tax_exempt_and_government_entities_division date department of the treasury internal_revenue_service washington d c ye ' é jan sl pp con contact person identification_number telephone number tie bn y employer_identification_number legend dear sir or madam we have considered your ruling_request dated date and amended on date which requested certain rulings with respect to a proposed transfer of assets from b to c b is exempt under sec_501 of the internal_revenue_code and is classified as private_foundation under sec_509 c has submitted an application_for recognition of exemption under sec_501 of the code and classification as a private_foundation under sec_509 b was established by members of the d family c was established by members of the e family b's board_of directors currently consists of three members of the e family and one other member none of these individuals sit on c's board c's board_of directors currently consists of two members of the e family e was also a member of the original board_of directors of b recently differences of opinion have arisen among the children of e the deceased original board member of b as to the management and charitable activities of b to resolve the discord concerning the management and charitable activities of b b proposes to transfer approximately of its net assets ie assets less liabilities to c following the transfer both b and c will carry on their respective charitable goals and programs as part of the transfer b and c entered into an expenditure_responsibility agreement as required by sec_4945 of the code b has not notified the service that it intends to terminate its private_foundation_status nor has b ever received notification that its status as a private_foundation has been terminated furthermore there is no indication that b has committed willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter sec_507 of the code states in part that except for transfers described in sec_507 an organization's private_foundation_status will be terminated only if the organization notifies the service of its intent to terminate or there have been either willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter sec_507 of the code provides that when a private_foundation transfers assets to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as a new organization sec_507 of the code imposes a tax on an organization that terminates its private_foundation_status under sec_507 of the code sec_1_507-1 of the income_tax regulations provides that neither a transfer of all of the assets of a private_foundation nor a significant disposition of assets as defined in sec_1_507-3 by a private_foundation whether or not any portion of such disposition of assets is made to another private_foundation shall be deemed to result in a termination of the transferor private_foundation under sec_507 of the code unless the transferor private_foundation elects to terminate pursuant to sec_507 or sec_507 is applicable sec_1_507-3 of the regulations provides that a transferee organization in the case of a transfer described in sec_507 of the code shall succeed to the aggregate tax_benefit of the transferor organization in an amount equal to the amount of such aggregate tax_benefit of the transferor organization multiplied by a fraction the numerator of which is the fair_market_value of the assets less encumbrances transferred to such transferee and the denominator of which is the fair_market_value of the assets of the transferor less encumbrances immediately before the transfer fair_market_value is determined at the time of transfer sec_1_507-3 of the regulations provides that for purposes of sec_507 the terms other adjustment organization or reorganization shall include any partial_liquidation or any other significant disposition of assets to one or more private_foundations other than transfers for full and adequate_consideration or distributions out of current income sec_1_507-3 of the regulations provides that the term significant distribution of assets to one or more private_foundations shall include any disposition for a taxable where the aggregate of the dispositions is twenty-five percent or more of the fair_market_value of the net assets of the foundation at the beginning of the taxable_year sec_4940 of the code imposes a tax on the net_investment_income of private_foundations sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 of the code includes in the definition of self-dealing any direct or indirect transfer to or use for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4944 of the code imposes tax upon a private_foundation which invests any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes sec_4945 of the code imposes tax upon a private foundation's making of any taxable_expenditure under sec_4945 sec_4945 of the code defines the term taxable_expenditure to include any amount_paid or incurred by a private_foundation as a grant to an organization unless a the organization is described in subparagraphs or of sec_509 of the code or is an exempt_operating_foundation as defined in sec_4940 of the code or b the private_foundation exercises expenditure_responsibility with respect to such grant in accordance with sec_4945 of the code sec_4945 of the code provides that expenditure_responsibility referred to in subsection d means that the private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and detailed reports with respect to such expenditures and to make fuil and detailed reports to the secretary sec_53_4945-5 of the foundation and similar excise_taxes regulations refers to the rules relating to the extent to which the expenditure_responsibility_rules contained in sec_4945 and h and this section apply to transfers of assets described in sec_507 sec_53_4945-5 of the regulations provides that if a private_foundation makes a grant to another private_foundation for endowment or for other capital purposes the grantor private_foundation must require reports from the grantee private_foundation on the uses of the principal and income if any from the grant funds the grantee must make such reports annually for its tax_year in which the grant was made and for its immediately succeeding two tax years only if it is reasonably apparent to the grantor that before the end of such grantee's second succeeding tax_year neither the principal nor the income from the grant funds has been used for any purpose which would result in liability for tax under sec_4945 may the grantor then aliow the grantee’s reports to discontinue sec_53_4945-6 b of the regulations provides that any expenditures_for unreasonable administrative expenses including compensation consultant fees and other fees for services rendered will ordinarily be taxable_expenditures under sec_4945 unless the foundation can demonstrate that such expenses were paid_or_incurred in the good_faith belief that they were reasonable and that the payment or incurrence of such expenses in such amounts was consistent with ordinary business care and prudence the determination whether an expenditure is unreasonable shalt depend upon the facts and circumstances of the particular case based on the above facts following the transfer of assets from b to c both b and c will continue to conduct their respective charitable activities because the transfer of assets from b to c will not exceed or more of the fair_market_value of the assets of b it should not be considered a significant disposition of assets from one private_foundation to another within the meaning of sec_507 of the code and sec_1_507-3 of the regulations because b's transfer of assets to c is not a reorganization or significant disposition of assets under sec_507 of the code the transfer of assets will not result in c being treated under that section as possessing any of the tax_attributes or characteristics of b the transfer of assets from b to c will not be a taxable_expenditure as long as b exercises expenditure_responsibility over the grant as described in sec_4945 of the code and sec_53_4945-5 of the regulations because c has no foundation managers in common with b these managers will not be disqualified persons with respect to the proposed transfer the transfer will not constitute an act of self-dealing because no funds will be disbursed either to the managers or for their use therefore the proposed transfer of assets from b to c will not result in the imposition of tax under sec_4941 of the code also the transfer of assets will not constitute self-dealing under sec_4941 of the code because for purposes of sec_4941 the term disqualified_person does not include an organization described in sec_501 in this case the grant from b to c is one for endowment and c will not make a qualifying_distribution equal to the amount of the grant it will receive from b thus b’s grant to c will not be treated by b as a qualifying_distribution under sec_4942 of the code in this case b is not selling property to c nor making an investment in c rather the transfer of stock is a grant essentially analogous to a gift and will not be net investment within the meaning of sec_4940 of the code b's tax basis in the granted stock will carry over to c pursuant to sec_1015 of the code and any gain_or_loss would be computed at the time of any future sale by c because the proposed transfer of assets to c will be made to accomplish the exempt purposes of b and c the transfer will not constitute investments for purposes of sec_4944 of the code thus the excise_taxes imposed on jeopardizing investments under sec_4944 of the code will not apply to the transfer of assets from b to c provided the expenses_incurred by b and c in the transfer of assets to c meet the good_faith standard of sec_53 b such expenses will not constitute taxable_expenditures under sec_4945 of the code accordingly based on the information furnished we rule as follows the proposed transfer of assets to c will not jeopardize the classifications of b or c as private_foundations described in sec_501 and sec_509 of the code the proposed transfer of assets to c will not result ina termination of private_foundation_status of b within the meaning of sec_507 nor will it constitute an adjustment between private_foundations under sec_507 or have the effect of dispossessing b of any of the attributes or characteristics described in sec_1_507-3 of the regulations the proposed transfer of assets to c will not constitute a taxable_expenditure under sec_4945 of the code provided that b exercises expenditure_responsibility under sec_4945 of the code with respect to the transfer the proposed procedures of b constitute adequate expenditure_responsibility under sec_4945 with respect to the assets to be transferred the proposed transfer of assets to c will not be an act of self-dealing within the meaning of sec_4941 of the code and therefore will not result in the imposition of tax under that section the proposed transfer of assets to c will not subject b to tax for failure to distribute income under sec_4942 provided b otherwise meets its distribution_requirements for the taxable_year the proposed transfer of assets to c will not constitute a sale or disposition of property within the meaning of sec_4940 of the code nor will it give rise to net_investment_income and will therefore not result in the imposition of any excise_tax under sec_4940 of the code the proposed transfer of assets to c will not constitute an investment on the part of b and therefore b will not be subject_to the tax on jeopardizing investments within the meaning of sec_4944 of the code the payment of the legal accounting and other expenses including filing incurred by b and c in connection with this ruling_request will not constitute a taxable_expenditure under sec_4945 of the code this ruling is based on the understanding that there will be no material changes in the facts upon which it is based any changes that may have a bearing upon the foundation’s tax status should be reported to the ohio tax exempt and government entities te_ge customer service office which deals with exempt_organizations matters the mailing address is internal_revenue_service te_ge customer service p o box cincinnati oh we are sending a copy of this ruling to the ohio te_ge office because this letter could help resolve any questions about the foundation’s tax status the foundation should keep it with its permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely gof cp ee bbn joseph chasin acting manager exempt_organizations technical group


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc dom p si 4-plr-122344-98 date date number release date re legend settlor trust trust trust trust trust daughter grandchild grandchild grandchild grandchild a b c state this is in response to your letter of date and prior correspondence in which you request a ruling on the application of the generation-skipping_transfer gst tax to two amendments to be made to the trust agreement executed by the settlor with respect to trust the settlor created the trust in under the trust agreement trust trust trust and trust are administered as four separate trusts with each such trust owning an undivided one-fourth interest in the trust property daughter the settlor’s adult child is a beneficiary of each of the four trusts in addition grandchild and his children and other descendants are the beneficiaries of trust grandchild and her children and other descendants are the beneficiaries of trust grandchild and his children and other descendants are the beneficiaries of trust and grandchild and his children and other descendants are the beneficiaries of trust there have been no additions constructive or otherwise to any of the trusts since date the trust agreement designates grandchild and a as co-trustees b was designated to succeed a as co-trustee if b resigned he was to designate a successor co-trustee who as to trustor the settlor is not a_related_or_subordinate_party within the meaning of such terms as used in the internal_revenue_code grandchild continues to serve as co-trustee a resigned as co-trustee and he was succeeded by b b resigned and designated c as co-trustee article i of the trust agreement states that daughter is referred to as the primary beneficiary each of grandchild grandchild grandchild and grandchild is referred to as a secondary beneficiary and the respective children or other descendants of grandchild grandchild grandchild and grandchild are referred to as the ultimate beneficiaries of that grandchild’s trust the distribution and termination provisions are identical for each of the four trusts under article iii and article viii the trustees are granted discretionary powers to distribute income and or principal among the trust beneficiaries depending on whether the beneficiary is a primary secondary or ultimate beneficiary and other circumstances under article v these distributions are to be made only after approval by a the co-trustee or his successor under article viii the trustees may terminate a_trust at any time if they consider it necessary and advisable and for the best interests of any trust and the beneficiaries thereof and in such event to thereupon make distribution of principal and accumulated income to trust beneficiaries in conformity with the provisions of the agreement article ii duration of the trusts presently provides as follows each of the trusts created by the provisions hereof will continue and remain in existence for the benefit of the beneficiaries named or referred to above for a period of time not to exceed twenty-one years after the death of the last survivor of the ultimate beneficiaries referred to above who is living on the date of the execution of this agreement subject_to the power of my trustees to terminate any of these trusts at any time prior to the date on which such trust would otherwise be terminated under these provisions however the trust does not specify who will be the distributees in the event that the trust terminates as provided in article ii on the expiration of years after the death of the last survivor of the ultimate beneficiaries living on the date of execution of the trust agreement you propose to petition the appropriate local court to construe and amend the trust instrument to provide for the disposition of the trust assets on termination of the trust under article ll you will also request that the court approve an amendment authorizing the trustee to employ others to perform administrative duties specifically the petition will propose that article ll be construed and amended to include a further provision stating that upon the termination of a_trust on the expiration of years after the death of the last survivor of the ultimate beneficiaries living on the date of execution of the agreement the income and principal remaining in that trust shall be distributed to the primary beneficiary if the primary beneficiary is not then living the income and principal remaining shall be distributed to the secondary beneficiary if living of that trust if the secondary beneficiary is not then living the income and principal remaining shall be distributed to the issue of that secondary beneficiary per stirpes if the secondary beneficiary of that trust and his or her issue are not then living the income and principal remaining in that trust shall be divided equally among the other trusts and distributed accordingly further article viii powers of trustees section will be amended to include the following sentence the trustees shall have the power to employ and discharge accountants brokers custodians investment counsel attorneys and other agents or servants and to delegate to them such administrative duties of the trustees for such period as the trustees shall select and to pay any such person reasonable_compensation out of the trust property you have asked us to rule that these amendments to the trust agreement will not affect the exempt status of trust for generation-skipping_transfer_tax purposes and that neither distributions from the trusts nor the termination of the trusts will be subject_to the generation-skipping_transfer_tax imposed by sec_2601 of the internal_revenue_code sec_2601 provides that a tax is imposed on every generation-skipping_transfer gst made after date under b a of the tax reform act act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax provisions do not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date however this exemption does not apply to additions actual or constructive that are made to the trust after date sec_26_2601-1 provides that if an addition is made after date to an irrevocable_trust that is otherwise exempt from the application of chapter the gst tax by b a of the act a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter a modification of a_trust that is otherwise exempt for gst tax purposes under the act will generally result in a loss of its grandfathered exempt status if the modification changes the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under the terms of the trust you have represented that trust was irrevocable on date and no additions were made to the trusts after that date we conclude that the construction and amendment of article ll as proposed is consistent with applicable state law as would be interpreted by the highest court of state and therefore will not alter the quality value or timing of any powers or beneficial interests rights or expectancies originally provided for under the terms of the trust agreement similarly the proposed amendment to article viii will not alter the quality value or timing of any beneficial interests rights or expectancies originally provided for under the terms of the trust agreement therefore the construction and amendments as proposed will not subject trust to the generation-skipping_transfer_tax accordingly the proposed action with respect to the trust agreement will not affect the gst tax status of trust and thus will not result in a transfer of property that will subject any of the four trusts to the generation-skipping_transfer_tax imposed under sec_2601 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel passthroughs and special industries by george masnik chief branch enclosure copy for purposes


internal_revenue_service index numbers number release date cc dom corp plr-113431-98 date distributing controlled sub sub sub sub llc llc fsub plr-113431-98 fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fsub fnewco fnewco fnewco fnewco fnewco business a plr-113431-98 business a1 business b business c dear mr cavanaugh we respond to your letter dated date requesting rulings on certain federal_income_tax consequences of a proposed transaction the information submitted is summarized below the rulings contained in this letter are based on the facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party verification of this information may be required as part of the audit process summary of facts publicly traded distributing is the holding_company parent of a consolidated_group and has only common_stock outstanding attached to each share of common_stock is a purchase right not exercisable or transferable separately from the common unless and until certain events generally involving changes in control of distributing occur cumulatively the shareholder rights distributing wholly owns controlled sub and llc controlled wholly owns llc sub wholly owns sub sub sub fsub fsub fsub fsub fsub and except for a nominal interest held by llc fnewco sub wholly owns fsub sub wholly owns fsub and fsub fsub wholly owns fsub and fsub fsub wholly owns fsub fsub wholly owns fsub distributing conducts business a through controlled business b through llc and business c through sub we have received financial information indicating that business a of controlled and business b of llc each has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years distributing and certain of its subsidiaries have employee savings programs that invest savings contributions in among other things distributing stock the savings plans each of the savings plans qualifies under sec_401 of the internal_revenue_code distributing's management has determined based on the advice of consultants and on other information that the separation of business a from businesses b and c will permit the management of each to focus more efficiently on the development of its business plr-113431-98 proposed transactions to accomplish this separation distributing proposes the following series of transactions i llc will transfer to controlled the intellectual_property associated with certain business a assets ii controlled will transfer business a1 and the membership interest in llc to a newly formed corporation newco and distribute newco to distributing the internal distribution iii to facilitate the realignment of business a under controlled distributing will restructure its foreign operations by separating certain business a stock and assets from its indirect foreign subsidiaries engaged in other businesses the restructuring steps and transferring the stock and assets to controlled the restructuring steps will include but not be limited to the following a controlled will form fnewco with a cash contribution and fnewco will purchase the business a assets of fsub b fsub will purchase the business a assets of fsub c sub will distribute fsub to sub sub will distribute fsub to distributing and distributing will contribute fsub to controlled d controlled will purchase fnewco from an unrelated third party and fsub will transfer its business a assets to fnewco in exchange for the assumption by fnewco of certain fsub liabilities e controlled will form fnewco and fnewco will purchase the business a assets of sub f fsub will purchase the business a assets of fsub g sub will form fnewco with a cash contribution fsub will elect under sec_301_7701-3 of the income_tax regulations to be treated as an unincorporated division of fsub and distribute cash to fsub fsub will sell fsub to fnewco sub will contribute fsub and fsub to fnewco fsub will purchase certain business a assets from fsub fsub will elect under sec_301_7701-3 to be treated as an unincorporated division of fsub and will distribute cash to fsub fsub will sell its interest in fsub to fnewco sub will distribute fnewco to distributing and distributing will contribute fnewco to controlled llc will sell its minority interest in fnewco to fnewco sub will distribute fnewco to distributing and distributing will contribute fnewco to controlled the restructuring steps that involve transfers of business a stock and assets by distributing to controlled will be referred to collectively as the contribution plr-113431-98 iv distributing will distribute the controlled stock pro_rata to its shareholders the distribution distributing shareholders will receive cash in lieu of fractional controlled shares before the distribution distributing and controlled will have entered into a tax_sharing_agreement the tax_sharing_agreement v distributing will amend the savings plans to reflect the receipt of controlled stock representations distributing has made the following representations concerning the transactions described above in steps iii and iv the transaction a no part of the consideration distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a distributing shareholder b following the distribution distributing and controlled each will continue the active_conduct of its business independently and with its separate employees c the total adjusted_basis and fair_market_value of the assets transferred by distributing to controlled will in each instance equal or exceed the sum of i the liabilities assumed by controlled ii any liabilities to which the transferred assets are subject and iii the fair_market_value of any other_property including money distributed to distributing shareholders under the plan_of_reorganization or to distributing creditors in connection with the reorganization d the liabilities assumed by controlled in the transaction and any liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred e the distribution is being carried out as part of a plan to allow the management of each business more efficiently to focus its efforts on the development of that business the distribution is motivated in whole or substantial part by this corporate business_purpose f apart from debt that will arise in the ordinary course of business between distributing and controlled no debt will exist between the two corporations at the time of or after the distribution g any indebtedness owed by controlled to distributing after the distribution will not be stock_or_securities under sec_355 h neither distributing nor controlled is an investment_company as defined in sec_368 and iv i the five years of financial information submitted on behalf of distributing and controlled represent each corporation's present operations and regarding each corporation there have been no substantial operational changes since the date of the last plr-113431-98 financial statements submitted j there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either after the transaction except in the ordinary course of business k there is no plan or intention by any distributing shareholder who owns five percent or more of the stock of distributing and the management of distributing to its best knowledge is not aware of any plan or intention on the part of any particular remaining shareholder of distributing to sell exchange transfer by gift or otherwise dispose_of any stock in either distributing or controlled after the transaction l there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the distribution other than through stock repurchases meeting the requirements of sec_4 b of revproc_96_30 1996_1_cb_696 and occasional purchases from the savings plans m payments made in all continuing transactions between distributing and controlled will be for fair_market_value based on terms and conditions comparable to those that would be arrived at by parties bargaining at arm's length n the payment of cash in lieu of fractional shares of controlled is solely for the purpose of avoiding the expense and inconvenience of issuing fractional shares and does not represent separately bargained for consideration the method used for handling fractional share interests is designed to limit the amount of cash received by any one shareholder to less than the value of one full share of controlled common_stock o if rights similar to the shareholder rights controlled rights are attached to controlled stock in the distribution the rights will not be traded apart from the controlled stock before the occurrence of certain triggering events before the occurrence of the events to be specified the shareholder rights may be redeemed by controlled at the time the controlled stock is issued to distributing and at the time of the distribution the likelihood that the shareholder rights would be exercised will be both remote and uncertain p immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 of the income_tax regulations as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account distributing may have in controlled stock will be included in income immediately before the distribution see sec_1_1502-19 based solely on the information submitted and the representations set forth above we rule as follows on the transaction rulings plr-113431-98 the contribution followed by the distribution will be a reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing on the contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the contribution sec_1032 the basis of each business a asset received by controlled will equal the basis of that asset in the hands of distributing immediately before its transfer sec_362 the holding_period of each business a asset received by controlled will include the period during which that asset was held by distributing sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the distributing shareholders on their receipt of controlled stock in the distribution sec_355 the aggregate basis of distributing and controlled stock in the hands of a distributing shareholder after the distribution will equal the aggregate basis of the distributing stock held immediately before the distribution allocated between the distributing stock and the controlled stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 the holding_period of the controlled stock received by a distributing shareholder will include the holding_period of the distributing stock on which the distribution is made provided the stock is held as a capital_asset on the date of the distribution sec_1223 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 any payment of cash in lieu of a fractional share interest in controlled will be treated for federal_income_tax purposes as if the fractional share interest had been issued in the distribution and then had been redeemed by controlled the cash payment will be treated as having been received in exchange for the constructively redeemed fractional share under sec_302 rev_rul 1966_2_cb_116 revproc_77_41 c b provided that at the time of the distribution any controlled rights remain contingent non-exercisable and subject_to redemption if issued the receipt of these rights by distributing or its shareholders will not be a distribution or receipt of property an exchange of stock or property either taxable or nontaxable or any other event giving rise to the realization of gross_income by either distributing controlled or the distributing shareholders rev_rul c b plr-113431-98 payments made by distributing to controlled or by controlled to distributing under the tax_sharing_agreement i that have arisen or will arise for a taxable_period ending before the distribution or for a taxable_period beginning on or before and ending after the distribution and ii that will not become fixed and ascertainable until after the distribution will be treated as occurring immediately before the distribution caveats we express no opinion on the tax effects of the transaction under other provisions of the code and regulations or the tax effects of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding i the internal distribution ii the savings_plan amendments under sec_83 sec_162 or sec_421 through iii the restructuring steps or iv the validity or consequences of any election under sec_301_7701-3 made by any entity involved in the restructuring steps in addition no opinion is expressed under v sec_367 and b regarding the contribution by sub of fsub and fsub stock to fnewco or the deemed contribution of fnewco stock by distributing to fnewco see sec_1_367_a_-3 and b and sec_1_367_a_-8 vi sec_367 regarding contributions of cash if the cash was appreciated foreign_currency by u s members of the group to foreign members vii sec_367 and sec_1248 regarding the distribution of fsub by sub to sub and by sub to distributing the distribution of fnewco by sub to distributing or the distribution of fnewco by sub to distributing sections b -10 b and b - d - f viii sec_367 regarding the deemed liquidation of fsub into fsub sections b -1 c and d and b - c ix sec_881 sec_882 sec_897 or sec_951 regarding the dividend from fsub to fsub the sale by sub of business a assets to fnewco the sale by fsub of business a assets to fnewco the sale by fsub of business a assets to fsub the sale by fsub of business a assets to fsub the sale of fsub by fsub to fnewco or the sale by fsub of business a assets to fnewco procedural statements this ruling is directed only to the taxpayer who requested it sec_6110 plr-113431-98 provides that it may not be used or cited as precedent each taxpayer involved in the transaction should attach a copy of this letter to the taxpayer’s federal_income_tax return for the taxable_year in which the transaction is completed in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer sincerely assistant chief_counsel corporate by ________________________________ wayne t murray senior technician reviewer branch


department of the treasury internal_revenue_service washington d c mar g seit la hac7d tax exempt and government entities uniform issue list rarkekekekrerkeekrrererererererereekrerekeee rrkeekreererererereer rrerererekre ere heeererrerererererereererereeee legend taxpayer financial advisor investment firm a investment firm b amount c amount d amount e account f account g ira account h spouse dear rekekeke _ krekeerekrerererkkkkk rr rr rr ka er krekkkeekrerererererekkrkkkr ar kr krekekrekreeekerreerekrerereerekeere kerrerererrrrrrer rrr rrr krkeekeereerererererrrekrerrrererrrere rkerrekrerererererererrexekekerererere krekkeeerererrereer ree rereereereekker krekekerererrerkeeerrerereerereerer rrkekrererererererekrereererereerer kreekrekererkerrereererrereererereerereee rrkekrekekekrrerererrerrrerrreererer eere rerereererkrerererererereeeerreererere krerekreekekreerrrerereeerrererkrere l l kekekekekeekrkrerererkkr ee rk - krrerererrrerekrrrrrrerrr ek kk _ kraeekrererrereekrerrkrkk kr rr ik kekekeekeeerereeraerererrerererrkrerer _ _ - kererekrkrerrerrrkerekeraeerrrrrrere krrekeeereeeererrirekrrererkrrrrekrrae kkkkekererrekerrrrerreekererrrkrre kbekerkrererereererrkrere rrr kekrekeerrereee this is in response to your letter dated date as supplemented by additional correspondence dated date 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 by you under penalty of perjury in support of the ruling requested the taxpayer utilizes the services of the financial advisor in matters pertaining to recommended that she retitle her single-name accounts as joint accounts with her spouse following this recommendation the taxpayer instructed the financial advisor to have all of her single-name accounts renamed as joint accounts the financial advisor then forwarded the taxpayer's instructions to investment firm a the organization maintaining the accounts and on october all of the accounts held in the taxpayer's name by investment firm a were retitled in the joint names of the taxpayer and her spouse the financial advisor's database failed to indicate that two of the taxpayer's accounts-account f and account g--were individual_retirement_arrangements iras established and maintained under the rules of sec_408 of the code the financial advisor acknowledges that a clerical_error in his database caused accounts f and g to be listed incorrectly as non-retirement accounts because iras may not be held jointly under the rules of the code investment firm a without notifying either the taxpayer or her financial advisor treated the taxpayer's instructions as a request for the distribution of amounts d and e from ira accounts f and g respectively the taxpayer was issued a met with her financial advisor to review her accounts the taxpayer has not yet attained age wm ts after discovery of this error the financial advisor immediately contacted investment firm a and requested that the transactions involving accounts f and g be reversed investment firm a refused to make the change because more than days had me transfer amount d into ira account h with investment firm b however the transfer of amount d into account h occurred after the expiration of the 60-day rollover period provided for in code sec_408 mee based on the facts and representations presented above you request that the internal_revenue_service the service waive the 60-day rollover requirement with respect to the distribution of amounts d and e because the failure to waive such requirement would be against equity or good conscience 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 ira_rollovers and provides the rules applicable thereto sec_408 of the code provides that sec_408 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 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 receives the payment or distribution or ii 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 includible 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 secretary may waive the 60-day requirement under sec_408 and sec_408 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 revproc_2003_16 2003_4_irb_359 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 in this case the taxpayer relied on the faulty advice of her financial advisor who recommended that she retitle all of her single-name accounts as joint accounts with her a spouse following that advice the taxpayer caused all of the accounts that she maintained with investment firm a to be retitled as joint accounts including ira accounts f and g because iras may not be held jointly under the rules of the code investment firm a without notifying either the taxpayer or her financial advisor treated the taxpayer's instructions as a request for the distribution of amounts d and e from accounts f and g respectively the financial advisor's database failed to indicate that accounts f and g were ira accounts while amount d was previously transferred into ira account h with investment firm b albeit after the expiration of the 60-day rollover period none of the funds from amounts d and e were actually distributed to or spent by the taxpayer these funds remained in accounts either at investment firm a or investment firm b therefore pursuant to sec_408 of the code the service hereby waives as ss period of days from the date_of_issuance of this ruling letter to contribute all or a portion of amount e into an ira described in sec_408 provided all other requirements of code sec_408 except the 60-day requirement are met with respect to such contributions these amounts will be considered rollover_contributions within the meaning of sec_408 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 pursuant to a power_of_attorney on file with this office a copy of this ruling letter has been sent to your authorized representative this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact s ea rrr rrr rrr err rs krekekkerererererkekreerereerereaerrekerrerereerrr kek please address all correspondence to se t ep ra t1 sincerely cron unters carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose notice copy of letter to authorized representative


internal_revenue_service department of the treasury index number washington dc number release date re person to contact telephone number refer reply to cc dom p si 4-plr-121386-98 date date legend trust settlor spouse child grandchild a grandchild b great-grandchild a b c d e f local court this is in response to the date letter and other correspondence in which rulings are requested on the application of the estate gift and generation-skipping_transfer_tax to a proposed settlement agreement regarding the trust the trust was created by the settlor during life and became irrevocable at his death in no additions were made to the trust after date the individuals presently eligible to receive distributions from the trust are child grandchild a and grandchild b child’s adult children and great- plr-121386-98 grandchild grandchild a’s minor child under article ii paragraph of the trust agreement the trustees are authorized to pay to or for the benefit of any one or more of the living members of a class composed of child and child’s lineal_descendants part all or none of the net_income and principal as the trustees deem proper for their welfare spouse who was included in the class of beneficiaries died in under article iii paragraph a the trustees are directed to make discretionary payments for a person’s welfare from time to time in such amounts as the trustees deem proper for such person’s support health education including postgraduate education advancement in life including assistance in the purchase of a home or the establishment or development of any business or professional enterprise which the trustees believe to be reasonably sound lifetime residential or nursing home care and general well-being even to the exhaustion of the trust the trustees are to make payments for an individual’s welfare only to the extent the individual’s income and funds available from others obligated to supply funds for the specified purposes are insufficient the trustees are also to take into account the individual’s accustomed manner of living age health marital status and any other fact the trustees consider important in determining whether to make a distribution article iii paragraph b provides that no trustee who is a beneficiary may make or participate in making any discretionary payment to or for the benefit of himself or to or for the benefit of any co-trustee who is a beneficiary for purposes other than health support and education including postgraduate education no such trustee may terminate or participate in terminating any trust pursuant to the termination of small trust provision or exercise any incident_of_ownership in a policy of insurance insuring his life or that of any co-trustee but such incidents may be exercised by any other trustee who is not an insured or if none by a majority of the other beneficiaries to whom income may then be paid who are not insured further no such trustee may make or participate in making any discretionary payment to or for any beneficiary such trustee or any co-trustee is then individually legally obligated to support which directly or indirectly discharges the obligation under article ii paragraph at child’s death the remaining trust property is to be paid to or retained in further trust for such one or more of child’s lineal_descendants as child appoints in his will any principal not plr-121386-98 appointed by child will be divided per stirpes and held in separate trusts for the settlor’s lineal_descendants then living child and child’s lineal_descendants are the settlor’s only lineal_descendants under paragraph of article ii if at child’s death child fails to exercise the limited_power_of_appointment then the trust property is to be divided on a per stirpes basis among settlor’s lineal_descendants and held in further trust the trustees are to pay to the beneficiary for whom a_trust is held the net_income and such amounts of principal as the trustees deem proper for the beneficiary’s welfare at age the beneficiary is to receive one-half the trust principal and the balance at age if the beneficiary dies before becoming entitled to all of the trust property the then existing principal is to be paid to or retained for such one or more of the beneficiary’s spouse and the settlor’s lineal_descendants and their spouses as the beneficiary appoints however any trust must terminate no later than twenty-one years less one day after the death of the survivor of the settlor’s lineal_descendants living at his death and the principal is to be paid to the then current income_beneficiary under paragraph of article iv there are to be three trustees at least one of which is an independent_trustee who is neither a beneficiary nor related to any beneficiary by blood or marriage if a trustee ceases to act the remaining trustees are to appoint a successor spouse child and a were initially designated as the trustees however spouse and a resigned in b and c then became co-trustees with child in the exercise of their discretion the trustees distributed dollar_figure monthly to child dollar_figure quarterly to grandchild a and dollar_figure quarterly to grandchild b the trust was funded with shares of a closely_held_corporation in disputes began among the trustees concerning the management of the corporation these disputes were resolved when the corporation was sold in to an outside purchaser the trust now consists primarily of marketable_securities however disputes continued concerning the administration of the trust and the extent of the beneficiaries’ interests a settlement plan the plan was constructed to resolve these disputes to implement the plan child b and c resigned as trustees d e and f are now the trustees under the plan the periodic distributions will be increased so that child will receive dollar_figure monthly instead of the dollar_figure he presently receives grandchild a and grandchild b will each receive dollar_figure quarterly instead of the plr-121386-98 dollar_figure they presently receive there will be one-time distributions of dollar_figure to child dollar_figure less the outstanding amount of a loan from the trust to grandchild a and dollar_figure to grandchild b it is represented that these distributions are to be used in connection with the refurbishing of purchase of or payment of loans used to acquire residences by the respective beneficiaries the following payments will be made to or for the beneficiaries a dollar_figure will be reimbursed to child for legal fees incurred by child in connection with trust prior to development of the plan b up to dollar_figure will be paid for grandchild a’s legal fees incurred in connection with trust prior to development of the plan c dollar_figure will be reimbursed to grandchild a for education expenses_incurred prior to the execution of the plan d dollar_figure will be reimbursed to grandchild b for business and education expenses_incurred prior to the execution of the plan e up to dollar_figure will be paid for or reimbursed to child for legal fees incurred by the beneficiaries in connection with the plan or otherwise incurred by child in connection with the plan f up to dollar_figure will be paid for or reimbursed to grandchild a for legal fees incurred in connection with the plan excluding advanced legal fees g up to dollar_figure will be paid for or reimbursed to grandchild b for legal fees incurred in connection with the plan excluding advanced legal fees and h up to dollar_figure will be paid for or reimbursed to child for costs of life_insurance benefitting the trust that were paid_by child plr-121386-98 finally under the plan child will release in its entirety the limited_power_of_appointment provided for him in the trust agreement as part of the plan the trustees will petition the local court to modify the trust agreement to i eliminate the requirement for three trustees ii authorize the appointment of a single institutional trustee iii authorize the removal of any trustee and designation of a successor institutional trustee at any time by a majority of the adult legally competent beneficiaries and iv authorize the adult legally competent beneficiaries to direct the trustee to employ and replace professional investment counsel the implementation of the plan is subject_to approval by local court rulings requested you have requested the following estate and gift_tax rulings child’s irrevocable release of the limited_power_of_appointment will not cause sec_2041 to apply to the trust property at child’s death child’s irrevocable release of the limited_power_of_appointment will not be subject_to gift_tax no beneficiary will be treated as holding a general_power_of_appointment for purposes of sec_2514 or sec_2041 by reason of being authorized to participate in the removal of any trustee and the appointment of a qualifying bank or trust company as successor trustee you have requested the following generation-skipping_transfer_tax rulings the proposed distributions and payments to or for grandchild a and grandchild b will not be subject_to the generation- skipping transfer_tax the trust will not cease to be exempt from the generation-skipping_transfer_tax by reason of the proposed distributions and payments to or for child grandchild a and grandchild b plr-121386-98 the trust will not cease to be exempt from the generation- skipping transfer_tax by reason of child’s irrevocable release of the limited_power_of_appointment the trust will not cease to be exempt from the generation- skipping transfer_tax by reason of the modification of the trust to reduce the required number of trustees alter the procedure for appointing successor trustees authorize the removal and replacement of the institutional trustee by a majority of the adult legally competent beneficiaries and authorize the adult legally competent beneficiaries to direct the appointment and removal of investment counsel for the trust estate and gift_tax ruling_request sec_1 and sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released the power_of_appointment by a disposition of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 through inclusive sec_2041 defines the term general_power_of_appointment as a power that is exercisable in favor of the decedent the decedent’s estate the decedent’s creditors or the creditors of the decedent’s estate except that a power to consume invade or appropriate property for the benefit of the decedent which is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_20_2041-1 of the estate_tax regulations provides that the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of such fiduciary duties is not a power_of_appointment plr-121386-98 sec_20_2041-1 provides that a power_of_appointment is not a general power if by its terms it is either exercisable only in favor of one or more designated persons or classes other than the decedent the decedent’s creditors the decedent’s estate or the creditors of the decedent’s estate or expressly not exercisable in favor of the decedent the decedent’s creditors the decedent’s estate or the creditors of the decedent’s estate a power_of_appointment exercisable for the purpose of discharging a legal_obligation of the decedent or for the decedent’s pecuniary benefit is considered a power_of_appointment exercisable in favor of the decedent or the decedent’s creditors under sec_2514 the exercise or release of a general_power_of_appointment created after date is deemed a transfer of property by the individual possessing the power for gift_tax purposes sec_2514 and the regulations thereunder provide rules similar to sec_2041 and the applicable regulations with respect to the definition of a general_power_of_appointment see eg sec_2514 and sec_25_2514-1 revrul_95_58 1995_2_cb_191 holds that a grantor’s reservation of an unqualified power to remove a trustee and appoint an individual or corporate successor trustee that is not related or subordinate within the meaning of sec_672 to the grantor is not considered a reservation of the trustee’s discretionary powers over the property transferred by the grantor to the trust accordingly the property in the trust would not be includible in the grantor’s gross_estate under sec_2036 or sec_2038 in this case child’s testamentary_power_of_appointment may be exercised only in favor of his lineal_descendants and he may not exercise it in favor of himself his creditors his estate or the creditors of his estate therefore the power is a limited_power_of_appointment rather than a general_power_of_appointment as described in sec_2041 and sec_2514 accordingly child’s irrevocable and full release of the limited_power_of_appointment will not cause the estate_tax imposed under sec_2041 to apply to the property comprising the trust at child’s death likewise child’s irrevocable and full release of his limited_power_of_appointment will not be deemed a transfer subject_to gift_tax under sec_2514 the trustees propose to modify the trust to authorize the removal of any trustee and replacement with a successor institutional trustee at any time by a majority of the adult legally competent beneficiaries we conclude that plr-121386-98 provided the modified trust agreement requires a replacement trustee so designated to be neither subordinate nor related within the meaning of sec_672 to a beneficiary no beneficiary will be treated as holding a general_power_of_appointment for purposes of sec_2514 or sec_2041 by reason of the authority to participate in the removal of a trustee and the appointment of a qualifying bank or trust company as successor trustee generation-skipping_transfer_tax ruling_request sec_4 and sec_2601 provides that a tax is imposed on every generation-skipping_transfer under section b of the tax_reform_act_of_1986 as amended and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the provisions of chapter will not apply to any generation-skipping_transfer under a_trust that was irrevocable on date this rule does not apply to a portion of any generation-skipping_transfer under an irrevocable_trust where additions are made to the trust after date sec_26_2601-1 provides that where any portion of a_trust remains in the trust after the post-date release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse is treated to any extent as a taxable transfer under chapter or chapter the value of the entire portion of the trust subject_to the power that was released exercised or lapsed is treated as if that portion had been withdrawn and immediately transferred to the trust at the time of the release exercise or lapse sec_26_2601-1 provides that the release exercise or lapse of a power_of_appointment other than a general_power_of_appointment as defined in sec_2041 will not be treated as an addition to a_trust if - the power_of_appointment was created in an irrevocable_trust that is not subject_to chapter under sec_26_2601-1 and in the case of an exercise the power_of_appointment is not exercised in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date of creation of the trust extending beyond any life in being at the date of creation of the trust plus a period of years plr-121386-98 a modification of a_trust that is otherwise exempt for purposes of chapter by reason of section b of the tax reform act will generally result in a loss of exempt status if the modification changes the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under the terms of the trust we believe that the terms of the settlement agreement the plan in this case fairly reflect the relative merits of the positions of the respective parties to the disputes and are consistent with the beneficiaries’ rights and trustees’ powers under the instrument therefore the settlement agreement does not alter the intended quality value or timing of the interests created in the trust accordingly we conclude that the generation-skipping_transfer_tax will not apply to the trust distributions and payments made to or for grandchild a and grandchild b the trust will not cease to be exempt from the generation- skipping transfer_tax by reason of the proposed distributions and payments child’s complete release of the limited_power_of_appointment will not be treated as a constructive_addition to the trust and the complete release of the testamentary limited_power_of_appointment will not cause the trust to become subject_to the generation-skipping_transfer_tax and provided that the modification of trustee succession and investment counsel designation requires a replacement trustee to be neither subordinate nor related within the meaning of sec_672 to a beneficiary the trust will not cease to be exempt from the generation-skipping_transfer_tax by reason of the modification except as ruled above we express or imply no opinion concerning the federal tax consequences of this transaction under the cited provisions or any other provision of the code this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel passthroughs and special industries by_________________________ george masnik chief branch plr-121386-98


department of the treasury internal_revenue_service washington d c date office_of_chief_counsel number release date uilc internal_revenue_service national_office field_service_advice memorandum for associate area_counsel cc sbse sd from subject associate chief_counsel income_tax accounting advance_payments for goods this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 of the internal_revenue_code this chief_counsel_advice should not be cited as precedent legend taxpayer a items systems year year issue should taxpayer include in gross_income a payment received for sale and installation of goods in the taxable_year the payment is received year or in the taxable_year in which the goods are delivered and the installation completed year conclusion we agree with your conclusion that under the facts described in your memorandum taxpayer may defer the payments until year the taxable_year the goods are delivered and installed facts we understand the facts to be as follows taxpayer uses the accrual_method of accounting and is a dealer for a a manufactures and sells items and systems taxpayer and the service appear to agree that items and systems are goods taxpayer enters into contracts with its customers under which taxpayer designs plans for items and systems and sells the items and systems to customers taxpayer orders the items and systems it needs for a particular contract from either a or other suppliers when taxpayer receives the items and systems it has ordered for a customer taxpayer installs them at the customer’s site taxpayer uses a portion of its office space for temporary storage of items and systems before delivery and installation at the customer’s site when a customer and taxpayer enter into one of these contracts the customer must pay a nonrefundable payment to taxpayer the payment generally does not cover the entire cost of the contract taxpayer does not hold the payment in a separate_account and the payment is available to taxpayer without restriction when taxpayer delivers and installs the items and systems taxpayer bills the remaining amounts due taxpayer represents that the contracts at issue usually are completed all items and systems delivered and installed and the remaining balance due either during the taxable_year in which the nonrefundable payment is received or during the taxable_year immediately following for both financial reporting and tax purposes taxpayer includes in income the nonrefundable payment and balance due on a contract in the year the items and systems under the contract are delivered and installed law under sec_446 of the internal_revenue_code a taxpayer’s right to use a method_of_accounting is subject_to the requirement that the method clearly reflect income the commissioner has broad discretion to determine whether a taxpayer’s method_of_accounting clearly reflects income 98_tc_457 aff’d f 3d 9th cir sec_451 provides that the amount of any item_of_gross_income shall be included in the gross_income for the taxable_year in which received by the taxpayer unless under the method_of_accounting used in computing taxable_income such amount is to be properly accounted for as of a different period sec_1_451-1 of the income_tax regulations provides that under an accrual_method of accounting_income is includible in gross_income when all the events have occurred that fix the right to receive the income and the amount of the income can be determined with reasonable accuracy the all-events test all the events that fix the right to receive income occur when the required performance takes place payment is due or payment is made whichever happens first revrul_80_308 1980_2_cb_162 sec_1_451-5 is an exception to the all-events test sec_1_451-5 states that advance_payments must be included in income either in the taxable_year of receipt or except as provided in sec_1_451-5 in either of the following a in the taxable_year in which properly accruable under the taxpayer’s method_of_accounting for tax purposes if such method results in including advance_payments in gross_receipts no later than the time such advance_payments are included in gross_receipts for purposes of all its reports including consolidated financial statements to shareholders partners beneficiaries other proprietors and for credit purposes or b if the taxpayer’s method_of_accounting for purposes of such reports results in advance_payments or any portion of such payments being included in gross_receipts earlier than for tax purposes in the taxable_year in which includible in gross_receipts pursuant to its method_of_accounting for purposes of such reports sec_1_451-5 provides in relevant part that for purposes of this section the term advance_payment means any amount which is received in a taxable_year by a taxpayer using an accrual_method of accounting for purchases and sales pursuant to and to be applied against an agreement for the sale_or_other_disposition in a future taxable_year of goods held by the taxpayer primarily_for_sale_to_customers in the ordinary course of its trade_or_business sec_1_451-5 provides that for purposes of sec_1_451-5 the term agreement includes an agreement that obligates a taxpayer to perform activities described in sec_1_451-5 and which also contains an obligation to perform services that are to be performed as an integral part of such activities sec_1_451-5 provides rules that apply under certain circumstances when a taxpayer receives substantial advance_payments as defined in sec_1_451-5 in a because we think that the taxpayer is within sec_1 a i we do not discuss the applicability of sec_1_451-5 taxable_year with respect to an agreement for the sale_of_goods properly includible in its inventory analysis for taxpayer to defer its nonrefundable payments under sec_1_451-5 the payments must be pursuant to and applied against an agreement for the sale_or_other_disposition of goods held by the taxpayer primarily_for_sale_to_customers in the ordinary course of its trade_or_business sec_1_451-5 whether items and systems are goods held by taxpayer primarily_for_sale_to_customers in the ordinary course of its business is the primary issue in dispute in this case we agree with your conclusion that items and systems are held by taxpayer within the meaning of sec_1_451-5 and that taxpayer may defer the payments at issue in straight v commissioner t c memo the tax_court held that a similarly situated taxpayer did not hold goods for sale to customers in the ordinary course of its business in straight the taxpayer was a dealer for a company that sold house panel kits the taxpayer entered into contracts with customers for the kits received deposits pursuant to the agreements and ordered the kits from the supplier the supplier then delivered the kits directly to the customers the court held that the taxpayer never owned or took title to the kits never included them in its inventory and thus was not entitled to use sec_1_451-5 to defer inclusion of payments received pursuant to contracts for the kits in an unpublished order dated date straight v commissioner docket no the court reversed its holding on this issue the case was before the court on the taxpayer’s motion for reconsideration the taxpayer argued that the advance_payments were for the building constructing and manufacturing of the house kits under sec_1_451-5 without regard to inventory and in the alternative that the advance_payments were for the future sale_of_goods held by the taxpayer primarily_for_sale_to_customers under sec_1_451-5 because the taxpayer was the owner and title holder of the house kits the commissioner did not respond to these new arguments on this issue and the court treated this as a concession in addition the court found the taxpayer’s new arguments on the issue convincing although the court did not discuss which of the new arguments it found persuasive and held that advance_payments received by the taxpayer pursuant to contracts to sell kits could be deferred under sec_1_451-5 the published opinion in straight is not precedential on this issue and we decline to apply it to this case in addition taxpayer’s facts indicate a clearer case for deferral than the facts in straight in straight the suppliers delivered kits directly to the customers bypassing the taxpayer thus the kits were not held by the taxpayer for resale in the ordinary course of its business in contrast to straight taxpayer’s ordinary course of business is to place orders for the goods as needed receive and temporarily store the goods and deliver and install the goods because taxpayer physically holds the items and systems it orders from its suppliers prior to delivery to the customers taxpayer meets the requirements of sec_1_451-5 taxpayer also appears to meet other relevant requirements of sec_1_451-5 taxpayer receives the payments pursuant to and applied against agreements between taxpayer and customers for financial reporting purposes and tax purposes taxpayer includes the payments in income in the year the items and systems are delivered which is usually either the year of receipt or the year immediately following in general taxpayer is also subject_to the rules of sec_1_451-5 regarding inventoriable goods although it is unclear from the facts whether taxpayer’s advance_payments are substantial for purposes of sec_1_451-5 however because the payments are generally included in income for tax purposes either in the year of receipt or the year immediately following we do not think that sec_1 c limits taxpayer’s deferral in this case case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please call if you have any further questions paul m ritenour chief branch office of associate chief_counsel income_tax accounting


internal_revenue_service number release date index number -------------------- -------------------------------------- ---------------------------------- -------------------------- --------------------------------------- in re ---------------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no --------------- ----------------- telephone number --------------------- refer reply to cc psi b05 plr-115761-11 date date taxpayer --------------------------------------------------- ------------------------------------- ------------------ project ------------------------------------------------- ------------------------------------------------------------------ --------------------------------------------------- year ----------------------------------------------------- dear ------------ this letter responds to a letter dated date submitted on behalf of taxpayer requesting an extension of time to make an election under sec_42 of the internal_revenue_code pursuant to sec_301_9100-1 of the procedure and administration regulations according to the information submitted taxpayer placed project in service in year taxpayer inadvertently failed to make a timely correct election for project under sec_42 consistent with taxpayer’s intent as evidenced by taxpayer’s contemporaneous documentation sec_42 defines qualified_low-income_housing_project as any project for residential_rental_property if the project meets the requirements of sec_42 or b whichever is elected by the taxpayer the project meets the requirements of sec_42 if percent or more of the residential units are both rent-restricted and occupied by individuals whose income i sec_50 percent or less of area median gross plr-115761-11 income the project meets the requirements of sec_42 if percent or more of the residential units are both rent-restricted and occupied by individuals whose income is percent or less of area_median_gross_income sec_42 provides that following the close of the first taxable_year in the credit_period with respect to any qualified_low-income_building the taxpayer shall certify to the secretary at such time and in such form and in such manner as the secretary prescribes d the election made under sec_42 with respect to the qualified_low-income_housing_project of which such building is a part and e such other information as the secretary may require in the case of a failure to make the certification required by the preceding sentence on the date prescribed therefor unless it is shown that such failure is due to reasonable_cause and not to willful neglect no credit shall be allowable by reason of sec_42 with respect to such building for any taxable_year ending before such certification is made sec_301_9100-7t of the temporary procedure and administration regulations provides that for elections under the tax_reform_act_of_1986 the election under sec_42 must be made for the taxable_year in which the project is placed_in_service and shall be made in the certification required to be filed pursuant to sec_42 form_8609 serves the purpose of the certification required to be filed pursuant to sec_42 and includes the election under sec_42 sec_301_9100-7t provides that the election under sec_42 is irrevocable sec_301_9100-1 through provide the standards the commissioner of internal revenue will use to determine whether to grant an extension of time to make an election 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 published in the internal_revenue_bulletin under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 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 code except subtitles e g h and i sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making 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 plr-115761-11 in the instant case based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been met accordingly taxpayer is granted an extension of time to make the election under sec_42 for project by filing within days from the date of this letter an amended form_8609 that includes the intended election the amended form_8609 along with a copy of this letter is to be sent to the following address department of the treasury internal_revenue_service center philadelphia pa no opinion is expressed or implied regarding the application of any other provisions of the code or regulations specifically we express no opinion on whether project otherwise qualifies under sec_42 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file a copy of this letter is being sent to taxpayer’s authorized representative sincerely associate chief_counsel passthroughs special industries by _______________________ christopher j wilson senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service national_office technical_advice_memorandum number release date index uil no case mis no tam-106657-99 cc dom it a b5 date date district_director taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference legend taxpayer partnership plaintiff issues should taxpayer be treated as a grantor_trust instead of a complex_trust if taxpayer is properly treated as a grantor_trust are there any legal or equitable doctrines that provide a basis for partial or total disallowance of the claims for refund tam-106657-99 conclusions taxpayer should not be treated as a grantor_trust because taxpayer is not properly treated as a grantor_trust it is not necessary to determine whether there are legal doctrines that provide a basis for a total disallowance of the claims for a refund facts the information submitted indicates that in plaintiff filed a suit against partnership for negligence and other claims related to with respect to a corporation that a subsidiary of plaintiff had purchased in there was a jury verdict against partnership in the amount of in taxpayer was established and partnership transferred in cash to taxpayer in the trial_court granted partnership’s motion for a new trial in an appellate court issued its opinion and remanded the case for a new trial a new trial has not yet started partnership a cash_basis taxpayer deducted on its form_1065 return the funding of taxpayer under sec_162 and sec_461 of the internal_revenue_code with respect to the taxable years through taxpayer filed returns as a complex_trust and reported income and paid tax for each of those years during those same years partnership funded the taxes paid_by taxpayer and deducted those amounts with respect to the and taxable years taxpayer filed returns stating that it was a wholly-owned grantor_trust during those years partnership reported the income of taxpayer and also deducted those amounts as constructive contributions to taxpayer in april of taxpayer filed amended returns for through claiming that it should always have been treated as a grantor_trust instead of a complex_trust and therefore is entitled to refunds of taxes that were paid with respect to those years partnership claims that it mistakenly filed as a complex_trust for through the statute_of_limitations for partnership’s taxable_year has expired the trust agreement provides that partnership and certain of its partners desire to create a_trust for the benefit of plaintiff to hold assets that would be used to satisfy all or part of the liability if any that partnership is finally determined to have with respect to the claims asserted against it by plaintiff in the lawsuit that plaintiff shall have no duty to execute or give credit to or marshal assets of taxpayer’s estate prior to executing on other assets of tam-106657-99 partnership sec_3 of the trust agreement provides that upon the occurrence of a final_determination the trustee shall liquidate the non-cash assets of taxpayer and make such payment to the plaintiff out of the taxpayer’s estate as is necessary to discharge to the maximum extent possible the liability if any that partnership is determined to have to plaintiff with respect to the claims pursuant to such final_determination net of any applicable insurance coverage that partnership may have with respect to any such liability it being understood that taxpayer’s estate may not be sufficient to fully discharge any such liability and that the trust agreement shall not limit any recourse that plaintiff may have against other assets of partnership the remaining portion of taxpayer’s estate if any shall then be distributed to the partners of partnership on whose behalf taxpayer was funded and the trustee may either i rely conclusively upon a certificate of partnership regarding the identity of and the amounts to be distributed to each such partner or ii pay to partnership in trust any amounts to be distributed to such partners for distribution by partnership to such partners on behalf of taxpayer law and analysis sec_162 provides that there shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying out any trade_or_business sec_461 provides that the amount of any deduction or credit allowed by subtitle a shall be taken for the taxable_year which is the proper taxable_year under the method_of_accounting used in computing taxable_income sec_461 provides that if the taxpayer contests an asserted_liability the taxpayer transfers money or other_property to provide for the satisfaction of the asserted_liability the contest with respect to the asserted_liability exists after the time of the transfer and but for the fact that the asserted_liability is contested a deduction would be allowed for the taxable_year of the transfer or for an earlier taxable_year determined after application of sec_461 then the deduction shall be allowed for the taxable_year of the transfer sec_1_461-2 of the income_tax regulations provides that a taxpayer may provide for the satisfaction of an asserted_liability by transferring money or other_property beyond the taxpayer’s control i to the person who is asserting the liability ii to an escrowee or trustee pursuant to a written_agreement among the escrowee or trustee the taxpayer and the person who is asserting the liability that the money or other_property be delivered in accordance with the settlement of the contest or iii to tam-106657-99 an escrowee or trustee pursuant to an order of the united_states any state or political_subdivision thereof or any agency_or_instrumentality of the foregoing or a court that the money or other_property be delivered in accordance with the settlement of the contest sec_1_461-2 regarding the treatment of money or other_property transferred to an escrowee trustee or court and treatment of any income attributable thereto is reserved sec_641 provides that the tax imposed by sec_1 shall apply to the taxable_income of any kind of property held in trust sec_671 provides that where it is specified in subpart e that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust that are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_673 through specify the circumstances that cause a taxpayer to be regarded as the owner of a portion of a_trust sec_677 of the code provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or held or accumulated for future distribution to the grantor sec_1_677_a_-1 provides that under sec_677 a grantor is in general treated as the owner of a portion of a_trust whose income is or in the discretion of the grantor or a nonadverse_party or both may be applied in discharge of a legal_obligation of the grantor the rules of sec_461 and sec_1_461-2 preclude taxpayer from being treated as owned by partnership under subpart e if partnership is entitled to a deduction for amounts contributed to taxpayer under sec_461 it is fundamentally inconsistent for partnership to also be treated as the owner of all the assets of taxpayer for federal_income_tax purposes for example if partnership were treated as the owner of taxpayer when amounts that were contributed by partnership to taxpayer are paid from taxpayer for deductible expenses further deductions might be claimed by partnership for amounts already deducted upon transfer to taxpayer therefore the provisions of subpart e cannot apply to treat partnership as the owner of any portion of taxpayer for which deductions are allowed under sec_461 and sec_1_461-2 instead the tax imposed by sec_1 will apply to the taxable tam-106657-99 income of taxpayer pursuant to sec_641 and subparts a b c and d part i subchapter_j chapter of the code will apply to taxpayer because taxpayer is not a grantor_trust for federal tax purposes it is not entitled to the requested refunds and there is no need to address the second issue caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent by richard l carlisle acting chief branch


cca_2018020609542847 id uilc number release date from sent tuesday february am to cc bcc subject fw request for opinion - suspension of csed during pending ia - posts-121877-17 you asked about the situation in which suspensions of the csed under a and k could simultaneously apply as discussed this would be an unusual factual scenario in order for there to be a sec_6503 applies to deficiencies and deficiency litigation the collection statute does not begin to run until after the tax is assessed suspension of the csed under a there would have to be a situation in which the tax is assessed before a notice_of_deficiency was issued for the same tax the only situation in which we can imagine this occurring is a jeopardy situation where a notice_of_deficiency is issued following a jeopardy_assessment we don’t believe there would be many cases in which a taxpayer would be attempting to pay off a jeopardy_assessment with an installment_agreement given that jeopardy assessments are generally made against noncompliant taxpayers who would not likely be cooperating with the irs to enter into installment agreements we believe the district_court case you cited interprets sec_6503 overbroadly and you can generally assume that sec_6503 will almost never suspend the csed beyond the suspension already provided in sec_6331 please feel free to contact me if you have any further questions thanks


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 2-plr-118612-99 date date x a date year year dear this letter responds to a date letter and subsequent correspondence that x’s authorized representative submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code the information submitted states that x incorporated on date of year a the sole shareholder of x intended x to be an s_corporation beginning with x’s year taxable_year however x’s attorney inadvertently failed to file form_2553 election by a small_business_corporation for x for year when it became apparent that form_2553 had not been timely filed x’s attorney filed form_2553 for x effective for year x filed a form_1120s u s income_tax return for an s_corporation for year and a filed a’s year form_1040 u s individual_income_tax_return consistent with x being an s_corporation sec_1362 of the code provides that if-- a an election under sec_1362 for any taxable_year is made after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely yours h grace kim assistant to chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes