internal_revenue_service number release date index number 468b --------------------------- --------------------------- ------------------------------ attn -------------------------- -------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ---------- telephone number --------------------- refer reply to cc ita b06 plr-118019-09 date august legend taxpayer -------------------------------------------------------------------- ---------------------------- fund -------------------------------------------------------------------- --------------------------------------------- escrow agent ---- court date date date date date date date litigation ---------------------------------------------------------------------- ---------- ------- ------------------ ------------------ ------------------- ------------------ ------------------ ---------------------- ---------------------------------------------------------------------- ------------------------------------------------- plr-118019-09 x claim agreement stipulation y dear -------------- -------------------------------------------- ----------------------------------------------- ---------------------------------------------------------------------- --------------------------------- ---------------------------------------------------------------------- --------------------- ----------------- this letter responds to your request dated date requesting a ruling on behalf of taxpayer specifically you request an extension of time under sec_301_9100-3 of the procedure and administration regulations to make a relation-back election under sec_1_468b-1 of the income_tax regulations facts beginning in date x asserted claim against taxpayer on date taxpayer and x entered into agreement that settled litigation pursuant to agreement taxpayer paid dollar_figurey into an escrow account the fund on date pursuant to agreement and the stipulation filed with court on date taxpayer and fund were to treat the fund as a qualified_settlement_fund under sec_468b of the internal_revenue_code and the income_tax regulations thereunder taxpayer and escrow agent were required by the stipulation to make any necessary elections including a relation-back election under sec_1_468b-1 to satisfy the requirements for a qualified_settlement_fund under sec_468b on date court entered the preliminary order approving the stipulation and ordering that fund was to be under the continuing jurisdiction of court fund included a proper relation-back election statement on its first timely filed income_tax return however taxpayer did not attach the relation-back election statement to its taxable_year ending date income_tax return taxpayer subsequently filed an amended taxable_year ending date income_tax return on date that had the relation- back election statement attached the statute_of_limitations had not expired on the taxable_year ending date as of date law and analysis plr-118019-09 sec_1_468b-1 provides that a qualified_settlement_fund is a fund account or trust that satisfies all three requirements of sec_1_468b-1 first sec_1_468b-1 requires that the fund account or trust is established pursuant to an order of or is approved by the united_states any state including the district of columbia territory possession or political_subdivision thereof or any agency_or_instrumentality including a court of law of any of the foregoing and is subject_to the continuing jurisdiction of that governmental authority second sec_1_468b-1 requires that the fund account or trust is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event or related series of events that has occurred and that has given rise to at least one claim asserting liability i under the comprehensive environmental response compensation and liability act of ii arising out of a tort breach of contract or violation of law or iii designated by the commissioner in a revenue_ruling or revenue_procedure third sec_1_468b-1 provides that the fund account or trust must be a_trust under applicable state law or its assets must be otherwise segregated from other assets of the transferor and related_persons sec_1_468b-1 provides in part that on the date the fund account or trust satisfies all the requirements of sec_1_468b-1 the transferor is treated as transferring the assets to a qualified_settlement_fund sec_1_468b-1 provides that if a fund account or trust meets the requirements of paragraphs c and c of sec_1_468b-1 prior to the time it meets the requirements of paragraph c the transferor and administrator may jointly elect a relation-back election to treat the fund account or trust as coming into existence as a qualified_settlement_fund on the later of the date the fund account or trust meets the requirements of paragraphs c and c or january of the calendar_year in which all the requirements of paragraph c are met if a relation-back election is made the assets held by the fund account or trust on the date the qualified_settlement_fund is treated as coming into existence are treated as transferred to the qualified settlement on that date sec_1_468b-1 provides that a relation-back election is made by attaching a copy of the election statement signed by each transferor and the administrator to and as part of the timely filed income_tax return including extensions of the qualified_settlement_fund for the taxable_year in which the fund is treated as coming into existence a copy of the election statement must also be attached to and as part of the timely filed income_tax return including extensions or an amended_return that is consistent with the requirements of sec_1_468b-1 through 468b-4 of each transferor for the taxable_year of the transferor that includes the date on which the qualified_settlement_fund is treated as coming into existence emphasis added sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines plr-118019-09 the term regulatory election as including an election the due_date of which is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_1_468b-1 expressly permits taxpayer to make the relation-back election on an amended_return for the taxable_year ending date taxpayer filed the amended_return for the taxable_year ending date on date before the expiration of the statute_of_limitations based on the information provided and the representations made we conclude that taxpayer timely filed the relation-back election under sec_1_468b-1 by filing an amended_return for the taxable_year ending date therefore taxpayer does not need an extension of time under sec_301_9100-3 to make the election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction item discussed or referenced in this letter specifically we express no opinion as to whether the fund is a qualified_settlement_fund within meaning of sec_1_468b-1 or whether the relation-back election is otherwise valid under sec_1_468b-1 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely jeffrey g mitchell branch chief branch income_tax accounting


internal_revenue_service p o box cincinnati oh release number release date date date legend x company y location dear department of the treasury employer_identification_number contact person - id number contact telephone number uil you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request you are a tax-exempt private_foundation formed and funded by x you are dedicated to strengthening the fabric of the y community by providing support in the areas of leadership development education environment economic development diversity and human needs you seek to create a new youth training and mentoring program the program’ the objectives of the program are to provide youths with educational training and mentoring for the purpose of improving and developing their capabilities the program is intended for individuals who could not otherwise be gainfully_employed because they lack the requisite experience and exposure to develop basic job skills the skills the program is expected to provide include for example dressing professionally showing up to work every day arriving on time each day when it is appropriate to make personal calls text or use personal phones completing a job application interviewing providing necessary documents when requested alerting the appropriate person if missing a day of work answering the telephone professionally and using basic office technology at-risk under-privileged under-exposed youth aged through who reside in the greater y area are eligible to participate in the program eligible participants’ employees and relatives of employees of either you or x will not be eligible participants eligible participants will apply to the program through an application process developed by you the application will be made available to eligible participants nominated by your nonprofit recruitment partners nominating organizations nominating organizations will nominate individuals who meet the selection standards defined below and are likely to benefit from participation in the program the nominating organizations are independent of and separate from you and x except for participation with this program as a nominating organization you will select program participants from the nominated individuals who complete the application process you view the application process as part of the professional training provided by the program you have learned that the simple task of completing a job application may be overly challenging for many program participants you begin your educational process at this point as it helps guide the nominated individuals through the application process selection of program participants will be based upon criteria including but not limited to prior academic performance minimum g p a of performance on tests designed to measure ability and aptitude for higher education recommendations from instructors or other individuals not related to the potential participants financial need and conclusions drawn from personal interviews as to motivation and character selection standards’ program participants must also pass a criminal background test and a drug test you will place each program participant in an appropriate department at x for job training and mentoring sponsoring department the sponsoring departments will be suitable placements for training the program participants in skills with widespread application eg management information_technology human resources marketing design support etc the priority for determining placements will be based on the sponsoring departments’ ability to provide strong mentors for each program participant you will also seek to match program participants’ interests with their assigned sponsoring department based on information provided with their applications because of the significant amount of oversight needed for training and mentoring the program participants the program will be housed in x so you will have sufficient access to provide such oversight each placement will be for a designated term of either three months in the summer or eight months during the full school year program participants will be allowed the option to participate in the program for a second term provided they successfully complete their first term program participants who are not students may participate in the program during the standard school year letter catalog number 58222y you expect anywhere from to program participants at any one time the number of program participants will be based on the availability of strong mentors program participants will take part in hours each week of general professional training in a centralized group setting this training will include but is not limited to training in powerpoint presentation skills resume interview skills continuous improvement methodology and appropriate professional attire and attitude this training may be provided by your employees x employees or unrelated local non-profit organizations program participants will be assigned a mentor who will meet with them and provide feedback at least every two weeks program participants will also receive performance evaluation feedback on attendance punctuality reliability initiative accuracy of work work speed job learning and application attitude towards training use of work time care of work area attitude towards peers attitude towards supervisors safety and appropriate professional attire the program will be publicized to the nominating organizations the application_for the program will be made available to eligible participants nominated by your nonprofit recruitment partners the bi-weekly grant amounts will be based on experience and education level of the program participants to continue to qualify for such grant amounts the program participants must continue to actively participate in the program because you will be operating the program you will have real-time knowledge of the participation of each grantee program participants will also be obligated to sign a commitment agreement at the start of the program that acknowledges the program participants’ obligation to actively participate in the program the selection committee will be made up of up to five of your officers and directors who volunteer to participate on the committee you represent that you will complete the following arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversion of funds from their intended purposes and take all reasonable and appropriate steps to recover the diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversion from occurring you represent that you will maintain the following all records relating to individual grants including information obtained to evaluate grantees identify a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of grants described above letter catalog number 58222y basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - - - ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or a prize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show e e e the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination e e e this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request this determination applies only to you it may not be cited as precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh letter catalog number 58222y e e e you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have any questions please contact the person listed at the top of this letter sincerely jeffrey cooper director exempt_organizations rulings and agreements letter catalog number 58222y


internal_revenue_service number release date index number ------------------------------------------------------------ ------------ --------------------- -------------------------- ---------------------------- in re --------------------------------------------------- ----------------------- department of the treasury washington dc person to contact --------------- id no ------------ telephone number -------------------- refer reply to cc psi - plr-122778-04 date july -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- legend trust ------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------- trust -------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- settlor daughter date date trustees court ---------------------------------------------------------------------------------------------------------------- -------------------------------------------------------- state state statute dear --------------------------------------------- ----------------------------------------------- ------------------------------------------------- -------------------------- ---------------------- ----------------------------------------------------------- -------------------------------------------------------------------------------- ----------------- ------------------------------------ this is in response to the date letter and subsequent correspondence concerning the generation-skipping_transfer gst tax and income_tax consequences of the proposed merger of two trusts the facts and representations submitted are summarized as follows settlor executed an irrevocable_trust agreement trust dated date which is prior to plr-122778-04 date trust was created for the primary benefit of settlor’s daughter daughter the trustees of trust are trustees article one of trust provides in part that the trustees shall hold manage invest and reinvest the trust property shall collect the income therefrom and shall pay the net_income in convenient installments in such proportions and with such exclusions as the trustees shall deem advisable among the following class of persons daughter a child of settlor the spouse of said child the issue of said child the respective spouses of the issue of said child the brothers and sisters of said child their respective spouses their issue and the respective spouses of such issue or the trustees shall have the right to and are authorized to accumulate any or all of such net_income as they shall deem advisable and add the same to the principal of the trust property further in the event that any payment of income authorized to be made to any individual beneficiary shall be insufficient in the opinion of the trustees to defray the expenses of any illness accident or other emergency or to provide for the proper maintenance support and education of such beneficiary the trustees are authorized to use from time to time so much of the principal of the trust property as the trustees may deem advisable therefor article two of trust provides in part that this trust shall continue in effect unless sooner terminated as herinafter provided until twenty-one years after the death of the last to die of the four children of the settlor living at the date this agreement or until the earlier failure of all living takers in the class of persons above described in article one hereof the trustees however are authorized to terminate this trust in whole or in part before the time aforesaid whenever they deem it to be in the best interest of the beneficiaries of this trust or for any other reasons advisable to do so upon any termination of trust the trustees shall transfer deliver and pay over the then trust property to the said child of the settlor if such child is then living and if not to the then living issue of the said child per stirpes failing such then living issue the then trust property shall be divided equally among and added to the other three trusts of even date with this agreement established by the settlor for his other children and their families for which trusts there are takers then living and failing all such then living takers the then trust property shall be transferred delivered and paid over to such charitable_organization or organizations as the trustees shall select on date a date prior to date settlor executed a second irrevocable_trust agreement trust for the primary benefit of settlor’s daughter daughter the trustees of trust are trustees the terms of trust are virtually identical to the terms of trust trust and trust have identical dispositive provisions and identical beneficiaries the only significant variation between trust and trust is contained in the fiduciary powers plr-122778-04 provision of trust article nine specifically trust permits the trustees of trust to delegate to each other their rights power and duties thereunder any of the trustees shall have full power and authority to delegate from time to time to any one or more of the other trustees by an instrument in writing any or all of such trustee’s rights power and duties hereunder since the establishment of trust and trust the trusts have been separately administered under state law it is represented that this separate administration has proved to be costly and cumbersome resulting in frequent duplication in connection with investment oversight court filing_requirements annual accounting statements and tax reporting matters state statute provides that the court for cause shown may authorize the trustees propose to file a petition to state court to seek the court’s permission to combination of separate trusts with substantially_similar provisions upon such terms and conditions and with such notice as the court shall direct notwithstanding that the trusts may have been created by separate instruments and by different persons combine the assets of trust with trust and to seek state court authority to administer the combined assets under the provisions of trust the petition will further provide that the merger of trust and trust is contingent upon the issuance of a ruling by the internal_revenue_service that the merger will not result in a forfeiture of trust 2’s exempt status from gst tax trust and trust were irrevocable on date it is represented you have requested the following rulings the proposed merger of trust into trust with the combined corpus thereof that no actual or constructive additions have been made to trust and trust after that date being administered in accordance with trust will not give rise to a constructive_addition to trust nor otherwise cause trust to lose its grandfathered exempt status under gst tax provisions of sec_2601 to recognize gain_or_loss for purposes of sec_1001 and the basis of the assets of trust and trust as well as the holding_period of those assets will remain the same after the proposed merger issue sec_2601 imposes a tax on each generation-skipping_transfer gst which includes under sec_2611 a taxable_distribution a taxable_termination and a direct_skip the proposed merger of trust into trust will not cause either of trust sec_1 or plr-122778-04 under section a of the tax_reform_act_of_1986 act the gst tax is generally applicable to generation-skipping transfers made after date however under section b a of the 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 see sec_26_2601-1 regarding constructive additions 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 will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification 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 beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer a modification that is administrative in nature that only indirectly increases the amount transferred will not be considered to shift a beneficial_interest in the trust sec_26_2601-1 example 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 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 and trust were irrevocable on date it is represented that no additions actual or constructive were made to trust or trust after that date the merger of trust into trust is substantially_similar to the situation described in example of sec_26_2601-1 the merger of trust into trust will not result in a shift of any beneficial_interest in the trust assets to any plr-122778-04 beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the merger trust will terminate on the same date that trust was required to terminate thus the merger will not extend the time for vesting of any beneficial_interest in the surviving trust beyond the period provided for in trust and trust accordingly we conclude that based on the facts submitted and the sec_1001 provides that the gain from the sale_or_other_disposition of sec_61 provides that gross_income includes gains derived from dealings sec_1_1001-1 of the income_tax regulations provides as a general_rule representations made the proposed merger of trust into trust with the combined corpus thereof being administered in accordance with trust will not give rise to a constructive_addition to trust nor otherwise cause trust to lose its grandfathered exempt status under gst tax provisions of sec_2601 issue in property 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 sec_1001 provides that except as otherwise provided the entire amount of the gain_or_loss on the sale_or_exchange of property is recognized that except as otherwise provided in subtitle a the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially in either kind or in extent is treated as income or as loss sustained exchange gives up a property interest in return for a new or additional property interest such an exchange of property is a disposition under sec_1001 see sec_1_1001-1 property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests in order to extinguish their survivorship interests the properties exchanged are materially different 499_us_554 a material difference exists when the exchanged properties embody legal entitlements different in_kind or extent or if they confer different rights and powers id pincite an exchange of property results in the realization of gain under sec_1001 if for purposes of sec_1001 in an exchange of property each party to the revrul_56_437 1956_2_cb_507 holds that a partition of jointly owned trust and trust have substantially_similar provisions the trusts have based on the information submitted and the representations made in the ruling sec_1011 provides that the adjusted_basis for determining gain_or_loss from a plr-122778-04 identical dispositive provisions and identical beneficiaries the proposed merger of trust into trust will not result in any change in the beneficial interests of any beneficiary request the proposed merger of trust into trust will not result in a material difference in the beneficial interests of any beneficiary the beneficiaries will hold the same interests before and after the merger accordingly the proposed merger will not cause any of the trusts to recognize any gain_or_loss from the sale_or_other_disposition of property under sec_61 or sec_1001 sale_or_other_disposition of property whenever acquired is the basis as determined under sec_1012 or other applicable sections sec_1012 provides that the basis_of_property is the cost of the property except as otherwise provided in subchapter_o in the present case the basis of the assets in trust and trust are determined under sec_1012 and other sections in subchapter_o as the proposed merger of the two separate trusts will not constitute a sale_or_other_disposition of property for purposes of sec_1001 no gain_or_loss will be realized under sec_1_1001-1 accordingly the basis of the assets in the surviving trust after the proposed merger will remain the same as the basis of those assets in the current trusts before the merger held property however acquired there shall be included the period for which such property was held by any other person if under chapter of the code such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of such other person proposed merger will remain the same as the basis of those assets in the current trusts before the merger accordingly the holding periods of the assets in the surviving trust after the proposed merger will include the holding periods of the assets in the current trusts before the merger sec_1223 provides that in determining the period for which a taxpayer has as mentioned above the basis of the assets in the surviving trust after the except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent 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 plr-122778-04 material submitted in support of the request for rulings it is subject_to verification on examination 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 lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter ------------------------------------ cc ------------------------------------- ------------------------------------------------ ------------------------------------- cc


t c no united_states tax_court jimmy asiegbu prince petitioner v commissioner of internal revenue respondent docket no 13858-08l filed date to collect p’s and unpaid income_tax liabilities and additions to tax discharged in p’s bankruptcy filing r served a notice of jeopardy_levy on the los angeles county district attorney’s office with respect to funds that the los angeles police department had seized from p before the bankruptcy on suspicion of fraudulent credit card transactions held p cannot raise third-party claims in a lien or levy case held further jeopardy_levy is proper here where funds belong to p’s prebankruptcy estate and are subject_to a prebankruptcy lien filed by r jimmy asiegbu prince pro_se vivian bodey and debra bowe for respondent opinion wherry judge this matter is before the court on respondent’s motion for summary_judgment in a date notice_of_determination concerning collection action s under sec_6320 and or respondent determined that it was appropriate to collect petitioner’s unpaid income_tax liabilities and additions to tax unpaid tax_liabilities for and by serving a notice of jeopardy_levy petitioner on date timely petitioned the court to review that determination on date respondent filed a motion for summary_judgment petitioner filed a response to that motion and respondent filed a reply to petitioner’s response a hearing was held on the matter on date in los angeles california following the hearing petitioner filed a brief responding to the arguments respondent made in his reply and at the hearing as explained below the court will grant respondent’s motion for summary_judgment background respondent initially determined in a date notice_of_deficiency that petitioner had federal_income_tax deficiencies for and petitioner timely petitioned the court to redetermine respondent’s determinations on date while petitioner’s deficiency case at docket no was pending the los angeles police department lapd seized dollar_figure from petitioner on suspicion that he had engaged in fraudulent credit card transactions thereafter the court issued an opinion in favor of respondent and a date order and decision in which we decided that petitioner was liable for federal_income_tax deficiencies and additions to tax for and prince v commissioner tcmemo_2003_247 petitioner filed a notice of appeal but the appeal was dismissed on date respondent assessed the deficiencies and additions to tax as stated in the court’s date order and decision on date respondent filed a notice_of_federal_tax_lien with the los angeles county recorder for and subsequently on date petitioner filed a petition under chapter of the bankruptcy code with the u s bankruptcy court for the central district of california petitioner did not include the funds that had been seized by the lapd in the schedules of debtor’s assets filed with his bankruptcy petition although at least dollar_figure of such funds apparently remained in the possession of the lapd at that time 1petitioner listed a total of dollar_figure in assets including dollar_figure of cash on hand and dollar_figure in a checking account the remaining assets consisted of noncash personal_property petitioner’s schedules of creditors’ claims listed a total of dollar_figure in liabilities all of which were classified as unsecured included among them were petitioner’s unpaid federal tax_liabilities for the tax years and in an aggregate amount of dollar_figure the amount of the unpaid balance continued petitioner claimed all of the assets that he did include in the schedules of debtor’s assets as exempt from his bankruptcy_estate and the bankruptcy trustee did not object to the exemptions claimed the bankruptcy court treated petitioner’s bankruptcy petition as a no-asset case and discharged petitioner’s dischargeable debts on date in early date the los angeles inter-agency metropolitan crime task force informed respondent that the money seized from petitioner would soon be returned to him on date respondent served a notice of jeopardy_levy on the los angeles county district attorney’s office also on date respondent sent petitioner a notice of jeopardy_levy and right of appeal respondent’s revenue_officer farrell stevens spoke with petitioner about the jeopardy_levy on date and on date respondent received from petitioner a form request for a collection_due_process or equivalent_hearing on the form petitioner stated that he did not owe respondent the money that had been collected because the continued due shown on the date notice_of_federal_tax_lien this amount was categorized under unsecured priority claims--an apparent error since respondent’s federal_tax_lien should have accorded it secured party status the court requested the parties to notify the bankruptcy court about this case and of the omission from the debtor’s schedules of assets of the dollar_figure in funds seized by the los angeles police department underlying liability was incorrect his liabilities were discharged in bankruptcy and some of the levied funds did not belong to him after a face-to-face meeting and a telephone conference respondent’s appeals settlement officer adlai climan issued the aforementioned notice_of_determination sustaining the jeopardy_levy action an appeals case memorandum attached to the notice_of_determination indicated that petitioner was precluded from challenging the underlying liabilities for and because the court had decided those years the money seized by the lapd was pre- bankruptcy-petition property that was still subject_to lien and levy action even if petitioner was no longer personally liable after his debts were discharged in bankruptcy and there was no credible_evidence that petitioner did not own the levied money discussion a party moving for summary_judgment bears the burden of demonstrating that no genuine issue of material fact exists and that he or she is entitled to judgment as a matter of law rule 2while petitioner’s petition questioned the correctness of the underlying tax assessments his filed documents and oral argument addressed only the and assessments all of which resulted from the court’s opinion in prince v commissioner tcmemo_2003_247 petitioner did not raise any specific objection to the unpaid portion of the self-reported tax_liability in any event the total and unpaid balance due exceeds the amount of respondent’s jeopardy_levy b 98_tc_518 affd 17_f3d_965 7th cir facts are viewed in the light most favorable to the nonmoving party 85_tc_812 where a motion for summary_judgment has been properly made and supported by the moving party the nonmoving party may not rest upon mere allegations or denials contained in that party’s pleadings but must by affidavits or otherwise set forth specific facts showing that there is a genuine issue for trial rule d dahlstrom v commissioner supra pincite in his petition petitioner challenges the notice_of_determination on the following grounds the assessment was grossly wrong audit was done without supporting documents required audit documents were confiscated by los angeles police department at the time of the audit new audit is necessary to determine accurate assessment all the monies confiscated by irs do not belong to the petitioner irs drove petitioner to file bankruptcy assessed funds were discharged by sic via bankruptcy filing in the cdp hearing officer’s mind was biased from the set sic go biased mind as a result of detective maddox unproven falsified and fabricated reports that lead to the service of a search and seizure warrant 3unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended all rule references are to the tax_court rules_of_practice and procedure against my assets and the cdp officer made up his mind not to believe our testimony or accept the evidence provided from us in his objection to respondent’s motion for summary_judgment petitioner raises the same arguments raised in his petition and also argues that a jeopardy_levy was not appropriate under the circumstances that he was not timely informed of the jeopardy_levy and that the settlement officer’s bias led him to inappropriately foreclose consideration of collection alternatives he also raised these arguments at the date hearing and in his brief filed after the hearing if a taxpayer’s underlying liability is properly at issue the court reviews any determination regarding the underlying liability de novo 114_tc_604 we review any other administrative determination regarding the proposed collection action for abuse_of_discretion see 114_tc_176 a taxpayer’s underlying liability is properly at issue in a sec_6330 collection case if the taxpayer did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability sec_6330 although petitioner would like us to review the underlying liabilities for and those liabilities are not properly at issue because petitioner received a statutory_notice_of_deficiency for those years and actually disputed the liabilities before the court prince v commissioner tcmemo_2003_247 therefore we limit ourselves to reviewing respondent’s collection action for abuse_of_discretion we are not persuaded by petitioner’s argument that respondent’s jeopardy_levy was improper because the levied money did not all belong to him we have long held that the doctrine_of standing is inherently applicable to our proceedings 66_tc_367 under that doctrine ‘the plaintiff generally must assert his own legal rights and interests and cannot rest his claim to relief on the legal rights or interests of third parties ’ 454_us_464 quoting 422_us_490 petitioner does not have standing in this proceeding to seek the return of money or property that does not belong to him and he cannot rest his case on the rights of those 4petitioner has not disputed his self-reported underlying tax_liability with respect to see supra note 5this review extends to respondent’s interpretation and application of bankruptcy law see discussion infra to whom the money or property does belong even if those third parties purport to authorize petitioner to do so to the extent respondent incorrectly levied against third parties those third parties may have the right to bring a wrongful_levy action against the united_states under sec_7426 in a u s district_court within the specified limitations_period generally months from the date of the levy or agreement giving rise to such action see sec_6532 in his brief filed after the date hearing petitioner claims that he is the authorized representative to pursue such an action on behalf of at least two of these third parties in a lien or levy case as a court of limited jurisdiction we have no jurisdiction over petitioner’s claims asserted on behalf of third parties see eg ec term of years 6a taxpayer who ends up overpaying on an unpaid tax_liability because of a levy upon third-party funds in the taxpayer’s possession as for example a custodian or bailee of such funds may have standing to recover the funds to the extent of the overpayment in a refund action in the appropriate u s district_court see 429_fsupp_13 e d pa we note that petitioner cannot bring such an action here because petitioner’s unpaid tax_liabilities with respect to and resulted from the court’s opinion in prince v commissioner tcmemo_2003_247 that is res_judicata and the unpaid tax_liabilities exceed the amount of the levied funds see supra note 7such a course would also appear to be available to the trustee in petitioner’s bankruptcy case were he to conclude that petitioner’s omission from the debtor’s schedules of assets of the funds seized by the lapd warrants a reopening of the bankruptcy proceedings trust v united_states 550_us_429 where third party’s property is wrongfully levied upon to pay taxpayer’s unpaid tax_liability an action under sec_7426 in the appropriate u s district_court within the allowable limitations_period is the proper remedy see also 514_us_527 third party whose property was the subject of a wrongful lien and who was forced to pay tax under protest on behalf of taxpayer to remove such lien has standing to bring a refund action under u s c sec_1346 in the appropriate u s district_court we are similarly unpersuaded by petitioner’s argument that his bankruptcy discharge precluded respondent from collection action because respondent’s collection action is based in part upon respondent’s interpretation and application of bankruptcy law we review this interpretation and application_for errors if respondent’s determination was based on erroneous views of the bankruptcy law then we must find that there was an abuse_of_discretion 121_tc_111 unlike in swanson respondent has conceded that petitioner’s bankruptcy discharge relieved petitioner from personal liability for his unpaid tax_liabilities respondent argues however that a valid tax_lien survives bankruptcy and even though p etitioner is no longer personally liable for the tax_liabilities for tax years and the lien continues to attach to p etitioner’s pre-bankruptcy property this interpretation and application of bankruptcy law by respondent is consistent with our own prior holdings in 130_tc_222 we held that a discharge under u s c section relieves the debtor of personal or in personam liability such a discharge however does not protect the debtor’s assets if those assets were subject_to a federal_tax_lien that was properly filed pursuant to sec_6323 before the bankruptcy petition was filed see also 122_tc_287 federal tax_liens are not extinguished by personal discharge_in_bankruptcy remain in effect and attach to assets owned before the date of filing the bankruptcy petition the funds seized by the lapd were subject_to a federal_tax_lien that was properly filed before petitioner filed his bankruptcy petition and petitioner did not include these funds in the schedules of debtor’s assets attached to his bankruptcy petition accordingly petitioner’s discharge_in_bankruptcy did not protect the seized funds from respondent’s jeopardy_levy petitioner’s argument that settlement officer climan was biased is also unconvincing petitioner’s claim rests upon the mere allegations and he has not set forth specific facts showing that settlement officer climan was biased or how any bias on the part of the settlement officer would have affected the ultimate determination with respect to the jeopardy_levy see rule d we also find unpersuasive petitioner’s argument that the jeopardy_levy was not appropriate we note initially that petitioner did not raise this issue before the appeals_office and that we generally do not have authority to consider issues raised before the court for the first time in this lien or levy action see 129_tc_107 in any event even if petitioner had raised the issue before the appeals_office we would still be unpersuaded under sec_6331 a jeopardy_levy is appropriate when the secretary makes a finding that the collection of tax is in jeopardy sec_1_6851-1 income_tax regs provides that collection is in jeopardy when at least one of the following conditions exists the taxpayer is or appears to be designing quickly to depart from the united_states or to conceal himself or herself the taxpayer is or appears to be designing quickly to place his or her or its property beyond the reach of the government either by removing it from the united_states by concealing it by dissipating it or by transferring it to other persons or the taxpayer’s financial solvency is or appears to be imperiled on the basis of the record before us we do not find respondent’s determination that a jeopardy_levy was appropriate to be an abuse_of_discretion in particular we note that because of the bankruptcy court’s discharge of petitioner’s tax_liabilities respondent’s collection efforts can proceed only against petitioner’s pre- bankruptcy-estate assets that are subject_to a valid lien such as the levied funds if respondent is prevented from levying upon such funds and the funds are then dissipated respondent may be unable to collect all of the unpaid tax_liabilities finally we are unconvinced by petitioner’s argument that he did not receive timely notice of the jeopardy_levy we note again that because petitioner did not raise this issue before the appeals_office we may not consider it now see giamelli v commissioner supra pincite regardless petitioner’s argument is not convincing under sec_7429 the secretary ha sec_5 days from the date of the jeopardy_levy to give a taxpayer written notice of the information upon which he relied in determining that collection was in jeopardy respondent sent a notice of the jeopardy_levy and of petitioner’s right to administrative and judicial review of the levy on date the day respondent had served the jeopardy_levy petitioner had received this notice by date the day petitioner placed an unsolicited call and engaged in a telephone discussion with revenue_officer stevens regarding an administrative review of the jeopardy_levy petitioner subsequently took full advantage of such a review therefore even though there is no evidence to support petitioner’s claim of having failed to receive a timely sec_7429 notice of the jeopardy_levy we hold that any such error would have been harmless under these circumstances see golub v commissioner tcmemo_2008_122 respondent’s motion for summary_judgment has been properly made and is well supported and petitioner has not set forth specific facts showing that there exists any genuine issue as to any material fact summary_judgment is therefore appropriate see rule b sundstrand corp v commissioner t c pincite the court has considered all of petitioners’ contentions arguments requests and statements to the extent not discussed herein the court concludes that they are meritless moot or irrelevant to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp b05 - plr-105645-02 date date legend parent purchaser target seller date a date b date c date d date e date f company official tax professional dear this letter responds to a letter dated date submitted on behalf of purchaser and seller requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an election purchaser and seller are requesting an extension to file a sec_338 election under sec_338 and sec_338 of the internal_revenue_code and sec_1_338_h_10_-1 of the income_tax regulations with respect to purchaser’s acquisition of target stock sometimes hereinafter referred to as the election on date b all citations in this plr-105645-02 letter to regulations under sec_338 are to regulations in effect on date b additional information was received in letters dated date date and date the material information is summarized below on date b purchaser was the common parent of a consolidated_group purchaser was a publicly_held_corporation after date b purchaser became a wholly- owned subsidiary of parent the common parent of a consolidated_group through a transaction represented to qualify under sec_368 parent is a publicly traded company purchaser and parent are accrual_method taxpayers that use the calendar_year end target was an s_corporation within the meaning of sec_1361 seller an individual owned of target’s stock target is an accrual_method taxpayer that uses a calendar_year end on date a purchaser and seller entered into a stock purchase agreement for purchaser to acquire all of the target stock from seller the stock purchase agreement provided that purchaser and seller would make the election on date b purchaser acquired all of the target stock from seller in exchange for cash and stock of purchaser purchaser represented that seller received less than one percent of purchaser’s stock as consideration for the transaction it is represented that purchaser’s acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 purchaser and seller intended to file the election the election was due on date c 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_9100-1 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for parent’s purchaser’s target’s or seller’s taxable years in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed 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 sec_338 permits the purchasing and selling corporations to elect jointly to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation a sec_338 election may be made for target only if it is a member of a selling_consolidated_group a member of a selling affiliated_group filing separate returns or an s_corporation sec_1_338_h_10_-1 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 plr-105645-02 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 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_h_10_-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser and seller to file the election provided purchaser and seller show they 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 the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any year affected thereby is closed by the period of limitations on assessment under sec_6501 see sec_301 c ii sec_6501 generally provides that a tax must be assessed within three years from the date the return is filed whether or not such return was filed on or after the date prescribed the period of limitations on assessment under sec_6501 is not suspended by a request for relief under sec_301_9100-3 sec_301_9100-3 thus sec_301_9100-3 provides that for relief to be granted the irs may require the taxpayer to consent under sec_6501 to an extension of the period of limitations on assessment for the taxable_year in which the regulatory election should have been made and any taxable years that would have been affected by the election had it been timely made information affidavits and representations submitted by purchaser seller company official and tax professional explain the circumstances that resulted in the failure to timely file the 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 and that the purchaser reasonably relied on a qualified_tax professional who failed to make or advise purchaser to make the election see sec_301_9100-3 and v in this case the period of limitations on assessment under sec_6501 is near its expiration for the taxpayers’ taxable years for which the regulatory election should have been made to protect the interests of the government against prejudice by the expiration of the period of limitations on assessment under sec_6501 the taxpayers agreed to provide valid timely consents under sec_6501 to an extension of the period of limitations on assessment for the taxable_year in which the regulatory election should have been made the consents are to be made on form sec_872 and are to provide extensions for plr-105645-02 the seller until date d and for parent purchaser and target until date e the consents should be fully executed by all necessary parties including the appropriate division executive for the internal_revenue_service on or before the earlier of date f or the date form sec_8023 are filed based on the facts and information submitted including the representations made and provided that the conditions precedent in this letter including the full execution of valid form sec_872 referred to above are satisfied we conclude that purchaser and seller have shown they acted reasonably and in good_faith granting relief will not prejudice the interests of the government and the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for purchaser and seller 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 purchaser and seller must file the election on form_8023 executed on or after the date on this letter in accordance with sec_1_338_h_10_-1 and the instructions to the form a copy of this letter together with copies of all the timely executed consents must be attached to the election form within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction as a sec_338 transaction for the taxable_year in which the transaction was consummated and for any other affected_taxable_year a copy of this letter including a copy of the timely executed consents and a copy of form_8023 must be attached to the returns the above extension of time is conditioned on the receipt of the valid sec_6501 consents to the extension of the period of limitations on assessment under sec_6501 referred to above and the taxpayers' parent’s consolidated group’s purchaser's consolidated group’s target’s and seller’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 made 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 no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower see sec_301_9100-3 plr-105645-02 we express no opinion as to whether the acquisition sale of the target stock qualifies as a qualified_stock_purchase under sec_338 whether the acquisition sale of target stock qualifies for sec_338 treatment or any other tax consequences arising from the election further 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 purchaser must provide seller with a copy of this letter 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 a copy of this letter is being sent to your authorized representatives sincerely ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


internal_revenue_service number release date index number ------------------------------ ----------------------------- ------------ ------------------------- 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 plr-123158-14 date december legend -------------------- ----------------------------------------------------------------------- testator trust ----------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- ------------------------------------------------------------------------ corporate trustee a ----------------------------------------------------------- corporate trustee b ----------------------------- corporate trustee c ------------------------------------------- corporate trustee d ---------------------- child a ---------------------- child b --------------------------------- child c ------------------------------------------------------------------------ grandchild c -------------------------- grandchild a-1 --------------------- grandchild a-2 ----------------------- individual trust a ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------------------- trust b ------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- --------------------------------------------------- plr-123158-14 -------------------------------------------------------- ------------------------------------------------------------------------ share ------------------------------------------------------------------------------------ share --------------------------------------------------------------------------------------------------- date date date year year year year state court state act --------------------------------------------------- --------------------------------------------------------------------------------------------------------------- cite cite cite cite ------------------ ------------------- ------------------ ------ ------ ------ ------ -------- -------------------------------------------------------- ------------------------------------------------------------------- ---------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------- ------------------------------------------------------------------------ dear ---------------- this responds to your authorized representatives’ letter dated date and subsequent correspondence requesting rulings concerning the income gift estate and generation-skipping gst tax consequences of a settlement agreement facts testator died testate on date prior to date a resident of state he was survived by two children child a and child b a third child child c predeceased testator child c was survived by her child grandchild c testator’s last will and testament will established a_trust trust for the benefit of his lineal_descendants article first paragraph a of trust provides that the trustees are to pay the net_income quarterly in equal shares to child a child b and grandchild c if any of them is not living on an income payment_date the trustees are to pay over his or her share of the income by right of representation to his or her issue then living article first paragraph b provides that trust is to end upon the death of the survivor of child a child b and grandchild c at which time the trustees are to distribute the trust principal by right of representation to testator’s then living issue article second provides in relevant part that corporate trustee a child a child b and grandchild c are to be the trustees plr-123158-14 child a died in year survived by two children grandchild a-1 and grandchild a-2 child b is living grandchild c is living_trust will terminate when the survivor of child b and grandchild c has died corporate trustee a and its successor_corporation served as a co-trustee until year at present one-third of the trust income is paid to grandchild a-1 and grandchild a-2 as successors to child a’s income_interest another third of the income is paid to child b the last third of the income is paid to grandchild c the current presumptive remainder beneficiaries are i grandchild a-1 and grandchild a-2 ii child b’s three children and iii grandchild c’s four children the trust assets consist primarily of investment_assets it is represented that no actual or constructive additions have been made to trust since its inception in year child b and grandchild c as co-trustees petitioned the court to appoint an institutional co-trustee to restore the trustee structure as originally constituted under the will by court order of date corporate trustee b was appointed co-trustee of trust corporate trustee b was subsequently acquired by corporate trustee c accordingly the current co-trustees are child b and grandchild c and corporate trustee c following the year court proceedings the trustees modified the written investment policy of trust to invest and manage the trust assets in accordance with the state act under the modification in part an independent fiduciary as a trustee may equitably adjust between principal and income by allocating an amount of income to principal or an amount of principal to income to the extent the independent fiduciary considers appropriate if the terms of the trust describe the amount that may or must be distributed to a beneficiary by referring to the trust’s income in deciding whether and to what extent to exercise this power the independent fiduciary is to consider certain factors such as the assets held in the trust the extent to which they consist of financial_assets interests in closely held enterprises tangible and intangible personal_property or real_property the extent to which an asset is used by a beneficiary and whether an asset was purchased by the trustee or received from the settlor pursuant to the modification corporate trustee c exercised its authority to equitably adjust trust receipts between income and principal thereafter child b expressed concern and objected to corporate trustee c’s actions in exercising its adjustment powers the disagreements over these actions have resulted in a rift in the family and a desire by some family members to have different trustees and separate trusts for some of the beneficiaries in year child b filed a petition with the court to divide trust and administer the divided trusts as separate trusts child b’s stated reasons for the division were that it would facilitate investment management and administrative decisions regarding the plr-123158-14 share for child b and his family that would be consistent with their investment philosophy child b’s petition was met with opposition from the other beneficiaries and corporate trustee c they were concerned that among other things the division of trust violated the testamentary intent of testator and violated a material purpose of trust they were also concerned that the division of trust into new smaller trusts would result in the loss of economic efficiencies enjoyed by the existing trust child b’s petition was answered by the other beneficiaries who raised a counterclaim they requested that the court construe the words by right of representation in the context of testator’s will they asserted that construction of the term could affect future distributions from trust whether or not trust was divided that is depending on the order of deaths and whether or not there were future births in the family there were three possible constructions that could produce substantially different distributions of income and principal of trust see cite cite and cite see also cite after an adversarial process before the court and extensive settlement negotiations the trustees and beneficiaries of trust agreed to a settlement settlement agreement under which trust will terminate and its assets will be divided into two trusts trust a and trust b_trust a equal in value to one-third of the value of trust will be held as a separate trust for child b and his descendants trust b equal in value to two-thirds of the value of trust will be held as a separate trust for grandchild c and her descendants and child a’s descendants to the extent it is administratively feasible the division of assets will be pro_rata in addition the parties agreed that the term by right of representation will be construed to require a per stirpes distribution of trust assets among the descendants of testator with the first division to be made at the child level ie at the level of child a child b and child c even if that generation has no living descendants on date the court issued an order approving and adopting the terms of the settlement agreement the order provides in part that beginning on the date of division and continuing until termination trust a and trust b i shall be treated as completely separate and distinct trusts for all purposes and ii shall be governed by the existing provisions of trust except to the extent modified by certain provisions as described below trust a child b will receive the trust a income quarterly for his life after child b’s death his children will receive the income in equal shares if any child should die that child’s children will receive the child’s share of the income in equal shares if child b and all of his issue die before the termination of trust a the assets of trust a will be added to trust b on the death of the survivor of child b and grandchild c trust a will terminate plr-123158-14 and the trust a assets will be distributed to the then-living descendants of child b by right of representation child b and his three children will be the individual co-trustees of trust a corporate trustee d will be appointed as a co-trustee by a document signed prior to the effective date of the trust division and effective upon the creation of trust a a corporate trustee will remain in service until trust a terminates the corporate trustee will have all the powers under state law to exercise the trustee’s powers to adjust between income and principal pursuant to the provisions of the state act trust b grandchild a-1 grandchild a-2 grandchild c and individual will be the co-trustees of trust b corporate trustee c will serve as the corporate trustee trust b will consist of two shares share and share the income of share will be distributed quarterly to grandchild c the income of share will be distributed quarterly in equal shares to grandchild a-1 and grandchild a-2 if any of those persons should die during the term of the trust his or her income share will be paid to his or her descendants by right of representation on the death of the survivor of child b and grandchild c trust b will terminate share will be distributed to the then-living descendants of grandchild c by right of representation and share will be distributed to the then-living descendants of child a by right of representation you have asked for the following rulings the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause a distribution from or the termination of any interest in trust trust a or trust b to be subject_to the generation-skipping_transfer_tax the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause any person to make a gift to any beneficiary of trust trust a or trust b the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause the assets held in trust trust a or trust b to be included in the gross_estate of a beneficiary who dies prior to the termination of such trust following the termination of trust and the resulting division of trust pursuant to the settlement agreement trust a and trust b will be treated as separate trusts plr-123158-14 the terms of the settlement agreement including the trust division and the construction of the phrase by right of representation will not cause any party to the settlement agreement to realize income from the sale_or_exchange of any trust assets or interests law and analysis ruling sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip under of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers 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 a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after 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 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 generation-skipping_transfer_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 court-approved settlement of a bona_fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to the provisions of chapter if the settlement is the product of arm’s length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties’ assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes sec_26_2601-1 provides that a judicial construction of a governing instrument to resolve an ambiguity in the terms of the instrument or to correct a scrivener’s error will not cause an exempt trust to be subject_to the provisions of chapter if the plr-123158-14 judicial action involves a bona_fide issue and the construction is consistent with applicable state law that would be applied by the highest court of the state sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law 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 sec_26_2601-1 example describes 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 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 example concludes that 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 this case trust was irrevocable on date it is represented that there have been no actual or constructive additions to the trust after date the settlement agreement and court order resolve bona_fide issues ie the construction of the words by right of representation as intended by testator and the administration of trust under the state act the settlement agreement is the product of arm's length negotiations and is within the range of reasonable outcomes under trust and state law finally the settlement agreement and court order construing the term plr-123158-14 by right of representation and dividing trust will not shift a beneficial_interest in trust to a lower generation beneficiary and will not extend the time for vesting of any beneficial_interest in trust accordingly based on the facts submitted and representations made we conclude that the terms of the settlement agreement including the trust division and construction of the phrase by right of representation will not cause distributions from or the termination of any interest in trust trust a or trust b to be subject_to the gst tax imposed by sec_2601 ruling sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 will apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax whether an agreement settling a dispute is effective for gift_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of each party’s claim if it is determined that each party has a valid claim the service must determine that the settlement reflects the result that would apply under state law if there is a difference it is necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated as discussed above the issues resolved by the settlement agreement and court order concerning the construction of trust and its administration are bona_fide issues based upon valid enforceable claims by the interested parties the settlement agreement resolves conflicts concerning distributions of income and principal and is reflective of the rights of the parties under applicable state law that would be applied by the highest court of state accordingly based on the facts submitted and representations made we conclude that the terms of the settlement agreement will not cause any person to make a gift to any beneficiary of trust trust a or trust b ruling plr-123158-14 sec_2001 provides that a tax is imposed 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 shall include the value of all property to the extent of the interest therein of the decedent at the time of his death 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 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 after date 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 but in the case of a transfer made before date only if such reversionary_interest arose by the express terms of the instrument of transfer and the value of such reversionary_interest immediately before the death of the decedent exceeds five percent of the value of such property sec_2038 provides that the value of the decedent’s 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 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 three-year period 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 his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 to plr-123158-14 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 however a power to consume invade or appropriate property for the benefit of the decedent that 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 in this case no person made a transfer to trust other than testator at his death on date the income and terminating distributions from the divided trusts will follow the same pattern as they would have had trust not been divided the income beneficiaries will be entitled to distributions quarterly and the remaindermen will be entitled to receive the trust property only upon surviving termination of the respective trust the terms of the settlement agreement do not cause any transfers or create any general powers of appointment that would cause any of the trust property to be included in the estate of a beneficiary under sec_2036 sec_2038 or sec_2041 consequently the terms of the settlement agreement will not cause any beneficiary of trust trust a or trust b who dies prior to the termination of such trust to include trust assets in his or her taxable_estate other than i trust assets that have been distributed to him or her prior to death or ii such quarterly distributions of income that were past due and not paid in accordance with the trust terms during a beneficiary’s life and to which he or she has a legally enforceable claim at death 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 taxpayers represent that in this case trust a and trust b will have different beneficiaries the taxpayers also represent that no actual or constructive additions have been made to trust since its inception prior to date based on the facts submitted and the representations made we conclude that as long as trust a and trust b are separately managed and administered they will be treated as separate trusts for federal tax purposes ruling plr-123158-14 sec_61 and provides that gross_income includes gains derived from dealings in property and income from an interest in a_trust 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 for determining loss over the amount_realized under sec_1001 the amount_realized from the sale_or_other_disposition of property is 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 of the code the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property must be recognized sec_1_1001-1 of the income_tax regulations 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 a partition of jointly owned property is not a sale_or_other_disposition of property if the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result thereof thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 conversion of a joint_tenancy in stock to a tenancy_in_common in order to eliminate the survivorship feature and the partition of a joint_tenancy in stock are not sales or exchanges similarly divisions of trusts are also not sales or exchanges of trust interests if each asset is divided pro_rata among the new trusts see revrul_69_486 1969_2_cb_159 pro_rata distribution of trust assets not a sale_or_exchange here the division of trust into trust a and trust b will not result in any shift in beneficial_interest in the assets of trust accordingly the division of trust as described will not result in the realization of gain_or_loss under sec_61 and sec_1001 in addition the agreement regarding construction of the term by right of representation will not result in the realization of gain_or_loss under sec_61 and sec_1001 except as expressly provided herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code these rulings are 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 your authorized representatives plr-123158-14 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosure copy of letter for sec_6110 purposes


office_of_chief_counsel department of the treasury internal_revenue_service washington d c date ------------------- number release date conex-105447-16 uil the honorable bill nelson united_states senator east robinson street suite orlando fl attention dear senator nelson i am responding to your inquiry dated date on behalf of your constituent -- ------------------------- corrections who was disabled in the line of duty he has been receiving service- connected disability payments since the year he retired the florida department of management services told him that his service-connected disability payments would be tax-free for the duration of the payments but he recently received a letter stating that his payments will be taxable starting at age he wrote that his disability retirement payments should remain nontaxable and asked why the status of his payments has changed generally an employee can exclude payments for on-the-job injuries or illness from his or her gross_income as workers’ compensation under sec_104 of the internal_revenue_code the exclusion of payments does not apply however to a retirement pension or annuity determined by an employee’s age length of service or prior contributions even if an occupational injury or sickness caused the employee to retire it is possible that is receiving his service-connected disability benefits pursuant to a florida statute that requires the payments to be converted to regular retirement at a specified age any benefits he receives after reaching that age would not qualify for exclusion_from_gross_income if his benefits are then determined with is a former employee of the florida department of ---------------- ---------------- conex-105447-16 reference to years_of_service age or prior contributions these long-standing principles are not related to any recent change in federal_law or irs position i hope this information is helpful if you need additional information please contact me or ----------------------- -------------------- of my staff at sincerely christine e ellison chief health and welfare branch_tax exempt and government entities