internal_revenue_service number release date index number ------------------ ------------------------ ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable ---------------- id no person to contact ---------------- telephone number -------------------- refer reply to cc tege eb qp1 plr-t-102488-15 date march -------------- ------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------- taxpayer ------------------ decedent -------------------- plan trust date dear this is in response to your request dated date as supplemented by correspondence dated date in which your authorized representative on your behalf requested a ruling under sec_402 of the internal_revenue_code code the following facts and representations have been submitted under penalties of perjury in support of the requested ruling decedent taxpayer’s spouse died on date at the time of his death decedent was retired and a participant in the plan a 401_k_plan of decedent’s former employer that is represented to meet the qualification requirements of sec_401 of the code decedent was taking minimum required distributions under sec_401 of the code decedent’s named beneficiaries under the plan are taxpayer and trust trust is a joint living_trust with decedent and taxpayer as trustors and trustees the trust provides that upon death of decedent taxpayer becomes sole trustee and sole trustor trust provides that upon the death of either trustor the trustee will divide the trust estate including any additions to the trust estate as a result of the first trustor to die into two separate trusts the marital trust and the residuary_trust trust further provides that the trustee in making allocations or distributions need not consider the basis of the various assets that are being distributed so that no attempt need be made plr-t-102488-15 to equalize the aggregate basis of assets distributed to the various distributees the decision of the trustee in allocating or distributing assets shall not be subject_to challenge by anyone trust further provides that the trustee will pay or apply for the benefit of the surviving trustor during his or her lifetime all of the net_income of the marital trust in monthly installments but in no event less often than annually trust further provides that the surviving trustor will have the right to direct the trustee in writing to pay or apply for said survivor’s benefit such amounts of the principal of the marital trust up to the whole thereof as the survivor may designate taxpayer represents that she as the sole trustee of trust will direct that the trust’ sec_50 interest in the plan be distributed to trust and allocated to the marital trust taxpayer as surviving trustor will direct the trustee to distribute to herself as beneficiary of the marital trust the proceeds of the plan taxpayer will then arrange a rollover_contribution into an individual_retirement_account ira established in her name such rollover would not include any required minimum distributions under sec_401 of the code based on the above facts and representations you through your authorized representative request a ruling that taxpayer as decedent’s surviving_spouse will be treated as having received the distribution from trust as directly from the plan and that pursuant to sec_402 of the code she is eligible to roll over amounts distributed from the plan into an ira established in her name sec_402 of the code provides generally that if any portion of an eligible_rollover_distribution from a sec_401 qualified_retirement_plan is transferred into an eligible_retirement_plan the portion of the distribution so transferred shall not be includible in gross_income in the taxable_year in which paid sec_402 of the code provides generally that except as provided in subparagraph b hardship exception sec_402 shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed sec_402 of the code defines eligible_rollover_distribution as any distribution to an employee of all or any portion of the balance_to_the_credit of an employee in a qualified_trust except the following distributions a any distribution which is one of a series of substantially_equal_periodic_payments not less frequently than annually made -- i for the life or life expectancy of the employee or the joint lives or joint life expectancies of the employee and the employee's designated_beneficiary or ii for a specified period of years or more plr-t-102488-15 b any distribution to the extent the distribution is required under sec_401 and c any distribution which is made upon the hardship of the employee sec_402 of the code defines eligible_retirement_plan as i an individual_retirement_account described in sec_408 ii an individual_retirement_annuity described in sec_408 other than an endowment_contract iii an employees’ trust described in sec_401 which is exempt from tax under sec_501 iv an annuity plan described in sec_403 v an eligible_deferred_compensation_plan described in sec_457 which is maintained by an eligible_employer described in sec_457 and vi an annuity_contract described in sec_403 sec_402 of the code provides that if any distribution attributable to an employee is paid to the spouse of the employee after the employee's death sec_402 shall apply to such distribution in the same manner as if the spouse were the employee in this case decedent designated trust as a beneficiary of the plan decedent’s surviving_spouse taxpayer is the sole trustee of trust under the terms of trust the decision as to which property will be allocated to the marital trust rests solely with taxpayer as trustee pursuant to this authority taxpayer intends to allocate trust’ sec_50 interest in the plan to the marital trust as trustee of trust taxpayer has the power to distribute to herself for any purpose any portion or all of the property of the marital trust taxpayer intends to distribute the proceeds of the plan to trust and allocate the proceeds to marital trust taxpayer then intends to distribute the proceeds of the plan from marital trust to herself as beneficiary of the marital trust after which she intends to roll over the distribution to an ira maintained in her own name under sec_402 of the code if a distribution attributable to an employee is paid to the employee’s spouse after the employee’s death the spouse will be treated as if the spouse was the employee in this case taxpayer is the sole trustor trustee and beneficiary of trust and as such has complete control and discretion as to the disposition of the distribution from plan that is attributable to decedent taxpayer intends to distribute the proceeds from plan to herself as beneficiary since the distribution will be paid to taxpayer who is the employee’s spouse with respect to decedent’s benefit in plan sec_402 applies and taxpayer will be treated as if she were the employee accordingly taxpayer may contribute the proceeds distributed from plan into an ira set up and maintained in taxpayer’s name provided that the contribution to the ira occurs no later than the 60th day after the date the amount was received by trust from the plan plr-t-102488-15 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this letter is based on the assumption that trust is valid under applicable state law and any ira established by taxpayer will also meet the requirements of sec_408 at all relevant times this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely laura b warshawsky senior tax law specialist qualified_plans branch office of associate chief_counsel tax exempt government entities


internal_revenue_service number release date index number ------------------------- ------------------------------------------------------------ --------------------------- ------------------------------------------------------------ ------------------------------ --------------------------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ ---------------------------- -------------------------------------- telephone number ---------------------- refer reply to cc tege eb qp2 plr-103210-13 date date ty calendar_year plan --------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ state s ---------------------------------------------- entity e -------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -- ------------------------------------------------------------- dear -------------------- this responds to your authorized representative's original letter and subsequent correspondence on behalf of state s requesting a ruling concerning its deferred_compensation plan the plan which state s intends to be an eligible_deferred_compensation_plan under sec_457 of the internal_revenue_code_of_1986 the code as amended under the economic_growth_and_tax_relief_reconciliation_act_of_2001 egtrra and in subsequent legislation the plan will be administered by state s's entity e the plan has been or will be adopted only by state s and its political subdivisions and instrumentalities which adopt and choose to participate in the plan plan participation is mandatory for certain classes of eligible employees for all other classes of eligible employees participation is voluntary under the plan a participant who is currently an employee of state s or one of its participating political subdivisions or instrumentalities may elect to defer compensation that would have been received for plr-103210-13 services rendered to his her employer in any taxable_year until death severance_from_employment attainment of age or the occurrence of an unforeseeable_emergency the plan permits participants to defer compensation on a pre-tax basis the plan also permits full time employees of state s and other adopting employers to elect to make designated roth contributions on an after-tax basis in accordance with the provisions of sec_402a and sec_457 in addition the participant may elect to make deferrals into the plan upon severance of employment of accumulated sick_pay accumulated vacation pay and accumulated back pay as permitted by sec_457 and the regulations thereunder the plan provides that all elections to defer compensation including if applicable designated roth contributions under sec_402a and any modifications made to such elections must be made prior to the beginning of the month in which the related compensation would have been paid in the absence of a deferral election the plan provides for a maximum amount that may be deferred by a participant in any taxable_year it also provides for a catch-up computation for amounts deferred for one or more of the participant's last three taxable years ending before he or she attains normal_retirement_age under the plan the plan also provides for the catch-up_contributions for individuals age or over under sec_414 and sec_457 however the plan provides that a participant can only utilize one of the two catch-up contribution provisions during a single year the amounts that may be deferred under the annual maximum limitation and the catch-up provisions are within the limitations of sec_457 under the plan a participant upon severance of employment or beneficiary may elect to have any portion of benefits deferred under the plan which constitute an eligible_rollover_distribution described in sec_402 of the code paid directly to another eligible_retirement_plan described in sec_402 such as an individual_retirement_account ira in a direct_rollover with nonspouse beneficiaries subject_to certain limitations set in sec_402 with certain limitations a participant or a beneficiary may elect the manner in which their deferred amounts will be distributed the plan provides that the manner and time of benefit payout must meet the distribution_requirements of sec_401 and sec_457 of the code however a direct_rollover of an eligible_rollover_distribution from a roth contribution account may only be made to another designated_roth_account under an applicable_retirement_plan described in sec_408a and only to the extent the rollover is permitted under sec_402 the plan provides that all amounts of compensation deferred under the plan are to be held in trust or a custodial_account or annuity_contract described in sec_401 for plr-103210-13 the exclusive benefit of the participants and their beneficiaries the rights of any participant or beneficiary to payments pursuant to the plan are generally non-assignable and not subject_to transfer assignment or attachment sec_457 of the code provides rules for the deferral of compensation by an individual participating in an eligible_deferred_compensation_plan as defined in sec_457 sec_457 of the code provides that in the case of a participant in an eligible governmental deferred_compensation plan any amount of compensation deferred under the plan and any income attributable to the amounts so deferred shall be includible in gross_income only for the taxable_year in which such compensation or other income is paid to the participant or beneficiary sec_457 provides that the term eligible_deferred_compensation_plan means a plan established and maintained by an eligible_employer in which only individuals who perform service for the employer may be participants and which meet the deferral limitations described in sec_457 which meets the distribution_requirements described in sec_457 which provides for deferral elections described in sec_457 and in the case of a governmental_plan which requires the plan assets and income to be held in trust for the exclusive benefit of participants and beneficiaries as described in sec_457 sec_457 prescribes that an eligible_deferred_compensation_plan must meet the distribution_requirements of sec_457 sec_457 provides that for a sec_457 plan to be an eligible_plan the plan must have distribution_requirements providing that under the plan amounts will not be made available to participants or beneficiaries earlier than i the calendar_year in which the participant attains age ii when the participant has a severance_from_employment with the employer or iii when the participant is faced with an unforeseeable_emergency as determined under the regulations sec_457 defines an eligible_employer to be a state political_subdivision of a state any agency_or_instrumentality of a state or political_subdivision of a state sec_457 provides that with respect to an eligible_retirement_plan established and maintained by a governmental employer if any portion of the balance_to_the_credit of an employee in the plan is paid to him her in an eligible_rollover_distribution the employee transfers any portion of the property received in such distribution to an eligible_retirement_plan described in sec_402 and sec_3 in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent so transferred shall not be includible in gross_income for the taxable_year in which paid sec_457 provides that a plan maintained by an eligible governmental employer shall not be treated as an eligible_deferred_compensation_plan unless all assets and plr-103210-13 rights purchased with such deferred_compensation amounts and all income attributable to such amounts property or rights of the plan are held in trust for the exclusive benefit of participants and their beneficiaries sec_457 provides that for purposes of sec_457 custodial accounts and contracts described in sec_401 shall be treated as trusts under rules similar to the rules under sec_401 which means such accounts and contracts would be treated as organizations_exempt_from_taxation under sec_501 based upon the provisions of the plan summarized above and the documents presented we conclude as follows assuming that all of the participating employers which join the plan are instrumentalities or political subdivisions of state s the plan constitutes an eligible_deferred_compensation_plan as defined in sec_457 of the code as amended under egtrra and subsequent statutes amounts of compensation deferred in accordance with the plan including any income attributable to the deferred_compensation will be includible under sec_457 in the recipient's gross_income only for the taxable_year or years in which amounts are paid to a participant or beneficiary in accordance with the terms of the plan any payment made from the plan in the form of an eligible_rollover_distribution as defined in sec_402 is not includible in gross_income in the year paid to the extent the payment is transferred to an eligible_retirement_plan as defined in sec_402 in accordance with sec_457 assuming that it is a valid trust under state s law the trust associated with the plan will be treated as an organization_exempt_from_taxation under sec_501 in accordance with sec_457 qualified distributions from the qualified_roth_contribution_program maintained pursuant to the plan’s provisions will not be included in income under sec_402a no opinion is expressed concerning the timing of the inclusion in income of amounts deferred under any deferred_compensation plan other than plan of state s described above if the plan is significantly modified this ruling may not necessarily remain applicable plr-103210-13 this ruling is directed only to the plan and not to any other sec_457 plan sec_6110 of the internal_revenue_code provides that this ruling may not be used or cited as precedent sincerely cheryl press senior counsel qualified_plans branch employee_benefits tax exempt government entities enclosure copy for purposes of sec_6110


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-129630-15 date date grantor -------------------------------------------- ------------------------ trust -------------------------------------------- -------------------------------------------- ----------------------- x -------------------------------------- family_trust -------------------------------------------- ------------------------ spouse -------------------------------------------- ------------------------- date --------------------------- date --------------------------- date ---------------------- plr-129630-15 child -------------------------------------------- -------------------------------------------- ------------ child ------------------------------ child ------------------------------- child ----------------------------------- child ----------------------------- child --------------------------- child state court -------------------------------------------- - --------- -------------------------------------------- -------------------- dear ---------------- this letter responds to a letter dated date and subsequent information submitted on behalf of trust requesting rulings with respect to trust facts the facts and representations submitted are summarized as follows grantor established trust as an irrevocable_trust on date after date trust is administered under the laws of state the taxpayers represent that sufficient generation-skipping_transfer gst tax exemption was allocated to trust so that trust has an inclusion_ratio of zero trust currently holds various assets that include shares of x an s_corporation grantor also established an irrevocable_trust family_trust by executing an agreement of trust on date paragraph of article first of the trust agreement trust agreement provides that during grantor’s lifetime the trustee shall pay over or apply the net_income and principal to such extent including the whole thereof and in such amounts or proportions including all to one at the exclusion of the others and at such time or times as the trustee in the exercise of absolute discretion shall determine to family_trust and or to or for the benefit of such one or more members of the class consisting of grantor’s plr-129630-15 descendants living from time to time during the term of the trust under paragraph and any person added as a beneficiary of the trust under paragraph pursuant to the discretionary power granted in the trust agreement as the trustee in the exercise of absolute discretion shall select any net_income not so paid over or applied shall be accumulated and added to the principal of the trust at least annually and thereafter shall be held administered and disposed of as a part thereof paragraph further provides that during grantor’s lifetime the trustee is authorized in the exercise of absolute discretion at any time and from time to time to add as a beneficiary of the trust under paragraph any person other than grantor who is a descendant of grantor’s parents paragraph further provides that upon the grantor’s death the trust under paragraph shall terminate and the principal of the trust as it is then constituted shall be disposed of under paragraph paragraph of the trust agreement provides that if any descendant of grantor is then living the principal of the trust under paragraph as it is then constituted shall be divided into a sufficient number of equal shares so that there shall be set_aside one such share for each child of grantor who is then living and one such share for the collective descendants who are then living of any child of grantor who is not then living from each such share so set_aside for the collective descendants who are then living of any child of grantor is not then living there shall be set_aside per stirpital parts for such descendants paragraph further provides that to the extent that any share or part of a share so set_aside consists of stock of an s_corporation within days of grantor’s death such share or part of a share shall be transferred conveyed and paid over to the trustee to be held in a separate trust for the benefit of the child or descendant for whom the share or part of a share was so set_aside in accordance with the terms and conditions of article second of the trust agreement to the extent that any share or part of a share so set_aside does not consist of stock of an s_corporation such share or part of a share shall be transferred conveyed and paid over to the trustee to be held in trust in accordance with the terms and conditions of article third paragraph of the trust agreement provides that if upon the termination of any trust created under the trust agreement no descendant of grantor is then living if spouse is then living the principal of such trust as it is then constituted shall be transferred conveyed and paid over to the trustee to be held in trust the trustee shall pay over or apply the net_income to or for the benefit of spouse in as nearly equal quarterly installments as practicable but at least annually during spouse’s life the trustee other than spouse in the exercise of absolute discretion is authorized to pay over to spouse or apply for spouse’s benefit principal of the trust paragraph further provides that in any year in which for the entire year the trust does not own stock of an s_corporation the trustee shall pay over the net_income to such extent and at such time or times as the plr-129630-15 trustee other than spouse in the exercise of absolute discretion shall determine to or for the benefit of spouse any net_income not so paid over or applied shall be added to the principal of the trust paragraph of article second the trust agreement provides that any share or part of a share which is directed to be held in accordance with the terms and conditions of article second shall be held by the trustee in trust the trustee shall pay over or apply the net_income to or for the benefit of the beneficiary in as nearly equal quarterly installments as practicable but at least annually during the beneficiary’s life in any year in which for the entire year the trust does not own stock of an s_corporation the trustee shall transfer convey and pay over the net_income to such extent and at such time or times as the trustee other than the beneficiary in the exercise of absolute discretion shall determine to or for the benefit of the beneficiary any net_income not so paid over or applied shall be added to the principal of the trust paragraph further provides that the trustee other than the beneficiary in the exercise of absolute discretion is authorized at any time and from time to time to pay over to the beneficiary or apply for his or her benefit out of the principal of the trust such portion thereof including the whole as the trustee other than the beneficiary in the exercise of absolute discretion determines paragraph of the trust agreement provides that upon the death of a beneficiary the principal of the trust as it is then constituted shall be divided into a sufficient number of equal shares so that there shall be set_aside one such share for each child of the beneficiary who is then living and one such share for the collective descendants who are then living of any child of the deceased beneficiary who is not then living from each such share so set_aside for the collective descendants who are then living of any child of the deceased beneficiary who is not then living there shall be set_aside per stirpital parts for such descendants the share or part of a share so set_aside for a beneficiary shall be held in a separate trust in accordance with the terms and conditions set forth in paragraph of the trust agreement for the benefit of that beneficiary paragraph of the trust agreement provides that if not sooner terminated each trust held under article second shall terminate upon the 21st anniversary of the death of the last to die of grantor spouse all of the descendants of grantor who were in being at the creation of the trust by grantor and the ten youngest descendants of a named individual who were in being at the creation of the trust upon the termination of each such trust the principal of each such trust as it is then constituted shall be transferred conveyed and paid over to the beneficiary paragraph of the trust agreement provides that if income or discretionary amounts of principal become payable to a beneficiary who is a minor then such income or principal may in the sole discretion of the trustee other than any trustee who is under a plr-129630-15 duty to support the beneficiary be paid to a court-appointed guardian of the beneficiary’s property or the beneficiary’s custodian under a uniform_gifts_to_minors_act or similar act in effect under the law of the beneficiary’s domicile to be used exclusively for the benefit of the beneficiary paragraph of the trust agreement provides that if upon the death of the beneficiary there is no descendant of the beneficiary then living the trustee shall transfer convey and pay over the principal of the trust as it is then constituted to and among such one or more of the other trusts then being held pursuant to the trust agreement and then living descendants of the grantor as the trustee in the exercise of absolute discretion shall select paragraph of article third of the trust agreement provides that any share or part of a share which is directed to be held in accordance with the terms and conditions of article third the trustee shall pay over or apply the net_income and principal to such extent and at such time or times as the trustee in the exercise of absolute discretion shall determine any net_income not so paid over or applied shall be accumulated and added to the principal of the trust at least annually and thereafter shall be held administered and disposed as a part thereof paragraph of article third provides that upon the death of the primary beneficiary the principal of the trust shall be divided into a sufficient number of equal shares so that there shall be set_aside one such share for each child of the deceased primary beneficiary who is then living and one such share for the collective descendants who are then living of any child of the deceased primary beneficiary who is not then living paragraph m of article fourth of the trust agreement provides that as to any trust created under paragraph of article first or under article third of the trust agreement to purchase life_insurance payable to any such trust on the life or joint lives of any individual or individuals in which any beneficiary of such trust may have an insurable interest including but without limitation life_insurance on the life of the grantor and to pay any premiums on any such life_insurance_policy held from the income or principal of the trust estate paragraph p of article fourth of the trust agreement gives the trustee the power to i divide any trust created under article first or article third of the trust agreement into one or more separate trusts for the benefit of one or more of the beneficiaries of the trust to the exclusion of the other beneficiaries so divided as the trustee in the exercise of her absolute discretion shall determine but in all other respects under the same terms as set forth in article third ii divide any trust created under article second hereof into one or more separate trusts for the benefit of the beneficiary but in all respects under the same terms as set forth in article second hereof and iii to allocate to such divided trust some or all of the assets of the trust plr-129630-15 estate for any reason including but not limited to enabling any such trust or trusts to qualify as an eligible shareholder of an s_corporation as described in the code or for any other purpose spouse was the initial trustee of trust and has continuously served as the sole trustee trust paragraph of the trust agreement provides that spouse and each successor trustee shall have the right to appoint a co-trustee other than grantor or any other person who has contributed_property to the trust provided that during grantor’s lifetime no person who is either a descendant of grantor’s parents or the individuals listed in paragraph of the trust agreement or a charitable_organization may serve as trustee paragraph provides that if spouse ceases to act as trustee without appointing a successor or if there is no trustee acting under the terms of the trust agreement at any time the trust_protector shall appoint a trustee or trustees other than grantor or any other person who contributed_property to the trust provided that during grantor’s lifetime no person who is a descendant of grantor’s parents or who is any person listed in paragraph or a charitable_organization shall be eligible to serve as trustee paragraph of the trust agreement provides in relevant part that no trustee who is a beneficiary of any trust created hereunder or who is obligated to support a beneficiary of any trust created hereunder shall ever participate in i the exercise of or decision not to exercise any discretion over payments distributions uses application or accumulation of income or principal by the trustee ii the exercise of discretion to allocate receipts or expenses between principal and income iii the exercise of discretion with respect to an insurance_policy on his of her life held hereunder iv the exercise of the power in paragraph p of article fourth of the trust agreement to divide any trust created hereunder into one or more separate trusts or v the appointment or removal of any trustee or trust_protector at the present time trust’s estate has been held in a single trust governed under article first of the trust agreement the grantor has seven children and each child is currently living child child child child child child and child collectively grantor’s children the trustee has not exercised the power to add any additional beneficiaries to trust proposed transaction trust through its trustee proposes to create eight separate trusts governed under article third of the trust agreement for the family_trust and each of grantor’s seven children and their descendants article third trusts and to transfer the article one trust estate other than the x stock in equal shares to each of the article third trusts the trustee will allocate a pro_rata portion of each and every asset transferred from trust to the article third trusts trust will retain the x stock that will continue to be governed by article one of the trust agreement plr-129630-15 the trustee and beneficiaries filed a petition with court to i interpret and construe the terms of the trust agreement to provide for the establishment of the article third trusts by the trustee pursuant to the powers given under paragraph p of the trust agreement ii approve the creation of the article third trusts for the family_trust and each of grantor’s seven children and their descendants pursuant the terms of paragraph p of the trust agreement and iii approve the transfer of the article one trust estate other than the x stock in equal shares to the eight article third trusts court granted such petition in a declaratory_judgment on date rulings requested the trust created under article first of the trust agreement will be an eligible shareholder of an s_corporation during grantor’s lifetime and for the day period beginning on the date of grantor’s death because it will be a_trust all of which is treated under subpart e of part i of subchapter_j as owned by grantor during grantor’s lifetime whether or not spouse or any other spouse of grantor is serving as trustee each separate qsst trust which in accordance with the trust agreement will be created within days of grantor’s death under article second of the trust agreement will be an eligible shareholder of an s_corporation under sec_1361 provided that an appropriate election is made under that section and based on the taxpayers’ representation that each qsst beneficiary will be a united_states citizen and or resident the pro-rata transfer of assets from trust into the article third trusts will not result in treating any trust property as paid credited or distributed for purposes of sec_661 or sec_1_661_a_-2 of the income_tax regulations and so will not result in realization of any income gain_or_loss under sec_661 or sec_662 by trust the article third trusts or a beneficiary of any of the trusts in addition pro-rata transfer of assets from trust into the article third trusts will not result in the realization of any income gain_or_loss to trust the article third trusts or a beneficiary of any of those trusts under sec_61 or sec_1001 the article third trusts will be treated as separate trusts for federal_income_tax purposes pursuant to sec_643 the pro-rata transfer of assets from trust into the article third trusts will result in each article third_trust holding its share of trust’s property with the same basis as it had when owned by trust at the time of the transfer into the article third trusts under sec_1015 plr-129630-15 the pro-rata transfer of assets from trust into the article third trusts will not create or result in a transfer of property subject_to federal gift_tax under sec_2501 of the internal_revenue_code code any trust created under the trust agreement will not be included in the gross_estate of grantor or the gross_estate of spouse assuming as represented by the taxpayers that spouse will not make any transfers to any trust created under the trust agreement and that such trust will not acquire any policy of insurance on spouse’s life the pro-rata transfer of assets from trust into the article third trusts will not cause any portion of the assets of trust or the article third trusts to be includible in the gross_estate of any beneficiary under sec_2035 sec_2036 sec_2037 or sec_2038 the pro-rata transfer of assets from trust into the article third trusts will not alter the inclusion_ratio of trust and each article third_trust will have the same inclusion_ratio as trust for gst tax purposes ruling and sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against tax of an individual sec_672 provides for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexcercise of the power which he possesses respecting the trust sec_1_672_a_-1 of the income_tax regulations provides that an interest is substantial if its value in relation to the total value of property subject_to the power is not insignificant sec_672 provides in general that a grantor shall be treated as holding any power or interest held by an individual who was the spouse of the grantor at the time of the creation of the power or interest or after the time of creation of such power or plr-129630-15 interest but only with respect to the period or periods after such individual became the spouse of the grantor sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard sec_674 provides an exception to the general_rule of sec_674 when certain powers are held by an independent_trustee however that exception does not apply if any person regardless of the independence of the trustee has a power to add a beneficiary or beneficiaries or to a class of beneficiaries designated to receive the income or corpus except where such action is to provide for after-born or after adopted children sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate and other than a_trust described in sec_1361 who is not an individual sec_1361 provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be an s_corporation shareholder sec_1361 provides that for purposes of b b a_trust which was described in sec_1361 immediately before the death of the deemed owner and which continues in existence after such death may be an s_corporation shareholder but only for the two-year period beginning on the day of the deemed owner’s death sec_1361 provides that a qualified_subchapter_s_trust qsst whose beneficiary makes an election under sec_1362 will be treated as a_trust described in sec_1361 and the qsst’s beneficiary will be treated as the owner for purposes of sec_678 of that portion of the qsst’s s_corporation stock to which the election under sec_1361 applies under sec_1361 a beneficiary may elect to plr-129630-15 have sec_1361 apply under sec_1361 this election will be effective up to days and two months before the date of the election sec_1361 provides that for purposes of sec_1361 the term qualified_subchapter_s_trust means a_trust a the terms of which require that - during the life of the current income_beneficiary there shall be only income_beneficiary of the trust ii any corpus distributed during the life of the current beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary’s death or the termination of the trust and iv upon the termination of the trust during the life of the current beneficiary the trust shall distribute all of its assets to that beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states in revrul_92_20 the service held that a provision in a_trust agreement that authorizes the trustee to accumulate trust income in the event that the trust does not hold any shares of s_corporation stock does not by itself preclude the trust’s qualification as a qualified_subchapter_s_trust based on the facts and representations made we conclude that because grantor will be treated as the owner of the trust created under paragraph under sec_674 trust will be an eligible s_corporation shareholder under sec_1361 during grantor’s lifetime so long as grantor remains a citizen and or resident_of_the_united_states additionally the trust created under paragraph will be an eligible s_corporation shareholder under sec_1361 for the two-year period beginning on the day of grantor’s death each separate trust governed by article second or created by paragraph of the trust agreement and created within two years of grantor’s death meets the requirements of sec_1361 provided that each beneficiary of each trust is a united_states citizen and or resident accordingly each of those trusts created within that period following grantor’s death qualifies as a qualified_subchapter_s_trust under sec_1361 and each will be treated as a_trust described in sec_1361 provided that each beneficiary makes a proper election under sec_1361 for his or her trust and all of the income of distributed currently to the beneficiary while the trust holds s_corporation stock ruling sec_61 defines gross_income as all income from whatever source derived sec_61 provides that gross_income includes gains derived from dealings in property plr-129630-15 sec_661 provides that in any taxable_year a deduction is allowed in 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 sec_1_661_a_-2 of the income_tax regulations provides that gain_or_loss is realized by the trust or estate 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 sec_662 provides that there shall be included in the gross_income of a 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 sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 states that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained sec_1_1001-1 provides that the severance of a_trust including without limitation a severance that meets the requirements of sec_26_2642-6 or of sec_26_2654-1 of this chapter is not an exchange of property for other_property differing materially either in_kind or in extent if - i an applicable_state_statute or the governing instrument authorizes or directs the trustee to sever the trust and ii any non-pro rata funding of the separate trusts resulting from the severance whether mandatory or in the discretion of the trustee is authorized by an applicable_state_statute or governing instrument plr-129630-15 a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result of the transaction thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 499_us_554 concerns the issue of when a sale_or_exchange has taken place that results in the realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another lender's interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution the supreme court of the united_states in cottage savings u s pincite concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite in this case the trustee’s transfer of the non-s corporation stock assets from the trust to the eight new article third trusts is authorized by paragraph p of article fourth of the trust agreement see sec_1_1001-1 moreover consistent with revrul_56_437 1956_2_cb_507 each and every asset of trust transferred to the article third trusts will be divided and distributed on a pro-rata basis among the eight article third trusts for each of the grantor’s seven children and the family_trust therefore the post-division and distribution interests of the eight beneficiaries in the assets of the new article third trusts will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries within the meaning of cottage savings from the interests in the assets given up by the beneficiaries in the trust consequently based on the facts presented and the representations made the pro-rata transfer of assets from trust to the article third trusts will not result in a sale_or_exchange or other_disposition of any property for purposes of sec_1001 and thus no gain_or_loss will be recognized by the beneficiaries or the trusts on the division for purposes of sec_61 or sec_1001 we further conclude that the pro-rata transfer of assets from trust into the article third trusts is not a distribution under sec_661 or sec_1_661_a_-2 and therefore not included in the gross_income of any article third_trust beneficiary under sec_662 plr-129630-15 ruling sec_643 provides that for purposes of subchapter_j of chapter of subtitle a under regulations 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 section b of the tax_reform_act_of_1986 provides that sec_643 shall apply to taxable years beginning after date except that in the case of a_trust that was irrevocable on date it shall apply only to that portion of the trust that is attributable to contributions of corpus after date the article third trusts will each have different primary beneficiaries we conclude that as long the article third trusts created by the pro-rata transfer of assets from trust are separately managed and administered they will be treated as separate trusts for federal_income_tax purposes ruling sec_1015 provides that if the property was acquired by gift the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift except that if the basis adjusted for the period before the date of the gift as provided in sec_1016 is greater than the fair_market_value of the property at the time of the gift then for the purpose of determining loss the basis shall be the fair_market_value sec_1_1015-2 provides that in the case of property acquired after date by transfer in trust other than by a transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made if the taxpayer acquired the property by a transfer in trust the basis applies whether the property be in the hands of the trustee or the beneficiary and whether acquired prior to the termination of the trust and distribution of the property or thereafter based on the facts submitted and representations made we conclude that because sec_1001 does not apply to the pro-rata transfer of assets from trust into the article third trusts under sec_1015 the basis of the trust assets will be the same after pro-rata transfer of assets from trust as the basis of those assets before the transfer plr-129630-15 ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if the gift is made in property the value thereof at the date of the gift is considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_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 to be a gift and is included in computing the amount of gifts made during the calendar_year in this case the descendants of grantor will have the same interests in the article third trusts that they had as beneficiaries under trust because the beneficial interests of the beneficiaries are substantially the same both before and after the transfer of assets from trust to the article third trusts no taxable transfer of property will be deemed to occur as a result of this transfer accordingly based on the facts submitted and the representations made we conclude that the transfer of assets from trust to the article third trusts will not create or result in a transfer of property subject_to federal gift_tax under sec_2501 rulings and sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest therein of the decedent at the time of death sec_2035 provides that if -- the decedent made a transfer by trust or otherwise of an interest in any property or relinquished a power with respect to any property during the 3-year period ending on the date of the decedent's death and the value of such property or an interest therein would have been included in the decedent's gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if such transferred interest or relinquished power had been retained by the decedent on the date of the decedent's death then the value of the gross_estate shall include the value of any property or interest therein that would have been so included plr-129630-15 sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in 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_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for 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 exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for 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 either by the decedent alone or in conjunction with any person to alter amend revoke or terminate or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent's death sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of the decedent's death a general_power_of_appointment or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 through inclusive sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate except that a power to consume invade or appropriate property for the benefit of the decedent which is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment plr-129630-15 sec_2042 provides that the value of the gross_estate shall be the value of all property to the extent of the amount receivable by all other beneficiaries as insurance under policies on the life of the decedent with respect to which the decedent possessed at death any of the incidents_of_ownership exercisable either alone or in conjunction with any other person in order for sec_2035 through to apply the decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an 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 in the present case the proposed transfer of assets from trust to the article third trusts does not constitute a transfer within the meaning of sec_2035 through the beneficiaries will have the same interests in the article third trusts that they had as beneficiaries under trust accordingly based on the facts submitted and the representations made we conclude that the transfer of assets from trust to the article third trusts will not cause any portion of the assets of trust or the article third trusts to be includible in the gross_estate of any beneficiary under sec_2035 sec_2036 sec_2037 or sec_2038 furthermore in this case spouse is the initial trustee of the proposed trusts created under the trust agreement it is represented that spouse has not and will not make any transfers to the proposed trusts created under the trust agreement it is also represented that no trust will acquire any policy of insurance on spouse’s life spouse is not a beneficiary of any trust created under article second or article third if spouse is living upon termination of trust and no living descendant of grantor is surviving a_trust will be created for the benefit of spouse under paragraph however under paragraph spouse will be precluded in participating in any discretionary decisions with regard to the trust created under paragraph accordingly based on the facts submitted and the representations made we conclude that any trust created under the trust agreement will not be included in the gross_estate of spouse grantor will not retain any beneficial_interest in any proposed trust created under the trust agreement grantor cannot be a trustee or trust_protector or otherwise have any control_over any proposed trust created under the trust agreement grantor has no power to remove or replace any trustee of any proposed trust created under the trust agreement therefore no part of trust or any other trust under the trust agreement is includible in the gross_estate of grantor under sec_2033 sec_2035 sec_2036 sec_2037 or sec_2038 if a proposed trust under the trust agreement purchases life_insurance on grantor’s life grantor cannot act as a trustee or trust_protector or remove a trustee or trust_protector grantor retains no incidents_of_ownership over the insurance_policy therefore no part of trust or any proposed trust created under the trust agreement should be included in the gross_estate of grantor under sec_2042 accordingly based on the facts submitted plr-129630-15 and the representations made we conclude that any trust created under the trust agreement will not be included in the gross_estate of grantor ruling sec_2601 imposes a tax on every generation-skipping_transfer gst under a of the tax_reform_act_of_1986 act the gst tax is generally applicable to gsts made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to any gst 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_2602 the amount of tax imposed under sec_2601 is determined by multiplying the taxable_amount the amount_involved in the gst transfer by the applicable_rate under sec_2641 the term applicable_rate means the product of the maximum_federal_estate_tax_rate in the year that the gst occurs and the inclusion_ratio under sec_2642 the inclusion_ratio with respect to any property transferred in a gst i sec_1 minus the applicable_fraction under sec_2642 in general the numerator of the applicable_fraction is the amount of gst_exemption allocated to the property transferred and the denominator is the value of the property transferred sec_2631 in effect for the date of the transfer provides that for purposes of determining the inclusion_ratio every individual is allowed a gst_exemption of dollar_figure which may be allocated by the individual or the individual's executor to any property with respect to which the individual is the transferor 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 gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the gst tax 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 a beneficial_interest to a lower plr-129630-15 generation beneficiary if the modification can result in either an increase in the amount of a gst or the creation of a new gst sec_26_2601-1 example provides as follows 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 principal is 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 in the instant case trust was created after date it is represented that sufficient gst_exemption was allocated to trust so that trust has an inclusion_ratio of zero under sec_2642 no guidance has been issued concerning changes that may affect the status of trusts that are exempt from gst tax because sufficient gst_exemption was allocated to the trust to result in an inclusion_ratio of zero at a minimum a change that would not affect the gst status of a grandfathered trust should similarly not affect the exempt status of such a_trust the proposed transfer of assets from trust to the article third trusts is similar to the division illustrated in example of sec_26_2601-1 therefore the proposed transfer of assets i will not result in a shift of any beneficial_interest in trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons holding the beneficial interests prior to the division and ii will not extend the time for vesting of any beneficial_interest beyond the period provided for under trust accordingly based upon the facts submitted and the representations made we conclude that the transfer of assets from trust to the article third trusts will not alter the inclusion_ratio of trust and each article third_trust will have the same inclusion_ratio as trust for gst tax purposes plr-129630-15 this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to trust’s authorized representative sincerely faith p colson faith p colson senior counsel 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 number washington dc person to contact telephone number refer reply to cc fip plr-128362-02 date date in re legend taxpayer accountant date date date date year dear this ruling is in reply to a letter dated date and subsequent correspondence requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an election under sec_475 of the internal_revenue_code to use the mark-to-market method_of_accounting for the tax_year ending date facts taxpayer represents that beginning on date taxpayer has been engaged full- time in the trade_or_business of being a trader in securities during year taxpayer hired accountant a certified_public_accountant to assist taxpayer with federal and state_income_tax matters relating to taxpayer’s trading in securities according to the information submitted both taxpayer and accountant were aware of the availability of making a mark-to-market_election for traders in securities under sec_475 of the code as well as the published procedures for making such an election accountant had been engaged by taxpayer to prepare taxpayer’s year federal_income_tax return which had a filing due_date of date the same deadline for making an election under sec_475 of the code for the tax_year ending date on date taxpayer and accountant discussed taxpayer’s federal_income_tax situation by telephone accountant specifically advised taxpayer not to make an election under sec_475 after the date deadline had passed taxpayer determined that it would have been more advantageous for taxpayer’s federal_income_tax situation if taxpayer had made the election under sec_475 taxpayer represents that the sole reason taxpayer failed to make a timely election under sec_475 for the tax_year ending date was because accountant advised taxpayer against making such an election accordingly taxpayer has requested an extension of time under sec_301_9100-3 to make a timely sec_475 election for the tax_year ending date law and analysis sec_475 of the code provides that a taxpayer engaged in a trade_or_business as a trader in securities may elect to apply the mark-to-market accounting_method to securities held in connection with such trade_or_business see sec_475 sec_7805 provides that except to the extent otherwise provided by the code any election shall be made at such time and in such manner as the secretary shall prescribe on date the internal_revenue_service published revproc_99_17 1999_1_cb_503 section superseded by revproc_99_49 1999_2_cb_725 superseded by revproc_2002_9 2002_3_irb_327 revproc_99_17 provides the exclusive procedure for traders in securities to make an election to use the mark-to- market method_of_accounting under sec_475 sec_5 of revproc_99_17 provides in relevant part that taxpayers other than a taxpayer for which no federal_income_tax return was required to be filed for the taxable_year immediately preceding the election_year make an election under sec_475 for a tax_year beginning on or after date by filing a statement no later than the due_date without regard to extensions of the original federal_income_tax return for the taxable_year immediately preceding the election_year the statement must be attached to either that return or to a request for an extension of time to file that return section dollar_figure of revproc_99_17 the statement must describe the election being made the first taxable_year for which the election is effective and the trade_or_business for which the election is made section dollar_figure of revproc_99_17 sec_4 of revproc_99_17 states that the election under sec_475 determines the method_of_accounting an electing trader is required to use for federal_income_tax purposes for securities subject_to the election a method_of_accounting for securities subject_to the election is impermissible unless the method is in accordance with sec_475 and the regulations thereunder if an electing trader’s method_of_accounting for its taxable_year immediately preceding the election_year is inconsistent with sec_475 the taxpayer is required to change its method_of_accounting to comply with its election thus a taxpayer that makes a sec_475 election but fails to change its method_of_accounting to comply with that election is using an impermissible method section dollar_figure of revproc_99_17 provides that a taxpayer that changes its method_of_accounting pursuant to revproc_99_17 must take into account the net amount of the sec_481 adjustment the sec_481 adjustment generally is taken into account ratably over four taxable years beginning with the year_of_change section dollar_figure of revproc_99_17 and sec_5 of revproc_99_49 superseded by sec_5 of revproc_2002_9 sec_301_9100-1 of the regulations provides in part that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations published in the federal_register or by a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin or a statutory election but no more than 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_9100-3 through c i set forth rules that the internal_revenue_service generally will use to determine whether under the facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 provides in part that a taxpayer is deemed to have not acted reasonably and in good_faith if the taxpayer uses hindsight in requesting relief if specific facts have changed since the due_date for making the election that make the election advantageous to the taxpayer the service will not ordinarily grant relief in such a case the service will grant relief only when the taxpayer provides strong_proof that the taxpayer's decision to seek relief did not involve hindsight section c provides special rules for accounting_method regulatory elections this section provides in relevant part that the interests of the government are deemed to be prejudiced by granting an extension of time except in unusual and compelling circumstances if the accounting_method regulatory election is subject_to the procedure described in sec_1_446-1 requiring the advance written consent of the commissioner or if the accounting_method regulatory election for which relief is requested requires an adjustment under sec_481 or would require an adjustment under sec_481 if the taxpayer changed to the method_of_accounting for which relief is requested in a taxable_year subsequent to the taxable_year the election should have been made as noted above sec_4 of revproc_99_17 states that the election under sec_475 determines the method_of_accounting an electing trader is required to use for federal_income_tax purposes for securities subject_to the election if an electing trader’s method_of_accounting for its taxable_year immediately preceding the election_year is inconsistent with sec_475 the taxpayer is required to change its method_of_accounting to comply with its election a taxpayer that makes a sec_475 election but fails to change its method_of_accounting to comply with that election is using an impermissible method because the election is integrally related to the change in accounting_method to mark- to-market it is an accounting_method regulatory election subject_to sec_301_9100-3 revproc_2002_9 provides procedures by which a taxpayer may obtain automatic consent to change to the mark-to-market accounting_method however the automatic change applies to a taxpayer only if the taxpayer has made a valid election under sec_475 and is required to change its method_of_accounting to comply with the election section 10a a i of the appendix to revproc_2002_9 taxpayer requests an extension of time to make an accounting_method regulatory election that is subject_to the provisions of sec_301_9100-3 because taxpayer failed to make a timely sec_475 election pursuant to revproc_99_17 the accounting_method regulatory election is subject_to sec_301_9100-3 further because the accounting_method regulatory election requires a sec_481 adjustment it is also subject_to sec_301_9100-3 therefore under sec_301_9100-3 absent unusual and compelling circumstances a grant of relief is deemed to prejudice the interests of the government based on the facts and representations submitted we conclude that taxpayer has not satisfied the requirements for our granting a reasonable extension of time to make an election under sec_475 to use the mark-to-market method_of_accounting taxpayer has failed to demonstrate unusual and compelling circumstances regarding taxpayer’s failure to make a timely election sufficient to overcome the presumption of prejudice to the government’s interests conclusion taxpayer’s request for an extension of time to make the sec_475 election for the tax_year ending date is denied because taxpayer’s request for relief is denied pursuant to sec_301_9100-3 for lack of unusual and compelling circumstances it is unnecessary for us to consider taxpayer’s assertion that taxpayer acted reasonably and in good_faith under sec_301_9100-3 without using hindsight in requesting relief no opinion is expressed as to the tax treatment of the transaction under the provisions of any other sections of the code and regulations which may be applicable thereto or the tax treatment of any conditions existing at the time of or effects resulting from the transaction which are not specifically set forth by the above ruling this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours robert b williams senior counsel branch office of associate chief_counsel financial institutions products


o f f i c e o f t h e c h i e f c o u n s e l number release date uil ---------------------------------------- ---------------------------------------- ---------------------------------------- department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc ita b04 genin-149557-10 attention --------------------------------- dear --------------------- this letter responds to your request for guidance concerning the tax consequences of loan repayments under the civil legal assistance attorney student_loan repayment program claarp authorized by 428l of the higher education act of hea as amended u s c specifically you asked whether a borrower may exclude loan forgiveness amounts under claarp from gross_income under sec_108 of the internal_revenue_code hea student_loan programs the hea authorizes three student_loan programs the direct loan program the federal family education loan ffel program and the federal perkins loan perkins loan program to assist students and parents in paying for postsecondary education under the direct loan program the department of education doed makes subsidized and unsubsidized loans directly to students federal direct stafford ford loans with federal funds under part d of title iv of the hea u s c 1087a the direct loan program also includes a federal direct consolidation loan program under sec_455 of the hea u s c 1087e under the ffel program private lenders non-federal entities such as banks savings and loan associations credit unions schools and state and private nonprofit agencies make loans with private funds under part b of title iv of the hea u s c sec_1071 et seq the ffel program also includes a federal direct consolidation loan program under 428c of the hea u s c a ffel is generally insured by a state genin-149557-10 or nonprofit private organization loan insurance program when a loan insurance program pays a lender for a loss due to a borrower’s default the federal government guarantees a percentage of this amount u s c c this percentage is generally limited to no more than percent for recently issued loans but it could be as high as percent or as low a sec_75 percent u s c c under the perkins loan program postsecondary institutions make low-interest loans to financially needy students from a fund capitalized by federal and institutional contributions in a ratio of federal to institutional contributions under part e of title iv of the hea u s c 1087aa currently there is a loan forgiveness provision under the perkins loan program for a full-time attorney employed in a defender organization established in accordance with u s c 3006a g u s c 1087ee a f title contains a specific exclusion from income for certain loan forgiveness under the perkins loan program u s c 1087ee a civil legal assistance attorney student_loan repayment program section 428l of the hea established claarp to encourage qualified individuals to enter and continue employment as civil legal assistance attorneys civil legal assistance attorneys must be employed full-time by either a nonprofit organization that provides legal assistance without a fee on civil matters to low-income individuals or a protection and advocacy system or client assistance program that provides legal assistance on civil matters to clients and receives funding under specific federal programs under this program an eligible_student loan borrower with one or more eligible loans may receive up to dollar_figure in student_loan repayment for each year of completed service up to an aggregate total of dollar_figure the program is funded from congressional appropriations as specified in section 428l i of the hea and is carried out by the secretary of education who assumes the obligation to repay a student_loan by direct payments on behalf of a borrower to the holder of such loan for any borrower who meets the requirements of section 428l c under this program civil legal assistance attorneys who meet certain requirements may have a portion of their direct loans ffels and perkins loans repaid by doed after qualifying full-time employment for at least three years consolidated loans made by private lenders under 428c of the hea u s c or by doed under sec_455 of the hea u s c e to the extent that the consolidated loan is used to repay a ffel or direct loan will also qualify for repayment under claarp tax consequences of student_loan forgiveness under claarp if the state is not served by a loan insurance program a ffel may be insured directly by doed currently every state is served by a loan insurance program however certain federally insured loans remain outstanding this provision is in addition to loan repayment provided under claarp genin-149557-10 sec_61 of the code provides that except as otherwise provided in subtitle a gross_income means all income from whatever source derived sec_61 provides that gross_income includes income_from_discharge_of_indebtedness sec_108 of the code provides that gross_income does not include any amount that would be includible in gross_income by reason of the discharge in whole or in part of any student_loan if the discharge was pursuant to a provision of a loan under which all or part of the indebtedness of the individual would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers sec_108 of the code defines student_loan as any loan to an individual to assist the individual in attending an educational_organization described in sec_170 made by a the united_states or an instrumentality or agency thereof b a state territory or possession_of_the_united_states or the district of columbia or any political_subdivision thereof or c a public benefit corporation i which is exempt from taxation under sec_501 ii which has assumed control_over a state county or municipal hospital and iii whose employees have been deemed to be public employees under state law or d any educational_organization described in sec_170 if such loan is made i pursuant to an agreement with any entity described in subparagraphs a b or c under which the funds from which the loan was made were provided to such educational_organization or ii pursuant to a program of such educational_organization which is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students or former students are for or under the direction of a governmental_unit or an organization described in sec_501 and exempt from tax under sec_501 in the case of a direct loan doed is the lender and the loans qualify as student loans for purposes of sec_108 of the code additionally claarp loan forgiveness is conditioned on the borrower working for a certain period of time in qualifying public service positions therefore forgiveness under the direct loan program satisfies the requirements of sec_108 and a direct loan borrower may exclude loan forgiveness amounts under claarp from gross_income under sec_108 in the case of a ffel the analysis is more complicated because doed is not the holder of the loan at the time the debt is forgiven the nominal private financial genin-149557-10 institution may not be a lender described in sec_108 of the code however by statute doed ultimately is the source of funds for debt forgiveness through its obligation to guarantee substantially_all of the forgiven amount as guarantor doed pays the borrower's debt to the private financial lender and then in turn discharges the borrower's debt as a matter of subrogation doed reasonably can be viewed as the lender for purposes of sec_108 additionally as with the direct loan program claarp loan forgiveness under the ffel program is conditioned on the borrower working for a certain period of time in qualifying public service positions therefore loan forgiveness under the ffel program satisfies the requirements of sec_108 and a ffel borrower may exclude loan forgiveness amounts under claarp from gross_income under sec_108 in the case of a perkins loan doed is the source of percent of the loan fund and is the source of percent of the funds for loan repayment under claarp thus the educational_organization reasonably can be viewed as a lender described in sec_108 additionally as with the direct loan program and the ffel program claarp loan forgiveness under the perkins loan program is conditioned on the borrower working for a certain period of time in qualifying public service positions therefore loan forgiveness under the perkins loan program satisfies the requirements of sec_108 and a perkins loan borrower may exclude loan forgiveness amounts under claarp from gross_income under sec_108 this letter calls your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see revproc_2011_1 2011_1_irb_7 sec_2 if you have any additional questions please contact -------------- -------- of the office of associate chief_counsel income_tax accounting on ------------- ------------- sincerely donna j welsh senior technician reviewer branch income_tax accounting only educational organizations as defined in sec_170 of the code qualify to make a student_loan under sec_108 however loan forgiveness of student loans made by non-qualifying educational organizations may qualify for an exclusion_from_gross_income under the perkins loan program for a full- time attorney employed in a defender organization established in accordance with u s c 3006a g u s c 1087ee a f