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 ----------------------- telephone number --------------------- refer reply to cc psi b04 plr-137300-10 date date legend donor donor trust date date date date date date date child a child b child c a dear ----------------- ----------------------- -------------------------- -------------------------------------------- ---------------------- ----------------------- ---------------- ---------------------- ------------------------- ------------------------- ------------------------- ---------------------- ------------------- ------------------------ -------------------------- this letter responds to the submission dated date and subsequent correspondence requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to elect out of the generation-skipping_transfer gst tax exemption automatic allocation rules donor and donor are spouses on date prior to date donor and donor created trust an irrevocable_trust under article first of trust until both donor and donor have died one-third of the trust property is to be held for child a another third is to be held for child b and the last third is to be held for child c each child’s share has substantially identical terms income is to be paid to the child in annual or more frequent installments on the first anniversary of the death of the survivor of donor and donor one-fourth of a child’s share will be paid to that child on the third anniversary of the death of the survivor of donor and donor one-third of a child’s share will be paid to that child on the fifth anniversary of the death of the survivor of plr-137300-10 donor and donor one-half of a child’s share will be paid to that child on the seventh anniversary of the death of the survivor of donor and donor the remaining balance of a child’s share is to be paid to that child if a child dies before his share is fully paid to him and a sibling of the child is living the net_income of the child’s share is to be paid to the child’s children portions of the principal are to be paid to the grandchild upon the grandchild’s attaining certain ages if a child dies before his share is fully paid to him and no sibling of the child is living the child’s share is to be paid to the child’s living descendants in equal shares under article sixteenth of trust with respect to any inter_vivos transfer made by donor sec_1 and during any calendar_year each of the persons living on the date such transfer is made who is a person i to whom income of the trust may be currently distributed or ii who is a presumptive taker of the next succeeding income_interest or the remainder_interest is authorized no later than thirty days after the giving of notice to withdraw certain amounts trust was drafted by a who did not inform donor sec_1 and of the application of the deemed_allocation rules of sec_2632 to transfers made after date donor and donor made transfers to trust on date date date date date and date all after date on the gift_tax returns filed for the transfers donor and donor treated the gifts as made one-half by each under sec_2513 recently donor and donor learned that under the deemed_allocation rules of sec_2632 gst_exemption was allocated to their transfers to trust after date and that to avoid the allocation of gst_exemption to a gst_trust a taxpayer must affirmatively elect out donor and donor now seek a ruling granting an extension of time to elect out of the automatic allocation rules with respect to the date through date transfers to trust sec_2601 imposes a tax on every generation-skipping_transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 defines the applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is the excess if any of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the under sec_2513 if both spouses have signified their consent a gift made by one spouse to any person other than his spouse shall be considered as made one-half by him and one-half by his spouse plr-137300-10 numerator of which is the amount of the gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip sec_2631 as effective in the year at issue provided that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that if any individual makes an indirect_skip during such individual's lifetime any unused portion of such individual's gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred sec_2632 provides that the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by chapter made to a gst_trust as defined in sec_2632 under sec_2632 and ii an individual may elect to have the automatic allocation rule in sec_2632 not apply to an indirect_skip or to any or all transfers made by such individual to a particular trust sec_2632 provides that an election under sec_2632 may be made on a timely filed gift_tax_return for the calendar_year for which the election is to become effective sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in relevant part that to elect out the transferor must attach a statement election out statement to a form_709 filed within the time period provided in sec_26 b iii c whether or not any transfer was made in the calendar_year for which the form_709 was filed and whether or not a form_709 otherwise would be required to be filed for that year the election out statement must identify the trust except for an election out under sec_26_2632-1 and specifically must provide that the transferor is electing out of the automatic allocation of gst_exemption with respect to the described transfer or transfers further unless the election out is made for all transfers made to the trust in the current_year the current-year transfers to which the election out is to apply must be specifically described or otherwise identified in the election out statement sec_26_2632-1 provides in relevant part that to elect out the form_709 with the attached election out statement must be filed on or before the due_date for timely filing within the meaning of sec_26_2632-1 of the form_709 for the calendar_year in which the first transfer to be covered by the election out was made plr-137300-10 sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under sec_2642 the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute sec_2652 provides in relevant part that if under sec_2513 one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the spouse of such individual such gift shall be so treated for gst tax purposes notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_transfer_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides an automatic_extension of time for making certain elections sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-3 provides in part that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-137300-10 sec_301_9100-3 provides in part except as provided in sec_301 b i through iii that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly donor and donor are granted an extension of time of days from the date of this letter to make an election under sec_2632 that the automatic allocation rules do not apply to the transfers to trust after date the election out will be effective as of the dates the respective returns were filed the elections should be made on form sec_709 and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to each form_709 two copies are enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes


internal_revenue_service number release date index number --------------------------------------------- -------------------------------------------------------- --------------------- -------------------------- - department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 - plr-147922-04 date date ------- ------------------- -------------------------------------- -------------------------------------------------------- -------------------------------------------------------------------------- x -------------------------------------------- lp -------------------------------------------- trust state year dear ---------------- correspondence submitted on behalf of x and lp by their authorized representative requesting rulings regarding the classification of trust as a partnership under sec_301_7701-3 of the procedure and administration regulations the information submitted states that lp is a state limited_partnership x is a corporation formed under the laws of state lp is engaged in business as a venture capital fund x the sole general_partner of lp manages the business and affairs of lp x’s shareholders are the limited partners of lp x owns a interest in lp due to recent changes in the industry in year the board_of directors of x determined that it was in the best interests of x and lp to dissolve and wind down their affairs since that time lp has not made any investments in new portfolio companies however lp continues to make investments in existing portfolio companies used to pay its remaining known debts and other obligations lp will transfer its portfolio company investments and a portion of its cash to trust for the benefit of lp’s as part of the wind-down of lp and x a portion of the cash held by lp will be this is in reply to a letter dated date and subsequent following the transfer of lp’s assets to trust x will liquidate and distribute its trust will be managed by a trustee for the benefit of x’s shareholders and lp’s plr-147922-04 partners and x the securities held by lp and the cash held by lp to pay for follow-on investments on-going costs and contingencies will be contributed to trust the beneficial interests in trust and the balance of the cash if any will be distributed to the partners of lp in the same proportions as their interests in lp remaining assets including its beneficial interests in trust to x’s shareholders therefore x’s shareholders will become beneficiaries of trust limited partners trust will engage a limited_liability_company controlled by certain of the current officers of x to act as the advisor to trust the advisor will monitor trust’s investments in portfolio companies including reviewing reports and attending meetings of the shareholders and boards of directors of such companies make recommendations to the trustee concerning additional investments by trust in portfolio companies and the disposition by trust of portfolio company investments review and comment on all accounting and tax_return information concerning trust and provide other advice to trust upon the request of the trustee the beneficiaries of trust will appoint three persons to serve as beneficiary representatives trust provides that the trust shall terminate at the earlier of a the distribution of all of the assets of the trust to the beneficiaries or b seven years from the date of the inception of the trust however the beneficiaries of trust may terminate trust at any time additional investments in the debt or equity securities issued by existing portfolio companies trust provides that an existing portfolio company is a corporation partnership or limited_liability_company in which trust holds securities sec_301_7701-4 provides that certain organizations which are commonly known as liquidating trusts are trusts for purposes of the internal_revenue_code an organization will be considered a liquidating_trust if it is organized for the primary purpose of liquidating and distributing the assets transferred to it and if its activities are all reasonably necessary to and consistent with the accomplishment of that purpose a liquidating_trust is treated as a_trust for purposes of the code because it is formed with the objective of liquidating particular assets and not as an organization having as its purpose the carrying on of a profit-making business which normally would be conducted through business organizations classified as corporations or partnerships however if the liquidation is unreasonably prolonged or if the liquidating purpose becomes so obscured by business activities that the declared purpose of liquidation can be said to be lost or abandoned the status of the organization will no longer be that of a liquidating_trust trust provides that to the extent that trust has available cash trust may make sec_301_7701-4 addresses business trusts and provides that there are plr-147922-04 sec_301_7701-4 provides that in general the term trust as used in the internal_revenue_code refers to an arrangement created either by will or by an inter_vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts generally speaking an arrangement will be treated as a_trust under the internal_revenue_code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit other arrangements which are known as trusts because the legal_title to property is conveyed to trustees for the benefit of beneficiaries but which are not classified as trusts for purposes of the internal_revenue_code because they are not simply arrangements to protect and conserve the property for the beneficiaries these trusts which are often known as business or commercial trusts generally are created by the beneficiaries simply as a device to carry on a profit-making business which normally would have been carried on through business organizations that are classified as corporations or partnerships under the internal_revenue_code however the fact that the corpus of the trust is not supplied by the beneficiaries is not sufficient reason in itself for classifying the arrangement as an ordinary_trust rather than as an association or partnership the fact that any organization is technically cast in the trust form by conveying title to property to trustees for the benefit of persons designated as beneficiaries will not change the real character of the organization if the organization is more properly classified as a business_entity under sec_301_7701-2 federal tax purposes including an entity with a single owner that may be disregarded as an entity separate from its owner under sec_301_7701-3 that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code a business_entity with two or more members is classified for federal tax purposes as either a corporation or a partnership sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner b unless the entity elects otherwise a domestic eligible_entity is a partnership if it has two or more members sec_301_7701-2 provides that a business_entity is any entity recognized for sec_301_7701-3 provides that except as provided in sec_301 sec_706 provides that except in the case of a termination of a sec_704 provides that a partner’s distributive_share of income gain loss sec_708 provides that a partnership is considered to be continuing if it is not plr-147922-04 sec_704 provides that a partner’s distributive_share of income gain loss deduction or credit shall except as otherwise provided in subchapter_k be determined by the partnership_agreement deduction or credit or item thereof shall be determined in accordance with the partner’s interest in the partnership determined by taking into account all facts and circumstances if the partnership_agreement does not provide as to the partner’s distributive_share of income gain loss deduction or credit or item thereof or the allocation to a partner under the agreement of income gain loss deduction or credit or item thereof does not have substantial economic_effect terminated a partnership is terminated if no part of any business financial operation or venture of the partnership continues to be carried on by any of its partners in a partnership or within a 12-month_period there is sale_or_exchange of percent or more of the total interest in partnership capital and profits partnership and except as provided in sec_706 the taxable_year of a partnership does not close as the result of the death of a partner the entry of a new partner the liquidation_of_a_partner’s_interest in the partnership or the sale_or_exchange of a partner’s interest in the partnership sec_706 provides that the taxable_year of a partnership closes with respect to a partner who sells or exchanges the partner’s entire_interest in a partnership sec_706 provides that the taxable_year of a partnership closes with respect to a partner whose interest is liquidated except that the taxable_year of a partnership with respect to a partner who dies does not close prior to the end of the partnership’s taxable_year partnership’s liabilities is considered to be a contribution of money by the partner to the partnership sec_752 provides that any decrease in a partner’s share of partnership’s liabilities is considered to be a distribution of money by the partnership to the partner liabilities conclude that trust is a business_trust as described in sec_301_7701-4 and not a_trust under sec_301_7701-4 we further conclude that trust will be classified for federal_income_tax purposes as a partnership under sec_301_7701-3 therefore the beneficiaries of trust are the partners for federal tax purposes and any income gains sec_752 provides that any increase in a partner’s share of the sec_1_752-1 provides rules for determining a partner’s share of partnership based on the information submitted and the representations made we plr-147922-04 losses deductions and credits realized by trust will be allocated among the beneficiaries for federal tax purposes in the manner required by sec_704 because the business of lp will continue and because there is no sale_or_exchange of percent or more of the total interest in partnership capital and profits there will be no termination of lp as a partnership under sec_708 additionally under these specific facts the taxable_year of lp does not close and trust does not need to obtain a new taxpayer_identification_number further if there is no change in the partners’ shares of liabilities under sec_1_752-1 there will be no change to the adjusted_basis of any partner’s interest in lp or trust and the partners will each have an adjusted_basis with respect to each partner’s beneficial_interest in trust equal to the adjusted_basis of each partner’s respective partnership_interest in lp however if there is a change in the partners’ shares of liabilities and such change causes a deemed contribution of money under sec_752 then the adjusted_basis of that partner’s interest will be increased by the amount of such deemed contribution if the change in the partners’ shares of liabilities causes a deemed_distribution of money under sec_752 then the basis of that partner’s interest will be reduced but not below zero by the amount of such deemed_distribution and gain will be recognized by that partner to the extent the deemed_distribution exceeds the adjusted_basis of that partner’s interest in the partnership concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the code provides that it may not be used or cited as precedent is being sent to x and lp’s authorized representative in accordance with a power_of_attorney on file with this office a copy of this letter this ruling is directed only to the taxpayer requesting it sec_6110 of except as expressly provided herein no opinion is expressed or implied sincerely j thomas hines chief branch office of associate chief_counsel passthroughs special industries enclosures


id office uilc cca_2010020216223826 -------------- number release date from ---------------------------- sent tuesday february pm to ---------------- cc ------------------------------------------------------------------------------ subject re penalties attachments cca wl gcm wl irs nsar wl -------------------------------------------------------------------------------------------------------------------- ------------------------------------------ under h if the year in which the nol arose is still open for assessment ------ -- then the year to which the nol is carried back is also open for purposes of assessing a deficiency attributable to the carryback the limitation under h is that the deficiency must relate to the loss carryback and the statute is not extended for items not so related sec_6501 is broader under k the period of assessment under sec_6501 is still open to recover deficiencies attributable to the carryback and the assessment_period is till open to recover a deficiency that is unrelated to the carryback by seeking a refund under the taxpayer opens the door for the irs to recover a deficiency that is unrelated to the carryback the amount the irs can recover under k is limited to the amount of the refund less amounts assessed under h deficiencies attributable to the nol_carryback see sec_301_6501_m_-1 please note that k was originally designated as sec_6501 and was redesignated in i found an old gcm that looked at the issue of interest and a cursory reference to penalties and whether it was included in the word amount that may be assessed the conclusion in that document was that interest was outside of the tax that could be assessed and was not so limited by the language in m thus it would appear that interest and penalties can be assessed within the limitations_period but the amount is not restricted by the refund amount claimed attached please find some resources that may be helpful thanks ------------


internal_revenue_service number release date index number ---------------------------- ------------- -------------------------- --------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------------------- telephone number --------------------- refer reply to cc psi b02 plr-149213-10 date date legend x ---------------------------------------- ------------------------ state -------- d1 ---------------------- dear ------------ this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on d1 it was intended that x elect to be an s_corporation effective d1 however a form_2553 election by a small_business_corporation was not timely filed for x accordingly x requests a ruling that it will be treated as an s_corporation effective d1 sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the plr-149213-10 corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective d1 within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning d1 a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely melissa c liquerman chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number -------------------------- --------------------------- ------------------------------ department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number -------------------- refer reply to cc fip b02 plr-146736-08 date legend taxpayer -------------------------------------------------------------------- -------------------------- employer -------------------------------------------------------------------- ---------------------------------------------------- company a state year year year year ----------------------------- ---------- ------- ------- ------- ------- dear ------------------- this is in reply to a letter dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations for taxpayer to file a written representation under sec_1_7872-15 of the income_tax regulations if this written representation under sec_1_7872-15 is considered timely filed and the other requirements under sec_1_7872-15 are plr-146736-08 satisfied then an otherwise noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under sec_1_7872-15 facts employer is a state non-profit corporation established in year employer is a tax-exempt_organization under sec_501 of the internal_revenue_code_of_1986 as amended code in year employer met with a consulting team from company a to consult on matters relating to the retention and recognition of key employer employees the consulting team recommended and implemented employer’s split-dollar_life_insurance plan sdp company a intended for the sdp to be subject_to the regulations under sec_1_7872-15 the split-dollar regulations and designed the plan to utilize nonrecourse premium loans to the employee participants secured_by the policy the loans the loans were to each have a stated_interest rate equal to the applicable_federal_rate afr so as not to be below-market split-dollar loans under the split-dollar regulations in year taxpayer entered into a split-dollar_life_insurance arrangement the arrangement with employer as a participant in the sdp at the time taxpayer entered into the arrangement taxpayer had no prior experience with or knowledge of split- dollar life_insurance arrangements or sdps taxpayer was the borrower on the loan and the employer lent money to taxpayer to pay the premiums on the policy at the time the arrangement was entered into calculations prepared by company a projected that the proceeds of the insurance_policy securing the loan were expected to be sufficient to pay all interest and principal due on the loan company a was instrumental in implementing the sdp and the loans under the plan company a was responsible for drafting the documents advising taxpayer regarding the set-up of the arrangement and directing taxpayer regarding the many documents that required taxpayer’s signature taxpayer represents however that company a did not advise taxpayer regarding the resulting tax consequences if the payments on the loan were treated as contingent payments under the split-dollar regulations after the sdp was implemented employer contracted with company a to serve as the sdp’s third party administrator tpa as tpa company a was responsible for administering the sdp and providing employer and taxpayer with ongoing guidance related to the sdp taxpayer represents that because taxpayer lacked knowledge and experience with split-dollar_life_insurance arrangements taxpayer relied on company a’s information representations and conclusions regarding the arrangement plr-146736-08 taxpayer further represents that company a was aware of taxpayer’s reliance on its expertise regarding the arrangement prior to filing taxpayer’s year tax_return the return corresponding to the taxable_year in which employer made the first split-dollar loan to taxpayer under the arrangement taxpayer was not advised by company a that unless the parties to the arrangement filed a written representation pursuant to sec_1_7872-15 and ii of the regulations payments on the loan would be treated as contingent payments for purposes of the split-dollar regulations unbeknownst to taxpayer company a also failed to advise employer that employer and taxpayer were both required to file a written representation so that the loan payments would not be treated as contingent payments under sec_1_7872-15 since year taxpayer has filed tax returns as if the election had been made and the written representation had been filed pursuant to sec_1_7872-15 and ii in year employer informed taxpayer that employer’s new tpa discovered that a written representation should have been filed with both employer’s and taxpayer’s tax returns for the taxable_year in which the first loan was made employer further informed taxpayer that at the time the written representation was required to be filed employer was unaware of the requirement because prior tpas had failed to advise them to make such a filing employer explained the necessity of filing a written representation to ensure that payments on the loan were not treated as contingent payments and asked taxpayer to file an extension of time for filing the written representation as employer had done for itself taxpayer makes the following representations the granting of relief under sec_301_9100-3 would not result in taxpayer having a lower tax_liability in the aggregate for all years to which the election applies than taxpayer would have had if the election had been timely made taking into account the time_value_of_money taxpayer did not knowingly choose not to file the election taxpayer did not use hindsight in requesting relief finally taxpayer represents that it is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 in support of this requested ruling taxpayer has submitted the affidavits of taxpayer employer’s controller employer’s vice president of human resources and the owner of employer’s current tpa regarding the events that led to taxpayer’s failure to make the regulatory election pursuant to sec_1_7872-15 and ii law and analysis sec_1_7872-15 of the regulations provides that except as provided in sec_1_7872-15 if a payment on a split-dollar loan is nonrecourse to the borrower the payment is a contingent payment for purposes of sec_1_7872-15 sec_1_7872-15 provides that an otherwise noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under plr-146736-08 sec_1_7872-15 if the parties to the split-dollar_life_insurance arrangement represent in writing that a reasonable person would expect that all payments under the loan will be made sec_1_7872-15 describes the time and manner requirements for providing the written representation required by sec_1_7872-15 sec_1 d ii provides in part that the written representation be signed by both the borrower and lender not later than the last day including extensions for filing the federal_income_tax return of the borrower or lender whichever is earlier for the taxable_year in which the lender makes the first split-dollar loan under the split-dollar_life_insurance arrangement sec_301_9100-1 defines election to include an application_for relief in respect of tax a request to adopt change or retain an accounting_method or accounting_period the term does not include an application_for an extension of time for filing a return under sec_6081 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulation or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 sets forth parameters for determining whether under particular facts and circumstances the commissioner will grant an extension of time for regulatory elections that do not meet the requirements for an automatic_extension under sec_301_9100-2 sec_301_9100-3 provides that when a taxpayer does not meet the requirements for an automatic_extension under sec_301_9100-2 the taxpayer must provide evidence satisfactorily establishing that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the government sec_301_9100-3 provides that subject_to sec_301_9100-3 a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer satisfies at least one of the following five criteria i the request for relief was made before the service discovered the failure to make the regulatory election ii the failure to make the election was due to intervening events beyond the taxpayer’s control iii after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied on the written advice of the service or v the taxpayer reasonably relied upon a qualified_tax professional including a tax professional employed by the taxpayer and that tax professional failed to make or failed to advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer has not reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the plr-146736-08 professional was either i not competent to render advice on the regulatory election or ii not aware of all relevant facts sec_301_9100-3 provides that a taxpayer will not be deemed to have acted reasonably and in good_faith if taxpayer does one of the following i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and the subsequent tax consequences but chose not to make the election or iii uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and taxpayer’s representations we conclude that taxpayer has satisfied the requirements for granting a reasonable extension of time to file the written representation as required under sec_1 d i and ii taxpayer is therefore granted a period of time not to exceed days from the date of this letter to prepare and have both parties sign the written representation provided that the written representation is timely signed by both parties as required by this letter and filed with the taxpayer’s tax_return for year the written representation will be deemed effective for all years in which the arrangement has been in effect in accordance with sec_1_7872-15 a copy of the written representation should be attached to taxpayer’s tax_return for any subsequent taxable_year in which employer makes a split-dollar loan to taxpayer to which the representation applies except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code this ruling is limited to the timeliness of the filing requirement of the written representation under sec_1_7872-15 and ii no opinion is expressed with regard to whether taxpayer satisfied the other requirements under sec_1_7872-15 and ii the loan treatment requirements under sec_1_7872-15 or whether payments under the loan are otherwise noncontingent payments for purposes of sec_1_7872-15 no opinion is expressed with regard to whether the tax_liability of taxpayer is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office plr-146736-08 determines that such tax_liability is lower that office will determine the federal_income_tax effect this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely david b silber david b silber chief branch office of associate chief_counsel financial institutions and products


internal_revenue_service department of the treasury index number washington dc person to contact refer reply to cc intl br 2-plr-120664-98 date taxpayer x corporation y corporation z corporation w this is in reply to your letter of date on behalf of taxpayer you have requested rulings on the application of the reduction in basis rules of sec_1291 and sec_1246 of the internal_revenue_code to stock in a passive_foreign_investment_company pfic for which the taxpayer has made elections under sec_1291 and sec_1295 facts taxpayer a u s citizen currently owns percent of x corporation which in turn owns percent of the stock of y corporation x corporation was created for the sole purpose of holding the stock of y corporation in addition taxpayer currently owns percent of the stock of z corporation the remaining percent is owned by taxpayer's late husband's estate throughout taxpayer's late husband's life the only activities of y corporation and z corporation were purchasing holding and renewing bank term deposits and certificates of deposit purchasing holding and selling or redeeming stocks or bonds plr-120664-98 and holding gold coins and silver bars for safekeeping since its creation x corporation has been a holding_company whose only asset has been the stock of y corporation y corporation and z corporation have been pfics as defined in sec_1297 since the pfic rules became effective on date x corporation has been a pfic since its creation in n addition ali three corporations have always been and continue to be controlled_foreign_corporations cfcs as defined in sec_957 taxpayer elected under sec_1295 to treat her stock in y corporation and z corporation effective beginning date and in x corporation effective beginning on date as stock in a qualified_electing_fund qef in addition taxpayer elected under sec_1291 to treat as a deemed_dividend received on date her pro_rata share of the post-1986_earnings_and_profits of y corporation and z corporation accumulated during her holding_period when those corporations were pfics taxpayer made the same sec_1291 election with respect to x corporation effective on date taxpayer represents that she will not revoke the qef elections with respect to x corporation y corporation or z corporation during her lifetime rulings requested taxpayer requests a ruling that the reduction in basis rule_of sec_1294 will not preclude a step-up_in_basis at taxpayer's death with respect to stock in x corporation or z corporation taxpayer also requests a ruling that the reduction in basis rule_of sec_1246 will not preclude a step-up_in_basis with respect to stock in x corporation or z corporation because none of the three corporations was a foreign_investment_company fic as defined in sec_1246 law sec_1296 provides that a foreign_corporation is a pfic if percent or more of the gross_income of the corporation for the taxable_year is passive_income or the average percentage of assets by value held by such corporation during the taxable_year which produce passive_income or which are held for the production of passive_income is at least percent under sec_1291 u s persons who are direct and indirect shareholders of pfics are subject_to a special tax and interest charge for certain distributions made by the pfic and upon disposition of their pfic stock plr-120664-98 if the shareholder elects to treat the pfic as a qef under sec_1295 the shareholder will be subject_to the current inclusion rules of sec_4293 under that section the shareholder annually includes in gross_income its pro_rata share of the ordinary_earnings and net_capital_gain of the qef whether or not distributed does not elect to treat the pfic as a qef then the pfic is a nonqualified_fund with regard to the shareholder and is subject_to the special tax and interest charge provisions of sec_1291 if a shareholder sec_1291 will not apply to certain distributions and dispositions of pfic stock if a shareholder makes a qef election for the first year in its holding_period that the corporation qualifies as a pfic sec_1291 however if the shareholder makes the qef election after the first year in its holding_period that the corporation qualifies as a pfic then the pfic remains a nonqualified_fund as well as a qef with regard to the shareholder therefore both sec_1291 and sec_1293 apply to the shareholder's pfic stock a shareholder may purge its pfic stock of its taint as a nonqualified_fund by making an election under sec_1291 under sec_1291 the shareholder elects to treat the stock as sold on the first day of the taxpayer's taxable_year to which the sec_1295 qef election applies the shareholder must make the election in the first taxable_year to which the qef election applies sec_1291 taxes the gain recognized on the deemed sale as an excess_distribution however the shareholder of a pfic that is also a cfc may purge its stock of the nonqualified_fund taint by making the deemed_dividend election under sec_1291 b the code treats the electing shareholder as receiving a dividend in the amount of the shareholder's pro_rata share of the post earnings_and_profits of the cfc accumulated during the shareholder's holding_period when the corporation was a nonqualified_fund sec_1291 taxes the deemed_dividend as an excess_distribution received on the first day of the shareholder's taxable_year to which the qef election applies sec_1281 treats the holding_period of a shareholder electing under either sec_1291 or sec_1291 as beginning on the first day of the taxable_year for which the shareholder made the qef election consequently the election purges from the shareholder's holding_period all years to which the qef election did not apply thereafter the pfic will be treated as a qef and not as a nonqualified_fund with regard to the shareholder and the shareholder will be subject_to taxation only under sec_1293 sec_1291 generally incorporates the foreign_investment_company rules of sec_1246 d e and f under sec_1246 the basis of stock of a fic as plr-120664-98 determined under sec_1014 acquired_by_bequest_devise_or_inheritance or by the decedent's_estate from a decedent dying after date is reduced but not below the adjusted_basis of such stock in the hands of the decedent immediately before the decedent's death by the amount of the decedent's ratable share of the earnings_and_profits of such company accumulated after date sec_1291 modifies the reduction to basis rule in sec_1246 providing that the reduction is the excess of the basis determined under sec_1014 over the adjusted_basis of the stock immediately before the decedent's death in effect sec_1291 denies to stock in a pfic acquired by a beneficiary a step-up_in_basis which would otherwise be permitted under sec_1014 itis not clear from the statute whether taxpayer will be subject_to sec_1291 after taxpayer makes the qef and deemed_dividend elections however legislative material prepared at the time of enactment of the tax_reform_act_of_1986 pub_l_no stat indicates that congress intended sec_1291 to apply only to shareholders of nonqualified funds according to the general explanation of the tax_reform_act_of_1986 prepared by the staff of the joint_committee on taxation t he act generally incorporates the anti-avoidance rules in present and prior_law sec_1246 relating to foreign investment companies and applies these rules to u s persons who hold stock in nonqualified funds among other things these rules deny a basis step-up for pfic stock acquired from a decedent other than from a foreign decedent 100th cong ist sess pincite because taxpayer has made the elections under sec_1295 and sec_1291 taxpayer will not be treated as a shareholder of a nonqualified_fund accordingly sec_1291 will not apply to taxpayer's x corporation and z corporation stock in the taxable_year for which taxpayer made the indicated elections and it will not apply in subsequent taxable years provided taxpayer's sec_1295 election is not terminated invalidated or revoked congress added sec_1297 to the code as part of the taxpayer_relief_act_of_1997 pub_l_no stat sec_1297 provides that for purposes of the pfic provisions a corporation will not be treated as a pfic with respect to a shareholder during the qualified_portion of the shareholders holding_period with respect to stock in such corporation sec_1297 defines the qualified_portion of the shareholder's holding_period as the portion of the shareholder's holding_period which is after date and during which the shareholder is a united_states_shareholder as defined in sec_951 of the corporation and the corporation is a cfc the effect of these provisions is to generally eliminate the overlap between subpart_f and the pfic provisions by treating a pfic that is also a cfc as not a pfic ‘he f plr-120664-98 with respect to certain percent shareholders no provision of subpart_f denies a step-up_in_basis at a shareholder's death taxpayer has represented that she is and will continue to be a united_states_shareholder with respect to both x corporation and z corporation and that both corporations will continue to be cfc's until taxpayer's death therefore pursuant to sec_1297 neither x corporation nor z corporation will be treated as pfics with respect to taxpayer at her death and consequently sec_1294 will not apply under sec_1_1295-1t c ii although neither x corporation nor z corporation will be treated as qefs for any of their taxable years that they are not pfics under sec_1296 and are-not treated as pfics under sec_1297 cessation of either corporations’ status as a-pfic will not terminate a sec_1295 election section dollar_figure of revproc_98_1 1998_1_irb_23 provides that the national_office ordinarily will not issue letter rulings in certain areas because of the factual nature of the problem involved or because of other reasons revproc_98_3 1998_1_irb_100 provides a list of these areas this list is not all-inclusive because the service may decline to issue a letter_ruling when appropriate in the interest of sound tax_administration or on other grounds whenever warranted by the facts or circumstances of a particular case sec_4 of revproc_98_3 states that the service will not ordinarily issue letter rulings in any matter in which the determination requested is primarily one of fact you asked us to rule on whether sec_1246 will preclude a step up in basis with respect to the stock in x corporation and z corporation that ruling_request requires a determination of whether the companies’ were engaged primarily in the business of investing reinvesting or trading in securities for u s income_tax purposes and thus whether the companies are fics as defined in sec_1246 because the question of whether investment activities constitute a business for u s income_tax purposes is a question of fact the service is unable to issue the requested ruling u based solely on the information and representations submitted taxpayer will not be treated as a shareholder of a nonqualified_fund therefore sec_1291 will not apply to taxpayer's x corporation or z corporation stock no opinion is expressed concerning whether x corporation y corporation or z corporation are fics under sec_1246 because this is a factual determination no opinion was requested and none is expressed concerning corp x's qualification as a pfic under sec_1296 in any year no opinion was requested and none is expressed concerning whether x corporation y corporation or z corporation are foreign personal finally no opinion is expressed about the holding_companies fphcs under sec_551 plr-120664-98 tax treatment of the transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above ruling a copy of this letter must be attached to any income_tax return to which it is relevant this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer 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 ep bal senior technical reviewer international


internal_revenue_service national_office technical_advice_memorandum date third party communication none date of communication not applicable tam-137469-05 number release date index uil no case-mis no -------------------- ------------------------ taxpayer's name taxpayer's address taxpayer's identification no year s involved date of conference ------------------------------------------------------ --------------------------------------------- -------------------------- ----------------------------- ---------------- ---------------------------- ------------------------- ------------------------------------------------------ legend issuer state city bonds ------------------------------------------------------------------------------------------------------------ taxable bonds -------------- -------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------- refunding bonds ----------------------------------------------------------------------------------------- ----------- ------------------- date tam-137469-05 date date date x ----------------------- ----------------------- ---------------------- -------------- issues a whether the refunding bonds meet the introductory language of sec_1313 whether unspent proceeds of the bonds are excess_proceeds subject_to the special_allocation rule in sec_1_148-4t e of the temporary income_tax regulations whether unspent proceeds of the bonds are transferred proceeds within the meaning of sec_1_148-8t d and 148-4t e i of the temporary income_tax regulations whether the refunding bonds meet the transition rule_of sec_1313 of the tax_reform_act_of_1986 p l 100_stat_2085 the tra in particular facilities as that term is used in sec_1313 bonds and the average reasonably expected economic life of the financed property under sec_1313 when it used weighted averages in making those computations and sec_1313 the issuer erred by failing to take into account anticipated mortgage prepayments and losses c whether the issuer erred in computing the average maturity of the refunding b whether property financed with the proceeds of the refunding bonds are d whether in determining the economic life of the mortgages under conclusions the unspent proceeds of the bonds are not excess_proceeds within the meaning of sec_1_148-4t e iv of the temporary income_tax regulations the unspent proceeds of the bonds became transferred proceeds of the refunding bonds under sec_1_148-4t e i of the temporary income_tax regulations when proceeds of the refunding bonds redeemed the bonds tam-137469-05 3a the refunding bonds meet the introductory language of sec_1313 of the tra to the extent that the proceeds of those bonds were used to refund the bonds 3b the property financed with the sale proceeds of the refunding bonds are facilities within the meaning of sec_1313 of the tra 3c the issuer did not err in computing the average maturity on the refunding bonds and the average reasonably expected economic life of the financed property when it used a weighted average in making those computations 3d because we conclude that the property financed with the proceeds are the residences and not the mortgages we do not address whether the economic life of the mortgages was properly computed when the issuer failed to take into account expected prepayments and losses on those mortgages facts the refunding bonds three bond issues are relevant to this case the bonds the taxable bonds and the bonds were issued on date to purchase from lending institutions mortgage loans made to persons of low and moderate income for residential housing facilities located within the city the mortgages because date is before date the bonds are subject_to the internal_revenue_code of the code in addition while the bonds were issued after date the effective date of the mortgage_subsidy_bond tax act the msbta 1980_2_cb_509 the bonds met the transition_rules of a and d of the msbta and thus are subject_to sec_103 and not sec_103a of the code there is no dispute that interest on the bonds was excludable from gross_income under sec_103 of the code the taxable bonds were issued after date on date the taxable bonds were payable from the mortgages after the final payment of the bonds issuer represents that the taxable bonds could have been issued as tax-exempt_bonds under the code or the internal_revenue_code_of_1986 the 1986_code issuer further represents that the taxable bonds could have been advance refunded under the 1986_code with tax-exempt_bonds the refunding bonds were issued on date a date that is after date on the issue_date of the refunding bonds the amount of those bonds did not exceed the outstanding amount of the bonds sale proceeds of the refunding bonds were invested at a yield that was less than the yield on the refunding bonds until those proceeds were used to refund the bonds which occurred within days after issuance of the refunding bonds used to pay interest on the refunding bonds and used to create a reserve fund for the refunding bonds the final maturity_date of the tam-137469-05 refunding bonds is date which is more than years from the date_of_issue of the bonds issuer asserts that the weighted_average_maturity of the refunding bonds is less than of the weighted average reasonably expected economic life of the mortgages issuer determined the economic life of the mortgages without taking into account expected prepayments and losses on the mortgages we have not been provided with information on the average reasonably expected economic life of the residences financed with the mortgages when the bonds were redeemed with proceeds of the refunding bonds there were unspent proceeds of the bonds of approximately x issuer invested most of the unspent proceeds in united_states treasury obligations that were deposited to an escrow fund to be used to redeem the taxable bonds at their earliest redemption date a date that was more than days after the date_of_issue of the refunding bonds the remaining unspent proceeds were invested by the city on behalf of the issuer with other investments held by the city issuer represents that the invested proceeds were used in a manner that could have been financed with tax-exempt_bonds under either the or 1986_code since the refunding unspent proceeds of the bonds have been invested at a yield that does not exceed the yield on the refunding bonds sec_103 provides that except as provided in subsection b gross_income law and analysis are the unspent proceeds of the bonds excess_proceeds does not include interest on any state_or_local_bond sec_103 provides an exception for any arbitrage_bond within the meaning of sec_148 sec_148 defines the term arbitrage_bond to include any bond issued as part of an issue any portion of the proceeds of which are reasonably expected to be used directly or indirectly to acquire higher_yielding_investments or to replace funds which were used directly or indirectly to acquire higher_yielding_investments the current regulations under sec_148 generally apply to bonds sold after date a date that is after date in certain cases however an issuer may apply the current regulations to certain issues outstanding on date issuer has not applied those regulations instead it has applied the temporary income_tax regulations issued under sec_148 t d 1989_1_cb_25 the temporary regulations of relevance to this issue is sec_1_148-4t of the temporary regulations which provides allocation and accounting rules including a special rule for refunding bonds under which certain mandatory allocations are required for excess_proceeds unless otherwise stated all references to code sections are to the 1986_code tam-137469-05 sec_1_148-4t e i of the temporary regulations provides that excess_proceeds of a refunded issue shall be allocated to investments the receipts from which are to be used to discharge the principal or interest on or the retirement price of bonds that are part of the refunded issue excess_proceeds of a refunded issue shall be allocated to these investments in such manner as to ensure that the expenditure of such funds and proceeds does not occur later than the expenditure of any sale proceeds of the refunding_issue that are allocated to such investments sec_1_148-4t e ii the agent questions whether this special_allocation rule applies to the unspent proceeds of the bonds sec_1_148-4t e iv of the temporary regulations provides that the term excess_proceeds means with respect to a refunded issue amounts that at the time of issuance of the refunding_issue are proceeds of the refunded issue if -- a the amounts are allocated to investments described in sec_1_148-4t e i and are described in paragraph e iii c or e iii d of the section or b the amounts were to be used to pay interest on the refunded portion of the refunded issue that accrues within the period of time described in sec_1 b and are described in paragraph sec_1_148-4t e iii c while the relationship between the definition of excess_proceeds and the special_allocation rule is not clear in the regulations we determine that there first must be proceeds of the refunded bonds used in a manner described in sec_1_148-4t e iv before the special_allocation rule in sec_1_148-4t e can apply to those proceeds here the unspent proceeds of the bonds do not meet the definition of excess_proceeds because those proceeds were not used to pay interest on the bonds or invested in investments the receipts from which were to be used to discharge principal or interest on or the retirement price of bonds that are part of the refunded issue thus the special_allocation rule_of sec_1_148-4t e i of the temporary regulations does not apply to the unspent proceeds did the unspent proceeds of the bonds become transferred proceeds of the refunding bonds sec_1_148-8t d of the temporary regulations provides that the term transferred proceeds means with respect to a refunding_issue proceeds that have ceased to be proceeds of a refunded issue and are transferred proceeds of the refunding_issue by reason of sec_1_148-4t e including amounts actually or constructively received from investing such proceeds sec_1_148-4t e i of the temporary regulations states that at the close of business on the date that any amount of the proceeds of a refunding_issue are used to discharge the principal or interest on or the retirement price of any bond that is part of refunded issue the same amount of the proceeds of the refunded issue shall tam-137469-05 cease to be treated as proceeds of the refunded issue and shall be treated as transferred proceeds of the refunding_issue proceeds of the refunding bonds were used to redeem the bonds at that time unspent proceeds of the bonds became transferred proceeds of the refunding bonds under sec_1_148-4t e of the temporary regulations we note however that the facts state the transferred proceeds were invested at a yield that was less than the yield on the refunding bonds sec_1313 of the tra sec_1301 of the tra reorganized and modified sec_103 and sec_103a of the code the modifications included the addition of sec_143 which sets forth rules for residential mortgage bonds the agent questions whether sec_143 applies to the refunding bonds generally the changes made by the tra apply to bonds issued after date sec_1311 tra however the tra included transition_rules of relevance here is sec_1313 which contains transition_rules for current refundings in particular sec_1313 provides that except as provided in sec_1313 the amendments made by sec_1301 shall not apply to any bond the proceeds of which are used exclusively to currently refund a qualified_bond if a the amount of the refunding_bond does not exceed the outstanding amount of the refunded bond and b i the average maturity of the issue of which the refunding_bond is a part does not exceed percent of the average reasonably expected economic life of the facilities being financed with the net_proceeds of such issue determined under sec_147 of the 1986_code the transition rule or ii the refunding_bond has a maturity_date not later than the date which is years after the date on which the qualified_bond was issued the year transition rule in the case of a qualified_bond which was when issued a qualified_mortgage_bond or a qualified_veterans’_mortgage_bond subparagraph b i shall not apply and subparagraph b ii shall be applied by substituting years for years the year transition rule sec_1313 provides in part that the term qualified_bond means any bond other than a refunding_bond issued before date qualified_mortgage bonds are certain bonds described in sec_103a of the code tam-137469-05 the refunding bonds were issued after the effective date of the 1986_code and are subject_to that code unless sec_1313 applies to the refunding bonds the refunding bonds do not meet the year transition rule in addition the year transition rule does not apply to the refunding bonds because the bonds are not qualified_mortgage bonds under sec_103a of the code thus the refunding bonds must meet the transition rule for sec_143 not to apply in questioning whether the refunding bonds meet the requirements of sec_1313 and the transition rule the request for technical_advice asks whether the refunding bonds meet the introductory language of sec_1313 whether property financed with the proceeds of the refunding bonds are facilities as that term is used in sec_1313 whether the issuer erred in computing the average maturity of the refunding bonds and the average reasonably expected economic life of the financed property under sec_1313 when it used weighted averages in making those computations and whether in determining the economic life of the mortgages under sec_1313 the issuer erred by failing to take into account anticipated mortgage prepayments and losses a whether the refunding bonds meet the introductory language of sec_1313 sec_1313 provides that proceeds of the refunding_bond must have been used exclusively to currently refund a qualified_bond the bonds were issued before date and thus met the definition of a qualified_bond the sale proceeds of the refunding bonds were used to currently refund the bonds and to pay interest on the refunding bonds and create a reserve fund for the refunding bonds as discussed above however at the time of the refunding unspent proceeds of the bonds transferred to the refunding bonds these proceeds were not used for costs associated with refunding of qualified bonds instead some of those proceeds were used to advance refund the taxable bonds that were issued after date and some were invested the receipts from which funded new money costs section moreover the term proceeds has not been consistently defined for example for arbitrage purposes proceeds generally includes transferred proceeds see eg sec_1_148-1 of the current regulations and sec_1_148-8t d of the while there is a transition rule in the tra for advance refunding bonds that rule is limited to advance refundings of bonds other than industrial_development_bonds issued before date this rule does not apply to any bond of the refunding bonds see sec_1313 of the tra the term proceeds is not defined in sec_1313 or in the applicable definition sec_1313 states that sec_1301 does not apply to any bond the proceeds of tam-137469-05 temporary regulations for the private business tests proceeds does not include transferred proceeds sec_1_141-1 thus it is not clear whether the term proceeds in sec_1313 includes transferred proceeds however even if proceeds includes transferred proceeds sec_1313 could still apply to part of the refunding bonds which are used exclusively to currently refund a qualified_bond we contrast this language with the language in sec_1313 which considers the issue of which the refunding_bond is a part in the first case the statute considers the use of proceeds of a particular bond in an issue in the second the statute considers the entire issue thus we conclude that a refunding_bond may be transitioned under sec_1313 even if all of the proceeds of the issue are not used exclusively to refund a qualified_bond this leaves the question of which law applies to the portion of the refunding_issue that was not used to refund a qualified_bond we do not need to address this question unless you determine the issuer‘s representation that the transferred proceeds were used in a manner that complies with either the or code is incorrect issuer argues that the transitional treatment for current refundings provided in sec_1313 of the tra is actually unnecessary for the refunding bonds as the bonds were not subject_to sec_103a of the code as support for its conclusion issuer points to the fact that the bonds met the transition_rules of a and d of the msbta and thus were subject_to sec_103 of the code and the conference_report for the tra which states like the house bill the conference agreement reorganizes and amends the present-law rules governing tax-exemption for interest on obligations issued by or on behalf of qualified governmental units as part of this reorganization the present-law rules contained in code sec_103 and sec_103a are divided by topic into code sections sec_103 and the conferees intend that to the extent not amended all principles of present law continue to apply under the reorganized provisions footnote to the above statement provides as under present law interest on certain bonds authorized under non-code provisions of law is tax-exempt under code sec_103 if the authorizing legislation was enacted before date and the bonds comply with all appropriate code requirements h_r conf_rep no 99th cong 2d sess date at ii-686 we disagree with the issuer’s reasoning while the facts indicate that the bonds were transitioned under the msbta the legislative_history cited by issuer does not support issuer’s conclusion because the transition_rules of msbta do not authorize bonds they merely inform which law applies to bonds in considering whether the proceeds of the refunding bonds acquired facilities tam-137469-05 b whether property financed with the proceeds of the refunding bonds are facilities as that term is used in sec_1313 within the meaning of the transition rule we consider whether the property financed with the net_proceeds of the refunding_issue are the mortgages or the residences that are acquired with the mortgages and whether such property ie the mortgages or residences whichever is appropriate are facilities 1986_code sec_147 provides that the transition rule requires the test to be determined under sec_147 of the except as provided in subsection h a private_activity_bond shall not be a qualified_bond if it is issued as part of an issue and-- a the average maturity of the bonds issued as part of such issue exceeds b percent of the average reasonably expected economic life of the facilities being financed with the net_proceeds of the issue sec_147 provides that for purposes of sec_147 a the average maturity of any issue shall be determined by taking into account the respective issue prices of the bonds issued as part of such issue and b the average reasonably expected economic life of the facilities being financed with any issue shall be determined by taking into account the respective cost of such facilities applying sec_147 in this case is not straightforward because under sec_147 sec_147 provides in part that subsection b of sec_147 shall not apply to any qualified_mortgage_bond qualified_veterans’_mortgage_bond or qualified_student_loan_bond paragraph b does not apply to qualified_mortgage bonds thus the provision does not contemplate computing economic life when bonds finance mortgages similar to those at issue in this case however paragraph b applies in analogous situations such as when an issuer uses the proceeds to finance a loan to a conduit borrower to determine whether paragraph b is satisfied in those cases the asset that is financed is not the loan to the conduit borrower but the property that the loan finances applying that analysis to the instant case leads us to conclude that the financed property is the residences financed with the mortgages and not the mortgages while proceeds of the refunding bonds were used to pay principal and interest on the bonds the test makes sense only if we consider what the bonds financed we further conclude that the residences are facilities for the transition finally we address whether the average reasonably expected economic life of tam-137469-05 rule facility is not defined in sec_1313 or the legislative_history to the tra the legislative_history to the tra can be read however to support a liberal reading of the term that would include any property financed with the net_proceeds the conference_report states that the average maturity of the refunding_issue does not exceed percent of the reasonably expected economic life of the property identified as being financed with the refunded bonds h_r conf_rep no at ii-695 emphasis added because we conclude that the financed facilities are the residences we do not address whether the economic life of the mortgages was properly computed when the issuer did not take into account expected prepayments and losses c whether the issuer erred in computing the average maturity of the refunding bonds and the average reasonably expected economic life of the facilities under sec_1313 when it used weighted averages in making those computation sec_4 the financed facilities and the average maturity of the refunding bonds is be computed using a weighted average for the transition rule again we look to sec_147 there are no regulations or other published guidance on what is meant be average maturity and average reasonably expected economic life however sec_147 states that the average maturity of an issue shall be determined by taking into account the respective issue prices of the bonds issued as part of such issue and the average reasonably expected economic life of the financed facilities shall be determined by taking into account the respective cost of such facilities this provision implies that the averages under sec_147 are weighted averages moreover the legislative_history of sec_147 indicates that it is reasonable to conclude that both the average maturity on the bonds and the average reasonably expected economic life of financed facilities is determined using a weighted average the 1986_code was not changed from that same test in prior_law except to expand the types of bonds to which sec_147 applies h_r conf_rep no at ii-730 prior_law continues to apply except to the extent modified by the tra the economic test under prior_law was found in sec_103 of the code which was added by the tax equity and fiscal responsibility act of the act sec_219 1982_2_cb_462 the conference_report for the act in describing that section provides that t he conference agreement provides a rule that limits the average length of the maturity of all industrial_development_bonds idbs under the rule the while the question was asked in the context of the mortgages it is likely that the same question will arise when the reasonably expected economic life of the residences financed by the mortgages is considered the legislative_history to sec_147 indicates that the economic life test in sec_147 of tam-137469-05 weighted_average_maturity of all obligations of an issue cannot exceed the weighted average estimated economic life of the assets financed with the proceeds of the issue by more than percent h_r conf_rep 97th cong 2d sess pincite emphasis added we conclude that the issuer was correct in computing the weighted_average_maturity of the refunding bonds and in determining the weighted_average_maturity of the facilities caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


t c summary opinion united_states tax_court eric s knoedler petitioner v commissioner of internal revenue respondent docket no 27181-09s filed date eric s knoedler pro_se thomas d yang for respondent laro judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case 1subsequent section references are to the applicable versions of the internal_revenue_code and rule references are to the tax_court rules_of_practice and procedure this case is before the court for decision without trial see rule petitioner petitioned the court to redetermine respondent’s determination of a dollar_figure deficiency in his federal_income_tax we decide whether petitioner may deduct as alimony dollar_figure he paid pursuant to his divorce from his former wife we hold that petitioner may not deduct any of that amount background all facts were stipulated or contained in the exhibits submitted with the parties’ stipulation of facts those stipulated facts and exhibits are incorporated by this reference and are so found petitioner resided in illinois when the petition was filed petitioner married mary vogt-knoedler ms vogt-knoedler in and they had two children j k born in and s k born in collectively children in ms vogt-knoedler commenced a divorce action in the court of common pleas of monroe county pennsylvania state court petitioner and ms vogt- knoedler entered into a postnuptial agreement agreement on date the agreement provided husband’s support of family husband agrees that wife is the primary custodian for the children prior to the graduation of s k from high school husband shall provide funds in the amount of dollar_figure per month for wife’s use for her care of the children and her own personal expenses should wife either remarry or cohabitate with someone of the opposite sex for more than one month then wife agrees to deposit ½ of the monthly dollar_figure family support payment into a separate bank account in trust for the children’s college education following s k ’s graduation the support amount shall be adjusted to dollar_figure per month per child in college further husband shall only be responsible for years of college education per child this obligation will terminate upon either child’s decision to withdraw from one full year of college ie withdrawal from two concurrent semesters of college survival of this agreement the parties agree that this agreement shall be incorporated into any divorce decree subsequently entered by any court of competent jurisdiction pursuant to any divorce proceedings that have been instituted by the parties the state court upon entry of judgment for divorce shall retain the right to enforce the provisions and terms of this agreement this agreement however is not modifiable by the state court it being the interest of the parties hereto that this agreement shall not merge into such a subsequent decree of divorce but shall survive the entry of any such decree and be forever binding and conclusive on the parties the state court finalized the divorce by decree on date on date petitioner moved the state court to allocate the dollar_figure per month paid for family support as spousal support and or child_support in granting petitioner’s motion the state court opined that although the agreement specifies the amount of family support it is not clear what portion of the support was intended as spousal support and what portion is child_support what is clear from the agreement is that if the wife remarries or cohabitates for longer than one month with someone of the opposite sex half of the family support payment is to be deposited into a separate bank account in trust for the children’s college education this seems to indicate that half of the family support is actually spousal support we find that in view of the surrounding circumstances and purpose of the contract the allocation of the amount of dollar_figure as spousal support is warranted this court has not changed altered or modified the terms of the agreement as husband will continue to pay support in the amount of dollar_figure per month as family support however the court will designate or apportion the amount to designate dollar_figure per month as spousal support until such time as wife remarries or cohabitates with a member of the opposite sex for longer than one month s k graduated from high school in and was enrolled at a college in j k was not enrolled at a college in in petitioner paid dollar_figure to ms vogt-knoedler and deducted that amount as alimony paid on his federal_income_tax return ms vogt-knoedler did not report that amount as gross_income in on date respondent issued to petitioner a notice_of_deficiency which disallowed the claimed alimony deduction in full and petitioner petitioned the court to redetermine respondent’s determination discussion we must determine whether petitioner may deduct as alimony any of the dollar_figure which he paid to ms vogt-knoedler in 2petitioner conceded in a posttrial memorandum which the court allowed petitioner to file in lieu of a legal brief that he may not deduct as alimony dollar_figure of the dollar_figure paid to his former wife in see rule a respondent argues that those payments are nondeductible child_support petitioner argues that half of those payments are deductible as alimony we agree with respondent a taxpayer may generally deduct payments to a former spouse where those payments are alimony includable in the gross_income of the former spouse sec_215 and b for federal_income_tax purposes however alimony does not include payments fixed by a divorce instrument that are payable for the support of the children of the payor spouse sec_71 a payment is treated as payable for the support of the children of the payor spouse if the amount of the payment will be reduced on the happening of a contingency specified in the divorce instrument relating to a child such as attaining a specified age marrying dying leaving school or other similar contingencies sec_71 see also sec_1_71-1t q a-17 temporary income_tax regs fed reg date petitioner argues that the state court’s decision to allocate the family support payment equally as child_support and spousal support is binding for federal_income_tax purposes we disagree it is well settled that the labels assigned to payments by the parties or a divorce court are not determinative for federal_income_tax purposes beard v commissioner t c 3where as here the facts are not in dispute we decide the case without regard to the burden_of_proof or sec_7491 moreover state court adjudications retroactively redesignating payments as alimony and not child_support or vice versa are generally disregarded for federal_income_tax purposes see 70_tc_525 thus it is the express terms of the agreement which dictate the federal_income_tax consequences of the payments which mr knoedler made to his former spouse and not the subsequent state court allocation the agreement contains an explicit contingency related to a child ie s k ’s graduation from high school reduces petitioner’s payment obligation from dollar_figure per month to dollar_figure per month per child in college see sec_1_71-1t q a-16 temporary income_tax regs supra the existence of the contingency triggers application of sec_71 and makes petitioner’s payments to his former spouse child_support not deductible under sec_215 see eg hammond v commissioner tcmemo_1998_53 fosberg v commissioner tcmemo_1992_713 we conclude that petitioner may not deduct as alimony any portion of the dollar_figure that he paid to ms vogt- knoedler in we have considered all arguments made in reaching our decision and to the extent not discussed we conclude those arguments to be moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number u i l no washington dc person to contact telephone number refer reply to cc psi plr-114519-00 date date legend company state shareholders a dear this letter responds to a letter dated date and subsequent correspondence requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has two shareholders shareholders it is represented that company has intended to be an s_corporation since a however company discovered that its s election had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for its taxable_year that begins on a sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 explains when an s election will be effective generally if an s election is made within the first two and one half months of a corporation's taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s plr-114519-00 election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply applying the relevant law to the facts submitted and representations made we rule that company's sec_1362 election will be treated as timely made for its taxable_year that begins on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation 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 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours robert honigman acting assistant to the chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service department of the treasury index no washington dc number info release date dear person to contact john t sapienza jr id no telephone number refer reply to cc dom it a - cor-112256-00 date date commissioner rossotti asked me to respond to your letter concerning obesity and weight-loss programs you asked the internal_revenue_service to issue a revenue_ruling allowing obese individuals to deduct the costs of weight-loss programs as medical_care expenses under sec_213 of the internal_revenue_code the current irs position on weight-loss programs is stated in revrul_79_151 1979_1_cb_116 this ruling holds that if participation in the program was to improve the participant’s appearance general health and sense of well-being the expenses of the program are not for medical_care and therefore are not deductible of course the expenses of a weight-loss program prescribed to treat a specific disease are for medical_care and are deductible we appreciate your suggestion and the references you provided to studies on obesity each year the irs and the department of the treasury review the many suggestions for revenue rulings and other forms of guidance to be published the projects selected are announced in the annual priority guidance plan input such as you have provided is helpful to us in selecting projects for the priority guidance plan i hope this information is helpful please call john t sapienza jr at the number above if you have any questions sincerely associate chief_counsel income_tax accounting by robert a berkovsky chief branch