her green card a expatriated to country c where she has been a citizen all her life on date b on that date her net_worth exceeded the net_worth required under sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed under sec_877 and the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former citizen or former long-term_resident whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that person is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 a c under notice_98_34 1998_2_cb_29 modifying notice_97_19 1997_1_cb_394 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because a became not later than the close of a reasonable period after her expatriation a resident fully liable to income_tax in country c the country of her birth a submitted all the information required by notice_98_34 based on the facts submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a’s expatriation had for one of its principal purposes the avoidance of such taxes while this ruling rebuts a presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and sec_2501 see sec_877 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to her loss of permanent resident status or for taxable periods after her loss of permanent residence status under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return 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 this letter is being sent in accordance with the power_of_attorney on file with this office sincerely w edward williams senior technical reviewer office of the associate chief_counsel international


internal_revenue_service number release date index number ------------------------------ ----------------------------------------------- ------------------------------------- --------------------------- -------------------------------------- --------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ------------ telephone number -------------------- refer reply to cc psi b01 plr-151995-05 date date --------------------- ------------------------- -------------------------------- legend legend x -------------------------------------------------- country d dear ------------- correspondence written on behalf of x requesting an extension of time under ' and ' of the procedure and administration regulations to elect to be treated as a partnership for federal tax purposes this letter responds to the letter dated date and related facts the information submitted states that x was incorporated under the laws of country on d x intended to file a form_8832 entity classification election to be treated as a partnership for federal tax purposes effective d however the election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an plr-151995-05 eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the 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 member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under ' b by filing form_8832 with the appropriate service_center under ' c iii this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of and and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as a partnership for federal tax purposes effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose plr-151995-05 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_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 mailed to your authorized representative sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes cc


t c memo united_states tax_court wendell falls development llc gregory alan ferguson tax_matters_partner petitioner v commissioner of internal revenue respondent docket no filed date david m wooldridge and thomas allen worth for petitioner scott lyons and johnny craig young for respondent memorandum findings_of_fact and opinion morrison judge wendell falls development llc was a limited_liability corporation treated as a partnership for federal tax purposes for wendell falls’ taxable_year the respondent hereinafter the irs issued a notice of final_partnership_administrative_adjustment the notice disallowed a charitable- contribution deduction of dollar_figure for the contribution of a conservation easement by wendell falls the notice determined a penalty under sec_6662 b and h or in the alternative a penalty under sec_6662 and b or a timely petition_for_readjustment of partnership items was filed by greg ferguson the tax_matters_partner of wendell falls see sec_6226 the court has jurisdiction under sec_6226 we hold that no charitable-contribution deduction is allowable for the donation of the conservation_easement by wendell falls we hold that no penalty is applicable 1unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect for the appropriate times sec_7482 governs the venue for appeal from a decision of this court where our decision involves a partnership-level determination such as in this case the appellate venue is the u s court_of_appeals for the circuit in which the partnership’s principal_place_of_business is located at the time of the filing of the petition sec_7482 if however the partnership has no principal_place_of_business when the petition is filed the appellate venue will be the u s court_of_appeals for the d c circuit sec_7482 flush language 140_tc_73 the petition was filed on date two years before on date wendell falls was dissolved wendell falls therefore had no principal_place_of_business on date when ferguson filed the petition therefore the appellate venue for this case will be the u s court_of_appeals for the d c circuit unless the parties stipulate another circuit under sec_7482 findings_of_fact the court adopts the stipulations of fact entered into by the parties wendell falls was organized as a north carolina llc by two individual land developers--greg ferguson and mike jones--and a corporation based in myrtle beach south carolina these were the only three members of wendell falls ferguson and jones were primarily responsible for the day-to-day operation of wendell falls while the myrtle beach corporation was a passive investor between and wendell falls bought contiguous parcels of unimproved land comprising big_number acres the big_number acres is in wake county north carolina when wendell falls bought the parcels they were outside the boundaries of the town of wendell the town of wendell is roughly miles east of raleigh north carolina wendell falls planned to subdivide the big_number acres into a master-planned community with residential areas commercial spaces an elementary_school and a park wendell falls planned to then sell the residential lots to homebuilders and commercial lots to commercial builders wendell falls identified acres of the big_number acres as the land upon which the park would be placed the acres is on the eastern shore of lake myra a man-made lake owned by a landowner other than wendell falls the acres includes both sides of marks creek a creek that runs into lake myra in mid-2005 wendell falls and wake county began discussing the possibility of wake county’s purchasing the acres for use as a county park wendell falls planned to have the remainder of the big_number acres annexed by the town of wendell before it was developed sometime after discussions regarding the purchase of the acres began wendell falls proposed placing a conservation_easement on the acres before the sale wendell falls wanted the easement which would be held by a conservation organization in order to restrict the acres to park use throughout much of wendell falls and wake county exchanged emails regarding what restrictions the conservation_easement would include and which charitable_organization would hold the easement on date wendell falls submitted for approval to the town of wendell a planned unit development pud on the big_number acres when the pud was originally submitted wendell falls did not yet own all big_number acres some of the acreage wendell falls did not yet own was under contract the rest it anticipated buying in the short term the pud was revised on four occasions between march and date to reflect wendell falls’ acquisitions of the rest of the big_number acres at some point the town of wendell annexed the big_number acres except for the acres on date the pud was approved by the town of wendell the pud documented the proposed master-planned community including the subdivision plan installment sites for utilities and amenities as described in the pud the master-planned community when completed would have up to big_number residential lots the pud stated that the acres would be dedicated to the creation of wendell falls park there was a map of the acres in the pud the acres was labeled on the map as wendell falls park however a portion of the pud other than the map inadvertently stated that the area of wendell falls park was acres the approval of the pud by the town of wendell meant that the town would permit under its zoning ordinances the uses of the land described by the pud the only part of the big_number acres unaffected by the town’s approval of the pud was the acres described as wendell falls park which even though described in the pud was outside the boundaries of the town and therefore not subject_to the town’s zoning ordinances the pud stated that wendell falls received no preferential zoning in exchange for setting aside the acres for use as a park this statement is consistent with the rest of the record on date an appraiser named c p shaw appraised the acres at dollar_figure shaw had been hired by wake county to inform itself of the value of the acres in connection with its negotiations with wendell falls to buy the land because the pud inadvertently referred to acres rather than acres shaw incorrectly valued the land as if it were acres rather than on date the wake county board_of commissioners authorized the county to buy land for a future park facility the minutes of the board meeting recorded the decision it appears that the county intended to authorize the purchase of the acres identified in the map in the pud as wendell falls park however because of the incorrect reference in the pud to acres or perhaps because of shaw’s using the incorrect acreage in his appraisal the minutes reflect that the county commissioners authorized the purchase of acres rather than acres the minutes state interest has been expressed for a future public park facility on approximately acres of this dollar_figure acre parcel the proposed park would over look sic the privately owned lake myra this request is for approval of acquisition of acres of open space on lake myra marks creek from in sic wendell falls development llc sic with a sale price of dollar_figure with a restriction that the property be developed only for park use upon motion by commissioner bryan seconded by commissioner brown the board_of commissioners voted unanimously to authorize the county manager to execute a purchase agreement for the wendell falls open space tract of dollar_figure acres for dollar_figure6 million subject_to terms and conditions acceptable to the county attorney on date wake county and wendell falls entered into a purchase agreement regarding the acres the purchase agreement described the land by reference to the map in the pud which accurately depicted the acres however because of the incorrect reference in the pud to acres or perhaps because of either shaw’s using the incorrect acreage in his appraisal or the reference in the county board minutes to acres rather than acres the purchase agreement inadvertently stated that the acreage of the mapped land was acres the purchase agreement stated that placing a mutually agreeable conservation_easement on the land was a precondition to the sale under the purchase agreement wake county agreed to buy the land for dollar_figure this amount was very close to shaw’s appraised value of dollar_figure after they executed the purchase agreement wendell falls and wake county discovered the mistake about the acreage to correct this mistake the county ordered a new appraisal of the acres this time the county turned to the appraisal firm of cushman wakefield on date cushman wakefield prepared its appraisal of the acres it appraised the land as a fee simple interest unrestricted by any conservation_easement it valued the land at dollar_figure on date the wake county board_of commissioners reauthorized the purchase of the acres for dollar_figure sometime thereafter wendell falls and wake county amended the date purchase agreement under the amended purchase agreement wake county agreed to buy the acres from wendell falls for dollar_figure the donation of a mutually agreeable conservation_easement was a precondition to the sale of the acres under the amended purchase agreement on date the wake county register of deeds recorded the following two instruments in its deed book a conservation_easement on the acres granted by wendell falls in favor of smokey mountain national land trust and a general warranty deed transferring ownership of the acres from wendell falls to wake county the two instruments were recorded in the deed book in that order each instrument bears a time and date stamp with the same time and date a m date these stamps were presumably made by the register of deeds the easement permitted only the following structures to be built on the acres an environmental education center an overnight lodge one or more recreational day-use facilities sports fields an elevated wooden walkway and related maintenance facilities the location and size of each type of structure was also restricted under the terms of the easement on date wendell falls filed a timely form u s return of partnership income --for the tax_year it attached schedule k-- partners’ distributive_share items on line 13a of schedule k--a line labeled contributions --wendell falls reported a dollar_figure charitable-contribution deduction for its contribution of the conservation_easement attached to the return was an appraisal of the conservation_easement which was prepared by bruce sauter the appraisal valued the easement at dollar_figure the return reported the resulting deduction as if wake county had paid dollar_figure to wendell falls for a dollar_figure easement therefore the return reported that the amount of the deduction was dollar_figure dollar_figure dollar_figure dollar_figure in actuality wake county paid the dollar_figure to wendell falls for the land not the easement on date wendell falls filed an amended form_1065 and an attached schedule k on line 13a of schedule k wendell falls reported that the charitable-contribution deduction for the contribution of the conservation easement was dollar_figure wendell falls also attached a form titled explanation of changes on amended_return to the amended form_1065 on this form wendell falls stated that the deduction had been incorrectly reported on the original form_1065 and that the correct amount of the deduction was the fair_market_value of the conservation_easement dollar_figure on date the irs sent ferguson in his capacity as the tax_matters_partner of wendell falls a notice of final_partnership_administrative_adjustment in the notice the irs determined that the amount of the charitable- contribution deduction was zero ferguson called michael smith as an expert witness to value the easement he valued the easement at dollar_figure the irs called robert duckett as an expert witness to value the easement he valued the easement at dollar_figure opinion charitable-contribution deduction for the easement sec_170 allows a deduction for a charitable_contribution a charitable_contribution is defined by sec_170 as a contribution or gift to or for_the_use_of various specified charitable organizations and governments no deduction for a charitable_contribution is allowed if the taxpayer expects a substantial benefit from the contribution 477_us_105 see also 87_tc_1046 the charitable_contribution_deduction is not allowed where a taxpayer intends to obtain a ‘direct or indirect benefit in the form of enhancement in the value or utility of the taxpayer’s remaining land or otherwise to benefit the taxpayer ’ quoting 57_tc_239 however if the benefit received is merely incidental to a charitable purpose then a deduction is allowable see mcgrady v commissioner tcmemo_2016_233 at citing mclennan v united_states cl_ct aff’d 994_f2d_839 fed cir in addressing whether a taxpayer expected a substantial benefit from the contribution we look to the external features of the transaction see 490_us_680 135_tc_471 aff’d 668_f3d_888 7th cir the irs argues that wendell falls’ contribution of the conservation_easement on the acres to smokey mountain national land trust ensured that wake county as the owner of the underlying land could practically use the acres only for a county park and wendell falls expected a substantial benefit from the easement because the prospect of a public park on the acres would increase the value of the rest of the adjoining big_number acres owned by wendell falls that wendell falls expected a substantial benefit from the contribution of the easement is supported by the record when it donated the easement wendell falls owned land adjoining the eased property ie the unencumbered portion of the big_number acres on the unencumbered portion of the big_number acres wendell falls planned to create a master-planned community which was designed so that all of the clusters of residential areas would have access to the 125-acre park through a system of greenways these plans were evidenced by the pud approved by the town of wendell as the prospective seller of the residential lots in the clusters wendell falls would benefit from the increased value to the lots from the park as an amenity it is uncontested that the easement restricts the acres to uses related to establishing a park ferguson one of the two managing members of wendell falls wrote in an email to wake county that wendell falls need ed to ensure that the county uses the park for its intended use this confirms that wendell falls expected to receive value from the park and intended the easement to ensure that there would be a park on the acres we therefore find that wendell falls donated the easement with the expectation of receiving a substantial benefit a charitable-contribution deduction is not allowable because of this expectation in the alternative we also consider the value of the easement the easement must have value in order for it to generate a charitable-contribution deduction see am bar endowment u s pincite sec_1_170a-14 income_tax regs as explained below the value of the easement is zero the amount of the allowable charitable-contribution deduction is the value of the contributed_property see sec_1_170a-1 c income_tax regs this is also the case when the contributed_property is a conservation_easement see sec_1_170a-14 income_tax regs because there is no evidence in the record of sales of easements comparable to the easement contributed by wendell falls to smokey mountain national land trust the value of the easement is equal to the value of the land before the easement minus the value of the land after the easement see id third sentence the land itself is valued at its highest and best 3we make this factual determination and all other factual determinations regarding the allowance of the charitable-contribution deduction on the preponderance_of_the_evidence therefore we need not resolve the dispute between the parties as to which party has the burden of persuasion 138_tc_306 supplementing tcmemo_2011_209 use 292_us_246 sec_1 170a- h i and ii income_tax regs as evidenced by the plan developed by wendell falls--which owned the entire big_number acres including the acres--the best use of the acres was as parkland in the midst of a master-planned community the conservation_easement therefore did not diminish the value of the acres because it did not prevent it from being put to its best use see mountanos v commissioner tcmemo_2013_138 at aff’d 651_fedappx_592 9th cir the value of the easement is therefore zero our answer does not change if the land valued before and after the easement is the entire big_number acres rather than the acres see sec_1_170a-14 income_tax regs fourth sentence we believe as wendell falls did that using the acres as a park would make the master-planned community more desirable and therefore increase the value of the residential and commercial lots that wendell falls eventually intended to sell taking this enhancement into account the total value of the big_number acres would be undiminished by the easement and this undiminished 4that the easement did not diminish the value of the acres is confirmed by wake county’s actions wake county valued the acres without the easement at dollar_figure it then bought the acres for that amount even though it was burdened by the easement value leads to the conclusion that the value of the easement is zero because wendell falls received a substantial benefit from the donation of the easement and because the easement was worth nothing anyway we hold that no charitable-contribution deduction for the easement is allowable we need not resolve the other arguments the irs makes against the deduction penalty we must also consider whether there should be a penalty for the reporting of the charitable-contribution deduction for the easement sec_6662 imposes a penalty of on an underpayment_of_tax attributable to any of the following negligence a substantial_understatement_of_income_tax or a substantial_valuation_misstatement see sec_6662 and sec_6662 increases the penalty to if the underpayment is attributable to a gross_valuation_misstatement the final notice of partnership_adjustment determined a 5neither valuation expert witness accounted for the enhancement to the surrounding land created by access to the park the irs’s expert’s failure to consider the enhancement is inconsistent with the evidence in this case which as the irs points out includes a pud showing that the park was linked to the residential units a court is not required to accept an opinion of an expert witness that is contrary to the evidence see 136_tc_326 see also 94_tc_193 penalty for gross_valuation_misstatement or in the alternative a penalty for negligence a substantial_understatement_of_income_tax or a substantial_valuation_misstatement after trial the irs conceded the penalty it also conceded the penalty to the extent it is based on a substantial_valuation_misstatement the irs continues to assert a penalty based on either negligence or a substantial_understatement_of_income_tax the penalty is not applicable when there was reasonable_cause for the reporting of a deduction and the deduction was reported in good_faith see sec_6664 ferguson has the burden of proving by a preponderance_of_the_evidence that there was reasonable_cause for wendell falls’ reporting of the charitable-contribution deduction and that the deduction was reported in good_faith see 116_tc_438 the most important factor in determining reasonable_cause and good_faith is the extent of the effort to ascertain the proper tax treatment of the transaction in question sec_1_6664-4 income_tax regs our determinations regarding substantial benefit depend on the resolution of tests for which the factfinder has broad discretion-- whether there was a substantial expected benefit to wendell falls and if so whether the benefit was incidental we do not think that wendell falls’ failure to anticipate the adverse resolution of these tests shows that it did not make sufficient effort to assess the proper tax treatment of the easement see 114_tc_259 110_tc_110 supplemented by 110_tc_346 as to the value of the easement wendell falls retained two different state- certified real_estate appraisers sauter and smith to appraise the easement although neither appraiser correctly accounted for the enhancement conferred by the easement on the unencumbered property neither did the irs’s trial expert under the narrow circumstances of this case we hold that there was reasonable_cause for reporting the charitable-contribution deduction for the easement and that the deduction was reported in good_faith we therefore hold that the sec_6662 penalty does not apply to an underpayment_of_tax resulting from the adjustment to the partnership_item the charitable-contribution deduction on date the irs filed a motion to reopen the record to admit evidence that the initial determination of the sec_6662 penalty to the extent it was based on negligence or a substantial_understatement_of_income_tax had been approved by a supervisor as required by sec_6751 because of our holding regarding reasonable_cause and good_faith reopening the record would not change the outcome of the case therefore we will deny the motion to reflect the foregoing decision will be entered for respondent on the deduction and for petitioner on the penalty an order will be issued denying respondent’s date motion to reopen the record


t c summary opinion united_states tax_court conrad y edosada petitioner v commissioner of internal revenue respondent docket no 26652-10s filed date conrad y edosada pro_se matthew d carlson for respondent summary opinion gerber judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined for a federal_income_tax deficiency of dollar_figure and an accuracy- related penalty under sec_6662 of dollar_figure the issues for consideration are whether petitioner is entitled to a home mortgage interest_deduction and whether petitioner is liable for the sec_6662 accuracy-related_penalty background2 petitioner resided in california when he timely filed his petition on date petitioner’s parents pat and mon ela purchased a dollar_figure0 million house in oakland california the property the elas and petitioner however considered the property to be the family home even though the title and 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure 2the stipulation of facts and the attached exhibits are incorporated herein by this reference mortgage obligation were not in petitioner’s name petitioner contributed dollar_figure towards the dollar_figure downpayment and agreed to be responsible for the mortgage payments on the dollar_figure loan with the understanding that he would later be given a legal_interest in the property petitioner moved into the property around date and resided there for the remainder of the year from january to date petitioner made mortgage payments totaling dollar_figure the loan had a principal balance of dollar_figure on january and dollar_figure on december pursuant to their oral agreement with petitioner the elas deeded a small percentage of the property to petitioner on date petitioner filed a timely form_1040 u s individual_income_tax_return in which he claimed an dollar_figure home mortgage interest_deduction on date respondent sent petitioner a notice_of_deficiency denying in full petitioner’s home mortgage interest_deduction the notice determined a dollar_figure deficiency and a dollar_figure sec_6662 accuracy-related_penalty discussion i home mortgage interest_deduction deductions are a matter of legislative grace and taxpayers bear the burden of establishing entitlement to any claimed deduction rule a 503_us_79 taxpayers must maintain records sufficient to allow the commissioner to determine their correct_tax liability sec_6001 sec_1_6001-1 income_tax regs additionally taxpayers bear the burden of substantiating the amount and purpose of each item they claim as a deduction 65_tc_87 aff’d per curiam f 2d 5th cir sec_163 allows a deduction for all interest_paid or accrued within the taxable_year on indebtedness sec_163 however provides that in the case of a taxpayer other than a corporation no deduction is allowed for personal_interest qualified_residence_interest is excluded from the definition of personal_interest and thus is deductible under sec_163 see sec_163 qualified_residence_interest is any interest that is paid_or_accrued during the taxable_year on acquisition_indebtedness or home_equity_indebtedness see sec_163 for any period the aggregate amount of home acquisition_indebtedness may not exceed dollar_figure million and the aggregate amount of home_equity_indebtedness may not exceed dollar_figure sec_163 and c ii acquisition_indebtedness is any indebtedness secured_by the qualified_residence of the taxpayer and incurred in acquiring constructing or substantially improving the qualified_residence see sec_163 the indebtedness generally must be an obligation of the taxpayer and not an obligation of another see 604_f2d_34 9th cir aff’g tcmemo_1976_150 sec_1_163-1 income_tax regs however provides that even if a taxpayer is not directly liable on a mortgage the taxpayer may nevertheless deduct the mortgage interest_paid if he or she is the legal or equitable owner of the property subject_to the mortgage petitioner acquired a partial legal_interest in the property on date in order to be entitled to a deduction for mortgage interest payments made before that date petitioner must show that he had an equitable ownership_interest in the property at the time those payments were made in determining whether the benefits_and_burdens_of_ownership have been transferred to a taxpayer this court has often considered whether the taxpayer has a right to possess the property and to enjoy the use rents or profits thereof has a duty to maintain the property is responsible for insuring the property bears the property’s risk of loss is obligated to pay the property’s taxes assessments or charges has the right to improve the property without the owner’s consent and has the right to obtain legal_title at any time by paying the balance of the purchase_price blanche v commissioner tcmemo_2001_63 aff’d 33_fedappx_704 5th cir petitioner credibly testified that he and his parents considered the property to be the family home petitioner in fact resided at the property consistent with his right to possess it and enjoy its use in addition petitioner bore a substantial risk of loss because he supplied a significant portion of the downpayment petitioner also agreed to be responsible for all of the mortgage payments on the facts and circumstances of this case we find that sufficient burdens and benefits of ownership resided with petitioner and that he therefore held an equitable interest in the property at the beginning of petitioner however is not entitled to deduct the full amount he claimed on his return first the record shows that petitioner made mortgage payments totaling only dollar_figure second petitioner may deduct only the amount of interest attributable to the first dollar_figure million of the loan dollar_figure million of home acquisition_indebtedness and dollar_figure of home_equity_indebtedness see revrul_2010_25 2010_44_irb_571 but see pau v commissioner tcmemo_1997_43 we leave it to the parties in a rule computation to calculate the amount of allowable interest on dollar_figure because the average balance of the loan for was dollar_figure even though the elas did not actually reimburse petitioner for any mortgage payments he made petitioner may deduct the amount that the parties will compute even though it may exceed his proportionate share of the mortgage interest see daya v commissioner tcmemo_2000_360 ii sec_6662 penalty sec_6662 and b and imposes an accuracy-related_penalty of on the portion of an underpayment attributable to negligence disregard of rules or regulations or a substantial_understatement_of_income_tax negligence includes any failure to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs sec_6664 provides a defense to the sec_6662 penalty for any portion of an underpayment where reasonable_cause existed and the taxpayers acted in good_faith petitioner claimed an dollar_figure home mortgage interest_deduction when he in fact paid only dollar_figure in home mortgage interest he also failed to account for the dollar_figure million limit on home acquisition_indebtedness and the dollar_figure limit on home_equity_indebtedness as a result he understated his income by an amount in excess of dollar_figure petitioner has not offered any reasonable_cause for the excessive_amount of the deduction claimed and is therefore liable for a sec_6662 penalty on the resulting underpayment_of_tax to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number ---------------------- ------------------------ --------------------- ------------------------------ -------------- --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ------------------ telephone number ---------------------- refer reply to cc corp plr-122788-18 date date legend parent purchaser purchaser dre target sellers ------------------------------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------------------------------ ------------------------------------------------------------------- ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ----------------------------------------------------- ------------------------------------------------------------------------------------ ------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ plr-122788-18 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ---------------- date a date b state a ------------------------- ------------------------ -------------- country a ------------ company official ------------------------------------------------------------------------------------ ---------------------------------------------------------------- tax professional ------------------------------------------------------------------------------------ ----------------------------------------------- dear ------------------ this letter responds to a letter dated date submitted on behalf of parent as common parent of the consolidated_group of which purchaser is a member requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election parent is requesting an extension to file a sec_338 election under sec_338 with respect to purchaser’s acquisition of the stock of target through purchaser dre hereinafter referred to as the election on date a the material information is summarized below parent is a domestic_corporation and the common parent of an affiliated_group_of_corporations that join in the filing of a consolidated federal_income_tax return the parent consolidated_group parent wholly owns purchaser a domestic_corporation and a member of the parent group purchaser wholly owns purchaser dre a foreign company treated as a disregarded_entity for federal_income_tax purposes prior to date a target a controlled_foreign_corporation was owned entirely by sellers on date a purchaser through purchaser dre acquired all of the stock of target from sellers in exchange for cash and a note issued by purchaser dre on the same date target and purchaser dre amalgamated under country a law with purchaser dre continuing as the amalgamated entity parent has represented that purchaser’s acquisition of the stock of target through purchaser dre qualified as a qualified_stock_purchase as defined in sec_338 parent has also represented that it is not seeking to alter a return position plr-122788-18 for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time parent requested relief and for which the new return position requires or permits a regulatory election for which relief is requested further parent has represented that the returns for all relevant taxable years have been filed consistent with having made a valid election parent intended to file the election the election was due on date b but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections 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 relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_338-2 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the plr-122788-18 requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent to file the election with respect to the acquisition of the stock of target as described above within days of the date on this letter parent must file the election on form_8023 in accordance with sec_1_338-2 and the instructions to the form a copy of this letter must be attached to form_8023 within days of the date on this letter all relevant parties having originally filed or amended their returns for all relevant taxable years to be consistent with a valid election having been made must amend their returns for the taxable_year in which the transaction was consummated and for any other affected_taxable_year to attach a copy of this letter and a copy of form_8883 alternatively taxpayers filing their returns electronically may satisfy the requirement of attaching a copy of this letter by attaching a statement to their return that provides the date and control number of the letter_ruling parent must also deliver written notice of the election and a copy of form sec_8023 and their attachments and instructions to u s persons selling or holding stock in target see sec_1_338-2 the above extension of time is conditioned on the taxpayers' ie the parent consolidated group’s and target’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely filed taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved we express no opinion as to whether the acquisition of the target stock qualifies as a qualified_stock_purchase under sec_338 or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply plr-122788-18 this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office copies of this letter are being sent to your authorized representatives sincerely __________________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


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 psi b09 plr-161325-05 date date legend date grantor_trust child individual individual individual individual individual date child date trustee trust ---------------- ----------------------------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------------------------- ---------------------- ----------------- -------------------- ------------------------ -------------------- ----------------- ------------------------- --------------------- -------------------------- ---------------------- --------------------- ----------------------------------------------------------------------------------------------- ---------------------- --------------- trustee dear ------------------ date requesting rulings on the gift estate and generation-skipping_transfer gst tax consequences of the partition of a_trust that is exempt from the application of the gst tax under sec_2601 of the internal_revenue_code this is in response to your authorized representative’s letter dated article first paragraph a of trust provides that upon the death of the article first paragraph a of trust provides that the trustee shall pay all or the facts and representations submitted are summarized as follows on date plr-161325-05 grantor established trust an irrevocable_trust established for the benefit of child and child 1’s descendants grantor allocated a portion of her gst_exemption to trust in an amount equal to the value of property transferred to trust effective as of date thus trust has an inclusion_ratio of zero so much of the net_income and all or so much of the principal to one or more of the beneficiary and the descendants of the beneficiary living from time to time as the trustee in her sole and absolute discretion shall deem necessary to provide for the health maintenance support or education of such persons article first paragraph a of trust provides that after the beneficiary attains the age of thirty years the trustee shall be authorized to distribute to the beneficiary so much of the principal as the trustee in her sole and absolute discretion deems advisable for the purchase of a home or establishment of or investment in a business by such beneficiary beneficiary if his trust shall not have sooner terminated by complete distribution of all of the principal and income pursuant to subparagraphs and the trustee shall divide the beneficiary’s trust as it shall then exist into shares for the then living issue of the beneficiary per stirpes or if none for the then living issue of grantor per stirpes if no descendants of the beneficiary or grantor are then living the trustee shall divide the beneficiary’s trust into separate equal shares so as to provide one equal share for each of the then living children of individual individual and individual and one equal share for the then living issue collectively of the children who are then deceased leaving issue then living the trustee shall further subdivide each share provided for the then living issue collectively of each of the children who are then deceased into subshares for such issue per stirpes if no issue of grantor the beneficiary individual individual or individual are living then upon the beneficiary’s death the trustee shall divide the beneficiary’s trust into separate equal shares so as to provide one equal share for each of the then living grandchildren of individual and individual and one equal share for the then living issue collectively of each deceased grandchild of individual and individual who leaves issue then living and the trustee shall further subdivide the share provided for any deceased grandchild into subshares for his or her then living issue per stirpes provided that for the purposes of the partition and distribution grantor shall be treated as then deceased each share and subshare so provided under subparagraph shall be held in further separate trust for the person for whom the same is provided the beneficiary of the trust in accordance with the provisions of subparagraphs and of paragraph a article first paragraph d provides that if any child is born to or adopted by article first paragraph b provides that if upon termination of any trust under plr-161325-05 article first there is no one living to whom any principal or income may be distributed the trustee shall pay over the balance of the trust estate as it shall then exist to the then living children of individual and individual in equal shares provided that any child who has at any time made a contribution of property to this trust shall be treated as then deceased grantor subsequent to the date of this agreement the trustee shall set_aside out of the property then held hereunder a separate trust the new trust for such child as follows the new trust shall be funded with property having a value equal to the value of an equal share of all principal and accumulated and accrued income then held under trust if the same were divided into separate equal shares so as to provide one equal share for each then living child of grantor and one share for each then deceased child of grantor leaving issue then living each separate share then held shall contribute to the new trust that percentage of the value of the new trust determined in accordance with subparagraph as is equal to the ratio of the value of the separate share including all accumulated and accrued income to the entire value of the property including all accumulated and accrued income held under trust the new trust provided for a child of grantor born or adopted after the date of trust shall be held in further separate trust for the child the beneficiary of the trust in accordance with the provisions of trust previously terminated shall terminate twenty-one years after the death of the last survivor of the issue of individual and individual or upon the earlier death of all of the issue of the children of individual and individual whether or not in being on the date hereof upon such termination the trustee shall pay over the principal of each trust as it shall then exist to the person or persons entitled to the income and in the same shares and proportions any trust created under trust and no person who is a_related_or_subordinate_party as defined in sec_672 to any person who contributed_property to any trust created under trust shall become a trustee on date trustee as trustee of trust executed a declaration of partition of trust for trust and pursuant to article first paragraph d of the trust a separate trust trust was established trust was funded with property having a value equal to the value of an equal share of all principal and accumulated and accrued income then held for each then living child of grantor_trust was divided and severed on a fractional basis and trust received a pro_rata portion of each asset held in trust the trustee article sixth provides in part that no person who is also beneficially interested in article first paragraph e provides that any trust under article first not on date child grantor’s second child was born plr-161325-05 of trust distributed one-half of the assets held on date to the trustee of trust in trust for the benefit of child trustee was appointed trustee of trust there have been no additional separate trusts established after trust the following rulings have been requested the partition of trust to create trust will not affect the allocation of gst_exemption to trust and trust will have an inclusion_ratio of zero so that distributions from trust will not be subject_to gst tax under sec_2601 the partition of trust will not cause any beneficiary to have made a taxable gift_for purposes of sec_2501 the partition of trust will not cause trust or its transferor trust trust to be included in the gross_estate of any beneficiary under sec_2033 sec_2036 sec_2037 and sec_2038 trust will be treated as a separate taxpayer under sec_643 and trust and trust are qualified trusts so that the transfer of assets to trust will not constitute an accumulation_distribution under sec_665 sec_2601 imposes a tax on every generation-skipping_transfer sec_2642 provides that the term qualified_severance means the sec_2642 provides that if a_trust is severed in a qualified_severance ruling_request the trusts resulting from such severance shall be treated as separate trusts thereafter for purposes of chapter partition of a single trust and the creation by any means available under the governing instrument or under local law of two or more trusts if the single trust was divided on a fractional basis and the terms of the new trusts in the aggregate provide for the same succession of interests of beneficiaries as are provided in the original trust be made at any time in this case as a result of grantor’s allocation of gst_exemption to trust trust has an inclusion_ratio of zero further the provisions of trust require the trustee of the trust to establish separate trusts upon the birth or adoption of a child by grantor subsequent to the date trust was established accordingly the date partition of trust to create trust does not affect grantor’s prior allocation of gst sec_2642 provides that a severance pursuant to sec_2642 may sec_2511 provides that subject_to certain limitations the gift_tax applies sec_2501 imposes a tax for each calendar_year on the transfer of property by plr-161325-05 exemption to trust in addition the partition of trust was made on a fractional basis and the terms of trust are identical to those of trust with the exception of the identity of the beneficiaries and provide for the same succession of interests accordingly the partition of trust is a qualified severances within the meaning of sec_2642 and trust and trust will be treated as separate trusts for purposes of chapter the qualified_severance of trust does not affect grantor’s allocation of gst_exemption to the trust thus distributions from trust will likewise not be subject_to gst tax under sec_2601 ruling_request gift during the calendar_year by any individual whether the transfer is in trust or otherwise direct or indirect and whether the property transferred is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides in part that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax in this case the provisions of trust require the trustee of the trust to establish separate trusts upon the birth or adoption of a child by grantor subsequent to the date trust was established after the partition of trust to create trust each beneficiary will have substantially the same beneficial_interest as he or she had under trust prior to the partition because the beneficial interests of the beneficiaries are substantially the same both before and after the proposed partition and because the terms of trust require the creation of a separate trust upon the birth of child no transfer of property will be deemed to occur as a result of the partition accordingly the partition of trust to create trust and the pro_rata allocation of the assets of trust to trust will not result in a transfer subject_to gift_tax under sec_2501 by any of the beneficiaries ruling_request sec_2036 provides generally that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2038 provides generally that the value of the gross_estate shall plr-161325-05 sec_2037 provides generally that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceeds five percent of the value of such property include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent’s death property of any interest therein except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth under which the decedent retained an interest in or power over the income or corpus of the transferred property does not constitute a transfer within the meaning of the beneficiaries of the trusts will have the same interest after the partition as they had prior to the partition we therefore conclude that the partition of trust will not cause the interest of any beneficiary of trust or trust to be includible in the beneficiary’s gross_estate under ruling_request prescribed by the secretary two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of such trusts is the avoidance of the tax_imposed_by_chapter_1 solely on the facts and representations submitted we conclude that trust and trust will be treated as separate taxpayers for federal_income_tax purposes in order for to apply the decedent must have made a transfer of in the present case the partition of trust as required in the trust instrument sec_643 provides that for purposes of subchapter_j under regulations trust and trust will each have a different beneficiary therefore based sec_661 provides that in any taxable_year a deduction is allowed in sec_662 provides that there shall be included in the gross_income of a sec_1_661_a_-2 provides that gain_or_loss is realized by the trust or estate plr-161325-05 ruling_request computing the taxable_income of a_trust other than a_trust to which subpart b applies for the sum of the amount of income for such taxable_year required to be distributed currently and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed for such taxable_year or the other beneficiaries by reason of a distribution_of_property in_kind if the distribution is in satisfaction of a right to receive a distribution of a specific dollar amount of specific property other than that distributed or of income as defined under sec_643 and the applicable regulations if income is required to be distributed currently beneficiary to whom an amount specified in sec_661 is paid credited or required to be distributed by an estate_or_trust described in sec_661 the sum of the following amounts the amount of income_for_the_taxable_year_required_to_be_distributed_currently to such beneficiary whether distributed or not and all other_amounts properly paid credited or required to be distributed to such beneficiary for the taxable_year partitioning of trust to create trust is not a distribution under sec_661 or sec_1_661_a_-2 representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party if there is a change in material fact or law local or federal before the transactions considered in this ruling take effect the ruling will have no force or effect 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 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we refuse to rule on the income_tax consequences of the transaction discussed in this letter of the code provides that it may not be used or cited as precedent these rulings are directed only to the taxpayer requesting it sec_6110 based solely on the facts and representations submitted we conclude that the except as expressly provided herein no opinion is expressed or implied the rulings contained in this letter are based upon information and plr-161325-05 being sent to your authorized representative pursuant to the power_of_attorney on file with this office a copy of this letter is sincerely james f hogan james f hogan senior technician reviewer branch passthroughs special industries enclosures copy of letter for sec_6110 purposes copy of letter