internal_revenue_service number release date index number -------------------------------------- -------------------------------------------------- ------------------------------------------ ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ----------------- telephone number ------------------- refer reply to cc psi b01 plr-141503-15 date june legend x ---------------------------------------------------- --------------------------------------------------- y ----------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------- -------------------------------------------- a -------------------------- ----------------------------------------------------- b -------------------------------------------- -------------------------- sub ---------------------------------------------------- --------------------------------------------- sub ---------------------------------------------------- -------------------------------- sub ---------------------------------------------------- ----------------------------------------------------- sub ---------------------------------------------------- ------------------------------------------ plr-141503-15 trust ---------------------------------------------------- ---------------------------------------------- trust ---------------------------------------------------- ----------------------------------------------- trust ---------------------------------------------------- --------------------------------------- trust ---------------------------------------------------- ------------------------------------------------ trust ---------------------------------------------------- --------------------------------------------------- trust ---------------------------------------------------- ------------------------------------------------- trust ---------------------------------------------------- --------------------------------------------------- trust ---------------------------------------------------- ----------------------------------------------------- trust ---------------------------------------------------- ---------------------------------- trust ---------------------------------------------------- -------------------------------------- trust ---------------------------------------------------- -------------------------------------- trust ---------------------------------------------------- --------------------------------------------- trust ---------------------------------------------------- --------------------------------------------- trust ---------------------------------------------------- ------------------------------------------------------ trust ---------------------------------------------------- ------------------------------------------------ plr-141503-15 trust ---------------------------------------------------- ------------------------------------------ trust ---------------------------------------------------- ------------------------------------- trust ---------------------------------------------------- --------------------------------------- trust ---------------------------------------------------- ----------------------------------- trust ---------------------------------------------------- --------------------------------------------- trust ---------------------------------------------------- --------------------------------------- date date date date date date date date year years state -------------------------- ----------------------- ---------------------- ---------------------- ------------------ -------------------------- -------------------------- ---------------------- ------- -------------- -------- plr-141503-15 dear -------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting relief under sec_1362 of the internal_revenue_code and requesting relief pursuant to sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to elect to treat sub sub and sub as qualified subchapter_s subsidiaries qsub under sec_1361 of the code facts according to the information submitted and representations within x was incorporated on date under the laws of state and elected to be treated as an s_corporation effective date as of date trust trust trust trust trust trust trust trust trust trust trust trust and trust were shareholders of x x represents that trust trust trust trust trust trust trust trust trust trust trust trust and trust were eligible to make qualified_subchapter_s_trust qsst elections as of date however the income beneficiaries of trust trust trust trust trust and trust inadvertently failed to timely file qsst elections thereby causing trust trust trust trust trust and trust to become ineligible shareholders of x in addition the guardians of the minor beneficiaries of trust trust trust trust trust and trust failed to timely file qsst elections thereby causing trust trust trust trust trust and trust to become ineligible shareholders of x as a result x’s s election on date was invalid b the beneficiary of trust timely filed a qsst election for trust however x’s s election was not valid on date thus invalidating trust 9’s qsst election x represents that on date trust distributed all of its holdings in x to a an eligible s_corporation shareholder x represents that trust trust trust trust trust trust trust and trust were eligible to make electing_small_business_trust esbt elections as of date x represents that the trustee of trust trust trust trust trust trust trust and trust timely filed esbt elections however x’s s election was not valid on date thus invalidating trust trust trust trust trust trust trust and trust 21’s esbt elections x represents that the trustee of trust and trust decided to convert trust and trust from qssts to esbts effective date x represents that trust and trust plr-141503-15 were eligible to make esbt elections effective date x represents that the trustee of trust and trust timely filed esbt elections however x’s s election was not valid on date thus invalidating trust and trust 7’s esbt elections in addition the conversions of trust and trust from qssts to esbts were not valid because the trustees and beneficiaries of trust and trust did not file the trust conversions pursuant to revproc_98_23 effective date x elected to treat sub sub and sub as qualified subchapter_s subsidiaries qsubs x also made a qsub election for sub effective date however x’s s election was not valid on date thus invalidating x’s qsubs elections in addition the form_8869 qualified_subchapter_s_subsidiary election for sub sub and sub were invalid due to a processing error x represents that on date sub merged into x x represents that on date the shareholders of x exchanged their x shares for non- voting class b shares in y following this exchange x became a wholly-owned subsidiary of y y filed a qsub election for x effective date x represents that at all times on and after date the date of x’s intended s election x has owned all of the outstanding_stock of sub sub and sub x represents that it owned all of the outstanding_stock of sub from date until date when sub merged into x x represents that it intended to elect to treat sub sub and sub as qsubs effective date and sub as a qsub effective date x also represents that x has filed tax returns for all tax years consistent with the treatment of sub sub sub and sub as qsubs x represents that trust trust trust trust trust trust trust trust trust trust and trust have qualified as qssts under sec_1361 at all times since the date that each trust first acquired stock in x x represents that the trusts have filed consistently as if valid qsst elections were in place for years x further represents that the failure_to_file qsst elections for the trusts was discovered in year x represents that the minor beneficiaries of trust trust trust trust trust and trust have all reached the age of majority as of the date of this ruling_request x represents that trust trust trust trust trust trust trust and trust have at all times met the requirements of an esbt under sec_1361 since the date that each trust first acquired stock in x x represents that the trusts have filed consistently as if valid esbt elections were in place for years x further represents that the failure_to_file esbt elections for the trusts was discovered in year x represents that trust and trust have qualified as qssts under sec_1361 at all times since the date that each trust first acquired stock in x until the date of that each trust converted to an esbt x represents that trust and trust have filed consistently as if valid qsst elections were in place for the years the trusts were plr-141503-15 qssts and that trust and trust have filed consistently as if a valid esbt election was in place for the years the trusts were esbts x further represents that the failure_to_file qsst and esbt elections for the trusts was discovered in year x represents that the circumstances resulting in the failure to make the qsst and esbt elections were inadvertent and not motivated by tax_avoidance or retroactive tax planning x further represents that x has filed its income_tax returns consistent with having a valid s election in effect for all taxable years since x elected to be an s_corporation and until x became a qsub of y on date x represents that other than the failure to make valid qsst elections on date and valid esbt elections on date and date x has qualified as a small_business_corporation at all times since its election on date lastly x and its shareholders agree to make any adjustments required as a condition of obtaining relief under sec_1362 that may be required by the secretary x represents that the inadvertent invalid election of its s_corporation_election was inadvertent and was not motivated by tax_avoidance or retroactive tax planning law and analysis sec_1361 provides that an s_corporation is a small_business_corporation for which an election under sec_1362 is in effect sec_1361 provides that the terms small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1361 generally provides that a qsub shall not be treated as a separate corporation and all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and such items as the case may be of the s_corporation sec_1361 defines a qsub as a domestic_corporation which is not an ineligible_corporation if percent of the stock of the corporation is owned by the s_corporation and the s_corporation elects to treat the corporation as a qualified_subchapter_s_subsidiary sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be an s_corporation shareholder plr-141503-15 sec_1361 provides that for purposes of sec_1361 an esbt is a permissible s_corporation shareholder sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under paragraph d such trust shall be treated as a_trust described in sub sec_1361 and for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under paragraph d is made sec_1361 defines a qsst as a_trust all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states in addition the terms of the trust must require that i during the lifetime of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary's death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to such beneficiary sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1_1361-1 of the income_tax regulations provides that the trustee of an esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 sec_1_1361-1 provides that the trustee of an esbt must file the esbt election within the time requirements prescribed in sec_1_1361-1 for filing a qsst election generally within the 16-day-and-2-month period beginning on the day that the stock is transferred to the trust sec_1_1361-3 prescribes the time and manner for making an election to be classified as a qsub sec_1_1361-3 provides that an election may be effective up to two months and days prior to the date the election is filed or not more than months after the election is filed the proper form for making the election is form_8869 qualified_subchapter_s_subsidiary election plr-141503-15 sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 shall be valid only if all persons who are shareholders in such corporation on the day on which such election is made consent to such election sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides in relevant part that if an election under sec_1362 or sec_1361 by any corporation a was not effective for the taxable_year for which made determined without regard to b by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under paragraph or sec_1362 or sec_1361 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation for which the election was made or the termination occurred is a small_business_corporation or a qsub as the case may be or b to acquire the required shareholder consents and the corporation for which the election was made or the termination occurred and each person who was a shareholder in such corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of such corporation as an s_corporation or a qsub as the case may be as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation or a qsub as the case may be during the period specified by the secretary revrul_2008_18 situation holds that consistent with revrul_64_250 a reorganization under sec_368 did not cause the termination of an s_corporation_election under sec_1362 in revproc_2008_18 c an individual owned all of the stock of z an s_corporation in year z formed newco which in turn forms mergeco pursuant to a plan_of_reorganization mergeco merges with and into z with z surviving and c receiving solely newco stock in exchange for z stock newco meets the requirements for qualification as a small_business_corporation and timely elects to treat z as a qsub effective immediately following the transaction the transaction met the requirements of a reorganization under sec_368 and z’s original s_corporation_election continued for newco newco must obtain a new ein z must retain its ein even though a qsub election is made for z and must use its original ein any time the qsub is otherwise treated as a separate_entity for federal tax purposes including for employment and certain excise_taxes or if the qsub election terminates plr-141503-15 revrul_64_250 c b holds that a reorganization under sec_368 did not cause a termination of an election under form sec_1372 the predecessor to sec_1362 in that revenue_ruling an electing small_business_corporation within the meaning of former sec_1371 was reincorporated in another state through the corporation's shareholders organizing a new corporation in the other state and merging the existing corporation into the new corporation the revenue_ruling states that the surviving corporation also met the requirements for qualification as a small_business_corporation revproc_98_23 sec_4 provides in relevant part that a_trust may convert from a qsst to an esbt if the trust meets all the requirements to be an esbt except for the requirement that the trust not have a qsst election in place under sec_1361 the trustee and the current income_beneficiary of the trust make the esbt election pursuant to section dollar_figure of this rev_proc with respect to the stock of each s_corporation held by the trust the trust has not converted from an esbt to a qsst within the month period preceding the effective date of the new esbt election except as provided in section of this rev_proc the effective date of the esbt election cannot be more than days and months prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed if an election specifies an effective date more than days and months prior to the date on which the election is filed it will be effective days and months prior to the date on which it is filed if an election specifies an effective date more than months after the date on which the election is filed it will be effective months after the date it was filed revproc_98_23 sec_4 provides in relevant part that the current income_beneficiary and the trustee of the trust must sign the esbt election and file it with the service_center where the s_corporation files its income_tax return this esbt election must state at the top of the document attention entity control - conversion of a qsst to an esbt pursuant to rev_proc emphasis in original and include all the information otherwise required for an esbt election a separate election must be made with respect to the stock of each s_corporation held by the trust conclusion based solely on the facts submitted and the representations made we conclude that x’s s election was ineffective on date we further conclude that the missed qsst elections that caused the ineffectiveness were inadvertent within the meaning of sec_1362 therefore x will be treated as an s_corporation effective date and thereafter until date provided x’s s_corporation_election is otherwise valid and not otherwise terminated under sec_1362 this letter_ruling is subject_to the following conditions no later than days from the date of this letter the beneficiaries of trust trust trust trust trust trust plr-141503-15 and trust must file a qsst election for trust trust trust trust trust trust and trust effective date both the former guardians and the beneficiaries of trust trust trust trust trust and trust must sign and file the qsst election for trust trust trust trust trust and trust effective date the trustee of trust trust trust trust trust trust trust and trust must file an esbt election for trust trust trust trust trust trust trust and trust effective date the trustee and beneficiaries of trust and trust must file the trust conversions to convert trust and trust from qssts to esbts effective date pursuant to revproc_98_23 these elections must be made with the appropriate service_center within days from the date of this letter a copy of this letter should be attached to the elections if these conditions are not met then this ruling is null and void furthermore if these conditions are not met x must send notification that its s election has terminated to the service_center with which x’s s election was filed furthermore based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of days from the date of this letter to elect to treat sub sub and sub as qsubs effective date the election should be made by filing form_8869 with the appropriate service_center and a copy of this letter should be attached to the election a copy is enclosed for that purpose furthermore sub will be treated as a qsub effective date through date provided sub otherwise is eligible to be treated as a qsub 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 specifically no opinion is expressed or implied concerning whether x otherwise qualifies as an s_corporation or whether sub sub sub and sub are eligible to be qsubs for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-141503-15 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s authorized representatives sincerely david r haglund david r haglund branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service number release date index number 468a ------------------------------- ---------------------------------------- ----------------------------------------------- ----------------------------- ---------------------------- 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 b6 plr-141648-12 date date legend parent company b date x state plant method p study a study b location x y z ba fv year a year b year c year d year e year f ----------------------------------- --------------------------------- -------------------------------------------------- taxpayer ------------------------------------------------------------ company a ----------------------------------------------------------- --------------------------------- -------------------------------------------------- ---------------------- ------- ---------------------------------------------- ------------ --------- --------------------------------------------------------------------------------- ------------------------------------------------------------------- ---------------------------------- ------------------ -------- ------ ---------------------- ---------------------- ------- ------- ------- ------- ------- ------- ------------------ ------------------ ------------------ ---------------- ---------------- plr-141648-12 amount a amount b t pv aa dear ----------------- this letter responds to your request dated date for an initial schedule of ruling amounts under sec_468a of the internal_revenue_code and sec_1_468a-3 of the income_tax regulations information was submitted pursuant to sec_1_468a-3 taxpayer represents the following facts and information relating to the ruling_request taxpayer is wholly owned by parent parent through its subsidiaries is engaged in the generation delivery and sale of electricity at wholesale and retail taxpayer owns all of the common_stock of company a company a owns p percent of plant prior to date x plant is located at location on date x company a will convert to company b a limited_liability_company organized under the laws of state company b is disregarded for federal tax purposes thus taxpayer is the owner of plant for federal tax purposes after date x the tax consequences of this transaction were addressed in a ruling issued by the service to taxpayer on date company a received from the service an initial schedule of deduction amounts for plant in a ruling dated date that schedule of deduction amounts provides for deductions beyond the year of the transfer discussed in the date ruling taxpayer has a direct ownership_interest of p percent in plant the estimated base cost for decommissioning plant is based on study a an independent study and estimates of the escalation of those decommissioning costs are based on study b the nuclear decommissioning costs of plant are no longer included in taxpayer’s or any other entity’s cost of service for ratemaking purposes and neither study a nor study b has been reviewed or adopted by any public service commission the proposed method of decommissioning the plant is method the estimated cost of dollar_figureba year a dollars was used as a base cost for decommissioning p percent of the plant the estimated cost of decommissioning p percent of the plant in future dollars is dollar_figurefv it is estimated that substantial decommissioning costs will first be incurred in year b and that decommissioning will be substantially complete at the end of year c the methodology used to convert the year a dollars to future dollars was by escalating the estimated costs at an inflation rate of y percent to the year of estimated expenditure the assumed after-tax rate of return to be earned by the amount collected for decommissioning is z percent plr-141648-12 as part of the ruling dated date the service stated that the deduction of dollar_figurex with respect to plant is an amount allocable to taxable years ending after the date of the transfer which are being allowed as a current deduction to the transferor for the taxable_year that includes the date of the fund transfer because company a is related as defined in sec_1_468a-8 to company b under sec_1_468a-8 the irs will not approve a future schedule of ruling amounts for the transferee for taxable years beginning after the date of the transfer unless the ruling amounts are deferred in a manner that results in the recapture of the acceleration amount as defined in sec_1_468a-8 company a the transferor was able to take a current deduction of dollar_figuret in the year of transfer as a result of the fund transfer the present_value of the stream of deductions that transferor would have taken absent the transfer calculated using z percent is dollar_figurepv the difference between t and pv is the acceleration amount dollar_figureaa taxpayer has reduced the ruling_amount calculated as described above for year d by dollar_figureaa to recapture the acceleration amount from the transfer sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts plr-141648-12 sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1 468a- b does not apply to any special transfer permitted under sec_1_468a-8 sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer’s proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different plr-141648-12 taxpayer the use of other industry standards such as the assumptions underlying the taxpayer’s most recent financial assurance filing with the nrc are described by the regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3 further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3 provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3 provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3 if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3 provides that if the nuclear plant is not described in sec_1_468a-3 the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3 any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3 sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3 provides that a taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer’s qualifying interest in the plant sec_1_468a-3 provides the rules regarding the manner of requesting a schedule of ruling amounts sec_1_468a-3 provides that the service will not provide or revise a ruling_amount applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment_date as defined in sec_1_468a-2 for such taxable_year sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that the service may prescribe administrative procedures that supplement the provisions of sec_1_468a-3 and in addition plr-141648-12 that section provides that the service may in its discretion waive the requirements of sec_1_468a-3 and under appropriate circumstances sec_1_468a-3 describes the circumstances in which a taxpayer must request a revised schedule of ruling amounts sec_1_468a-3 requires that a taxpayer request a revised schedule of ruling amounts for the fund if the operating license of the nuclear plant to which the fund relates is extended the request for the revised schedule of ruling amounts must be submitted on or before the deemed payment deadline for the taxable_year that includes the date on which the license extension is granted sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts may request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a sec_1_468a-8 provides that under the provisions of sec_468a as described above a taxpayer may make a special transfer of cash or property to the nuclear decommissioning fund this special transfer is not subject_to the sec_468a limitation the amount of the special transfer is the present_value of the pre-2005 nonqualifying percentage of the estimated future costs of decommissioning the nuclear plant that was disallowed under sec_468a prior to the act sec_1_468a-8 defines the pre-2005 nonqualifying percentage as equal to percent reduced by the sum of the qualifying percentage used in determining the taxpayer’s last schedule of ruling amounts for the fund under sec_468a as it existed prior to the act and the percentage transferred in any previous special transfer sec_1_468a-8 provides that the deduction for the special transfer is allowed ratably over the remaining useful_life of the nuclear plant however under sec_1_468a-8 if a special transfer is made to a qualified nuclear decommissioning fund there is a subsequent transfer of the fund or the assets of the fund and sec_1_468a-6 applies to that transfer any amount of the deduction under sec_1_468a-8 allocable to taxable years ending after the date of the transfer will be allowed as a current deduction to the transferor for the taxable_year that includes the date of the fund transfer plr-141648-12 sec_1_468a-8 provides that if a deduction is allowed to the transferor under sec_1_468a-8 and the transferee is related to the transferor the irs will not approve the transferee’s schedule of ruling amounts for taxable years beginning after the date of the transfer unless the ruling amounts are deferred in a manner that results in the recapture of the acceleration amount as defined in sec_1_468a-8 sec_1_468a-8 provides that a transferee and transferor are related if their relationship is specified in sec_267 or sec_707 or they are treated as a single_taxpayer under sec_41 or b we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3 taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations the proposed schedule of ruling amounts was derived by following the assumptions contained in an independent decommissioning study and a financial escalation study that taxpayer has represented are a standard types of studies used in the industry in this case it is reasonable to rely on these studies in determining the proposed schedule of ruling amounts thus taxpayer has demonstrated pursuant to sec_1_468a-3 that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder taxpayer has determined the funding_period by reference to the useful_life of plant as defined in sec_1_468a-3 under that section if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations plr-141648-12 under sec_1_468a-8 the acceleration amount is recaptured if the aggregate present_value of the transferor’s ruling amounts at the beginning of the acceleration period equals the amount by which the aggregate present_value of the transferee’s ruling amounts that would have been approved absent sec_1_468a-8 exceeds the acceleration amount section sec_1_468a-8 provides that present values will be determined using the assumptions used in determining the transferee’s first schedule of ruling amounts taxpayer has recaptured the acceleration amount as defined in sec_1_468a-8 based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts approved schedule of ruling amounts year year d each year year e-year f ruling_amount dollar_figureamount a dollar_figureamount b the rulings contained in this letter are based upon information and representations submitted by the taxpayers and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayers who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


internal_revenue_service number release date index number ------------------------------------- ------------------------------------------------------ ---------------------------------- ------------------- ---------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------ telephone number -------------------- refer reply to cc intl b02 plr-138080-09 date date ty ------- ty ------- legend fund former name trustee pfic pfic pfic pfic location a location b location c date date date year x year y accounting firm dear ------------------- ------------------------------------------------------ ---------------------- ----------------------------------------- ----------------------------- ---------------------------------------- ----------------------- ---------------------- --------------- --------------- --------- -------- ----------------- -------------------------- --------------------- ------- ------- ---------------------------------------- this is in response to a letter received by our office on date submitted on behalf of fund by its authorized representative requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration plr-138080-09 regulations to make a mark to market election under sec_1296 of the internal_revenue_code code the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data submitted may be required as part of the audit process facts fund is a common_trust_fund as described in sec_584 fund was established on date under an agreement and declaration of trust on date the name of fund was changed from former name to fund fund was established with the primary objective of providing total return through investment in a diversified portfolio of equity securities that primarily contain foreign stock as a result fund normally invests a significant portion of its net assets in equity securities of foreign entities fund represents that it was always fund’s intent to make an election to mark to market the stock of each passive_foreign_investment_company pfic held by fund pursuant to sec_1_1296-1 for the taxable_year ended on date year x fund held stock in pfic and pfic both of which are organized under the laws of location a in pfic which is organized under the laws of location b and in pfic which is organized under the laws of location c pfic sec_1 and are collectively referred to as the pfics each of these entities is a passive_foreign_investment_company within the meaning of sec_1297 trustee is trustee of fund and provides administrative services for fund for the year x taxable_year these administrative services included the preparation of fund’s form_1041 for the year y taxable_year accounting firm was engaged to prepare fund’s federal_income_tax return and as part of its review prior to preparing fund’s year y form_1041 requested a copy of fund’s year x form_1041 upon inspection of fund’s year x form_1041 accounting firm noted that notwithstanding the fact that fund held stock in four pfics within the meaning of sec_1297 the year x income_tax return did not include any forms return by a shareholder of a passive_foreign_investment_company or qualified_electing_fund accounting firm requested clarification from fund and trustee regarding the missing forms according to an affidavit from the vice president and accountant for trustee who prepared fund’s year x tax_return she erroneously assumed that the pfics themselves were required to file a form_8621 to make a mark to market election under sec_1296 rather than fund as a result no forms were prepared with respect plr-138080-09 to fund’s investments in the pfics and the elections under sec_1_1296-1 to mark to market the stock of the pfics were not timely filed however fund represents that its federal_income_tax returns have been filed as if the mark to market elections were timely made and the schedules provided to participants depicting their proportionate share of fund’s taxable_income or loss and gain_or_loss have been consistent with the elections having been made fund has made the following additional representations with respect to each election law the request for relief was filed by fund before the failure to make the regulatory election was discovered by the irs granting the relief will not result in fund being placed in a better tax position than if the election had been made on a timely basis fund is not seeking to alter a return position for which an accuracy- related penalty has been or could have been imposed under sec_6662 of the code nor is fund using hindsight to the government’s prejudice in requesting this ruling after the due_date for the election no facts have occurred subsequent to the due_date of the election that now make it more advantageous for fund to make the election it always was and continues to be the intent of fund to make a sec_1296 election with respect to the stock of each of the pfics sec_1296 provides that in the case of marketable_stock in a passive_foreign_investment_company that is owned by a united_states_person at the close of any taxable_year the person may elect to include in gross_income the excess of the fair_market_value of the stock over its adjusted_basis sec_1_1296-1 provides that an election under sec_1296 for a taxable_year must be made on or before the due_date including extensions of the person’s u s income_tax return for that year sec_301_9100-1 provides that the commissioner has the discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the code except subtitles e g h and i plr-138080-09 sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that except as provided in sec_301_9100-3 a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer i ii iii iv v requests relief before the failure to make the regulatory election is discovered by the irs failed to make the election because of intervening events beyond the taxpayer’s control failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election reasonably relied on the written advice of the irs or reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer is deemed not to have acted reasonably or in good_faith if the taxpayer i ii iii seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 and the new position requires or permits a regulatory election for which relief is requested was informed in all material respects of the required election and related tax consequences but chose not to file the election or uses hindsight in requesting relief sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the plr-138080-09 time_value_of_money sec_301_9100-3 provides in part that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made is closed or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief conclusion based on the information and representations submitted we conclude that fund satisfies the requirements for a reasonable extension of time to make the mark to market election under sec_1296 of the code accordingly fund is granted an extension of time of days from the date of this letter to make the election under sec_1296 with respect to the stock of each of the pfics for fund’s taxable_year ending on date the granting of an extension of time is not a determination that fund is otherwise eligible to make the election under sec_1296 sec_301_9100-1 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 in accordance with the power_of_attorney on file with this office copies of this letter are being sent to fund’s representatives sincerely jeffery g mitchell special counsel office of the associate chief_counsel international


t c summary opinion united_states tax_court bassam j abdallah petitioner v commissioner of internal revenue respondent docket no 13619-01s filed date jonathan p decatorsmith and william j broderick specially recognized for petitioner william i miller and david weiner for respondent powell special_trial_judge this case was heard pursuant to the provisions of sec_7463' of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority ' unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and rule references are to the tax_court rules_of_practice and procedure - - respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax arising from petitioner’s failure to pay self-employment_tax the issue is whether petitioner is exempt from self-employment_tax under sec_1402 petitioner resided in hammond indiana at the time the petition was filed petitioner earned a master of divinity degree in december of from the lutheran school of theology in chicago in petitioner was ordained into the ministry by the evangelical lutheran church in america since his ordination he served as a minister of the redeemer lutheran church in bryant indiana based on his religious beliefs and principles petitioner conscientiously objects to accepting public insurance thus in march of petitioner obtained a form_4361 application_for exemption from self-employment_tax for use by ministers members of religious orders and christian science practitioners from the internal_revenue_service in muncie indiana petitioner completed and signed the form_4361 in the presence of witnesses petitioner mailed the form_4361 to the internal_revenue_service in cincinnati ohio respondent has no record that form_4361 was filed petitioner does not have a copy of the completed form_4361 the general instructions on form_4361 part g state mail your application to the internal_revenue_service center for the place where you live the instructions directed petitioner a resident of indiana to mail form_4361 to the internal_revenue_service center in memphis tennessee the first years petitioner had net self-employment earnings_of dollar_figure or more for services he provided as a minister were and petitioner has not paid self-employment taxes on his ministerial earnings since he filed the form_4361 in instead he has relied on his investments with the board_of pensions of the evangelical lutheran church in america to provide for his retirement sec_1401 imposes a tax on the self-employment_income of a taxpayer sec_1402 however provides exemption --subject to paragraph any individual who is a a duly ordained commissioned or licensed minister of a church upon filing an application in such form and manner and with such official as may be prescribed by regulations made under this chapter together with a statement that either he is conscientiously opposed to or because of religious principles he is opposed to the acceptance with respect to services performed by him as such minister member or practitioner of any public insurance which makes payments in the event of death disability old age or retirement and in the case of an individual described in subparagraph a that he has informed the ordaining commissioning or licensing body of the church or order that he 1s opposed to such insurance shall receive an exemption from the tax imposed by this chapter with respect to services performed by him as such minister member or practitioner the exemption must be filed no later than the due_date of the return including any extension thereof for the second taxable_year for which he has net_earnings_from_self-employment of dollar_figure or more sec_1402 e a sec_1 e - - - 2a a income_tax regs provides such a request shall be made by filing an application_for exemption on form the parties agree that petitioner is a minister who gualifies for exemption under sec_1402 the parties further agree that if form_4361 was filed the filing was timely the issue is whether petitioner filed a form_4361 in we found petitioner’s evidence that he had filed for an exemption to be particularly credible his testimony concerning the filing of the form_4361 was straightforward and plausible further his testimony was buttressed by the written_statement of a witness who observed petitioner complete and sign the form_4361 in with regards to whether the application was approved by respondent as required by the regulations see sec_1 e -2a c income_tax regs we believe that such approval must have been given petitioner consistently has not paid self-employment taxes on his ministerial earnings since while we reject any argument concerning estoppel against respondent it seems highly peculiar that if the approval had technically the statement is hearsay see fed r evid however respondent has not raised an objection and the statement definitely has probative value see rule while petitioner could not produce a copy of the application we note that neither sec_1402 sec_6001 pertaining to required records nor the applicable regulations require petitioner to retain such a copy - - not been given petitioner would have filed for years as being exempt without some dispute rather it seems more likely that his file was misplaced at some point in time thus we find that petitioner prepared and filed the form_4361 in reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for petitioner


internal_revenue_service number release date index numbers ------------------------------------------ ---------------------------------------------------------- ------------------------- ---------------------------------------- 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 b03 plr-130334-12 date november company -------------------------------------------------------------------------------- legend state ------------- date --------------------- date ---------------------- dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code facts company incorporated under the laws of state on date company’s shareholders intended for company to be treated as an s_corporation as of date however a form_2553 election by a small_business_corporation was not filed timely company requests a ruling that it will be recognized as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr-130334-12 sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year at any time during the preceding_taxable_year or at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a small_business_corporation makes an election under sec_1362 for any taxable_year and the election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then the election is treated as made for the following taxable_year sec_1362 provides that if an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply conclusion based solely on the facts submitted and representations made we conclude that company has established reasonable_cause for failing to make a timely election to be an s_corporation thus we conclude that company is eligible for relief under sec_1362 accordingly if company files a completed form_2553 effective date with the appropriate service_center within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to form_2553 a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion as to whether company is otherwise eligible to be an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative plr-130334-12 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely stacy l short senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number --------------------------------- ------------------------------------ --------------------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ----------------- telephone number ---------------------- refer reply to cc psi plr-154377-12 date june legend x y country date ------------------------------------------------------------------------------------------------- ---------------------------- --------------------------------- ------ -------------------------- dear --------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of y by y’s authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to treat y as a disregarded_entity for federal tax purposes the information submitted states that x a corporation for u s tax purposes through its subsidiaries formed y under the laws of country on date y is a foreign_entity eligible to be treated as a disregarded_entity for u s income_tax purposes y’s default classification is an association_taxable_as_a_corporation y represents that it intended to elect to be treated as a disregarded_entity for federal tax purposes effective date however y inadvertently failed to timely file a form_8832 electing to treat it as a disregarded_entity effective date sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification plr-154377-12 sec_301_7701-3 provides default classification for an eligible_entity that does not make an election sec_301_7701-3 provides that unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and no more than months after the date the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic_extension of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for the regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when a taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonable and in good_faith and granting relief will not prejudice the interests of the government based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly y is granted an extension of days from the date of this letter to elect to be classified as a disregarded_entity for federal tax purposes effective date the election should be made by filing form_8832 with the appropriate service_center and a copy of this letter should be attached to the election this ruling is contingent on y filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief in this letter to the extent appropriate these returns must include but are not limited to form_8858 information_return of u s persons with respect to disregarded entities such plr-154377-12 that the forms and returns reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as expressly set forth herein no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely associate chief_counsel passthroughs special industries by _______________________________ melissa c liquerman branch chief branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc dom fi p plr-113807-98 date jan legend authority state l i corporation n agencies bonds o i a l date dear i t f this letter is in reply to your request for rulings that use of the facility to provide services to the federal government pursuant to research contracts the research contracts with the agencies which are all federal agencies will not constitute private_business_use within the meaning of sec_141 or sec_145 payments by the federal government under the research contracts will not cause the bonds to be federally guaranteed within the meaning of of the internal_revenue_code sec_149 and plr-113807-98 facts and representations you make the following factual representations the authority is a political_subdivision of the state and has been granted the authority to issue revenue bonds to finance facilities for use by sec_501 organizations the corporation is a sec_501 organization with the primary exempt_purpose of performing scientific research in the public interest the corporation is organized and operated to work with federal state and local governments and other non- profit organizations on technology-based research_and_development programs that are in the public interest the corporation's research enters the public domain through scientific and technical publications and presentations or through use by the corporation in providing services to its clients substantially_all of the corporation currently has approximately a scientific research contracts including the research contracts with terms ranging from six months to five years the typical contract has a term of one year and no research contract contains any ‘provision requiring the client to renew the contract the funding necessary to pay for research under any specific contract with the federal government may be reduced at any time by the federal government research contracts with the federal government allow the federal government to terminate the contract at any time accordingly all of the corporation's although the corporation conducts much of its research activity for clients that are federal agencies the corporation itself has no affiliation with the federal government nor is it controlled in any way by the federal government approximately b percent by revenue of the corporation's business was with governmental entities whether federal state or local and c percent of its governmental business was with federal agencies in fiscal the research contracts do not grant clients ownership of any under applicable federal intellectual_property developed or discovered in the course of its research the new property government contracting principles that apply to all of the research contracts certain rules apply receive a non-exclusive royalty-free license in certain new property technical data software patents generated in the course of performing research on behalf of the agencies general the purpose of such a license is to ensure that federal agencies other than the contracting agency may use the new property without the federal government paying the corporation a second the corporation retains publication rights second time first the agencies in plr-113807-98 in any new property and the right to utilize the new property in any future work performed for other clients without requiring the approval of the federal government register copyrights and trademarks and apply for patents with respect to new property without federal government consent third the corporation may the corporation represents that the price paid_by any of the agencies for_the_use_of any new property developed or discovered in the course of a research contract will not be less than the price that will be payable to the corporation by any non-federal government party for the right to use the new property price referred to in this representation refers only to any amount payable at the time the new property is available for use the corporation has further represented that the use of the new property by any federal government department or agency will be subject_to the same terms as those that would apply to the use of the new property by any non-federal government party the pursuant to an inducement resolution passed by the authority the authority proposes to issue the bonds and loan the on date proceeds to the corporation proceeds to acquire construct and equip a headquarters and scientific research facility the facility for the corporation which will be used to perform the aforementioned research the corporation will use the bond law_and analysis private_business_use sec_103 of the internal_revenue_code provides that gross_income does not include interest on a state_or_local_bond sec_103 provides that sec_103 does not apply to any private_activity_bond unless it a qualified_bond under sec_141 is sec_141 provides that the term private_activity_bond means any bond issued as part of an issue which meets the private_business_use_test of security or payment test of private_loan_financing_test of and the private which meets the sec_141 sec_141 or sec_141 sec_141 provides in general that an issue meets private_business_use is defined in sec_141 the private_business_use_test if more than percent of the proceeds of the issue are to be used for any private_business_use directly or indirectly in a trade_or_business carried on by any person other than a governmental_unit activity carried on by a person other than a natural_person is treated as a trade_or_business for this purpose any as use plr-113807-98 1e99i4 u45 sec_141 provides in general that an issue meets the private_security_or_payment_test if the payment of the principal of or the interest on more than percent of the proceeds of the issue is under the terms of the issue or any underlying arrangement directly or indirectly a secured_by any interest in property used or to be used for a private_business_use derived from payments whether or not to the issuer in respect of property or borrowed money used or to be used for a private_business_use or payments in respect of such property or to be b ‘ sec_141 provides that a qualified_bond includes a qualified_501_c_3_bond sec_145 provides that except as otherwise provided in sec_145 the term qualified_501_c_3_bond means any private_activity_bond issued as part of an issue if all of the property that is to be provided by the net_proceeds of the issue is to be owned by a 501_c_3_organization or a governmental_unit and such bond would not be a private_activity_bond if sec_501 organizations were treated as governmental units with respect to their activities that do not constitute unrelated trades_or_businesses determined by applying sec_513 paragraphs percent for percent each place it appears and net_proceeds for proceeds each place it appears sec_141 are applied by substituting for this purpose and of sec_1_141-3 of the income_tax regulations provides rules pertaining to the definition of private_business_use a states in part that the use of financed property is treated as the direct use of proceeds issue meets the private_business_use_test look to both the indirect and direct use of the proceeds proceeds by all nongovernmental persons is aggregated in determining whether an is necessary to section use of it sec_1_141-3 generally provides that both actual and beneficial use by a nongovernmental person may be treated as private_business_use in most cases the private_business_use_test is met only if a nongovernmental person has special legal entitlements to use the financed property under an arrangement with the issuer in general a nongovernmental person is treated as a private business user of proceeds and financed property as a result of ownership actual or beneficial use of property pursuant to a lease or a management or incentive payment contract or certain other arrangements such as a take or pay or other output-type contract sec_1_141-3 i provides in general that an agreement by a nongovernmental person to sponsor research performed by a governmental person may result in private_business_use of the property used for the research based on all of the facts and circumstances ona plr-113807-98 sec_1_141-3 ii provides in general that a research agreement with respect to financed property results in private_business_use of that property if the sponsor is treated as the lessee or owner of financed property for federal_income_tax purposes revproc_97_14 1997_1_cb_634 sets forth certain operating guidelines for agreements to conduct research in bond- financed facilities which if satisfied allow research to be conducted under the agreement without causing the facilities to be treated as used in a private_business_use section dollar_figure of revproc_97_14 provides that a research agreement that is described in either dollar_figure or dollar_figure of the revenue_procedure does not result in private_business_use section dollar_figure of revproc_97_14 applies to a research agreement relating to property used for basic_research hereafter defined supported or sponsored by a sponsor hereafter defined under any license or other use of the resulting technology by sec_5 the sponsor is permitted only on the same terms as the recipient would permit the license or other use by any unrelated non- sponsoring party that is price for its use with the price paid for that use of the technology determined at the time the technology is available for use the sponsor to use any license or other resulting technology the price paid_by the sponsor must be no less than the price that would be paid_by any non-sponsoring party for those same rights although the recipient need not permit persons other than the sponsor must pay a competitive sec_3 of revproc_97_14 contains the definitions of certain relevant terms basic_research means for purposes of sec_141 any original investigation for the advancement of scientific knowlege not having a specific commercial objective for example product testing supporting the trade_or_business of a specific nongovernmental person is not treated as basic_research qualified user means any state_or_local_governmental_unit as defined in sec_1_103-1 or any instrumentality thereof term also includes a property is not used in an unrelated_trade_or_business under sec_513 agency_or_instrumentality thereof the term does not include the united_states or any sec_501 organization if the financed the user dollar_figure that supports or sponsors research under a contract sponsor means any’ person other than a qualified in this case the résearch contracts meet dollar_figure of revproc_97_14 to the federal government through the agencies pursuant to the thus the use of the facility to provide services plr-113807-98 research contracts will not constitute private_business_use within the meaning of sec_141 or sec_145 ey first the research contracts are for basic_research as that the corporation's term is defined in dollar_figure of revproc_97_14 research under the research contracts is conducted in the public interest and has no specific commercial objective corporation's purpose is to perform scientific research in the public interest research contracts enters the public domain corporation will disclose to the public the results of its research under the research contracts through scientific and technical publications and presentations or the corporation will use the research results to enhance its knowledge base to the benefit of the next client typically the federal government or another state_or_local_government all of the corporation's research under the either the the the price referred to in this representation refers to the corporation has further represented that the use of the second the corporation has represented that the price paid_by any of the agencies for_the_use_of any new property developed or discovered in the course of a research contract will not be less than the price that will be payable to the corporation by any non-federal government party for the right to use the new property any amount payable at the time the new property is available for use new property by any federal government department or agency will be subject_to the same terms as those that would apply to the use of the new property by any non-federal government party any license received by the agencies to use the new property will be non-exclusive and royalty-free the effect of the corporation's representation is that either the contracting agency or any non-sponsoring party may use the new property on a non-exclusive royalty-free basis grant the agencies ownership of any of the new property the research contracts do not since federal quarantee sec_149 provides generally that sec_103 does not apply to any state_or_local_bond that is federally guaranteed ‘ sec_149 provides that a bond is federally guaranteed if - the payment of principal or interest with respect to the a bond is guaranteed in whole or in part by the united_states or any agency_or_instrumentality thereof the bond is issued as part of an issue and percent or b more of the proceeds of the issue is to be used in making loans the payment of principal or interest with respect to ae plr-113807-98 re - eo oy which are to be guaranteed in whole or in part by the united_states or any agency_or_instrumentality thereof or invested directly or indirectly in federally insured deposits or accounts or -- the payment of principal or interest on the bond is c otherwise indirectly guaranteed in whole or in part by the united_states or any agency_or_instrumentality thereof payments by the federal government under the research contracts will not cause the bonds to be federally guaranteed unlike a guarantee the availability of federal revenue from sales by the corporation of its services is wholly dependent upon the continued activity and viability of the corporation rather than its default in debt service payments the obligations of the federal government to purchase the corporation's services are dependent upon the corporation's performance of those services to contract specifications all of the research contracts are made subject_to the contingency that funding levels may be reduced at any time finally there are no circumstances in which a default by the corporation with respect to the bonds will trigger an obligation of any client of the corporation including the federal government to make payments with respect to the bonds the corporation has no affiliation with the federal government other than the research contracts and is not controlled in any way by the federal government conclusion based on the foregoing analysis we conclude that use of the facility to provide services to the agencies pursuant to the research contracts will not constitute private_business_use within the meaning of sec_141 or sec_145 of the internal_revenue_code and payments by the federal government under the research contracts will not cause the bonds to be federally guaranteed within the meaning of sec_149 except as specifically ruled above no opinion is expressed concerning this transaction under any provision of the code or regulations thereunder specifically no opinion is expressed concerning whether interest on the bonds is excludable from gross_income under sec_103 effect of any subsequent action or event that is inconsistent with the facts and representations stated herein neither is any opinion expressed on the plr-113807-98 this ruling letter is addressed only to the taxpayer who sec_6110 provides that it may not be requested it used or cited as precedent sincerely yours assistant chief_counsel financial institutions products by timothy l ‘dones assistant to the chief branch enclosure copy for sec_6110 purposes a go


internal_revenue_service department of the treasury index numbers number release date washington dc person to contact telephone number refer reply to cc dom fi p plr-122552-98 date date legend parent company spe trustee state a state b statute date date date date date year a b c d e f plr-122552-98 dear this letter supplements and supercedes the letter dated date which ruled on a proposed transaction described in a letter dated date facts parent is the common parent of an affiliated_group_of_corporations which includes company and which files a consolidated_return with company company a calendar_year taxpayer using the accrual_method of accounting is an investor-owned electric utility in state a engaged in the generation transmission distribution and sale of electricity and the distribution and sale of natural_gas within a designated territory as such company has a monopoly within a designated territory and is subject_to regulation by both the state a public_utility commission puc and the federal energy regulatory commission ferc state a is deregulating its electric utility industry as a result company’s customers will be allowed to contract directly with alternative suppliers of electricity and company will compete with other parties to sell electricity the statute was enacted in december year to provide for the restructuring of the electric utility industry in state a through the unbundling of electric services into separate generation transmission and distribution services with open retail competition for generation electric distribution and transmission services will remain regulated by the puc full electric generation competition will be phased in in three steps direct retail access is to be phased in for one-third of each customer class by date for an additional one-third by date and for all remaining customers by date the statute requires utilities to submit to the puc restructuring plans that include a statement regarding the amount of stranded costs resulting from competition stranded costs include regulatory assets nuclear decommissioning costs and long-term purchased power commitments for which full recovery is allowed and other costs including investment in generating plants spent-fuel disposal retirement costs and reorganization costs for which an opportunity for recovery is allowed in an amount determined by the puc as just and reasonable these costs after mitigation by the utility are to be recovered through the competitive transition charge ctc approved by the puc and collected from distribution customers for up to nine years as a mechanism for the mitigation of ctcs and the reduction of customer rates the statute authorizes an electric utility to securitize its stranded costs through the issuance of transition bonds either directly by the utility by a finance subsidiary or plr-122552-98 third party assignee of the utility the statute facilitates this securitization by creating as security for the transition bonds a property right designated as intangible transition property itp which represents the irrevocable right to recover from a utility’s jurisdictional customers through an intangible transition charge itc amounts sufficient to recover the utility’s stranded costs as well as amounts to cover the expenses of issuing and servicing the transition bonds and the funding of any necessary reserve accounts which are collectively defined as qualified transition expenses qtes itp is created through the issuance of a qualified rate order qro by the puc that has been declared irrevocable although the puc may approve periodic adjustments to the itc in accordance with the statute and the qro once a qro is declared irrevocable it may not be modified by the company the puc the state or any instrumentality thereof the statute provides that the transfer of itp to a subsidiary or assignee of the utility pursuant to an irrevocable qro shall be treated as an absolute transfer of the utility’s right title and interest as in a true sale and not as a pledge or other financing for state income and franchise tax purposes transition bonds will be repayable from intangible transition charges itcs itcs are non-bypassable charges imposed on a utility’s jurisdictional customers to recover the utility’s authorized qtes jurisdictional customers are those located in the utility’s certificated territory whether or not the customers purchase electricity from the electric utility the itc will be calculated as a percentage of expected total base rate revenue to be collected by customer rate class the collection of which will likely be dependent on inter alia a utility’s ability to forecast the usage delinquencies charge-offs and payment lags of customers in each rate class proposed transaction on date the puc issued a final order approving a settlement agreement that contained a qro providing for inter alia a the recovery_of stranded costs in the amount of a over an eleven year period b the issuance of transition bonds not to exceed the aggregate principal_amount of b in one or more series c the imposition of an itc on customers sufficient to recover the company’s qtes d the assignment sale transfer or pledge of the itp for purposes of the financing contemplated by the proposed transaction and e annual adjustments to the itc to ensure that the assignee of the itp receives revenue sufficient to recover fully the qtes the company's assignee will be the spe a newly formed bankruptcy remote wholly owned state b limited_liability_company formed solely for this purpose company will also contribute equity to the spe in an amount equal to approximately e of the total principal_amount of the transition bonds the spe will not elect to be treated as an association_taxable_as_a_corporation under sec_301_7701-3 of the procedure and administration regulations plr-122552-98 for each qro declared irrevocable by the puc the spe will issue transition bonds in the form of debt securities in one or more series and one or more tranches of each series the transition bonds will have a legal final maturity of up to ten years but in no event may a maturity_date extend beyond date interest and principal will be payable quarterly and interest will be set at fixed or floating rates principal will be paid in accordance with an expected amortization schedule but only to the extent that the funds are available therefor the transition bonds will be recourse to the spe and will be secured_by all of the spe’s assets ie the itp trust accounts and miscellaneous assets pledged to the trustee under the indenture pursuant to which the transition bonds will be issued it is anticipated that at least two nationally recognized credit rating agencies will give the transition bonds their respective highest available credit ratings company will act as the servicer of the itc revenue stream as part of normal collections and in this capacity will bill customers and make collections on behalf of the spe and will make applications to the puc to maintain the itc at a level which allows for full recovery_of qtes in accordance with the amortization schedule for each series of transition bonds the itc will be used by the spe to make quarterly payments of principal and interest on the transition bonds and to pay related servicer trustee and other fees amounts collected by company in respect of the itc will be deposited into its accounts and remitted monthly to a collection account maintained by the trustee for the benefit of transition bondholders the collection account will be divided into five subaccounts the general subaccount the series subaccount the overcollateralization subaccount the capital subaccount and the reserve subaccount amounts in each of the subaccounts will be available to make payments on all series of transition bonds on each payment_date investment_income earned on collections of itc prior to the payment of quarterly debt service on the transition bonds will be available to pay debt service any amount of investment_income remaining after the transition bonds have been fully paid will be retained by the spe investment earnings on the spe capital pledged to the trustee if not needed currently to pay debt service will be released from the lien of the bond indenture on a quarterly basis the spe may distribute those earnings not utilized for debt service to the company from time to time until distributed such funds are subject_to claims of the spe’s creditors including bondholders the itc collected from customers will include an amount attributable to overcollateralization which will be equal to at least e of the initial principal balance of each series of transition bonds that amount will be collected on a pro_rata basis over the term of the transition bonds and deposited into an overcollateralization subaccount the amounts in the overcollateralization subaccount will serve as overcallateralization for the transition bonds and will be retained by the spe to the plr-122552-98 extent not needed to pay principal and interest on the transition bonds or other expenses amounts in the overcollateralization subaccount may not be limited to e however such amounts are not expected to exceed f of the original principal_amount of the transition bonds the trustee will allocate amounts in the general subaccount of the collections account in the following order to all amounts owed the trustee including legal fees and expenses indemnity amounts and loss amounts to fees owed the independent manager to current and overdue monthly servicing fees owed to the servicer to fees owed the administrator to all other operating_expenses other than trustee servicer and administrator fees to interest then due on the transition bonds to principal payments legally required to be paid on the transition bonds to principal payments scheduled to be paid on the transition bonds to all unpaid operating_expenses indemnity amounts and loss amounts an amount necessary to maintain the capital subaccount equal to its required balance to the overcollateralization subaccount up to the required amount to an amount equal to the investment earnings on amounts in the capital subaccount that will be released to the spe from the lien of the indenture which the spe will then be able to but not required to distribute to the issuer and finally to the reserve subaccount if itc collections are insufficient to pay debt service the shortfall will be paid from the following accounts in the following order the reserve subaccount the overcollateralization subaccount and the capital subaccount if on any payment_date available collections of itc together with available amounts in the subaccounts are not sufficient to pay interest due on the all outstanding transition bonds amounts available will be allocated among the outstanding series of transition bonds pro_rata based on the amount of interest payable on the outstanding series if on any payment_date remaining collections on the itp together with available amounts in the subaccounts are not sufficient to pay principal legally due on all outstanding series of transition bonds amounts available will be allocated among the outstanding series pro_rata based on the sum of interest and principal then legally due on the outstanding series if on any payment_date remaining collections on the itp together with available amounts in the subaccounts are not sufficient to pay principal scheduled to be paid on all outstanding classes or series of transition bonds amounts available will be allocated on a pro_rata basis based on the sum of interest and scheduled principal payable on the payment_date issues does the issuance of the qro authorizing the collection of the itc result in gross_income to company does the issuance of the transition bonds result in gross_income to company plr-122552-98 are the transition bonds obligations of the company law sec_61 of the internal_revenue_code generally defines gross_income as income from whatever source derived except as otherwise provided by law gross_income includes income realized in any form whether in money property or services sec_1_61-1 of the income_tax regulations this definition encompasses all accessions to wealth clearly realized and over which the taxpayers have complete dominion 348_us_426 1955_1_cb_207 the right to collect the itc is of significant value in producing income for company and state a’s action in making the itc rights transferable has enhanced that value generally the granting of a transferable right by the government does not cause the realization of income revrul_92_16 1992_1_cb_15 allocation of air emission rights by the environmental protection agency does not cause a utility to realize gross_income revrul_67_135 1967_1_cb_20 fair_market_value of an oil_and_gas lease obtained from the government through a lottery is not includible in income the economic_substance of a transaction generally governs its federal tax consequences 293_us_465 xiv-1 c b affixing a label to an undertaking does not determine its character revrul_97_3 revrul_97_3 1997_1_cb_9 an instrument secured_by property may be an obligation of the taxpayer or alternatively may be a disposition of the underlying property by the taxpayer cf id the small_business administration is the primary obligor of certain guaranteed_payment rights that are created under its participating security program plr-122552-98 conclusions based on the facts as represented we rule as follows the issuance of the qro financing order authorizing the collection of the itc does not result in gross_income to company the issuance of the transition bonds does not result in gross_income to company the transition bonds are obligations of the company except as specifically ruled on above no opinion is expressed or implied regarding the federal tax aspects of the transaction this ruling is directed only to company under sec_6110 of the code this ruling may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax return of company for the taxable years that include the transaction described in this letter sincerely yours assistant chief_counsel financial institutions products by ________________________ marshall feiring senior technician reviewer branch