internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp - plr-105786-00 date date re parent target target target target target sub x sub y purchaser seller seller seller seller a b plr-105786-00 c d e f g h i j k l m n q state a country b date a date b date c parent official outside cpa authorized representative plr-105786-00 this responds to a letter dated date submitted on your behalf by your authorized representative requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election parent as common parent of the consolidated_group of which sub y the united_states_shareholder of purchaser the foreign purchasing company is a member is requesting an extension of time to file an election under sec_338 of the internal_revenue_code with respect to the acquisition of target hereinafter referred to as the election all citations in this letter to regulations under sec_338 are to the regulations as in effect for date a additional information was submitted in letters dated may and date the material information submitted for consideration is summarized below sub x a state a corporation is a first-tier wholly owned subsidiary of parent a state a corporation parent was and is the common parent of a consolidated_group sub x owns percent of outstanding_stock of sub y a state a corporation sub y owns percent of the outstanding_stock of purchaser which is incorporated under the laws of country b target target target target and target hereinafter collectively referred to as the targets are corporations formed under the laws of country b prior to their acquisition by purchaser all of the outstanding_stock of the targets were owned as follows target had a shares of stock outstanding of which seller owned b shares seller owned c shares and seller owned the remaining d shares target had e shares outstanding of which target owned f shares and seller owned the remaining g shares target had h shares outstanding of which target owned i shares target owned j shares seller owned k shares seller owned l shares and seller owned the remaining m shares target had n shares outstanding of which seller owned l shares and target owned the remaining q shares and target was wholly owned by target at the time of the acquisition none of the targets were controlled_foreign_corporations within the meaning of sec_957 passive foreign investment companies for which an election under sec_1295 was in effect foreign investment companies or foreign_corporations the stock ownership of which is described in sec_552 or required under sec_1_6012-2 to file a united_states income_tax return on date a in a single transaction purchaser acquired all of the stock of the targets owned by seller sec_1 - thus after the purchase purchaser owned directly or through target sec_1 and all of the stock of target sec_1 - prior to making the purchase parent determined that it would file elections pursuant to the provisions of sec_338 to treat the acquisition of the stock of each of the targets as the purchase of the assets of each of the targets plr-105786-00 it has been represented that the stock of the targets was acquired for cash in a fully taxable transaction neither parent nor any members of the parent affiliated_group was related to the targets’ shareholders within the meaning of sec_338 and the acquisition of the stock of each of the targets by purchaser was a qualified_stock_purchase within the meaning of sec_338 the election was due on date b parent relied on outside cpa authorized representative to make the election however for various reasons the election was not filed on the applicable due_date on date c which is after date b and thus after the due_date for the election outside cpa authorized representative discovered that the election was not timely filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the statute_of_limitations under sec_6501 has not run for the tax_year in which the acquisition occurred the taxable_year in which the election should have been filed or for any taxable years that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election under sec_338 and the acquisition is a qualified_stock_purchase sec_1_338-1 provides that a sec_338 election is an election to apply sec_338 to target sec_338 specifies the requirements for making a sec_338 election sec_338 defines a qualified_stock_purchase as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of corporation is acquired by another corporation by purchase during the 12-month_acquisition_period sec_1_338-1 and v provide that for purposes of sec_1_338-1 ie qualifying for the special rule which provides a later filing_date for an election under sec_338 than ordinarily required a foreign_corporation is considered subject_to united_states tax ie is not eligible for the special rule if it is a controlled_foreign_corporation sec_338 provides that the term purchase means any acquisition of stock but only if i the basis of the stock in the hands of the purchasing_corporation is not determined i in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or ii under sec_1014 relating to property_acquired_from_a_decedent ii the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and iii the stock is not acquired from a person the ownership of whose stock would under sec_318 other than paragraph thereof be attributed to the person acquiring such stock plr-105786-00 sec_1_338-1 provides that a purchasing_corporation makes a sec_338 election for target by filing a statement of sec_338 election on form_8023 in accordance with the instructions on the form the sec_338 election must be filed not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs a sec_338 election is irrevocable sec_1_338-1 provides that the united_states_shareholders as defined in sec_951 of a foreign purchasing_corporation that is a controlled_foreign_corporation as defined in sec_957 taking into account sec_953 may file a statement of sec_338 election on behalf of the purchasing_corporation if the purchasing_corporation is not required under sec_1_6012-2 other than sec_1_6012-2 to file a united_states income_tax return for its taxable_year that includes the acquisition_date form_8023 must be filed as described in the form and its instructions and also must be attached to form_5471 filed with respect to the purchasing_corporation by each united_states_shareholder for the purchasing_corporation sec_1_338-2 provides that if an election under sec_338 is made for target old target is deemed to sell target’s assets and new target is deemed to acquire those assets sec_1_338-2 example illustrates how the purchase of a corporation holding target stock provided a sec_338 election is made therefor and the direct purchase of the remaining target stock can be combined to make a qualified_stock_purchase the term target_affiliate has the same meaning as in sec_338 applied without sec_338 thus a corporation described in sec_338 is considered a target_affiliate for all purposes of sec_338 if a target_affiliate is acquired in a qualified_stock_purchase it is also a target see sec_1_338-1 if an election under sec_338 is made for target old target is deemed to sell target’s assets and new target is deemed to acquire those assets under sec_338 new target’s deemed purchase of stock of another corporation is a purchase for purposes of sec_338 on the acquisition_date of target if new target’s deemed purchase causes a qualified_stock_purchase of the other corporation and if a sec_338 election is made for the other corporation the acquisition_date for the other corporation is the same as the acquisition_date of target however the deemed sale and purchase of the other corporation’s assets is considered to take place after the deemed sale and purchase of target’s assets see sec_1_338-2 sec_1_1502-77 provides that the common parent for all purposes other than for several purposes not relevant here shall be the sole agent for each subsidiary in the group duly authorized to act in its own name in all matters relating to the tax_liability for the consolidated_return_year see also form_8023 and the instructions thereto plr-105786-00 under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_338-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent as the common parent of the consolidated_group that includes sub y the united_states_shareholder of the foreign purchasing_corporation to file the election provided parent shows that sub y as the united_states_shareholder of the foreign purchasing_corporation acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent parent official and outside cpa authorized representative explain the circumstances that resulted in the failure to timely file the valid election the information establishes that the request for relief was initiated before the failure to make the regulatory election was discovered by the internal_revenue_service that parent reasonably relied on a qualified_tax professional and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent and sub y acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly provided that an election under sec_338 has been made regarding the acquisition of target an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of this letter for parent as the common parent of the consolidated_group that includes sub y the united_states_shareholder of the foreign purchasing company to file the election with respect to the acquisition of target plr-105786-00 the above extension of time is conditioned on the taxpayers’ parent’s consolidated group’s purchaser’s and target 4’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the district director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' liability is lower sec_301_9100-3 parent as common parent of the consolidated_group which includes sub y should file the election in accordance with sec_1_338-1 that is a new election on form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions on the election form together with any information that is required to be attached to the election form a copy of this letter should be attached to the election form parent must amend its consolidated_return for its first taxable_year following the acquisition to attach a copy of this letter and the election form and any information required therewith and to show that the acquisition was reported as a sec_338 transaction also parent must file a final return for target if and as applicable reporting the acquisition as a sec_338 transaction and attach thereto a copy of this letter and the election form see sec_1_338-1 and g no opinion is expressed as to whether the acquisition of the stock of target qualifies as a qualified_stock_purchase whether the acquisition of the stock of target qualifies for sec_338 treatment or if the acquisition of the stock of target qualifies for sec_338 treatment as to the amount of gain_or_loss recognized if any by target on the deemed asset sale in addition no opinion is expressed as to the tax effects or consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or tax effects or consequences resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayer its employees and representatives however the district_director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to outside cpa authorized representative plr-105786-00 sincerely yours assistant chief_counsel corporate


de internal_revenue_service national_office technical_advice_memorandum number release date index uil no case mis no tam-111473-99 cc dom it a b2 district_director taxpayer’s name taxpayer’s identification no years involved date of conference october issue are distributions of alaska native fund proceeds made by the taxpayer to its shareholders subject_to information reporting under sec_6042 of the internal_revenue_code conclusion because the distributions of alaska native fund proceeds made by the taxpayer to its shareholders were not dividends under sec_316 the distributions are not subject_to information reporting under sec_6042 facts the alaska native claims settlement act publaw_92_203 85_stat_688 codified as amended u s c act was enacted to settle all aboriginal land claims by natives and native groups of alaska under the act natives received cash and land distributed through regional and village corporations these corporations were established under alaska law in accordance with the provisions of the act and their shareholders are natives section of the act established an alaska native fund anf and section provided for its distribution by regional corporations among its shareholders ie alaska natives sec_21 of the act provides that revenues originating from the alaska native fund shall not be subject_to any form of federal state or local taxation at the time of receipt by a regional corporation village corporation or individual native through dividend distributions this exemption shall not apply to income from the investment of such revenues the taxpayer is a regional corporation that made certain distributions to its shareholders in for purposes of this memorandum we are assuming that such distributions were made from the alaska native fund anf proceeds in an examination of the taxpayer the examining agent questioned why the taxpayer did not file form_5452 corporate report of nondividend distributions and forms 1099-div dividends and distributions reporting the distribution of anf proceeds to its shareholders form_5452 requires a corporation to report the total amount of distributions paid during the year the amount of distributions paid from current and accumulated_earnings_and_profits and the amount of distributions paid from sources other than earnings_and_profits the instructions for form_5452 state that corporations are to complete and file the form if nondividend distributions are made to shareholders under sec_301 form_5452 is based on revproc_75_17 1975_1_cb_677 which describes data to be filed by a corporation sec_3 of revproc_75_17 cites sec_6042 as its authority sec_6042 is also the authority for form 1099-div which requires the reporting of nontaxable distributions the agent asserts that the taxpayer’s distributions in were distributions under sec_301 and therefore subject_to information reporting law and analysis sec_301 determines the treatment of distributions of property made by a corporation to a shareholder with respect to its stock under sec_301 the portion of a distribution that is a dividend as defined in sec_316 shall be included in gross_income under sec_301 the portion of a distribution that is not a dividend shall be applied against and reduce the adjusted_basis of stock generally sec_316 defines the term dividend as any distribution_of_property made by a corporation to its shareholders out of its earnings_and_profits accumulated after date or out of its earnings_and_profits of the taxable_year under sec_6042 every person who makes payments of dividends aggregating dollar_figure or more to any other person during any calendar_year shall make a return according to the forms or regulations prescribed by the secretary sec_6042 and sec_1_6042-3 of the income_tax regulations define the term dividend as any distribution made by a corporation which is a dividend as defined in sec_316 the instructions also state that the form is to be completed if nondividend distributions are made to shareholders under sec_1368 or sec_1371 but neither of these provisions is relevant here sec_4 of revproc_75_17 states that it is applicable to distributions under sec_301 that are wholly or partly nontaxable as dividends sec_6042 provides that every corporation shall when required by the secretary furnish a statement setting forth the name and address of each shareholder and the number of shares owned by each shareholder such facts as will enable the secretary to determine the portion of the earnings_and_profits of the corporation accumulated during such periods as the secretary may specify which have been distributed or ordered to be distributed respectively to its shareholders during such taxable years as the secretary may specify and its accumulated_earnings_and_profits and the names and addresses of the individuals or shareholders who would be entitled to such accumulated_earnings_and_profits if divided or distributed and of the amounts that would be payable to each sec_21 of the act which requires the distribution of anf proceeds to be free from taxation at the time of receipt overrides the normal application of sec_316 which provides that every distribution is made out of earnings_and_profits to the extent thereof and that a distribution made out of earnings_and_profits is a dividend as a result any distribution made by a regional corporation of anf proceeds is nontaxable irrespective of the amount of the corporation’s earnings_and_profits thus the taxpayer’s distributions in of anf proceeds were not dividends within the meaning of sec_316 form_5452 states that nondividend distributions are considered fully or partially nontaxable as dividends only because the paying corporation’s current and accumulated_earnings_and_profits are less than the distributions that is the premise underlying the reporting of nondividend distributions on form_5452 and nontaxable distributions on form 1099-div is that these amounts would be dividends and taxable if they were made out of the corporation’s accumulated and current_earnings_and_profits however under the unique circumstances presented the distributions of anf proceeds are nontaxable not because the taxpayer’s accumulated and current_earnings_and_profits are less than the amount of the distributions but because the act so provides thus since the taxpayer’s distributions of anf proceeds were not dividends irrespective of the amount of the taxpayer’s earnings_and_profits by reason of the act they are not subject_to the information reporting requirements of sec_6042 we note however that nothing in the act conflicts with the application of sec_301 because the distributions are made by a corporation to its shareholders with respect to its stock sec_301 determines the treatment of the distributions of anf proceeds in applying the normal rules of sec_301 and distributions of anf proceeds are not included in the shareholders’ gross_income under sec_301 because they are not dividends within the meaning of sec_316 however as distributions that are not dividends they are applied against and reduce the basis in the shareholders’ stock under sec_3 similarly because of these unique circumstances the distributions of anf proceeds are not within the scope of revproc_75_17 c the application of sec_301 is consistent with implementing congress’ intent of exempting from tax only anf proceeds but not the income from the investment of anf proceeds by applying sec_301 to reduce the bases of the shareholders’ shares upon distributions of anf proceeds only the income from the investment of the anf proceeds not the proceeds themselves is taxable unless sec_301 applies to distributions of anf proceeds the shareholders’ bases in the shares would not be reduced contrary to the intent of the act caveat a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 provides that it may not be used or cited as precedent


department of the treasury internal_revenue_service washington d c a tax_exempt_and_government_entities_division aug tj fo a ‘ l p u i l xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxkxx xxxxxxxxxxxxxxxkk xxxxxxxxxxxxxxxkk legend taxpayer a xxxxxxxxxxxxxx individual b xxxxxxxxxxxxxx ira x xxxxxxxxxxxxxx amount d xxxxxxxxxxxxxx credit_union c xxxxxxxxxxxxxx date xxxxxxxxxxxxxx dear xxxxxxxxxx this is in response to your letter dated date as supplemented by correspondence dated date submitted on your behalf by your durable_power_of_attorney in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a’s power_of_attorney represents that on date individual b taxpayer a’s sister and caregiver unintentionally requested and erroneously received on behalf of taxpayer a a distribution from ira x totaling amount d taxpayer a’s power_of_attorney asserts that individual b’s failure to accomplish a rollover within the 60-day period prescribed by sec_408 on behalf of taxpayer a was due to the mental state of individual b at the time of the distribution taxpayer a has been severely and permanently disabled for many years and was being cared for by her parents who ensured that there would be funds available in various certificates of deposit cds with credit_union c for taxpayer a’s care one of the cds was in ira x after the passing of taxpayer a's parents several years ago individual b who has a power_of_attorney to act on behalf of taxpayer a became taxpayer a’s primary caregiver in addition to her caregiving responsibilities individual b is also being treated for medical problems taxpayer a had an accident and broke both of her legs which resulted in even more caregiving responsibility for individual b all of these events left individual b overwhelmed rushing from one task to another including doctor's visits for herself and taxpayer a when the funds were running low because of taxpayer a’s additional medical bills individual b decided to cash in one of taxpayer a’s cds at credit_union c accordingly on date individual b acting as an agent for taxpayer a went to credit_union c to cash in one of taxpayer a’s non ira cds the representative of credit_union c completed an ira withdrawal form and gave individual b the form to sign because individual b was overwhelmed by issues relating to taxpayer a’s care and her own medical problems she did not realize that the withdrawal was from the cd in ira x whereas she intended to cash in a non- tax-deferred cd taxpayer a’s power_of_attorney did not become aware of individual b’s error until taxpayer a’ sec_2013 taxes were being prepared based on the above facts and representations taxpayer a’s power_of_attorney requests that the internal_revenue_service the service waive the 60-day rollover requirement with respect to the distribution of amount d from ira x sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual received the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not included in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity and good conscience including casuaity disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occur after date are eligible for the waiver under sec_408 of the code revproc_2003_16 i r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a’s power_of_attorney is consistent with her assertion that individual b’s failure to accomplish a timely rollover on behalf of taxpayer a was caused by her mental state at the time of distribution which prevented her from realizing that she had taken a distribution from ira x therefore pursuant to code sec_408 the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from ira x taxpayer a’s power_of_attorney is granted a period of days from the issuance of this ruling letter to contribute amount d into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution the contribution of amount d will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter is being sent to your power_of_attorney if you have any questions regarding this letter please contact xxxxxxxxxxxxxx at xxxxxxxxxxxxxxx all correspondence should be addressed to se t ep ra t enclosures sincerely yours deleted copy of letter_ruling laura b warshawsky manag employee_plans technical group notice of intention to disclose


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc ita 1-plr-122304-01 date date legend taxpayer year year year location firm dear this ruling responds to a letter dated date submitted by your authorized representative requesting an extension of time under sec_301 of the procedure and administration regulations for taxpayer to make an election to use the alternative_cost_method of accounting in conformity with the requirements of revproc_92_29 1992_1_cb_748 facts taxpayer is a limited_liability_company that is classified as a partnership for federal_income_tax purposes and uses an accrual_method of accounting taxpayer is engaged in real_estate development and was formed to develop a parcel of land in location the project was projected to last years and included various kinds of residential units as well as retail and office space at the end of year taxpayer sold lots to homebuilders for the purpose of erecting model homes the lots were sold without water and sewer utilities the number of lots sold in year for model homes represented a negligible portion of the overall project taxpayer’s federal partnership tax_return for year was prepared and filed by employees of taxpayer’s tax_matters_partner because only a small number of lots without utilities were sold in year taxpayer did not believe that it was required to make an election under revproc_92_29 for year the election was due on september of year in january of year taxpayer was advised by firm that an election should have been filed for year shortly thereafter this request for relief was plr-122304-01 filed revproc_92_29 provides a procedure for a developer of real_estate to obtain the commissioner’s consent to use an alternative from the general method under sec_461 of the internal_revenue_code for determining when common improvement costs may be included in the basis of properties sold for purposes of determining the gain_or_loss resulting from the sales this alternative_cost_method allows a developer to include in the basis of properties sold their allocable share of the estimated cost of common improvements without regard to whether the costs have been incurred under sec_461 subject_to certain limitations under section dollar_figure of revproc_92_29 a developer that is a corporation or partnership must file a request to use the alternative_cost_method with the appropriate district_director for the internal_revenue_district in which is located the developer’s principal_place_of_business or principal office or agency the request must be filed on or before the due_date of the developer’s original federal_income_tax return determined with regard to extensions of time for the taxable_year in which the first benefitted property is sold the developer must also attach a copy of the request to its timely filed original federal_income_tax return for the taxable_year from the outset of the project taxpayer intended to use the alternative_cost_method taxpayer actually used a method similar to the alternative_cost_method to account for common improvement costs in the bases of properties sold in year taxpayer failed to timely file the election under revproc_92_29 because it did not initially believe such election was necessary for year taxpayer represents that but for its failure to timely file an election under revproc_92_29 taxpayer is qualified to use the alternative_cost_method taxpayer is not under examination for year and has not been notified by the internal_revenue_service of its failure to comply with the requirements of revproc_92_29 law and analysis sec_301_9100-1 through set forth the standards that the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-2 provides an automatic_extension of time to make certain statutory elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the under the new structure of the internal_revenue_service a developer must now file its request with the director as defined in sec_1 of revproc_2001_1 2001_1_irb_1 plr-122304-01 commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 enumerates five circumstances under which a taxpayer is deemed to have acted reasonably and in good_faith a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer requests relief before the failure to make the regulatory election is discovered by the service or if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election sec_301_9100-3 provides that a taxpayer is deemed to have not acted reasonably and in good_faith if the taxpayer - i ii iii seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief was informed in all material respects of the required election and related tax consequences but chose not to file the election or uses hindsight in requesting relief if specific facts have changed since the due_date for making the election that make the election advantageous to a taxpayer the service will not ordinarily grant relief in such a case the service will grant relief only when the taxpayer provides strong_proof that the taxpayer’s decision to seek relief did not involve hindsight sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 also provides in part that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under sec_301_9100-3 sec_301_9100-3 provides that the interests of the government are deemed to be prejudiced except in unusual and compelling circumstances if the accounting_method regulatory election for which relief is requested - i ii is subject_to the procedure described in sec_1 e i requires an adjustment under sec_481 or would require an adjustment plr-122304-01 under sec_481 if the taxpayer changed to the method_of_accounting for which relief is requested in a taxable_year subsequent to the taxable_year the election should have been made iii would permit a change from an impermissible method_of_accounting that is an issue under consideration by examination an appeals_office or a federal court and the change would provide a more favorable method or more favorable terms and conditions than if the change were made as part of an examination or iv provides a more favorable method_of_accounting or more favorable terms and conditions if the election is made by a certain date or taxable_year based on our analysis of the facts the taxpayer in the present case acted reasonably and in good_faith and granting relief will not prejudice the interests of the government therefore the requirements of sec_301 have been met taxpayer failed to timely file an election to use the alternative_cost_method because of a mistake regarding the proper application of revproc_92_29 to its project taxpayer always intended to use the alternative_cost_method under revproc_92_29 and in fact used a similar method to compute its basis in the properties sold in year taxpayer is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 taxpayer did not use hindsight in requesting relief no facts have changed since the due_date for making the election that make the election advantageous to taxpayer finally taxpayer acted promptly in filing its request for relief before the service discovered the failure to make the regulatory election therefore taxpayer acted reasonably and in good_faith furthermore granting relief will not result in taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than taxpayer would have had if the election had been timely made nor will any closed taxable years be affected additionally none of the circumstances listed in sec_301_9100-3 which describes conditions under which the interests of the government are generally deemed to be prejudiced with respect to accounting_method regulatory elections are present in this case therefore the interests of the government will not be prejudiced by granting the requested relief because taxpayer acted reasonably and in good_faith and because the interests of the government will not be prejudiced if the request for relief is granted taxpayer is granted an extension of days from the date of this ruling to file with the director a request to use the alternative_cost_method under revproc_92_29 the ruling contained in this letter is based upon facts and representations submitted by taxpayer except as specifically addressed herein no opinion is expressed regarding the tax treatment of the subject transaction under the provisions of any other sections of the code or regulations that may be applicable thereto plr-122304-01 specifically no opinion is expressed as to whether taxpayer satisfies any of the other requirements for eligibility to use the alternative_cost_method of revproc_92_29 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file in our office copies of this letter are being sent to your representatives a copy of this letter_ruling should be attached to the returns schedules and forms filed in connection with making the election under revproc_92_29 when such forms are filed sincerely kimberly l koch assistant to branch chief branch office of associate chief_counsel income_tax accounting


t c memo united_states tax_court estate of paul h liljestrand deceased robert liljestrand executor petitioner v commissioner of internal revenue respondent docket no filed date robert e kolek and david t morris for petitioner nicholas d doukas for respondent memorandum findings_of_fact and opinion haines judge respondent determined a dollar_figure federal estate_tax deficiency against the estate of paul h liljestrand estate after concessions the issue for decision is whether the value of the assets dr paul h liljestrand dr liljestrand transferred to a family limited_partnership are included in the value of his gross_estate under sec_2036 background findings_of_fact many of the facts have been stipulated and are so found the stipulation of facts is incorporated herein by this reference dr liljestrand was a resident of hawaii when he died testate on date and his will was probated in that state the estate acts through its executor robert liljestrand robert robert dr liljestrand’s son resided in hawaii when the petition was filed dr liljestrand was born in iowa in he obtained an undergraduate degree from ohio wesleyan university and a medical degree from harvard medical school upon completing medical school dr liljestrand accepted a residency at queens hospital in honolulu hawaii in after his residency dr liljestrand went to work at the plantation hospital in aiea hawaii hospital where he practiced medicine as a general practitioner and surgeon the plantation hospital was a small community hospital that served the plantation’s workers and the surrounding area’ sec_1unless otherwise indicated section references are to the internal_revenue_code as in effect on the date of dr liljestrand’s death rule references are to the tax_court rules_of_practice and procedure amounts are rounded to the nearest dollar residents some time after dr liljestrand began working at the hospital the plantation closed and the decision was made to close the hospital dr liljestrand entered into an agreement with the plantation’s owners to lease the hospital building dr liljestrand opened a medical practice in the building and organized a not-for-profit group to operate the hospital a few years later dr liljestrand purchased the hospital property dr liljestrand retired from the practice of medicine in a year later the rising cost of medical malpractice insurance forced him to sell the hospital building the sale was part of an exchange pursuant to sec_1031 dr liljestrand exchanged the hospital property for a mini-warehouse in gresham oregon eight condominiums in calabasas california three buildings in the royal village shopping center in el cajon california a medical building in mesa arizona and a strip mall in sanford florida family life dr liljestrand was married to betty liljestrand they had four children robert liljestrand robert eric liljestrand eric wendy liljestrand wendy and lana craigo lana robert after graduating from college with a degree in public health went to work for his father at the hospital robert was eventually appointed associate hospital administrator in that position robert worked closely with the hospital’s business manager mr kennedy real_estate business after selling the hospital property dr liljestrand hired mr kennedy to manage his newly acquired real_estate business robert also left the hospital to work for dr liljestrand in his real_estate business robert assisted mr kennedy in managing the real_estate robert coordinated with the local onsite managers on repairs and maintenance for almost years irene easter managed the condominiums in calabasas california and dan dellaripa managed the shopping center located in el cajon california mr dellaripa was an active manager he was responsible for acquiring many of the property’s leases he also coordinated the cleanup effort after a major fire on the property and was responsible for obtaining reimbursements from tenants who caused property damage the sanford strip mall and the gresham mini-warehouse also had local onsite managers in or around mr kennedy began contemplating retirement dr liljestrand approached robert about taking over 2in fact mr dellaripa signed many leases as the landlord 3a previous tenant hour fitness upon vacating the property left considerable damage mr dellaripa coordinated the cleanup effort and the effort to recover damages he was successful in his efforts obtaining dollar_figure in damages from hour fitness the overall management of the real_estate business robert agreed and assumed control of the operations mr kennedy stopped making site visits dealing with the local building managers and making decisions regarding the properties he remained in his role as the business’ accountant until when he retired and moved to nevada unable to take on the role of accountant himself robert found a new accountant annie au mrs au creation of dr liljestrand’s revocable_trust in dr liljestrand entered into a revocable_trust agreement for the revocable_trust of paul howard liljestrand trust the trust was funded with the real_estate acquired in the sec_1031 exchange dr liljestrand amended the trust four times including a second restatement in the second restatement named dr liljestrand and robert as cotrustees of the trust dr liljestrand as trustee of the trust retained control and management over the contributed real_estate robert as cotrustee could take over management in the event of dr liljestrand’s inability to manage his affairs dr liljestrand was the sole beneficiary of the trust during his lifetime under the trust terms he had access to all trust income and corpus without restriction and the trustees had a duty to administer the trust solely for dr liljestrand’s benefit upon dr liljestrand’s death the trust’s assets were distributed to two new trusts created for the benefit of dr liljestrand’s children ie a_trust exempt from generation-skipping_transfer_tax residuary_trust and a children’s trust children’s trust robert was named the trustee of both trusts both trusts would terminate upon the death of the last of dr liljestrand’s children to die management agreement in the trust entered into a management agreement with robert to manage its real_estate management agreement the management agreement provided robert with an annual salary of dollar_figure plus bonuses this salary was robert’s primary source_of_income under the terms of the management agreement either dr liljestrand or robert could terminate robert’s employment at any time during dr liljestrand’s life however after dr liljestrand’s death only robert could terminate his employment the management agreement was amended and restated a number of times over the years each time with substantially the same terms plans to create limited_partnership in date dr liljestrand and robert met with dr liljestrand’s estate_planning attorney mr ota according to mr ota and robert dr liljestrand wanted to leave his property to his four children equally but he wanted to ensure robert’s continued employment as manager of the real_estate robert had taken on more and more responsibility with regards to the real_estate business and the other children wanted nothing to do with the business mr ota suggested that dr liljestrand form a limited_partnership and transfer the real_estate held by the trust to the partnership mr ota was concerned with two hawaii statutes which in his opinion could jeopardize robert’s management of the real_estate if the property remained in trust hawaii revised statutes annotated sec lexisnexis allowed certain property owners to seek an action for partition in court and hawaii revised statutes annotated sec_554a-5 b allowed beneficiaries of a_trust to void the actions of an interested trustee mr ota believed that a limited_partnership was the only business_entity in hawaii that could protect against the restrictions contained 4when two or more persons hold or are in possession of real_property as joint_tenants or as tenants in common in which one or more of them have an estate in fee or a life_estate in possession any one or more of such persons may bring an action in the circuit_court of the circuit in which the property or some part thereof is situated for a partition of the property according to the respective rights of the parties interested therein and for a sale of the same or a part thereof if it appears that a partition cannot be made without great prejudice to the owners haw rev stat ann sec lexisnexis if the duty_of the trustee and the trustee’s individual interest or the trustee’s interest as trustee of another trust conflict in the exercise of a_trust power the power may be exercised only by court authorization upon petition of the trustee haw rev stat ann sec_554a-5 b lexisnexis in the hawaiian statutes and ensure robert’s continued management of the real_estate after dr liljestrand’s death additionally a limited_partnership could be used to satisfy dr liljestrand’s desire to gift interests in the real_estate to his children during his life mr ota discussed various aspects of the limited_partnership with dr liljestrand including the ability to gift interests and the tax consequences of forming a limited_partnership formation of plp in dr liljestrand in consultation with mr ota decided to form the paul h liljestrand partners limited_partnership plp mr ota unfamiliar with drafting partnership agreements engaged a former colleague mickey rosenthal to draft the plp agreement it is unclear whether mr rosenthal and dr liljestrand had any contact before mr rosenthal drafted the agreement in order to draft the partnership_agreement mr rosenthal had dr liljestrand fill out a checklist the checklist was sent to mr ota who forwarded it on to dr liljestrand mr ota structured plp on the basis of his general understanding of what dr liljestrand wanted mr rosenthal met with mr ota and drafted the plp agreement in accordance with his instructions though dr liljestrand intended his children to become partners in plp no child other than robert participated in any discussions regarding plp’s formation dr liljestrand and robert signed the plp agreement on date plp was formed on date when dr liljestrand and robert filed a certificate of limited_partnership with the state of hawaii dr liljestrand through the trust transferred dollar_figure in real_estate to plp in exchange for his initial partnership_interest title to the real_estate was transferred to plp by recording deeds in the state of each property’s situs by date these transfers were completed dr liljestrand through the trust held a 98-percent interest in plp dr liljestrand’s children did not contribute to plp but 6the agreement called for a general_partner and two classes of limited partners class a and class b the class a limited_partner was granted a preferred_return the amount of this preferred_return along with a number of other important terms was left blank in the agreement when signed by the parties the blanks included the total number of plp partnership units the number of partnership units each partner would receive the value of each unit and the property each partner would be required to contribute dr liljestrand contributed two lots of land in honolulu hawaii a condominium located in hawaii the gresham mini-warehouse the sanford strip mall the el cajon shopping center and seven condominiums in calabasas california the hawaii condominium was encumbered by a mortgage the mortgage was not transferred to plp but remained dr liljestrand’s personal obligation additionally many of the transferred properties were under lease at the time of transfer these leases were not assigned or transferred to plp 7dr liljestrand through the trust contributed real_estate with an appraised value of dollar_figure encumbered by dollar_figure of debt the partnership assumed these liabilities resulting in a contribution of dollar_figure 8dr liljestrand through the trust was granted all general_partnership units all class a limited_partnership units and big_number units of the big_number class b limited_partnership continued robert was granted unit of class a limited_partnership_interest the children received their interests in plp through gifts from dr liljestrand on date the trust gifted class b limited_partnership units to each of four irrevocable trusts established for dr liljestrand’s children representing in total percent of the outstanding class b limited_partnership units gifts on date the trust gifted class b limited_partnership units to each of four irrevocable trusts established for dr liljestrand’s children representing in total dollar_figure percent of the outstanding class b limited_partnership units gifts it is unclear how the interests were valued mr ota hired the appraisal firm of moss-adams advisory services moss-adams to conduct an appraisal of the partnership interests in date moss-adams valued the partnership interests using the value of the real_estate contributed in date moss- adams calculated a dollar_figure fair_market_value for the class b limited_partnership units and calculated a dollar_figure fair_market_value for the class a limited_partnership units ignoring the moss-adams valuation the parties decided that the partnership should have general_partnership units with a value of dollar_figure continued units in exchange for the real_estate class a limited_partnership units with a value of dollar_figure and big_number class b limited_partnership units with a value of dollar_figure as a result each of the gifts was valued at dollar_figure and each of the gifts was valued at dollar_figure each gift exceeded the dollar_figure annual_gift_tax_exclusion gift_tax returns were therefore required for and but were not filed until after dr liljestrand’s death operations of the partnership despite having transferred legal_title of the real_estate to plp the parties continued to treat the real_estate as an asset of the trust the partnership_agreement required the partners to deposit partnership funds in a bank account opened in the partnership’s name however the partnership did not open a bank account until date thus in and part of partnership income ie the real_estate income was deposited in the trust’s bank account resulting in an unavoidable commingling of funds additionally in and dr liljestrand reported the real_estate income and expenses on his form_1040 schedule e supplemental income and loss the failure to treat the real_estate as a partnership asset was discovered in when mrs au while preparing dr liljestrand’s federal_income_tax returns discovered invoices for attorney’s fees relating to the formation of plp at this point the parties applied for an employer_identification_number for plp and opened a bank account in the partnership’s name mrs au also began keeping books and filing federal tax returns for the partnership in rather than file amended federal_income_tax returns for the years and dr liljestrand and his advisers decided to treat the partnership as having commenced business on date even though legal_title to the real_property had been transferred to the partnership by date management of plp in plp executed a management agreement with robert commencing date the management agreement contained substantially the same terms as the previous management agreements executed by the trust shortly thereafter the management agreement was terminated presumably because as trustee of the trust ie plp’s general_partner robert had the authority to manage the real_estate without a management_contract dr liljestrand and robert continued to manage the real_estate in the same manner before and after the transfer of the real_property to the partnership the same onsite managers managed the properties before and after the transfer and robert continued to approve all major decisions and sign all checks plp distributions and payment of personal expenses dr liljestrand contributed almost all of his income- producing assets to plp he kept his home and an adjacent lot used as a driveway and a few other minor assets outside of the partnership dr liljestrand’s retained assets were insufficient to pay his living_expenses dr liljestrand’s expenses for the years and were dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure respectively during these years dr liljestrand’s earnings not including distributions from plp totaled dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure respectively in order to offset the shortfall in dr liljestrand’s income the partnership made disproportionate distributions to the trust and directly paid a number of dr liljestrand’s personal expenses the partnership_agreement guaranteed the class a limited partners a percent preferred_return the class a limited_partnership_interest was valued at dollar_figure thus dr liljestrand through the trust was guaranteed an annual preferred_return equal to dollar_figure moss-adams estimated that the partnership’s annual income would equal dollar_figure the general_partner had the exclusive right to make distributions distributions had to be made first to the class a limited 9this amount was significantly higher than the income for the other years because it included a one-time liquidating_distribution from partners of hi xviii of dollar_figure partners on their preferred_return then to the general_partner and the class b limited partners pro_rata mrs au began performing accounting services for the real_estate business in mrs au handled the bookkeeping for the real_estate and prepared the tax returns in she began keeping the partnership’s books and preparing the partnership’s tax returns robert made all partnership_distributions he would write checks during the year and at the end of the year he would provide the check register to mrs au mrs au set up a general ledger for plp to categorize and account for all transactions affecting the partnership assets and income beginning in capital accounts10 as well as ledger accounts were established for each partner to show distributions to each partner income received by the partnership and expenses_incurred by the partnership in addition mrs au set up accounts to keep track of disproportionate distributions to each partner and payment of personal expenses with partnership funds these accounts had various titles such as property_tax paid grandchildren’s gifts and account for household employees these accounts were presumably necessitated in large part on was the first year capital accounts were maintained for plp according to plp’s statement of partners’ capital_account prepared by mrs au the total value of all of plp’s capital accounts as of date was dollar_figure the partnership needed to properly maintain capital accounts because the partnership_agreement called for liquidating distributions in accordance with the partners’ capital accounts account of robert’s distribution of funds to the trust without regard for the partnership_agreement the balance in these accounts were treated as draws against each partner’s capital_account in date after dr liljestrand’s death mrs au requested a meeting with mr rosenthal to discuss plp’s accounting during that meeting mrs au learned that she had incorrectly accounted for the disproportionate distributions and payment of partner personal expenses mr rosenthal explained to mrs au that these amounts should be treated as partnership receivables which the partners should repay the record does not contain any evidence of partners repaying personal_expense payments or disproportionate distributions they had received between and mid-1999 there was no partnership activity except for the gifts of partnership interests to dr liljestrand’s children starting in the partnership began paying dr liljestrand’s personal expenses and making disproportionate distributions in his favor in order to offset the shortfall in his income in plp sold two of the calabasas condominium units for dollar_figure receiving dollar_figure in net_proceeds robert used the proceeds to satisfy one of dr liljestrand’s personal debts in dr liljestrand obtained an equity line of credit against his home with the bank of hawaii withdrawing dollar_figure robert made three payments in and of dollar_figure dollar_figure and dollar_figure in satisfaction of the liability that year plp also distributed dollar_figure to the trust no other distributions were made that year in plp distributed dollar_figure to the trust presumably in satisfaction of the guaranteed_payment to the partnership’s class a limited_partner plp made no other distributions that year in plp sold the sanford strip mall for dollar_figure and received dollar_figure in net_proceeds that year plp distributed dollar_figure to the trust and the following year plp distributed dollar_figure to the trust no other partner received distributions in either or in plp sold the gresham mini-warehouse along with accompanying personal_property for dollar_figure plp received dollar_figure in net_proceeds plp distributed dollar_figure of the net_proceeds to the trust and dollar_figure of the net_proceeds to each of the children’s irrevocable trusts in addition to receiving disproportionate distributions dr liljestrand also used plp funds to pay a number of personal expenses the partnership paid dr liljestrand’s grandchildrens’ tuition expenses the cost of various gifts to his grandchildren dr liljestrand’s housekeepers’ salaries various household expenses legal service expenses for the trust and the mortgage on the hawaiian condominium dr liljestrand’s children also used plp funds to pay personal expenses for instance robert obtained multiple loans from the partnership robert did not execute any promissory notes and did not repay the loans additionally plp paid eric’s and lana’s income taxes and paid for accounting services for each of their irrevocable trusts dr liljestrand passed away on date the estate filed a form_706 united_states estate and generation-skipping_transfer_tax return on date the estate reported a taxable_estate of dollar_figure and tax due of dollar_figure that same year plp refinanced a loan on the el cajon property resulting in dollar_figure being deposited into plp’s bank account plp used these proceeds to satisfy dr liljestrand’s estate_tax obligation plp paid dr liljestrand’s federal estate_tax of dollar_figure and dr liljestrand’s hawaii estate_tax of dollar_figure on date respondent issued the estate a notice_of_deficiency that determined a federal estate_tax deficiency of dollar_figure respondent in the notice_of_deficiency included in the gross_estate the value of the real_estate that dr liljestrand had transferred to plp the estate filed a petition with this court on date opinion i burden_of_proof generally the taxpayer bears the burden of proving the commissioner’s determinations are erroneous rule a however with respect to a factual issue relevant to the liability of a taxpayer for tax the burden_of_proof may shift to the commissioner if the taxpayer has produced credible_evidence relating to the issue met substantiation requirements maintained records and cooperated with the secretary’s reasonable requests for documents witnesses and meetings sec_7491 the estate argues that the burden_of_proof shifts to respondent under sec_7491 our resolution of the issue is based on the preponderance_of_the_evidence rather than the allocation of the burden_of_proof therefore we need not address the estate’s arguments with respect to the burden_of_proof see estate of jorgensen v commissioner __ fed appx __ aftr 2d ustc par big_number 9th cir affg tcmemo_2009_66 394_f3d_1030 8th cir affg tcmemo_2003_212 366_f3d_608 8th cir affg tcmemo_2002_145 131_tc_185 ii sec_2036 ‘ sec_2036 is intended to prevent parties from avoiding the estate_tax by means of testamentary substitutes that permit a transferor to retain lifetime enjoyment of purportedly transferred property ’ 503_f3d_955 9th cir quoting 417_f3d_468 5th cir affg t c memo affg tcmemo_2005_65 sec_2036 is applicable when three conditions are met the decedent made an inter_vivos transfer of property the decedent’s transfer was not a bona_fide sale for adequate_and_full_consideration and the decedent retained an interest or right enumerated in sec_2036 or or b in the transferred property which the decedent did not relinquish before his death if these conditions are met the full value of the transferred property will be included in the value of the decedent’s gross_estate 124_tc_95 a whether there was a sec_2036 transfer the estate acknowledges that dr liljestrand made transfers of property to plp in the light of that acknowledgment we find that dr liljestrand’s transfers to plp were transfers of property under sec_2036 b whether the transfers were bona_fide sales for adequate_and_full_consideration sec_2036 excepts from its application any transfer of property otherwise subject_to that section which is a bona_fide sale for an adequate_and_full_consideration in money or money’s worth the exception is limited to a transfer of property where the transferor has received benefit in full consideration in a genuine arm’s length transaction 17_tc_495 the exception is satisfied in the context of a family limited_partnership where the record establishes the existence of a legitimate and significant nontax reason for creating the family limited_partnership and the transferors received partnership interests proportionate to the value of the property transferred the objective evidence must indicate that the nontax reason was a significant factor that motivated the partnership’s creation a significant purpose must be an actual motivation not a theoretical justification by contrast the bona_fide sale exception is not applicable where the facts fail to establish that the transaction was motivated by a legitimate and significant nontax purpose a list of factors that support such a finding includes the taxpayer standing on both sides of the transaction the taxpayer’s financial dependence on distributions from the partnership the partners’ commingling of partnership funds with their own and the taxpayer’s actual failure to transfer the property to the partnership estate of bongard v commissioner supra pincite citations omitted we separate the bona_fide sale exception into two prongs whether the transaction qualifies as a bona_fide sale and whether the decedent received adequate_and_full_consideration id pincite see also estate of jorgensen v commissioner tcmemo_2009_66 whether dr liljestrand’s transfer of assets to plp was a bona_fide sale whether a sale is bona_fide is a question of motive we must determine whether dr liljestrand had a legitimate and significant nontax reason established by the record for transferring his property the estate argues that dr liljestrand had several nontax reasons for transferring his property to plp respondent disputes the significance and legitimacy of those reasons and offers several factors to support his argument that tax savings were the primary reason dr liljestrand transferred his real_estate to plp a dr liljestrand’s nontax reasons for forming the partnership the estate argues that dr liljestrand had three significant nontax business purposes in forming plp first the partnership form ensured that dr liljestrand’s real_estate would be centrally managed and that robert would have guaranteed long-term employment as manager of the real_estate second the partnership form was the only business form that would ensure that the real_estate would not be subject_to partition or division third the partnership form served to protect the real_estate from potential creditors we take each of these arguments in turn i ensure robert would continue to manage the real_estate the estate argues that dr liljestrand formed plp to ensure that his real_estate would be centrally managed by robert and guarantee robert’s long-term employment as the manager of the real_estate robert began helping his father manage his real_estate in by the mid-eighties robert was overseeing management of the real_estate then held by the trust robert had a management agreement and was also cotrustee of the trust given the fact that robert managed the real_estate before the formation of plp we do not see how forming plp ensured that dr liljestrand’s real_estate would be centrally managed by robert the estate also argues that the trust agreement and the management agreement did not ensure robert’s long-term employment as manager of the real_estate leading dr liljestrand to form plp robert’s dual roles as manager of the real_estate and trustee of the trust created a conflict of interest robert had a personal_interest in the trust’s retaining the real_estate but he also had a duty as trustee of the trust to sell the real_estate if beneficial for the beneficiaries hawaii revised statutes annotated sec_554a-5 b provides a beneficiary of a_trust the means to void the actions of a trustee where there is a conflict between the trustee’s individual interests and his role as trustee the estate argues that dr liljestrand was worried one of his children would invoke this statute after his death jeopardizing robert’s ability to effectively manage the real_estate in order to avoid applicability of the statute dr liljestrand formed plp 11the management agreement provided robert with his primary source_of_income if the trust sold the real_estate there would be nothing to manage and robert would lose his primary source_of_income we do not agree with the estate that dr liljestrand formed plp with this purpose in mind the formation of plp did not resolve robert’s conflict of interest or avoid application of the statute nor did it change robert’s roles with respect to the real_estate it simply changed the assets of the trust instead of holding the real_estate directly the trust now held a majority of the interest in plp plp’s value was based upon the value of the real_estate it held upon dr liljestrand’s death the trust’s assets ie the plp general_partnership interest and the plp class a and class b limited_partnership interests were distributed to the residuary_trust and the children’s trust robert is trustee of both trusts as trustee of both trusts he is also the general_partner of plp and its manager robert would continue to owe a duty to the beneficiaries of both trusts to manage the real_estate for their benefit robert continued to hold a personal_interest in the real_estate and a fiduciary duty to the beneficiaries of both trusts plp did not resolve robert’s conflict of interest ii ensure real_estate would not be subject_to partition the estate claims that dr liljestrand formed plp to ensure that the real_estate would not be subject_to partition after his death under hawaii law when two or more persons hold or are in possession of real_property as joint_tenants or as tenants in common in which one or more of them have an estate in fee or a life_estate in possession any one or more of such persons may bring an action in the circuit_court of the circuit in which the property or some part thereof is situated for a partition of the property according to the respective rights of the parties interested therein and for a sale of the same or a part thereof if it appears that a partition cannot be made without great prejudice to the owners haw rev stat ann sec as explained above the real_estate was originally held in the trust the estate argues that upon dr liljestrand’s death the beneficiaries of the trust or their creditors could have sued for partition of the real_estate under the above statute the estate’s argument is unconvincing first most of dr liljestrand’s real_estate was outside of hawaii and therefore was not subject_to the partition statute of the thirteen properties contributed to plp only three properties were in hawaii two lots of land and the hawaii condominium the remaining properties contributed to the partnership were in oregon florida and california dr liljestrand’s estate_planning attorney mr ota understood that the nonhawaii properties were not subject_to the hawaii partition statute though mr ota understood that the hawaii statute was not applicable to these properties he decided not to research the law of partition in oregon florida and california the lack of such basic legal research is telling as to the significance of partition in the decision to form plp second as discussed above the real_estate if left in the trust would be distributed to the residuary_trust and the children’s trust upon dr liljestrand’s death the residuary_trust and children’s trust would hold legal_title to the real_estate neither trust would terminate until the death of dr liljestrand’s last living child the trusts’ beneficiaries ie dr liljestrand’s children would not hold the real_estate as joint_tenants or tenants in common and could never be joint_tenants or tenants in common as a result the hawaii partition statute was inapplicable the estate claims that dr liljestrand feared his children would invoke the hawaii partition statute yet dr liljestrand had no problem leaving his home held outside the partnership to his children as joint_tenants apparently without the fear of partition finally there is no evidence that any of dr liljestrand’s children had any interest in seeking a partition the estate argues that it is immaterial that there were no disputes among the children and that no child had threatened to invoke either the hawaii partition statute or conflict of interest statute the estate argues that the existence of both statutes created more than a mere hypothetical threat of litigation the estate relies on estate of shurtz v commissioner tcmemo_2010_21 in support of its argument we disagree that there was a real threat of litigation and find the estate’s reliance on estate of shurtz is misplaced in estate of shurtz the decedent’s attorney credibly testified that he regularly advised his clients about the use of limited_partnerships to protect family assets from the risks imposed by mississippi’s litigious atmosphere id this was merely one of several nontax reasons for forming the family limited_partnership that the court relied on to find a bona_fide sale we do not find mr ota’s testimony credible regarding the litigious environment in hawaii mr ota had never been involved in a partition and had never advised clients to form a limited_partnership to avoid partition before he advised dr liljestrand we do not find the fear of partition to be a legitimate nontax purpose for forming plp in the light of the fact that a majority of the property was outside hawaii the trust as written protected against the partition statutes and no child had threatened to invoke the partition statute in fact this court has previously found that the fear of partition without an actual threat of litigation is not a significant nontax purposedollar_figure 12503_f3d_955 9th cir we also reject the proffered nontax rationale that the formation of the partnership would serve to protect the padaro lane property from a partition sale there was no evidence that any of the bigelow children or grandchildren contemplated such an action or that any of the bigelow children or grandchildren had creditors which might resort to such a forced sale affg tcmemo_2005_65 iii provide additional creditor protection the estate argues that dr liljestrand formed plp to protect the real_estate from potential creditors we are skeptical there is no evidence that dr liljestrand or any of the other plp partners was concerned with creditor claims the estate failed to name a single creditor or even establish an activity or pattern of activity by the partners which could open them up to potential liability the estate simply argued without much explanation that holding the property in trust would jeopardize the real_estate as a creditor of a child could conceivably bring an action against one of the children and claim partial ownership of the real_estate the estate argued that plp protected against such actions b factors indicating the transfers were not bona_fide sales i disregard of partnership formalities the partnership failed to follow even the most basic of partnership formalities to begin with plp failed to open and maintain a separate bank account for the first years of its existence during this period all of plp’s banking was conducted through the trust’s bank account resulting in an unavoidable commingling of partnership and personal funds the parties testified that there had been only one partnership meeting since its formation there were no other formal meetings between the partners and no minutes were ever kept dr liljestrand and robert often failed to treat the partnership as a separate_entity dr liljestrand used partnership assets to pay personal expenses he used partnership assets to pay his housekeepers and personal secretary pay off the equity line of credit taken on his home pay the mortgage on the hawaii condo which was a personal liability pay his grandchildren’s tuition and pay the taxes and the expense of accounting services for his children the commingling of personal funds with partnership funds suggests that the transfer of property to a family limited_partnership was not motivated by a legitimate and significant nontax reason 114_tc_144 additionally plp failed to make the required proportionate distributions as required under the partnership_agreement during the years through dr liljestrand was the only partner to receive distributions from the partnership even though his children each held over a 3-percent interest in the partnership except for the distribution in these distributions greatly exceeded the dollar_figure guaranteed distributions that were due to dr liljestrand as a class a limited_partner furthermore dr liljestrand was financially dependent upon partnership_distributions to maintain his lifestyle and pay his everyday expenses dr liljestrand’s expenses for the years and were dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure respectively during these years dr liljestrand’s earnings not including distributions from plp totaled dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure respectively without the partnership_distributions dr liljestrand would have been unable to cover his personal expenses a taxpayer’s financial dependence on distributions from the partnership suggests that the transfer of property to a family limited_partnership was not motivated by a legitimate and significant nontax reason estate of thompson v commissioner tcmemo_2002_246 affd 382_f3d_367 3d cir estate of harper v commissioner tcmemo_2002_121 plp also made a number of loans to its partners robert borrowed money from the partnership on a number of occasions he never executed any promissory note and never repaid these loans rather mrs au treated these loans as draws against his capital_account even though doing so violated the partnership’s requirement that distributions be pro_rata ii whether the transfers to plp were at arm’s length where a taxpayer stands on both sides of a transaction we have concluded that there is no arm’s-length bargaining and thus the bona_fide transfer exception does not apply e g estate of jorgensen v commissioner tcmemo_2009_66 estate of strangi v commissioner tcmemo_2003_145 estate of harper v commissioner supra on the other hand we have found an arm’s- length bargain in the intrafamily context when the interests of the family members were sufficiently divergent e g estate of stone v commissioner tcmemo_2003_309 although intrafamily transfers are permitted under sec_2036 they are subject_to heightened scrutiny estate of bigelow v commissioner f 3d pincite 371_f3d_257 5th cir dr liljestrand stood on all sides of the transaction he formed and fully funded plp he received percent of the general_partnership interests percent of the class a limited_partnership interests and dollar_figure percent of the class b limited_partnership interests units out of units besides dr liljestrand only robert received a partnership_interest at the time of formation unit of the class b limited_partnership interests robert did not make a capital_contribution in exchange for thi sec_1 unit of partnership interestdollar_figure dr liljestrand made the entire capital_contribution to the 13the estate argues that robert contributed dollar_figure for hi sec_1 unit of class b limited_partnership_interest plp did not have a bank account at its formation plp conducted its business through the trust’s bank account for its first years of existence the estate has failed to provide any financial records verifying robert’s contribution of dollar_figure to plp or the trust’s bank accounts given the circumstance we do not believe robert made an actual cash contribution to plp equal to the interest he received partnership with his contribution of the real_estate though robert was an initial partner he failed to obtain counsel separate from his father the only attorneys involved in the formation of plp were dr liljestrand’s attorneys although dr liljestrand contemplated all four of his children’s becoming partners in plp dr liljestrand did not consult with eric lana or wendy when forming the partnership dr liljestrand’s attorneys testified that they formed plp solely to address dr liljestrand goals they also testified that before plp’s formation they had no contact with eric lana or wendy c conclusion with respect to whether the transactions were a bona_fide sale taking into account the totality of the facts and circumstances surrounding the formation and funding of the partnership on the preponderance_of_the_evidence we conclude that dr liljestrand did not have a legitimate and significant nontax reason for transferring his assets to plp and therefore these were not bona_fide sales we find especially significant that the transactions were not at arm’s length and that the partnership failed to follow the most basic of partnership formalities although the estate recites a number of purported nontax reasons for the formation and funding of the partnership we are skeptical of their true role in the formation of plp therefore we find that the estate has failed to establish that any of the stated reasons were significant and legitimate whether the transactions were for adequate_and_full_consideration the general test for deciding whether transfers to a partnership are made for adequate_and_full_consideration is to measure the value received in the form of a partnership_interest to see whether it is approximately equal to the property given up kimbell v united_states supra pincite estate of bongard v commissioner t c pincite estate of jorgensen v commissioner supra under kimbell v united_states supra pincite we focus on three things whether the interests credited to each of the partners was proportionate to the fair_market_value of the assets each partner contributed to the partnership whether the assets contributed by each partner to the partnership were properly credited to the respective capital accounts of the partners and whether on termination or dissolution of the partnership the partners were entitled to distributions from the partnership in amounts equal to their respective capital accounts respondent disputes that the transfers were made for adequate_and_full_consideration a whether the interests credited to each of the partners was proportionate to the fair_market_value of the assets each partner contributed to the partnership the estate argues that each partner received an interest in plp proportionate to the fair_market_value of the property each contributed to plp the partnership engaged moss-adams to calculate the value of the class a and class b limited_partnership interests in plp using the value of the total property being contributed the trust contributed its california florida oregon and hawaii properties with a total net value of dollar_figure to plp in exchange for all general_partnership units all class a limited_partnership units and big_number of the big_number class b limited_partnership units moss-adams calculated a dollar_figure fair_market_value for the class b limited_partnership units and calculated a dollar_figure fair_market_value for the class a limited_partnership units ignoring the moss-adams valuation the parties valued the general_partnership units at dollar_figure the class a limited_partnership units at dollar_figure and big_number class b limited_partnership units at dollar_figure the trust exchanged dollar_figure worth of real_estate for partnership interests valued at dollar_figure given the valuations before us we find it difficult to find the trust received an interest in plp proportionate to the fair_market_value of the assets contributed moreover the estate claims robert contributed dollar_figure in cash to plp in exchange for class b limited_partnership unit with a stated_value of dollar_figure we find no evidence in the record to suggest robert actually contributed dollar_figure to the partnership we find especially significant the fact that plp did not maintain a bank account for its first years of existence leaving no account in which to deposit the contribution without some evidence of an actual contribution of dollar_figure in cash we find that robert has been credited with a partnership_interest disproportionate to the fair_market_value of property contributed under these circumstances we conclude that the interests credited to each of the partners were not proportionate to the fair_market_value of the assets each partner contributed to the partnership b whether the assets contributed by each partner to the partnership were properly credited to the respective capital accounts of the partners the estate argues that the assets contributed by each partner were properly credited to their respective capital accounts we disagree the trust contributed its real_estate to plp in date however plp did not begin keeping track of its partners’ capital accounts until date at the earliest additionally the evidence introduced by the estate fails to support their argument the estate introduced into evidence plp’s statement of partners’ capital_account capital_account statement for the year ended date according to the capital_account statement the total value of all of plp’s capital accounts as of date was dollar_figure the trust had contributed dollar_figure worth of real_estate to the plp in this contribution is not reflected in the capital accounts as of date on the basis of the foregoing we conclude that the assets contributed by each partner were not properly credited to their respective capital accounts c whether on termination or dissolution of the partnership the partners were entitled to distributions from the partnership in amounts equal to their respective capital accounts the estate argues and we agree that upon termination of the partnership the partners were entitled to distributions from plp in amounts equal to their respective capital accounts d conclusions with respect to whether the transactions were for adequate_and_full_consideration having concluded that the interests credited to each partner were not proportionate to the fair_market_value of the assets contributed by the partner and the assets contributed by each partner were not properly credited to their respective capital accounts we conclude that dr liljestrand did not contribute the real_estate to plp for adequate_and_full_consideration we find especially significant that plp failed to maintain capital accounts upon formation of the partnership in and used neither the values established in the moss-adams appraisal nor the fair_market_value of the real_estate to establish the value of each partner’s plp interest having concluded that the transfer was not a bona_fide sale for adequate_and_full_consideration we now turn to the issue of whether dr liljestrand retained the possession or enjoyment of or the right to income from the property he transferred to plp c whether dr liljestrand retained the possession or enjoyment of or the right to the income from the property he transferred to plp an interest or right is treated as having been retained or reserved if at the time of the transfer there was an understanding express or implied that the interest or right would later be conferred sec_20_2036-1 estate_tax regs the existence of formal legal structures which prevent de jure retention of benefits of the transferred property does not preclude an implicit retention of such benefits 382_f3d_367 3d cir affg tcmemo_2002_246 265_f2d_667 3d cir affg 29_tc_1179 estate of bongard v commissioner t c pincite the existence of an implied agreement is a question of fact that can be inferred from the circumstances surrounding a transfer of property and the subsequent use of the transferred property estate of bongard v commissioner supra pincite we have found implied agreements where the decedent used partnership assets to pay personal expenses eg estate of rosen v commissioner tcmemo_2006_115 the decedent transferred nearly all of his assets to the partnership eg 114_tc_144 the decedent’s relationship to the assets remained the same before and after the transfer eg id estate of rosen v commissioner supra and the partnership served as an alternate vehicle through which the decedent was able to provide for his children at his death eg estate of harper v commissioner tcmemo_2002_121 although dr liljestrand retained some assets outside the partnership we find he lacked sufficient funds outside of the partnership to maintain his lifestyle and satisfy his future obligations dr liljestrand contributed almost all of his income-generating property to plp respondent alleges that the transfer left dr liljestrand with inadequate assets and cashflow to meet his living_expenses the estate counters respondent’s assertion by claiming that dr liljestrand retained his home and could easily have borrowed against his interest in plp and the house to support himself the estate relies on the estate of mirowski v commissioner tcmemo_2008_74 in arguing that dr liljestrand had retained sufficient assets outside of plp in estate of mirowski the commissioner argued that the decedent did not retain sufficient assets outside of the partnership to meet her anticipated financial obligations the court disagreed finding that mrs mirowski had retained dollar_figure million of personal assets that she did not transfer to the partnership including dollar_figure million in cash and cash equivalents these assets were more than sufficient to cover her personal expenses with regard to her anticipated gift_tax liability the court found that mrs mirowski had the ability to satisfy such liability with the distributions she would receive from the partnership and through her ability to borrow against her personal assets including her partnership_interest the estate in comparing the instant case to estate of mirowski relies primarily on the fact that dr liljestrand could borrow against his home and did in fact borrow dollar_figure against his home we believe estate of mirowski is distinguishable from the instant case in estate of mirowski the decedent retained dollar_figure million outside of the partnership more than enough to satisfy her personal expenses dr liljestrand on the other hand did not retain sufficient assets outside of plp to satisfy his personal expenses as demonstrated by the fact that plp paid a number of dr liljestrand’s personal expenses including his housekeepers’ salaries and grandchildrens’ tuition moreover we find the estate’s reliance on dr liljestrand’s actually borrowing against the equity line of credit to be disingenuous plp repaid this equity line of credit not dr liljestrand in fact the partnership sold two properties in order to raise the funds necessary to make the payments additionally plp refinanced a loan in order to pay dollar_figure and dollar_figure to the u s government and the state of hawaii respectively to satisfy dr liljestrand’s estate_tax obligations the use of a significant portion of partnership assets to discharge obligations of a taxpayer’s estate is evidence of a retained_interest in the assets transferred to the partnership see estate of rosen v commissioner supra estate of korby v commissioner tcmemo_2005_103 affd 471_f3d_848 8th cir estate of thompson v commissioner tcmemo_2002_246 p art of the ‘possession or enjoyment’ of one’s assets is the assurance that they will be available to pay various debts and expenses upon one’s death strangi v commissioner f 3d pincite the estate attempts to downplay the significance of the direct use of plp funds to pay dr liljestrand’s personal expenses by claiming that such distributions were properly accounted for as draws against dr liljestrand’s capital_account to the extent that the estate’s arguments focus on accounting manipulations they are unavailing robert and annie au plp’s accountant each testified that accounting adjustments were made at yearend after monies had actually been distributed accounting entries made by mrs au were a belated attempt to undo dr liljestrand’s receipt of disproportionate distributions after-the-fact paperwork by dr liljestrand’s accountant does not refute the implied understanding that dr liljestrand could continue to use and control the partnership property during his life the accounting adjustments do not preclude a conclusion that those involved understood that dr liljestrand’s assets would be made available as needs materialized see estate of reichardt v commissioner supra pincite estate of harper v commissioner supra respondent also cites the fact that dr liljestrand’s commingled personal and partnership funds this fact was one of the most heavily relied upon in both estate of reichardt v commissioner supra pincite and estate of schauerhamer v commissioner tcmemo_1997_242 the plp agreement specified all funds of the partnership shall be deposited in its name in such checking and savings accounts certificates’ of deposit united_states government obligation or other short-term interest bearing accounts with institutions selected by the general_partner yet no such account was opened until date almost years after the entity began its legal existence before that time partnership income was deposited in the trust’s account resulting in an unavoidable commingling of funds we also consider the partnership_distributions in determining whether there was an implied agreement to retain possession of the transferred assets as part of the partnership_agreement dr liljestrand was guaranteed a preferred_return of percent of the value of his class a limited_partnership_interest dr liljestrand’s class a limited_partnership_interest was valued at dollar_figure thus dr liljestrand was guaranteed annual payments equal to dollar_figure moss-adam’s appraisal estimated the partnership’s annual income would equal dollar_figure we find this guaranteed return indicative of an agreement to retain an interest or right in the contributed_property in addition to the preferred returns the partnership_distributions were heavily weighted in favor of dr liljestrand according to plp’s reconciliation reports for the years through plp distributed to the trust dollar_figure dollar_figure dollar_figure and dollar_figure respectively plp made these distributions to dr liljestrand without making a distribution to any other partner in addition to arguing that such distributions were accounted for as draws against the trust’s capital_account the estate also argues that the distributions to the trust were consistent with plp’s guaranteed_payment obligation we find that this argument has little credibility given that only the payment was for the guaranteed_payment amount the record supports a conclusion that in making the payments robert was not concerned with meeting plp’s guaranteed_payment obligation but rather was concerned with dr liljestrand’s support the disproportionate distributions provide further evidence of an implied agreement to retain possession or enjoyment of the transferred assets lastly we focus on the testamentary characteristics of the partnership arrangement while we acknowledge that plp did come into existence before dr liljestrand’s death and that some change ensued in the formal relationship of those involved to the assets we are satisfied that any practical effect during decedent’s life was minimal rather the partnership served primarily as a testamentary device through which decedent would provide for his children at his death the motivation for plp’s formation is admittedly postmortem the record is devoid of any significant change in dr liljestrand’s relationship with the assets before his death dr liljestrand received a disproportionate share of the partnership_distributions engineered a guaranteed_payment equal to the partnership expected annual income and benefited from the sale of partnership assets the objective evidence points to the fact that dr liljestrand continued to enjoy the economic benefits associated with the transferred property during his lifetime with regards to dr liljestrand’s motivation for forming plp dr liljestrand was concerned with the disposition of his property after death the estate claims he wanted to protect the property from partition and guarantee robert’s management of the property after his death these motives are primarily testamentary in nature the objective and subjective evidence lead to a conclusion that the partnership was simply a vehicle for controlling dr liljestrand’s property after his death in summary we are satisfied that plp was created principally as an alternate testamentary vehicle to the trust taking this feature in the light of all the factors discussed above we conclude that dr liljestrand retained enjoyment of the contributed_property within the meaning of sec_2036 d conclusion with respect to whether the values of the assets transferred to plp are includable in the value of the gross_estate on the record before us we find that dr liljestrand transferred assets to plp within the meaning of sec_2036 the transfer was not a bona_fide sale for adequate_and_full_consideration and dr liljestrand retained enjoyment of the transferred assets therefore we conclude that pursuant to sec_2036 the value of the dr liljestrand’s gross_estate includes the values of the assets dr liljestrand transferred to plp in reaching our holdings we have considered all arguments made and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered under rule