internal_revenue_service department of the treasury index number 468a number release date washington dc person to contact telephone number refer reply to cc dom p si 6-plr-114788-99 date date third party contacts date-date public interest group legend taxpayer buyer partner partner seller commission a commission b district a b c d e plant trustee plr-114788-99 this letter responds to your request dated date and supplemental information that we rule on certain tax consequences of the sale of the plant from seller to buyer as set forth below you have requested rulings regarding the tax consequences under sec_468a of the internal_revenue_code to the seller’s qualified nuclear decommissioning fund as well as rulings regarding the proper realization and recognition of gain and loss on the sale of the plant and the proper allocation_of_basis the taxpayer has represented the following facts and information relating to the ruling_request the taxpayer is a limited_liability_company owned by partner and partner established to acquire and operate nuclear power plants the taxpayer files its partnership return on a calendar_year basis using the accrual_method of accounting the taxpayer is under the audit jurisdiction of the district seller is under the jurisdiction of commissions a and b seller owns a a interest in the plant on c the buyer entered into an agreement with the seller to purchase the plant the agreement contemplates that the buyer pay d and assume all decommissioning liabilities associated with the plant the sale of the plant closed on e the seller transferred to the buyer all of the assets of the plant including the power plant nuclear fuel real_property machinery equipment licenses certain intangible_property and all of the assets in the qualified and nonqualified decommissioning funds maintained by the seller the assets of the seller’s qualified and nonqualified decommissioning funds were transferred to qualified and nonqualified funds established by the buyer as of the closing date the agreement required that the aggregate value of the combined qualified and nonqualified funds is required to be b at the conclusion of decommissioning any assets remaining in these funds will revert to the buyer requested ruling pursuant to sec_1_468a-6 of the income_tax regulations the buyer will not recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets of the qualified_fund of the seller to the qualified_fund of the buyer at closing and the buyer’s qualified_fund will have a carryover_basis in the assets received from the qualified_fund of the seller requested ruling the qualified nuclear decommissioning fund established by the buyer to hold the assets transferred from the qualified_fund of the seller will be treated as a qualified_fund satisfying the requirements of sec_468a sec_468a provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund the qualified_fund sec_468a limits the plr-114788-99 annual deduction of the electing taxpayer to the lesser_of the ruling_amount or the amount of decommissioning costs included in the electing taxpayer’s cost of service for ratemaking purposes for the taxable_year sec_468a provides that the ruling_amount means the amount determined by the service to be necessary to a fund that portion of the nuclear decommissioning cost with respect to the nuclear power plant that bears the same ratio to the total nuclear decommissioning costs with respect to such nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the nuclear power plant and b prevent any excessive funding of such costs or the funding of such costs at a rate more rapid than level_funding sec_468a provides that the rate_of_tax on the income of a qualified_fund is percent sec_468a provides in pertinent part that the assets in a qualified_fund shall be used exclusively for satisfying the liability of any taxpayer contributing to the qualified_fund sec_1_468a-1 of the federal_income_tax regulations provides that an eligible_taxpayer is a taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 provides that a qualifying interest is a direct ownership_interest or a leasehold interest meeting certain additional requirements sec_1_468a-1 provides in part that a nuclear power plant is any nuclear power reactor that is used predominantly in the trade_or_business of the furnishing or sale of electric energy if the rates for such furnishing or sale have been established or approved by a public_utility commission sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified_fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law an electing taxpayer can establish and maintain only one qualified_fund for each nuclear power plant sec_1_468a-5 provides that if at any time during the taxable_year a nuclear decommissioning fund does not satisfy the requirements of sec_1_468a-5 the service may disqualify all or a portion of the fund as of the date that the fund does not satisfy the requirements sec_1_468a-5 provides that if a qualified_fund is disqualified the fair_market_value with certain adjustments of the assets in the fund is deemed to be distributed to the electing taxpayer and included in that taxpayer’s gross_income for the taxable_year sec_1_468a-6 generally provides rules for the transfer of an interest in a nuclear power plant and transfer of the qualified_fund where after the transfer the transferee is an eligible_taxpayer under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a plr-114788-99 under the specific facts herein the service will exercise its discretion to treat this sale under sec_1_468a-6 as a disposition qualifying under the general provisions of sec_1_468a-6 this exercise of discretion is specifically based on the continued general supervision of the qualified_fund by the nuclear regulatory agency and the federal energy regulatory commission this exercise of discretion however applies to the provisions of except those outlined in 468a-6 e with respect to the calculation of a schedule of ruling amounts subsequent to a sale thus under sec_1_468a-6 the qualified nuclear decommissioning fund of the seller will not be disqualified upon the sale when the assets are transferred to the buyer’s qualified_fund and that fund holding the transferred qualified assets will be treated as a qualified_fund of the buyer sec_1_468a-6 provides that neither a transferee nor its fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from a transferor’s qualified_fund to a transferee’s qualified_fund thus the buyer will not recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the seller’s qualified_fund assets to the buyer’s qualified_fund finally sec_1_468a-6 provides that transfers of assets of a qualified_fund to which sec_1_468a-6 applies do not affect basis accordingly under sec_1_468a-6 the buyer’s qualified_fund will have a basis in its assets that is the same as the basis of those assets in the qualified_fund of the seller immediately before the sale thus the buyer’s qualified_fund will after the sale have a carryover_basis in the assets after the sale requested ruling in the taxable_year of closing the buyer will not recognize any gain or otherwise take any income into account by reason of the transfer of the assets of the seller’s nonqualified decommissioning fund to the buyer’s nonqualified_fund generally a taxpayer does not realize income upon its purchase of a business’ assets even where those assets include cash or marketable_securities and in connection with the purchase the taxpayer assumes liabilities of the seller see 194_f2d_190 2d cir revrul_55_675 1955_2_cb_567 in this case taxpayer cannot acquire the plant without assuming the decommissioning liability which is inextricably associated with the ownership and operation of the plant and there is no indication that the transaction is other than a bona_fide purchase of the business and its associated assets and liabilities the exception to the general_rule set forth in revrul_71_450 1971_2_cb_78 does not apply in revrul_71_450 unlike the present situation the purchaser agreed to assume the prepaid subscription liability in return for a separate cash payment and the liability was not reflected in the sales_price of the business accordingly taxpayer will not realize income from its acquisition of the plant and plr-114788-99 seller’s interests in the assets in the non-qualified fund except to the extent that under the rules of sec_1060 the amount of cash and other class_i_assets received by taxpayer not including the assets in the qualified_fund exceeds the amount of consideration provided by taxpayer and taken into account in the year of the acquisition further to the extent that taxpayer is entitled to take into account other consideration paid taxpayer will make appropriate adjustments to reflect any income previously recognized by virtue of having acquired class_i_assets in excess of the consideration taken into account in the year of the acquisition see sec_1_1060-1t f of the regulations requested ruling the buyer’s nonqualified_fund shall be considered a grantor_trust under sec_671 and the buyer shall be treated as the grantor of such trust sec_671 provides that where it is specified in sec_673 through that the grantor or another person shall be treated as the owner of any portion of a_trust there shall be included in computing the taxable_income and credits of that person those items of income deduction and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account in computing taxable_income or credits against the tax of an individual sec_677 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or held or accumulated for future distribution to the grantor sec_1_677_a_-1 provides that under sec_677 a grantor is in general treated as the owner of a portion of a_trust whose income is or in the discretion of the grantor or a nonadverse_party or both may be applied in discharge of a legal_obligation of the grantor because buyer is treated as purchasing the assets of seller’s nonqualified_fund for federal_income_tax purposes buyer is treated as contributing those assets as grantor to the buyer’s nonqualified_fund under the terms of the nuclear decommissioning master_trust agreement between buyer and trustee all income as well as principal of the buyer’s nonqualified_fund is held to satisfy buyer’s legal_obligation to decommission the plant and upon completion of the decommissioning any remaining assets will be distributed to buyer accordingly buyer is treated as the owner of the entire buyer’s nonqualified_fund under sec_677 and sec_1 a - d buyer shall include in computing its taxable_income and credits all items of income deduction and credits against tax of the buyer’s nonqualified_fund to the extent that such items would be taken into account in computing taxable_income or credits against the tax of buyer plr-114788-99 requested ruling at closing the buyer will have a tax basis in the assets purchased excluding the qualified nuclear decommissioning fund equal to the sum of the purchase_price and the assumed_liabilities and obligations that will be taken into account as liabilities for federal_income_tax purposes as of the closing sec_1012 provides in part that the basis_of_property shall be the cost of such property buyer claims that its cost of acquiring the seller’s interests in the plant and the related assets including the decommissioning funds includes the amount of the assumed decommissioning liability buyer cites 331_us_1 and 194_f2d_190 as support for the proposition that for purposes of determining basis the cost of property generally includes assumed_liabilities to which the acquired property is subject_to the extent such liabilities can be accurately valued and are not contingent at the time of purchase since the buyer will pay cash and assume the liabilities and obligations of the seller which includes the decommissioning liabilities in connection with the acquisition of the plant its total cost of the purchased assets excluding the qualified_fund will equal the cash paid plus the assumed_liabilities and obligations consequently its tax basis under sec_1012 equals the sum of the cash paid and the amount of the assumed_liabilities and obligations the service however disagrees with including the amount of the assumed decommissioning liability in the buyer’s cost_basis as of the closing the buyer’s argument fails to recognize that the assumed decommissioning liability cannot be treated as incurred for any federal_income_tax purpose -- including basis -- until economic_performance occurs with respect to that liability the legislative_history underlying the enactment of sec_461 makes it clear that congress intended to exclude an item from being taken into account for tax purposes until economic_performance occurs this treatment applies to capital and well as non-capital transactions h_r rep no pt 98th cong 2d sess s prt no vol 98th cong 2d sess despite criticism from some commentators that the service lacks authority to apply the economic_performance rules broadly enough to include the calculation of basis and cost_of_goods_sold the service explicitly stated in the preamble to the final regulations implementing sec_461 that the service and treasury believe the intended scope of the statutory provision is indeed broad enough to apply in this manner preamble to t d fed reg date c b consistent with this position the service amended the regulations under sec_446 to clarify that a liability is incurred and generally is taken into account for federal_income_tax purposes in the taxable_year in which the all_events_test is satisfied and economic_performance has occurred with respect to the item sec_1 c ii a the regulations further clarify that applicable provisions the regulations and other guidance published by the secretary prescribe the manner in which a liability that has been incurred is taken into account and specifically cite to the capitalization provisions of sec_263 as an example of a code provision subordinate to the plr-114788-99 economic_performance requirement specifically the regulations state for example an amount that a taxpayer expends or will expend for capital improvements to property must be incurred before the taxpayer may take the amount into account in computing its basis in the property sec_1_446-1 thus critical to determining whether the buyer is entitled to treat the future decommissioning liability as a component of its cost_basis in the purchased assets at the time of the closing is deciding whether the liability will be incurred for tax purposes as of the closing it will not economic_performance does not occur with respect to a service liability such as the decommissioning obligation until and to the extent that costs are incurred in satisfaction of that liability sec_1_461-4 the buyer states that the all_events_test will not be satisfied with respect to the decommissioning liability because among other possible reasons decommissioning is a liability for which economic_performance occurs as decommissioning is undertaken because the buyer will not have performed any services relating to the decommissioning liability at the time of the plant’s purchase economic_performance will not have occurred and the liability will not have been incurred at that time for any purpose under the code including the cost_basis provisions of sec_1012 accordingly at the time of closing the buyer will have a cost_basis in the purchased assets equal to the cash paid to the seller as well as any liabilities that are otherwise incurred for federal_income_tax purposes the buyer will not be entitled to treat as a component of its cost_basis at the time of the closing any amount attributable to the future decommissioning liability the buyer’s cost_basis in the purchased assets including all assets held in the decommissioning funds must be allocated among all such assets in accordance with the residual_method provided in sec_1060 and sec_1_1060-1t d and e requested ruling buyer’s total basis will be allocated among the purchased assets excluding the qualified nuclear decommissioning fund for purposes of determining buyer’s tax basis in any specific asset pursuant to the residual_method required by sec_1060 and the regulations thereunder sec_1060 provides that in the case of an applicable_asset_acquisition the consideration received shall be allocated among the acquired assets in the same manner as amounts are allocated to assets under sec_338 sec_1 1t a provides that in the case of an applicable_asset_acquisition sellers and purchasers must allocate consideration under the residual_method described in sec_1_338-6t and sec_1_338-7t in order to determine respectively the amount_realized from and the basis in each of the transferred assets sec_1060 defines the term applicable_asset_acquisition as the transfer of assets constituting a trade_or_business if the acquirer’s basis is determined wholly by reference to the consideration paid for such assets plr-114788-99 sec_1_1060-1t c defines a purchaser’s consideration as the amount in the aggregate of its cost of purchasing the assets in the applicable_asset_acquisition that is properly taken into account in basis sec_1060 provides no independent basis for determining a taxpayer’s cost of acquired assets cost is determined solely under generally applicable rules of tax_accounting the residual_method is based on a division of assets into seven classes class i generally consisting of cash and general deposit accounts held in banks savings and loan associations and other depository institutions class ii generally consisting of actively_traded personal_property like u s government securities and publicly traded stock but also including certificates of deposit and foreign_currency even if they are not actively_traded personal_property class iii accounts_receivable mortgages and credit card receivables from customers which arise in the ordinary course of business class iv stock_in_trade of the taxpayer or other_property of a kind which would properly be included in the inventory of taxpayer if on hand at the close of the taxable_year or property held by the taxpayer primarily_for_sale_to_customers in the ordinary course of its trade_or_business class v all assets other than class i ii iii iv vi and vii assets class vi all sec_197 intangibles except those in the nature of goodwill and going_concern_value and class vii goodwill and going_concern_value whether or not they qualify as sec_197 intangibles consideration is first reduced by the amount of class_i_assets received the remaining consideration is then allocated to the class_ii_assets pro_rata to the extent of their fair_market_value then to the class_iii_assets pro_rata to the extent of their fair_market_value then to the class_iv_assets pro_rata to the extent of their fair_market_value then to the class_v_assets pro_rata to the extent of their fair_market_value then to the class_vi_assets pro_rata to the extent of their fair_market_value and finally any remaining consideration is allocated among the class_vii_assets sec_1 1t c 338-6t b and 338-6t b the following example illustrates the operation of sec_1060 on date1 an applicable_asset_acquisition is made the assets acquired consist of class_i_assets in the amount of dollar_figure class_ii_assets with a fair_market_value of dollar_figure class_iii_assets with a fair_market_value of dollar_figure class_iv_assets with a fair_market_value of dollar_figure and class_v_assets with a fair_market_value of dollar_figure there are no class vi or vii assets the consideration consists of dollar_figure cash and an assumed liability for which economic_performance has not occurred on date1 the purchaser has provided dollar_figure of consideration that may be allocated as basis it will be first reduced by dollar_figure the amount of class_i_assets the remaining dollar_figure will be allocated to class_ii_assets pro_rata according to fair_market_value nothing is allocated to class iii or below on date2 economic_performance occurs with respect to the liability to the extent of dollar_figure at that time the purchaser has an additional dollar_figure of basis that may be taken into account of that amount dollar_figure is allocated to class_ii_assets which will then have been allocated their full dollar_figure fair market value--as determined on the acquisition_date and the plr-114788-99 remaining dollar_figure is allocated to the class_iii_assets pro_rata according to fair market value--as determined on the acquisition_date on date3 economic_performance occurs to the extent of an additional dollar_figure which is then taken into account as basis of that amount dollar_figure will be allocated to the class_iii_assets which will then have been allocated their full dollar_figure fair market value--as determined on the acquisition_date dollar_figure will be allocated to the class_iv_assets which will then have been allocated their full dollar_figure fair market value-as determined on the acquisition_date dollar_figure will be allocated to the class_v_assets which will then have been allocated their full dollar_figure fair market value-as determined on the acquisition_date and the remaining dollar_figure will be allocated to the class vii goodwill the last amount is allocated to goodwill even though goodwill was not identified as a separate asset having value on date1 if on date3 instead of an addition to purchaser’s consideration there is a dollar_figure decrease in consideration the consideration previously allocated to the class_iii_assets would be reduced to zero and the consideration previously allocated to the class_ii_assets would be reduced by the remaining dollar_figure pro_rata according to fair_market_value with respect to the qualified nuclear decommissioning fund the federal tax treatment of the transaction is determined exclusively under sec_468a and the regulations thereunder the qualified_fund is therefore not addressed herein with respect to sec_1060 with respect to the plant equipment operating_assets and nonqualified_fund assets however these assets comprise a trade_or_business in seller’s hands and the basis buyer takes in those assets will be determined wholly by reference to buyer’s consideration thus seller’s transfer of plant equipment operating_assets and nonqualified_fund assets to buyer in exchange for cash and the assumption of the decommissioning liability except to the extent funded by the qualified nuclear decommissioning fund is an applicable_asset_acquisition as defined in sec_1060 as such its federal tax treatment is determined under sec_1060 and the regulations thereunder accordingly we rule that on the acquisition_date buyer’s basis in the assets acquired must be determined by allocating its cost ie the consideration provided by buyer on the acquisition_date which includes the cash and the issue_price of its notes but not the assumption of the decommissioning liability among the acquired assets in accordance with the provisions of sec_1060 and the regulations thereunder specifically buyer will first reduce its consideration by the amount of the class_i_assets it receives in the transaction including any class_i_assets held in the nonqualified_fund to the extent the class_i_assets received exceed the consideration buyer provides buyer will recognize income to the extent buyer’s consideration exceeds the class_i_assets it receives such excess will be allocated to the class_ii_assets pro_rata according to the fair_market_value of those assets up to their total fair_market_value because the combined value of the class i and ii assets will exceed buyer’s consideration on the acquisition_date the total amount of consideration to be allocated plr-114788-99 to the class_ii_assets will be less than their fair_market_value and no consideration will be allocated to assets in classes iii iv v vi or vii when and to the extent additional_amounts are paid_or_incurred for the assets acquired in the applicable assets acquisition eg when and to the extent the nonqualified_fund pays or incurs decommissioning expenses such amounts will be taken into account as increases to buyer’s consideration and allocated in the same manner and subject_to the same conditions as though they were paid_or_incurred on the acquisition_date sec_1_1060-1t a 1060-1t c 338-6t and 338-7t requested ruling any nuclear decommissioning expenses paid_or_incurred by the buyer will be currently deductible under sec_162 and any net_operating_loss attributable to nuclear decommissioning expenses paid_or_incurred buy the buyer will qualify for the treatment specified in sec_172 with respect to this portion of the buyer’s ruling_request we have determined that the question of whether any particular nuclear decommissioning expenses are currently deductible under sec_162 when paid_or_incurred is too speculative and too far in the future to permit the service to issue a blanket ruling at this time for instance it is impossible for the service to issue a ruling that all such expenses are currently deductible under sec_162 when the costs attributable to any specific expenditure may in fact be more properly capitalized and recoverable through depreciation under sec_263 and sec_167 respectively accordingly we cannot rule on this request moreover because we are unable to rule on the sec_162 issue we also are precluded from ruling on the sec_172 issue since the two are inextricably related however we believe a deduction under sec_165 will be available as set forth below sec_165 provides that there shall be allowed as a deduction any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise sec_1_165-1 provides that a loss under sec_165 shall be allowed in the taxable_year in which the loss occurs as evidenced by closed and completed transactions and as fixed by identifiable events occurring in that year sec_1_165-2 provides for the allowance under sec_165 of losses arising from the permanent withdrawal of depreciable_property from use in the trade_or_business or in the production_of_income see sec_1_167_a_-8 sec_1_167_a_-8 provides that in order to qualify for the recognition of loss from physical abandonment the intent of the taxpayer must be irrevocably to discard the asset so that it will neither be used again by him nor retrieved by him for sale exchange or other_disposition plr-114788-99 legal restrictions upon the physical disposition of property such as a nuclear plant will not themselves preclude a finding of abandonment if all other facts and circumstances demonstrate an intention to irrevocably retire property from use and the requisite overt acts related to abandonment have occurred the acts necessary to evidence the intent to abandon property need only be appropriate to the particular circumstances a nuclear power plant is a heavily regulated asset and one which a taxpayer cannot simply walk away from or dismantle accordingly if the buyer takes actions consistent with abandonment and irrevocably commits to decommission the nuclear power plant then the buyer will be entitled to an abandonment_loss deduction under sec_165 to the extent the loss is not_compensated_for_by_insurance_or_otherwise the proper taxable_year for the abandonment_loss will be determined by all the relevant facts and circumstances including the regulations applicable to plant operation and the buyer’s actions during that year accordingly to summarize the conclusions set forth above we reach the following conclusions in response to the taxpayers’ requested rulings the buyer will not recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets of the qualified_fund of the seller to the qualified_fund of the buyer at closing and the buyer’s qualified_fund will have a carryover_basis in the assets received from the qualified_fund of the seller the qualified nuclear decommissioning fund established by the buyer to hold the assets transferred from the qualified_fund of the seller will be treated as a qualified_fund satisfying the requirements of sec_468a accordingly taxpayer will not realize income from its acquisition of the plant and seller’s interests in the assets in the non-qualified fund except to the extent that under the rules of sec_1060 the amount of cash and other class_i_assets received by taxpayer not including the assets in the qualified_fund exceeds the amount of consideration provided by taxpayer and taken into account in the year of the acquisition further to the extent that taxpayer is entitled to take into account other consideration paid taxpayer will make appropriate adjustments to reflect any income previously recognized by virtue of having acquired class_i_assets in excess of the consideration taken into account in the year of the acquisition buyer is treated as the owner of the entire buyer’s nonqualified_fund under sec_677 and sec_1_677_a_-1 buyer shall include in computing its taxable_income and credits all items of income deduction and credits against tax of the buyer’s nonqualified_fund to the extent that such items would be taken plr-114788-99 into account in computing taxable_income or credits against the tax of buyer at the time of closing the buyer will have a cost_basis in the purchased assets equal to the cash paid to the seller as well as any liabilities that are otherwise incurred for federal_income_tax purposes the buyer will not be entitled to treat as a component of its cost_basis at the time of the closing any amount attributable to the future decommissioning liability the buyer’s cost_basis in the purchased assets including all assets held in the decommissioning funds must be allocated among all such assets in accordance with the residual_method provided in sec_1060 and sec_1_1060-1t d and e on the acquisition_date buyer’s basis in the assets acquired must be determined by allocating its cost ie the consideration provided by buyer on the acquisition_date which includes the cash and the issue_price of its notes but not the assumption of the decommissioning liability among the acquired assets in accordance with the provisions of sec_1060 and the regulations thereunder specifically buyer will first reduce its consideration by the amount of the class_i_assets it receives in the transaction including any class_i_assets held in the nonqualified_fund to the extent the class_i_assets received exceed the consideration buyer provides buyer will recognize income to the extent buyer’s consideration exceeds the class_i_assets it receives such excess will be allocated to the class_ii_assets pro_rata according to the fair_market_value of those assets up to their total fair_market_value because the combined value of the class i and ii assets will exceed buyer’s consideration on the acquisition_date the total amount of consideration to be allocated to the class_ii_assets will be less than their fair_market_value and no consideration will be allocated to assets in classes iii iv v vi or vii when and to the extent additional_amounts are paid_or_incurred for the assets acquired in the applicable assets acquisition eg when and to the extent the nonqualified_fund pays or incurs decommissioning expenses such amounts will be taken into account as increases to buyer’s consideration and allocated in the same manner and subject_to the same conditions as though they were paid_or_incurred on the acquisition_date sec_1_1060-1t a 1060-1t c 338-6t and 338-7t we decline to rule with respect to sec_162 and sec_172 if the taxpayer takes actions consistent with abandonment and irrevocably commits to decommission the nuclear power plant then the taxpayer will be entitled to an abandonment_loss deduction under sec_165 to the extent the loss is not_compensated_for_by_insurance_or_otherwise the proper taxable_year for the abandonment_loss will be determined by all the relevant facts and circumstances including the regulations applicable to plant operation and the taxpayer’s actions during that year plr-114788-99 this letter_ruling is directed only to the taxpayer that requested it sec_6110 provides that this ruling may not be used or cited as precedent in accordance with the powers of attorney we are sending a copy of this ruling letter to your authorized representatives we are also sending a copy of this letter to the director of the district sincerely charles b ramsey chief branch office of assistant chief_counsel passthroughs and special industries


internal_revenue_service p o box cincinnati oh release number release date date date legend x university y city z bank dear department of the treasury employer_identification_number contact person - id number contact telephone number uil you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 description of your request your purpose is to provide scholarships to x or its successor for graduates of the senior high school or senor public high schools located in y the number of scholarships that will be awarded each year and the amount of each scholarship will vary depending on the amount of funds available to be distributed each year z advises the scholarship committee of the amount available for scholarships the members of the scholarship committee review the scholarship applications based on the need worthiness ability aptitude for successfully pursuing a college course of study letter catalog number 58263t and the desire of the student to acquire a college degree the scholarship committee then submits their selection to the trustee the committee in making their selections among the student candidates is to consider i the eventual profit - that is the potential the candidate is judged to possess to provide a gain to society as a result of added productivity and other valuable contributions to the general welfare that can be generated through the advantages of a college education ii use the best material available - selection should be made among those students who have demonstrated above average ability in their studies who are industrious in good health generally well adjusted take part in student activities are governed by good personal habits indicate a real desire to advance themselves by further education and have a good prospect of developing into citizens who will become a credit to the community in which they live iii assisting the needy - the primary purpose of the trust is to assist qualified students in obtaining a college education who otherwise might be denied for financial reasons the opportunity of improving themselves through further education consideration should be given to the financial circumstances of the family and the willingness and ability of the candidate to assist himself by working during vacation periods and at other times when possible as it is not the intent of this trust that a scholarship will finance at most anything beyond the bare essentials of the cost of education its primary purpose is to supplement self-help and family help where such financial assistance is a real need grades of scholarship recipients shall be reviewed by the committee as available each quarter or semester and receipt of the full scholarship granted shall be contingent upon the students continued good standing in his scholastic work the scholarship recipient will be expected to carry at least an average number of hours of studies and attain grades in his studies at least equal to the average for the college he or she is attending but the committee is given discretion to continue a scholarship to a recipient whose scholastic grades are below average if in their judgment the students unsatisfactory scholastic standing will improve in the future and is excusable due to conditions beyond the student's control such as illness or other uncontrollable circumstances resulting in enforce absence from classes it is not expected or required that the amount of scholarships be equal rather it is desired that the worthy candidates be selected and the amount determined to fit in with the candidate’s need and funds of the trust thus be put to the best possible use as determined solely in the discretion of the committee a scholarship may be granted to any one student for only one regular school year at one time however upon annual application and approval of the committee the present or previous recipient of a scholarship may be granted additional scholarships each year for a student may be eligible to not to exceed a total of four years of undergraduate study letter catalog number 58263t receive a scholarship grant hereunder during any of his or her four years of undergraduate study whether or not the recipient of a grant hereunder in any previous year the selection committee will consist of four individuals named in the trust document one shall be the principal and one shall be the superintendent or the senior administrative officer of the senior public high school or the senior public high schools if there be more than one located in y or representative he or she may designate shall also be a_trust officer of z or a representative designated one all scholarships are awarded on an objective and non-discriminatory basis z makes the final_determination as to the amount awarded no scholarships may be awarded to any disqualified_person as defined in code sec_4946 z provides a letter to x or its successor school specifying that x or successor z pays the scholarship proceeds directly to x or its successor school for the benefit of the recipient school’ acceptance of the funds constitutes x’s agreement to i refund any unused portion of the scholarship if a scholarship recipient fails to meet any term or condition of the scholarship and ii notify z if the scholarship recipient fails to meet any term or condition of the scholarship reports and grade transcripts from the scholarship recipient if x will not agree to such terms z will obtain the needed you will maintain case histories showing recipients of your scholarships or educational grants including names addresses purposes of awards amount of each award manner of selection and the relationship if any to officers trustees or donors of funds to you you will arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded to investigate diversions of funds from their intended purposes and take all reasonable and appropriate steps to recover diverted funds ensure other grants funds held by the grantee are used for their intended purposes and withhold further payments to grantee until you obtain grantees assurances that future diversions will not occur and the grantees will take extraordinary precautions to prevent future diversions from occurring you will maintain all records relating to individual grants including information obtained to evaluate grantees identify whether grantee is a disqualified_person establish the amount and purpose of each grant and establish that you under took the supervision and investigation of grants basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure letter catalog number 58263t the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 other conditions that apply to this determination this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58263t


internal_revenue_service department of the treasury index no number info release date dear mr washington dc person to contact telephone number refer reply to cc dom it a - cor-119817-99 date date you requested a ruling on the proper tax treatment of parking as a business_expense in your letter of date we did not receive either the fee for a private ruling nor the paperwork required for a ruling so we enclose instructions for applying for a ruling however the following general information may help you a person in the trade_or_business of driving a commercial taxicab may deduct the ordinary and necessary expenses paid_or_incurred for leasing operating and maintaining the taxi under sec_162 of the internal_revenue_code this includes parking fees associated with the business use of the taxi on the other hand sec_262 denies a deduction for personal living or family_expenses you indicated you are uncertain how to treat the cost of parking the taxi at the motel it appears from your letter that you pay no additional fee for parking the taxi there sec_162 allows you to deduct a business_expense only if you actually pay it i hope this information is helpful if you have any questions please call mr sapienza at the number above not a toll-free call sincerely deputy assistant chief_counsel income_tax accounting by george baker assistant to branch chief branch enclosure


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-107377-07 date date -------------------------------- --------------------------------------- --------------------------------- ----------------------------------------------------------- -------------------------------------- legend legend trust i trust ii trust iii advisor fund a -------------------------------------------------- fund b -------------------------------------------------- fund c -------------------------------------------------- fund d -------------------------------------------------- fund e -------------------------------------------------- fund f -------------------------------------------------- fund g -------------------------------------------------- fund h ----------------------------------------------- --------------------------------------------- ----------------------------------------- ---------------------------------------------------- -------------------------------------- ------------------------------------------------ -------------------------------------------------------- ------------------------------------------------------------------- plr-107377-07 -------------------------------------------------- fund i -------------------------------------------------- state country dear ------------- --------------------- --------------------- this responds to your request dated date submitted by your authorized representative on behalf of fund a fund b fund c fund d fund e fund f fund g fund h and fund i each a fund and collectively the funds funds request that the internal_revenue_service rule that income arising from investments in shares of foreign_corporations that are controlled_foreign_corporations or passive foreign investment companies constitutes qualifying_income for purposes of sec_851 of the internal_revenue_code_of_1986 as amended the code facts fund a is a series of trust i a state business_trust registered as an open-end fund b is a series of trust ii a state business_trust registered as an open-end fund c fund d fund e fund f fund g fund h and fund i are series funds management investment_company under the investment_company act of as amended the act management investment_company under the act of trust iii a state business_trust registered as an open-end management investment_company under the act m of the code for its most recent tax_year and intends to continue to qualify in all subsequent years funds have an investment management agreement with advisor except for fund b which has a sub-advisory agreement with an unaffiliated sub-advisor in general each fund seeks capital appreciation by investing in securities of companies associated with one sector of the commodities market unlike the other funds fund b seeks real return by investing in four general investment categories inflation-protected debt securities floating-rate loans commodity-linked notes and related investments and real_estate_investment_trusts each fund qualified as a regulated_investment_company ric under subchapter plr-107377-07 to enhance the performance of its portfolios and to better reflect the pricing of the commodities markets each of the funds proposes to form its own wholly-owned subsidiary subsidiary that will be a foreign_corporation each subsidiary will be incorporated as an exempted limited_company under the laws of country under the laws of country an exempted limited_company provides for limited_liability for all holders of shares a shareholder’s liability is limited to the amount if any unpaid with respect to the shares acquired by the shareholder each subsidiary will file an election on form_8832 entity classification election to be taxed as a corporation pursuant to sec_301_7701-3 of the procedure and administration regulations funds represent that although the subsidiaries will not be registered as investment companies under the act each subsidiary will comply with the requirements of section f of the act investment_company act release no and related sec guidance pertaining to asset coverage subsidiary subject_to the limitations set forth in sec_851 each subsidiary will invest primarily in one or more of the following types of instruments commodity and financial futures and options contracts and fixed income securities that serve as collateral for these contracts deliverable forward contracts and cash-settled nondeliverable forward contracts each of these contracts may be linked to the performance of one or multiple commodities including a commodity index the subsidiaries may also invest in swaps on commodities or commodities indexes or in commodity-linked notes furthermore each subsidiary may also invest directly in commodities each of the funds will invest a portion of its assets in its wholly-owned law and analysis sec_851 of the code provides that a corporation shall not be considered a ric for any taxable_year unless it meets an income test the qualifying_income requirement under this test at least percent of its gross_income must be derived from certain enumerated sources sec_851 defines qualifying_income in relevant part as- dividends interest payments_with_respect_to_securities_loans as defined in sec_512 and gains from the sale_or_other_disposition of stock_or_securities as defined in sec_2 of the act or foreign_currencies or other income including but not limited to gains from options futures or forward contracts derived with respect to the ric’s business of investing in such stock securities or currencies sec_851 of the code further provides that for purposes of sec_851 there shall be treated as dividends amounts included in gross_income under sec_951 or sec_1293 for the taxable_year to the extent that under plr-107377-07 sec_959 or sec_1293 as the case may be there is a distribution out of the earnings_and_profits of the taxable_year that are attributable to the amounts so included sec_957 of the code defines a controlled_foreign_corporation cfc as any foreign_corporation in which more than percent of the total combined voting power of all classes of stock entitled to vote or the total value of the stock is owned by united_states_shareholders on any day during the corporation’s taxable_year a united_states_shareholder is defined in sec_951 as a united_states_person who owns percent or more of the total voting power of a foreign_corporation initially each fund will wholly own each subsidiary each fund is a united_states_person therefore each subsidiary will initially qualify as a cfc under these provisions over time it is possible that other rics will invest in one or more of the cfcs if such other rics are not united_states_shareholders because they own less than percent of the voting power of the subsidiary the other rics will take income from the subsidiary into account under the passive_foreign_investment_company pfic rules under sec_1291 of the code ultimately if sufficient additional rics invest in a given subsidiary it is possible that the subsidiary will lose its cfc status in which case all rics investing in the subsidiary will treat the subsidiary as a pfic sec_952 of the code defines subpart_f_income to include foreign_base_company_income determined under sec_954 under sec_954 foreign_base_company_income includes foreign_personal_holding_company_income determined under sec_954 sec_954 defines foreign_personal_holding_company_income to include dividends interest royalties rents and annuities subsidiaries’ investments in futures contracts option contracts forward contracts fixed income securities commodity swaps and commodity linked notes will produce income that may generate foreign_personal_holding_company_income under sec_954 of the code which is subpart_f_income each fund would therefore include in income the sum of its respective pro_rata shares of its subsidiary’s subpart_f_income if the subsidiary is a cfc with respect to the fund for the taxable_year in accordance with sec_951 in addition each fund will include in income with respect to each subsidiary that is a pfic with respect to fund its pro_rata share of the subsidiary’s ordinary_earnings and net capital_gains qef inclusions for the taxable_year in accordance with sec_1293 of the code sec_851 of the code includes a specific rule providing dividend treatment for certain subpart_f and qef inclusions those attributable to distributions out of earnings_and_profits subpart_f and qef inclusions also constitute ric qualifying_income under sec_851 which states that qualifying_income includes other plr-107377-07 income derived with respect to the ric’s business of investing in stock securities or currencies the other income rule the investment by each fund in its subsidiary that is a corporation for federal_income_tax purposes will be an investment in stock each fund’s income from its subsidiary will be derived from its stock ownership and will be income derived with respect to its business of investing in such stock under the other income rule_of sec_851 conclusion we rule that income derived by each fund from its investments in its subsidiary whether or not attributable to subpart_f_income or qef inclusions or without regard to whether the income has been distributed is income derived with respect to the fund’s business of investing in the stock of subsidiary and thus constitutes qualifying_income to each fund under sec_851 of the code no opinion is expressed as to whether each fund qualifies as a ric that is taxable under subchapter_m part i of the code this ruling is directed only to the taxpayers who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely susan thompson baker susan thompson baker assistant to the branch chief branch office of the associate chief_counsel financial institutions products


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 corp b06 - plr-140038-03 date december ty --------------------------- ty --------------------------- legend ---------------------------------------- --------------------------------------------------------------------- ---------------------------------------- ------------------------------------------------------------------------------------- ------------------------------------ ------------------------------------------------------------------------------------- corporation ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------ taxpayer family_trust employee-trust agreement ------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- employee_trust newco ----------------------------------------------------------------------------------------------------- family business a ---------------------------------------------------------------------------------------------------- business b business c business d industry industry city date date date date date date year state ------------------ ------------------------ ------------------------------------ -------- ---------------------- -------------- ------------------ ------------------ --------------------------- --------------------------- -------------------------- ----------------- ------- -------------- plr-140038-03 --- -- --- -------- --- ------ ------------- -------------- -- -- ------------- -------- ------------- ------------- ------------- ------------- --- ------------- ------ --- ----------- --- ----------- -- ----------- --------- ---- ----- ----- ----- --- ------ -------- ------ ----- a b c d e f g h i j k l m n p q r s t u v w x y z aa bb cc dd ee ff gg hh ii jj dear ------------------------------------ requesting rulings on certain federal_income_tax consequences of a series of integral steps in a permanent capital_transaction additional information was received this letter is in response to your authorized representative’s letter dated june plr-140038-03 in a letter dated date and in an e-mail dated date the information submitted is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties-of-perjury statement executed by the appropriate parties this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts taxpayer a calendar-year-cash-basis taxpayer is a corporation formed under the laws of state and an s_corporation for federal_income_tax purposes its shareholders are the members_of_family taxpayer is engaged in the rental of residential and commercial real_estate but its principal asset is its ownership of a certain amount of the common_stock of corporation which is engaged in businesses a b c and d through wholly-owned subsidiaries corporation was formed under the laws of state it ha sec_3 shareholders taxpayer family_trust and employee_trust and only class of stock outstanding corporation is engaged in a variety of businesses in industry and industry it operates business a in city it owns and operates a business b and b business c in c states corporation’s total operating revenues for year were dollar_figured million family_trust was formed in state to preserve property for the benefit of certain members_of_family family trust’s only asset is stock in the corporation together family_trust and the taxpayer own approximately e of the issued and outstanding common_stock of corporation employee_trust which was formed by the employee-trust agreement entered into on date was created to be a vehicle for employee ownership of corporation it owns the majority of the stock of the corporation certain employees of the corporation employee-unitholders own units of the employee_trust that correspond to the shares held in the corpus of the employee_trust the voting power of the stock owned by the employee_trust is passed through to the employee-unitholders who have voting control_over the corporation similarly dividends generated on the stock owned by the employee_trust are passed through to the employee-unitholders employees of the corporation can buy employee_trust units according to the terms of the employee_trust agreement which sets forth a formula for determining unit price unit price moreover the employee_trust agreement compels employee-unitholders to offer the units for sale upon death or upon termination or retirement from employment with the corporation plr-140038-03 the growth of the value of the corporation and the growth in the unit price together with the corporation’s need for substantial additional outside permanent capital have compromised the ability of the employee_trust to continue to serve as the principal_owner of the corporation the amount of indebtedness which employee- unitholders are obligated to undertake to purchase units is burdensome and threatens the stability of employee_trust and also operates to limit the amount of capital available to corporation to sustain its growth because of these problems the corporation’s management met with the taxpayer and the family_trust to negotiate a way to obtain additional permanent capital and to discuss the future of the employee_trust according to the provisions of the employee_trust agreement any plan to raise additional permanent capital and or affect the future of the employee_trust requires the consent of the family which in essence means the consent of the taxpayer and the family_trust under the employee_trust agreement the family has i the right to veto any amendment of the employee_trust agreement and ii an option to purchase at the unit price shares of the corporation’s stock owned by the employee_trust voted for any transaction involving the sale of the stock of the corporation the sale or lease of all or substantially_all of the assets of the corporation the dissolution of the corporation or the merger or consolidation of the corporation the options on date the corporation’s management the taxpayer and the family_trust agreed to support and participate in a plan to raise additional permanent capital for the corporation and to terminate the employee_trust the family-corporation agreement this agreement provides for the following steps to be taken the steps are integral parts of the permanent capital_transaction corporation will create a new corporation newco taxpayer family_trust and employee_trust will contribute all the stock that each owns in the corporation into newco taxpayer and the family_trust will also contribute the options and their other rights under the employee_trust agreement to newco the corporation will not terminate it will remain in existence as a subsidiary of newco in exchange for their respective contributions taxpayer family_trust and employee_trust will receive newco class b common_stock the share exchange at an exchange ratio of to immediately after the share exchange taxpayer and family_trust will exchange approximately f of the newco class b common shares received plr-140038-03 in the share exchange for g shares of newco class c common_stock the family exchange at the same time employee_trust agreement will be amended to permit the share exchange and then the employee_trust will be terminated as a result all of the newco class b common shares received by employee_trust in the share exchange will be distributed and owned directly by the employee-unitholders newco will make an initial_public_offering of the newco class a common shares the ipo with the proceeds of the ipo and long term borrowing newco will make a tender offer for the newco class b common shares owned by the employees formerly employee-unitholders to enable them to significantly reduce the debt they incurred in acquiring the employee_trust units the tender offer after the permanent capital_transaction newco will have three classes of stock outstanding class a common class b common and class c common class a common will have i vote s per share and will in all respects be simple common_stock class b common will be identical to class a common except that they will have e vote s per share the class b common will have e votes per share to ensure that the employees who will own most of the outstanding class b common continue to control newco the other class b common shares will be owned by taxpayer and the family_trust newco class b common shares will also be convertible into newco class a common shares therefore the employees the taxpayer and the family_trust have the right to convert the class b common shares into newco class a common shares the right to convert the class b common shares to class a common is limited however a holder of the class b common can convert part or all of his class b common shares to class a common only after offering the class b common for sale to corporation’s employee benefit plans other employee-shareholders taxpayer and newco in that order the limitation on convertibility is to ensure that the employees and or the taxpayer and the family_trust continue to control newco it is thought that since the only difference between the class b common and the class a common is the number of votes to which each class is entitled the only reason one would want to convert class b common to class a common is for the purpose of selling his interest in newco thus the limitation forces the seller to offer the class b stock first to those persons already owning significant voting power in newco immediately following the share exchange and the family exchange taxpayer and the family_trust will end up with h shares of newco class b common_stock in addition they will be the only owners of newco class c common_stock and they plr-140038-03 cannot sell the newco class c common_stock to anyone but newco or members of the family they may transfer the class c common_stock by distribution upon their liquidation or termination or by gift or will but only to certain specified holders the newco class c common_stock is identical to the newco class a common_stock with the following exceptions holders of class c common shares will have j vote s per share holders of the class c common shares will have a class vote on certain strategic transactions certain business combinations resulting in a change_of control of newco or certain of its subsidiaries that would not otherwise compel class voting a class c common share participates in the growth of newco with a preference holders of class c common shares will be entitled to the same dividend as class a common but in no event less than the formula amount discussed below the minimum dividend thus class c common_stock participates in newco’s earnings share-for-share with the class a and class b common_stock once the above class c common stock’s dividend preference has been satisfied upon newco’s liquidation a class c common share participates in the assets and liquidation proceeds of newco with a preference holders of class c common shares will be entitled to k times the amount that the class a common shares will receive in liquidation but in no event less than dollar_figurel per share plus accumulated and unpaid dividends thus upon liquidation each share of class c common_stock participates with the class a and class b common_stock in newco’s assets and liquidation proceeds with the above preference upon the newco directors’ approval of a strategic transaction newco may redeem all shares of class c common_stock at dollar_figurel per share plus accumulated and unpaid minimum dividends unless holder s of class c common_stock deliver legally binding agreements to vote in favor of the strategic transaction in which case the holder s may retain the class c common shares holders of class c common_stock have the right to convert at any time and from time to time all or any portion of their class c common shares into either k shares of class a common_stock or a mix of m shares of class a common_stock and n shares of class b common_stock however this is not true between the time when the holder s receive notice of the directors’ vote plr-140038-03 for a strategic transaction and the holder’s delivery of its notice that it will vote for the strategic transaction on date newco may redeem all shares of class c common_stock at dollar_figurel per share plus accumulated and unpaid minimum dividends unless the holder s of class c common_stock deliver notice that the holder s wish es to retain such shares on date any class c common shares then outstanding will be automatically converted into a mix of m shares of class a common and n shares of class b common_stock plus accumulated and unpaid minimum dividends the minimum dividend formula arises as follows for the four years preceding the current_year corporation has distributed dividends of dollar_figuret per share on the p shares owned by the taxpayer and the family_trust or a total of dollar_figureq per year the taxpayer the family_trust and the corporation agree to maintain this dividend at a projected level of approximately r of this amount or dollar_figures the agreed formula is based on the initial declared dividend on class a common and class b common_stock immediately after the ipo the management of corporation has given the taxpayer and the family_trust projections suggesting that the dollar_figuret level adjusted for the share exchange ratio will be reached within five years on the understanding that the dividend policy will be u of post tax earnings the family-corporation agreement permits the taxpayer and family_trust including certain permitted family successors to participate in the ipo the family_trust elected to participate to the extent of v shares of the class b common_stock to participate the family_trust would have to convert the class b common shares to class a common and then offer the resulting class a common for sale in the ipo the taxpayer and the family_trust agreed not to tender any of their shares in the tender offer the taxpayer and the family_trust also agreed not to transfer their newco shares during the three years following the ipo except as otherwise provided for in the agreement or pursuant to a board-approved business combination transaction or under rule of the securities act of in addition the taxpayer and the family_trust agreed not to exercise their rights under newco's articles of incorporation to purchase any available shares of class b common_stock if after the proposed purchase they would own more than w of such stock then outstanding finally under the newco articles of incorporation the family may not sell or otherwise dispose_of the newco class c common_stock except among themselves plr-140038-03 the family-corporation agreement gives newco during the period beginning cc days after and ending dd days after the pricing of the ipo a one time right to redeem approximately x of the class b common shares held by the taxpayer and the family_trust at ee of the average closing price of the class a common shares in the ff trading day period immediately prior to the notice of redemption on a specified redemption date between the gg and the hh day after the notice of redemption in addition each year after the consummation of the transaction newco may redeem at ee of the average closing price of the class a common shares in the ff trading day period immediately prior to the notice of redemption class b common shares owned by the family shareholders to the extent they own more than w of the class b common shares then outstanding on a specified redemption date between the ii and the gg day after the notice of redemption however in either case the family shareholders may avoid newco’s right to redeem b shares by converting the equivalent number of class b common shares to class a common shares prior to the specified redemption date without compliance with the class b common share offer procedures otherwise applicable under newco’s articles of incorporation the family-corporation agreement provides the family with certain rights to register with the sec some or all of their newco shares which have been converted into class a common shares for resale to the public beginning dd days after the pricing of the ipo the family members have the right to demand the registration of their shares for resale subject_to the limitations described below the family members also have the right to participate in certain of newco's proposed stock offerings to the public subject_to certain conditions notwithstanding these rights newco will not be obligated to effect any family shareholder demand to register shares within jj days after the effective date of a registration in which the family members were notified of their rights to participate in a newco offering or any other registration of shares of the family pursuant to a demand registration in addition newco may postpone for up to jj days the filing or the effectiveness of any such demand registration_statement if the board_of directors determines that effecting such registration would have certain negative consequences the family-corporation agreement also provides that beginning with the first annual meeting of the shareholders of newco following the ipo the family members will have the right to nominate one director to the board_of directors of newco or if the board_of directors is comprised of more than eleven directors the family members will have the right to nominate two directors this right terminates when the family hold less than y of the outstanding shares of newco's common_stock the family members also agreed as shareholders of newco to take all actions necessary to elect all of newco's recommended nominees for director the family-corporation agreement terminates if the ipo is not consummated by plr-140038-03 date or at the point when the aggregate number of common shares ie classes a b and c common held by the family members is less than z family-corporation agreement corporation has agreed to reimburse the family up to dollar_figureaa for their legal and financial fees incurred on or after date in connection with the transaction taxpayer furthermore represents the following in consideration of the agreements and covenants of the family under the since the percentage of the family’s ownership of class b common_stock is currently about bb of the class b common_stock outstanding the possibility of the family owning at any time hereafter w or more of the outstanding class b common_stock is remote if the option of the company to call the class c common_stock for redemption on date is exercised the family expects that the holders of class c common_stock will notify the company that they wish to retain their class c common shares unless the value of the stock into which class c can be converted is significantly less than the redemption price although the transactions described above are referenced as proposed transactions they have in fact been consummated rulings based solely on the information submitted by the taxpayer and the family_trust we rule as follows on the above described transactions the class c common_stock received by the taxpayer and the family_trust will not be preferred_stock within the meaning of sec_351 and accordingly will not constitute other_property for purposes of sec_354 and sec_356 the class c common_stock received by the taxpayer and the family_trust will not be sec_306 stock within the meaning of sec_306 the class c common_stock received by the taxpayer and the family_trust will not be preferred_stock for purposes of sec_305 and or for purposes of the application of sec_305 plr-140038-03 for federal_income_tax purposes the receipt by taxpayer and the family_trust of newco class b common_stock in exchange for corporation stock and the options and other rights under the employee_trust followed by the exchange by taxpayer and the family_trust of some of their newco class b common_stock for newco class c common_stock will be disregarded and will be viewed as the exchange by the taxpayer and the family_trust of all of their corporation stock for a combination of newco class b common_stock and newco class c common_stock the exchange by taxpayer and the family_trust of corporation stock and the options and other rights under the employee_trust for a combination of newco class b common_stock and newco class c common_stock as referred to in above qualifies as an exchange under sec_351 the employee_trust was also a transferor in the above sec_351 transaction no gain_or_loss will be recognized by the taxpayer and the family_trust upon the exchange of corporation stock and the options and other rights under the employee_trust for newco stock in the above sec_351 transaction the taxpayer’s and the family trust’s basis in their newco class b common and class c common_stock after the exchange will be the same as the aggregate basis of their corporation stock and the options and other rights under the employee_trust held immediately before the exchange allocated in proportion to their fair_market_value of each in accordance with sec_1_358-2 sec_358 and b the taxpayer’s and the family trust’s holding_period for the stock of newco that each receives in the exchange will include their holding_period for the assets exchanged therefor provided that the assets exchanged are capital assets as described in sec_1221 or property described in sec_1231 sec_1223 the basis of the property received by newco in the sec_351 exchange will be the same as the basis of that property in the hands of the transferors immediately before the transfer sec_362 the holding_period of the property received by newco in the sec_351 exchange will include the period during which the property was held by the transferors sec_1223 plr-140038-03 no gain_or_loss will be recognized by newco on its receipt of property from the transferors in exchange for newco’s class b common and class c common_stock sec_1032 the receipt by the taxpayer and the family_trust of newco’s class b common and class c common will not be treated as receipt of a distribution_of_property to which sec_301 applies by reason of the application of sec_305 or c caveats 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 procedural statements this ruling is directed only to the taxpayer s 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 a copy of this letter must be attached to any income_tax return to which it is relevant sincerely alfred bishop alfred bishop branch chief branch office of associate chief_counsel corporate cc


t c memo united_states tax_court michael forbes dehoney petitioner v commissioner of internal revenue respondent docket no filed date michael forbes dehoney pro_se jeanne gramling for respondent memorandum opinion wells judge respondent determined a dollar_figure deficiency in income_tax for petitioner’s taxable_year after concessions the only issue remaining is whether petitioner is entitled to deduct for taxable_year certain legal expenses that were paid in taxable_year unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure background at the time of filing the petition in the instant case petitioner was incarcerated in bennettsville south carolina during the year in issue the south carolina department of corrections scdc had the following restriction on inmate correspondence inmates will be prohibited from receiving any financial statements that show a balance of funds and or provide information on financial_assets that may be available to the inmate bank deposit books checking savings or other fund statements etc blank checks checkbooks or other negotiable instruments during date the restriction was amended to provide an exception for year-end statements for the purpose of filing tax returns during however the internal_revenue_service criminal investigation columbia south carolina office discovered that several inmates at the scdc had promoted and prepared false tax returns resulting in more than dollar_figure million in erroneously issued tax refunds during date in response to that discovery the scdc declared blank internal_revenue_service forms to be contraband and began reviewing incoming mail for forms w-2 and on date petitioner filed a complaint in the richland county south carolina court of common pleas seeking to permanently enjoin the scdc from interfering with his receipt of financial statements and tax forms petitioner filed a similar action in the u s district_court district of south carolina columbia division on date whether petitioner may deduct in taxable_year the legal fees he incurred in filing those actions is the only issue remaining in the instant case discussion individuals are allowed a deduction for ordinary and necessary expenses paid_or_incurred during the taxable_year in connection with the determination collection_or_refund_of_any_tax sec_212 cash_method taxpayers may deduct expenses when they are actually paid sec_1_446-1 income_tax regs respondent contends that petitioner’s legal expenses are not properly deductible for taxable_year because they were not paid in that year petitioner contends the expenses are 1petitioner did not receive several forms because of the above-mentioned restrictions nonetheless petitioner timely filed hi sec_2001 tax_return based on the limited information he had received respondent determined a dollar_figure deficiency in tax for petitioner’s taxable_year and issued a notice_of_deficiency on date respondent conceded that petitioner was allowed certain deductions for expenses related to rental property petitioner owned respondent did not allow however a deduction for dollar_figure in legal fees associated with petitioner’s lawsuits that were incurred during taxable_year at trial petitioner asked the court to order respondent to provide him with appropriate federal_income_tax forms to allow him to file his tax returns respondent has agreed to provide petitioner with the appropriate forms accordingly we do not address this issue deductible in because they were associated with hi sec_2001 tax_return we agree with respondent petitioner incurred and paid the legal expenses in issue during his taxable_year accordingly petitioner must deduct these expenses in the year paid not in any prior year to reflect the foregoing decision will be entered under rule


‘tax exempt and government entities division department of the treasury internal_revenue_service washington d c aug - se ‘ter rats uniform issue list legend decedent a_trust d state f date l date m date n date p date q date r date s amount t ira x dear this is in response to your request for a private_letter_ruling submitted by your authorized representative by letter dated date concerning the proper rollover treatment of a distribution from decedent a’s individual_retirement_account ira x under sec_408d page of the internal_revenue_code code the request correspondence dated date supplemented your authorized representative has submitted the following facts and representations in support of your ruling_request decedent a was born on date l and died on date m at age a resident of state f you were married to decedent a at the time of his death decedent a maintained ira x and on date s he named trust d as the beneficiary of ira x trust disa trust set up for your benefit named beneficiary as wife you were born on date r and are over age the beneficiary designation form shows the relationship of the trust d was executed on date n and amended on date p and date q the value of ira x as of the date of decedent a’s death was amount t - you are the sole trustee of trust d as sole trustee you have full control_over trust d assets pursuant to article tenth of trust d pursuant to article first and article tenth subsection k of trust d you have the authority to direct in writing the trust d trustee to dispose_of the income and principal of trust d and as trustee you have the power to make payments of income or principal to yourself as directed by trust language pursuant to article second you have the power_to_revoke trust d however you have represented to the service that trust d will not be revoked you intend pursuant to articles first and tenth of trust d to direct the trustee of trust d to pay you all amounts standing in ira x due trust d incident to said request you will make a direct trustee-to-trustee transfer of ira x assets into an ira set up and maintained in your own name and to treat the transferee ira as your own ira based on the above facts and representations you through your authorized representative request the following rulings that for purposes of code sec_408 and sec_1_408-8 question answer- of the income_tax regulations regulations you may be treated as the beneficiary of decedent a’s ira x so that the ira x account balance may be transferred from decedent a’s ira x into an ira set up and maintained in your name and the amounts standing in ira x to be transferred into an ira set up and maintained in your name by means of a trustee-to-trustee transfer will not be included in your gross_income and will not be taxed under code sec_408 in the year in which transferred that decedent’s ira x will not be treated as an inherited ira under code sec_408 c and that the ira established in your name into which the account balance from ira x is to be transferred via a trustee-to-trustee transfer will be subject_to the distribution_requirements of code sec_401 page with respect to your ruling requests code sec_408 provides that except as otherwise provided in this subsection any amount_paid or distributed out of an individual_retirement_plan shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 code sec_408 provides that sec_408 does not apply to a rollover_contribution if such contribution satisfies the requirements of sec_408 and d b code sec_408 provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the account is maintained if the entire amount received including money and any other_property is paid into an ira other than an endowment_contract for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution code sec_408 provides in pertinent part that in the case of an inherited ira sec_408 shall not apply to any amount received by an individual from such account and no amount transferred from such account to another ira shall be excluded from income by reason of such transfer and such inherited account shall not be treated as an ira for purposes of determining whether any other amount is a rollover_contribution code sec_408 provides that an ira shall be treated as inherited if the individual for whose benefit the account is maintained acquired such account by reason of the death of another individual and such individual was not the surviving_spouse of such other individual thus pursuant to code sec_408 a surviving_spouse who acquires ira proceeds from and by reason of the death of her husband may elect to treat those ira proceeds as her own and roll them over into her own ira code sec_408 of the code provides in general that the rollover rules of code sec_408 do not apply to any amounts required to be distributed in accordance with code sec_401 and sec_408 code sec_401 provides in relevant part that distributions from a retirement_plan qualified within the meaning of code sec_401 must begin no later than the plan participant’s required_beginning_date and must be paid over a period of time that may extend to the joint life expectancies of the plan participant and his her designated_beneficiary code sec_408 extends the code sec_401 requirements to iras described in code sec_408 thus in short an ira owner may receive required distributions over her life expectancy or over a period not to exceed the joint life expectancies of the ira holder and her designated_beneficiary on date final income_tax regulations regulations were published in the federal_register with respect to code sec_401 and sec_408 see also sec_1_408-8 of the regulations question and answer lr b date provides that a surviving_spouse of an ira owner may elect to treat the spouse's entire_interest as a beneficiary in an individual's ira as the spouse's own ira in order to make this election the spouse must be the sole beneficiary of the ira and have an unlimited right page to withdraw amounts from the ira if a_trust is named as beneficiary of the ira this requirement is not satisfied even if the spouse is the sole beneficiary of the trust the preamble to the regulations provides in relevant part that a surviving_spouse who actually receives a distribution from an ira is permitted to roll that distribution over into his her own ira even if the spouse is not the sole beneficiary of the deceased's ira as long as the rollover is accomplished within the requisite day period a rollover may be accomplished even if ira assets pass through éither a_trust and or an estate revrul_78_406 1978_2_cb_157 provides that the direct transfer of funds from one ira trustee to another ira trustee even if at the behest of the ira holder does not constitute a payment or distribution to a participant payee or distributee as those terms are used in code sec_408 furthermore such a transfer does not constitute a rollover_distribution additionally a trustee to trustee transfer as described in revrul_78_406 does not constitute a distribution or payment as those terms are defined for purposes of code sec_408 finally revrul_78_406 is applicable if the trustee to trustee transfer is directed by the the beneficiary accomplishing such beneficiary of an ira after the death of the ira owner a post-death trustee to trustee need not be the surviving_spouse of a deceased ira holder with respect to your ruling requests generally if either a decedent's plan or ira proceeds pass through a third party eg a_trust and then are distributed to the decedent's surviving_spouse said spouse will be treated as acquiring them from the third party and not from the decedent thus generally said surviving_spouse will not be eligible to roll over either the qualified_plan or the ira proceeds into his her ira however in the present case the provisions of trust d give you the power during your lifetime to request in writing that the trustee of trust d pay you as much of the principal and income of trust d as you want the provisions of trust d also give you as sole trustee thereof the power to make distributions to any beneficiary of said trust d as sanctioned by the trust language pursuant to the provisions of trust t you will request that the trustee of trust d pay you all amounts standing in ira x and the trustee of trust d in order to comply with your request will direct that the ira x proceeds be transferred by means of a trustee- to-trustee transfer into an ira set up and maintained in your name said transaction will occur during calendar_year the service notes that under this set of circumstances all actions taken with respect to both the ira x distribution and the subsequent transfer into an ira set up and maintained in your name will be accomplished by you treated as the payee and beneficiary of ira x for purposes of code sec_408 and sec_408 thus with respect to your ruling requests we conclude thus under the facts stated above you are to be that for purposes of code sec_408 and sec_1_408-8 question answer- of the income_tax regulations regulations you may be treated as the beneficiary of decedent a’s ira x so that the ira x account balance may be transferred from decedent a’s ira x into an ira set up and maintained in your name page the amounts standing in ira x to be transferred into an ira set up and maintained in your name by means of a trustee-to-trustee transfer will not be included in your gross_income and will not be taxed under code sec_408 code in the year in which transferred that decedent's ira x will not be treated as an inherited ira under code sec_408 and that the ira established in your name into which the account balance from ira x be transferred via a trustee-to-trustee transfer will be subject_to the distribution_requirements of code sec_401 this ruling letter assumes that ira x either is or was qualified under code sec_408 at all times relevant thereto it also assumes that the transferee ira to be set up by you will also meet the requirements of code sec_408 at all times relevant thereto please note that this letter_ruling does not apply to any amounts required to be distributed in accordance with code sec_401 and sec_408 if any this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this letter is being sent to your authorized representative in accordance with a power_of_attorney on file in this office if you have any questions please call number id - jat - not a toll free sincerely yours rances v sloan manager employee_plans technical group enclosures notice of intention to disclose deleted copy of ruling cc