internal_revenue_service number release date index number ------------------------------------ --------------------------------------- ----------------------------------------------- ---------------------------- ty -------- 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 ita b05 plr-106572-15 date june legend taxpayer --------------------------------------- ------------------------- ------------------------------------------------------ ------------------------------------------------------------------------------ member member -------------------------------------------------------------------------------------------------------- partnership_tax_year state affidavit --------------------------------------- ------ ------------- 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-------------------------- affidavit affidavit law firm accounting firm inception date partnership_agreement project date dear ----------- plr-106572-15 this letter is in response to a request for a private_letter_ruling dated date submitted on your behalf by your authorized representative specifically you have requested a ruling granting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations regulations for taxpayer a tax- exempt controlled_entity under sec_168 of the internal_revenue_code code to make an election under sec_168 to not be treated as a tax-exempt_controlled_entity from inception date and for a ruling granting an extension of time for taxpayer to make an election under sec_301_7701-3 of the regulations to be treated as an association_taxable_as_a_corporation for federal tax purposes from inception date facts the information submitted states that taxpayer was organized as a limited_liability_company under the laws of state taxpayer uses an accrual_method of accounting as its overall_method_of_accounting and has the calendar_year as its taxable_year taxpayer is owned by member and member both of which have received determinations that they are tax-exempt organizations described in sec_501 of the code on date taxpayer filed a form_1065 u s return of partnership income for tax_year taxpayer is governed by an operating_agreement dated as of inception date pursuant to which member acts as the managing member of taxpayer and member acts as the non-managing member taxpayer’s sole business operation is to act as general_partner in the partnership partnership is a limited_partnership which has recently completed the purchase and rehabilitation of project the purchase and rehabilitation of project is being funded in part by sec_42 low_income_housing credits partnership is governed by partnership_agreement under dollar_figure of partnership_agreement taxpayer as general_partner of partnership is required to make the election for tax_year set forth in sec_301_7701-3 of the regulations to be treated as a corporation corporation election and the election under sec_168 of the code to not be treated as a tax-exempt_controlled_entity for purposes of the tax-exempt_use_property rules sec_168 election taxpayer timely filed its federal_income_tax return for tax_year taxpayer relied upon accounting firm to timely file its return and to make the sec_168 election taxpayer relied upon law firm to make the corporation election by timely filing form_8832 entity classification election with the service for the taxpayer to be classified as an association_taxable_as_a_corporation for federal_income_tax purposes pursuant to partnership_agreement accounting firm failed to make the sec_168 election consequently that election was not included with taxpayer’s initial income_tax return for tax_year accounting firm also failed to file the taxpayer’s initial income_tax return for tax_year as a corporate return but instead filed a partnership return for the taxpayer’s initial plr-106572-15 income_tax return for tax_year law firm was aware of the requirement to timely file the corporation election but nevertheless law firm failed to file that election taxpayer represents that as soon as it law firm and accounting firm realized that the above two elections had not been made taxpayer accounting firm and law firm promptly filed the instant ruling requests to obtain extensions of time from the service to make the corporate election and the sec_168 election taxpayer represents that at all times after formation of the partnership it intended to make an election to be treated as an association_taxable_as_a_corporation for federal tax purposes and that it intended to make sec_168 election effective inception date however taxpayer inadvertently failed to timely file a form_8832 entity classification election given that dollar_figure of the partnership_agreement required the timely filing of the corporation election and the sec_168 election there is no evidence that taxpayer is using hindsight in requesting relief taxpayer further represents that it relied on qualified_tax professionals accounting firm and law firm to timely file the sec_168 election and the corporation election respectively and that the qualified_tax professionals failed to make or advise taxpayer to make the two elections taxpayer represents that it has requested relief before the failure to make the sec_168 election and the corporation election was discovered by the service taxpayer has submitted affidavit affidavit and affidavit to support its position taxpayer represents that it will not have a lower tax_liability for all tax years affected by the sec_168 election and the corporation election than it would have had if both elections had been timely made and the taxable_year in which the two elections should have been made is not closed under sec_6501 law sec_167 of the code provides generally for a depreciation deduction for property used in a trade_or_business under sec_168 the alternative_depreciation_system must be used for any tax-exempt_use_property as defined in sec_168 sec_168 provides that for purposes of sec_168 if any property which but for this subparagraph is not tax-exempt_use_property is owned by a partnership having a tax-exempt_entity and a nontax-exempt entity as partners and any allocation to the tax-exempt_entity is not a qualified_allocation then an amount equal to the tax-exempt entity's proportionate share of such property is treated as tax-exempt_use_property sec_168 provides generally that any tax-exempt_controlled_entity is treated as a tax-exempt_entity for purposes of sec_168 under sec_168 a tax-exempt_controlled_entity means any corporation without regard to that subparagraph and sec_168 if percent or more in value of the corporation's stock is held by one or more tax-exempt entities other than a foreign_person_or_entity plr-106572-15 sec_168 applies similar rules in the case of tiered partnerships and other entities under sec_168 a tax-exempt_controlled_entity can elect not to be treated as a tax-exempt_entity such an election is irrevocable and will bind all tax-exempt entities holding an interest in the tax-exempt_controlled_entity under sec_301_9100-7t of the regulations the sec_168 election must be made by the due_date of the tax_return for the first taxable_year for which the election is to be effective sec_301_9100-7t provides the manner in which the sec_168 election is made 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 as provided in sec_301_7701-3 an eligible_entity with a single owner can elect to be classified as an association_taxable_as_a_corporation or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 entity classification election with the service_center designated on form_8832 sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 cannot be more than days 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 prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 through provide the standards the service will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 provides that the commissioner of internal revenue has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i plr-106572-15 sec_301_9100-1 defines the term regulatory election as including any election the due_date for which is prescribed by a regulation because the due_date of the sec_168 election is prescribed in sec_301_9100-7t that election is a regulatory election in addition because the due_date of the corporation election is prescribed in sec_301_7701-3 of the regulations that election is a regulatory election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides 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 a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer - i requests relief before the failure to make the regulatory election is discovered by the service ii failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer is considered to have not acted reasonably and in good_faith if the taxpayer - i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was fully informed of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief sec_301_9100-3 provides that the service will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the plr-106572-15 aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made under sec_301_9100-3 the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer's receipt of a ruling granting relief under this section analysis the information and representations submitted indicate that taxpayer at all times intended from the outset to make the sec_168 election and the corporation election that taxpayer relied on qualified_tax professionals to make both elections and that taxpayer’s failure to make the sec_168 election and the corporation election was inadvertent taxpayer represents that it has requested relief before the failure to make both elections was discovered by the service there is no evidence that taxpayer is using hindsight in requesting relief further based on the facts presented and the representations made taxpayer will not have a lower tax_liability for all tax years affected by the sec_168 election and the corporation election than it would have had if both elections had been timely made and the taxable_year in which the sec_168 election and the corporation election should have been made is not closed under sec_6501 we conclude that taxpayer has acted reasonably and in good_faith further the interests of the government will not be prejudiced by the granting of relief taxpayer requests an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file the sec_168 election and the corporation election to be treated as an association_taxable_as_a_corporation for federal tax purposes under sec_301_7701-3 based solely on the above facts and representations we conclude that taxpayer has met the requirements of sec_301_9100-1 and sec_301_9100-3 with respect to obtaining an extension of time to file both the sec_168 election and the corporation election conclusion based solely on the facts as represented and the applicable law we conclude that the requirements of sec_301_9100-3 have been met and the request for relief under sec_301_9100-3 is granted with respect to the sec_168 election accordingly taxpayer is granted an extension of time of days from the date of this letter to file an amended_return for tax_year taxpayer must attach the aforementioned sec_168 election and the information set forth in sec_301_9100-7t to the amended_return taxpayer also must attach a copy of this letter to the amended_return pursuant to sec_301_9100-7t a copy of this letter and the sec_168 election statement also should be attached to the federal_income_tax returns of each of the tax-exempt members or beneficiaries of taxpayer plr-106572-15 in addition based solely on the facts submitted and representations made we conclude that taxpayer has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 with respect to the corporation election accordingly taxpayer is granted an extension of time of days from the date of this letter to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date the election should be made by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the election 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 further we express no opinion concerning the assessment of any interest additions to tax additional_amounts or penalties for failure_to_file a timely income_tax return with respect to any taxable_year the rulings contained in this letter are based upon the information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party although this office has not verified any of the material submitted in support of the request for the ruling it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent enclosed is a copy of the letter showing the deletions proposed to be made when it is disclosed under sec_6110 if you have any questions concerning this matter please contact the individual whose name and telephone number appear at the top of the letter in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely william a jackson branch chief branch office_of_chief_counsel income_tax accounting enclosure cc


internal_revenue_service number release date index number ------------------------------ ---------------------- ------------------------ ----------------------------------------- ------------------------------- in re -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------------------------------- ----------------------------------- telephone number -------------------- refer reply to cc psi b04 plr-115974-16 date date -------------------------- ------------------------- -------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------------------------------------------------------- ----------------------- ------------------------ ------------------ --------------------- ---------------- ------------------ --------------------- ---------------- ------------------------ ------------------ ------------------------------------------------ --------------------------------------------------- ----------------------------------------------- -------------------------------------------------------------------------- --- legend settlor spouse son trust a_trust date date date date date date individual individual attorney attorney law firm state statute state statute state court x dear ----------- plr-115974-16 this letter responds to your authorized representative’s letter dated date requesting gift estate and generation-skipping_transfer gst tax rulings with respect to the proposed modifications of a_trust the facts and representations submitted are summarized as follows on date settlor created trust a on date trust a was amended and restated at which point it became irrevocable date and date are prior to date pursuant to article iii of trust a three separate trusts have been established with identical terms one for each of settlor's three sons one of those separate trusts trust was established for the benefit of son article iii provides that the trustees other than settlor’s spouse spouse may distribute net_income among the son and his issue at the trustees' discretion any net_income not distributed is to be accumulated and added to principal the trustees other than spouse also have the discretion to distribute principal for the son or his issue for their health maintenance support and education or to assist any of them in the purchase of a home or in a business or profession if the son is living at the death of the survivor of settlor and spouse the trustees are directed to distribute to the son one-tenth of the principal of the trust when he reaches thirty years of age and four-ninths when he reaches thirty-five years of age if at the death of the survivor of settlor or spouse the son has already attained these ages the trustees are at that time to make the required distributions to the son the balance of the trust will continue on the same terms for income and principal distributions upon the death of the son the balance of principal and any undistributed_income is to be distributed to the persons specified by the son in the exercise of a limited_power_of_appointment if the power_of_appointment is not exercised the balance of the trust is to be distributed to the son's issue per stirpes if the son is deceased at the death of the survivor of settlor and spouse the balance of the principal and undistributed_income will be distributed to the son's issue per stirpes if the son and all his issue die the entire balance of his trust shall be added to the trusts for the other sons of settlor article vi paragraph b provides in relevant part that all real_estate decisions are to be made during settlor’s lifetime by spouse while she is trustee all other decisions including real_estate decisions made after settlor’s death or while settlor is alive and spouse is not serving as trustee are to be made by a majority of trustees entitled to act in any specific instance plr-115974-16 under article x paragraph a settlor appoints spouse and attorney as the original trustees upon the death resignation or inability of spouse to serve as trustee settlor appoints individual as successor trustee and upon individual 1’s death resignation or inability to serve the vacancy is to be filled by such individual or series of individuals other than settlor as the last to serve of spouse and individual may designate in writing under article x paragraph b upon settlor’s death spouse individual and attorney are to serve as co-trustees upon the death resignation or inability of either individual or spouse to serve as trustee individual is appointed as trustee as each son attains the age of twenty-five he will become a trustee of his trust article x paragraph c provides that upon the death resignation or inability of attorney to serve as co-trustee the vacancy will be filled by a member of law firm that attorney may designate in his will but in the event that he fails to designate or if his designee dies resigns or is unable to serve said vacancy shall be filled and shall continue to be filled by a member of law firm as shall be designated by that firm from time to time article x paragraph d provides that as each trustee attains the age of x he or she shall resign and be succeeded in accordance with paragraphs a b and c article x paragraph e provides in relevant part that a son or other issue of settlor who is serving as a trustee is prohibited from participating in any decision relating to discretionary distributions of income or principal on date the three sons of settlor signed a statement that acknowledges that each individual trustee other than a son of settlor shall have one vote with respect to all business decisions to be made by the trustees the sons of settlor shall collectively have one vote with respect to all business decisions to be made by the trustees the term business decisions is defined to mean any decision that pertains to or affects an interest in a closely held investment including any decision to acquire additional interests in an existing closely held investment on date state court issued a decree that appointed each son as a co-trustee of his separate trust on date attorney was appointed as a co-trustee of each separate trust law firm delivered a letter dated date to spouse stating that i attorney was serving as co-trustee with attorney ii attorney would serve as successor trustee to attorney upon attorney 1’s resignation iii after the termination of service as trustee by both attorney and attorney law firm would designate as successor trustee a partner of law firm who is acceptable to spouse if she is living or the sons of spouse if spouse is not living iv such procedure would be repeated each time a partner of law firm terminated his service as trustee v if such procedure to appoint a plr-115974-16 successor trustee by law firm did not result in the appointment of a trustee who is acceptable to spouse if she is living or the sons of spouse if spouse is not living then law firm would assist and cooperate with any court_proceeding to appoint a trustee who is not related or subordinate to any of the beneficiaries within the meaning of sec_672 of the internal_revenue_code to fill such vacancy attorney and spouse resigned as trustees when they reached the age of x individual was already more than x years old when spouse resigned so individual never served as trustee currently son and attorney are the only co-trustees of trust state statute provides in relevant part that a noncharitable irrevocable_trust may be modified or terminated upon consent of the settlor and all beneficiaries even if the modification or termination is inconsistent with a material purpose of the trust a settlor's power to consent to a trust's modification or termination may be exercised by a guardian an agent under the settlor's general power_of_attorney or an agent under the settlor's limited power_of_attorney that specifically authorizes that action state statute provides in relevant part that all beneficiaries and trustees of a_trust may enter into a binding nonjudicial settlement agreement with respect to any matter involving the trust a nonjudicial settlement agreement is valid only to the extent it does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by the court under this chapter or other applicable law under the authority of state statute the beneficiaries which include son and son’s children and trustees of trust propose to enter into a nonjudicial settlement agreement to amend certain administrative provisions of trust a the settlement agreement will provide for successor trustee provisions in light of the fact that law firm dissolved under the settlement agreement the date statement paragraph b of article vi and article x in its entirety are revoked each son of settlor is to serve as co- trustee of his separate trust with attorney the settlement agreement also provides that a new article x is to be added to trust a the new article x provides in relevant part that at least one independent_trustee is to serve each separate trust each son is to have the right at any time to remove any trustee including an independent_trustee then serving his separate trust and to appoint a substitute trustee who is an independent_trustee each son may appoint an individual or individuals to exercise such powers known as an appointment person to appoint a new independent_trustee in the case of son’s death or disability the settlement further provides that the individual trustees by majority vote may appoint individuals to serve as additional trustees provided that only independent trustees are eligible to elect additional trustees who are not independent trustees each individual trustee may appoint one or more individuals to serve concurrently or plr-115974-16 consecutively as his or her successor if at any time there is no independent_trustee serving the vacancy in the position is to be filled by the son of settlor or if none by a majority of the income beneficiaries of such trust who are of age and able to give or withhold consent no son or other issue of settlor who may at any time be serving as trustee may participate in any decision relating to the discretionary distributions of income or principal an independent_trustee is defined as a trustee who is not a_related_or_subordinate_party as defined in sec_672 to settlor spouse or any of settlor’s issue you have requested the following rulings the proposed modifications to trust will not constitute the grant of a general_power_of_appointment under sec_2041 and sec_2514 and thus the assets of trust will not be includible in son’s gross_estate at death and will not be deemed to be transferred by son for gift_tax purposes the proposed modifications to trust will not constitute a constructive_addition to trust under sec_2601 and will not affect the exempt status of trust for gst tax purposes the proposed modifications to trust will not cause distributions from or the termination of any interest in trust to be subject_to gst tax law and analysis ruling sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released a power_of_appointment by a disposition that is of such nature that if it were a transfer of property owned by the decedent the property would be includible in the decedent's gross_estate under sec_2035 to inclusive sec_2041 provides that a general_power_of_appointment is a power that is exercisable in favor of the decedent the decedent's_estate the decedent's creditors or the creditors of the decedent's_estate however a power to consume invade or appropriate property for the benefit of the decedent that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_20_2041-1 of the estate_tax regulations provides in part that a donee may have a power_of_appointment if he has the power to remove or discharge a trustee and appoint himself for example if under the terms of the instrument the plr-115974-16 trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of the fiduciary duties is not a power_of_appointment sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that a general_power_of_appointment is a power that is exercisable in favor of the individual possessing the power the possessor his estate his creditors or the creditors of his estate however a power to consume invade or appropriate property for the benefit of the posessor that is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment sec_25_2514-1 of the gift_tax regulations provides in part that a donee may have a power_of_appointment if he has the power to remove or discharge a trustee and appoint himself for example if under the terms of the instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and a has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself a is considered as having a power_of_appointment however the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of the fiduciary duties is not a power_of_appointment in revrul_95_58 1995_2_cb_191 the service ruled that a decedent grantor's reservation of an unqualified power to remove a trustee and to appoint an individual or corporate successor trustee that is not related or subordinate to the decedent within the meaning of sec_672 is not considered a reservation of the trustee's discretionary powers of distribution over the property transferred by the decedent grantor to the trust accordingly the trust corpus is not included in the decedent's gross_estate under sec_2036 or sec_2038 sec_672 defines the term related_or_subordinate_party to mean any nonadverse_party who is the grantor's spouse if living with the grantor or any one plr-115974-16 of the following the grantor's father mother issue brother or sister an employee of the grantor a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control a subordinate employee of a corporation in which the grantor is an executive in this case none of the proposed modifications affect the dispositive provisions of trust at all times both before and after the proposed modifications no son or other issue of settlor who may at any time be serving as trustee may participate in any decision relating to the discretionary distributions of income or principal under the proposed modification at all times there is to be an independent_trustee of each separate trust a son of settlor may remove a trustee and must replace that trustee with an independent_trustee the son of settlor may not participate in any way with the selection of a non-independent trustee furthermore in the case of the son’s death or disability only the appointment person may appoint an independent_trustee son’s power to remove and replace a trustee is equivalent to the power referenced in revrul_95_58 where a replacement trustee may not be related or subordinate to the powerholder within the meaning of sec_672 accordingly based on the facts submitted and the representations made we conclude that the proposed modifications to trust will not constitute the grant of a general_power_of_appointment under sec_2041 and sec_2514 and thus the assets of trust will not be includible in son’s gross_estate at death and will not be deemed to be transferred by son for gift_tax purposes ruling sec_2 and sec_2601 imposes a tax on every gst made after date a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2612 provides that the term taxable_termination means a termination by death lapse of time release of a power or otherwise of an interest in property held in a_trust unless a immediately after such termination a non-skip_person has an interest in such property or b at no time after such termination may a distribution including distributions on termination be made from such trust to a skip_person sec_2612 provides that the term taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip under a of the tax_reform_act_of_1986 act and sec_26_2601-1 of the gst tax regulations the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 the gst tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable plr-115974-16 to corpus so added under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides in relevant part that for purposes of chapter a constructive_addition under sec_26_2601-1 is treated as an addition to a_trust sec_26_2601-1 provides in relevant part that except as provided under sec_26_2601-1 where any portion of a_trust remains in the trust after the post date release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse is treated to any extent as a taxable transfer under chapter or chapter the value of the entire portion of the trust subject_to the power that was released exercised or lapsed is treated as if that portion had been withdrawn and immediately retransferred to the trust at the time of the release exercise or lapse sec_26_2601-1 provides in relevant part that the release exercise or lapse of a power_of_appointment other than a general_power_of_appointment as defined in sec_2041 will not be treated as an addition to a_trust if the power_of_appointment was created in an irrevocable_trust that is not subject_to chapter under sec_26_2601-1 sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under paragraph b or of this section hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph b i a b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the plr-115974-16 time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 provides that for purposes of this section a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust in sec_26_2601-1 example considers the following situation in settlor established an irrevocable_trust for the benefit of settlor's issue naming a bank and five other individuals as trustees in the appropriate local court approves a modification of the trust that decreases the number of trustees which results in lower administrative costs the modification pertains to the administration of the trust and does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust will not be subject_to the provisions of chapter in this case trust was created funded and became irrevocable prior to date it is represented that there have been no additions actual or constructive since that date son’s rights under the proposed modification to remove any trustee and to appoint a successor to such trustee provided that any trustee so appointed shall be an independent_trustee should not be considered a constructive_addition to any trust because such rights do not constitute a general_power_of_appointment within the meaning of sec_2041 and sec_2514 the changes are administrative in nature under sec_26_2601-1 and will not be considered to shift a beneficial_interest to a lower generation in the trust see example of sec_26_2601-1 the changes will not result in a shift in any beneficial_interest to a lower generation nor do the changes extend the time for vesting of any beneficial_interest in trust accordingly based upon the facts submitted and the representations made we conclude that the proposed modifications to trust will not constitute a constructive_addition to trust under sec_2601 and will not affect the exempt status of trust for gst tax purposes we also conclude that the proposed modifications to plr-115974-16 trust will not cause distributions from or the termination of any interest in trust to be subject_to gst tax in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely lorraine e gardner lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number ---------------------------------------------------------- --------------------------- ------------------------------ re ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-104126-18 date date legend date decedent trust date date spouse accountant firm dear ------------------ ---------------------- --------------------------------------------------- ----------------------------------------------- ---------------------- -------------------------- ------------------------ ----------------------------------- this letter responds to your representative’s letter of date requesting an extension of time under sec_301 and sec_301_9100-3 of the procedure and administration regulations to make a reverse qualified_terminable_interest_property qtip_election under sec_2652 of the internal_revenue_code and to apply the automatic allocation rules to allocate decedent’s gst_exemption to the trust facts the facts and representations submitted are summarized as follows on date decedent created a revocable_trust trust trust was completely restated on date decedent died testate on date survived by spouse and children under the terms of trust upon the decedent’s death the trustee has the power to create trust a and trust b under article paragraph the trustee is to distribute all the net_income of trust b to spouse the trustee may also distribute such amounts of principal to spouse as the trustee deems advisable for spouse’s health education support or maintenance plr-104126-18 upon spouse’s death the property of trust b is to be distributed to decedent’s issue in such amounts and upon such terms as spouse may appoint by express reference in spouse’s last will and testament article section provides in part that decedent intends to eliminate or to reduce as fully as possible by law any gst taxes on transfers of property pursuant to trust under article paragraph the trustee is empowered to make a qtip_election or a reverse_qtip_election over any asset for both estate and gst tax purposes and to allocate the unused portion of decedent’s gst_exemption to any property with respect to which decedent is the transferor for gst tax purposes in such manner the trustee deems advisable article paragraph provides that the provisions of article section regarding the gst omnibus provisions shall apply to trust a and trust b created under article spouse as the executor of decedent’s estate engaged accounting firm to prepare form_706 united_states estate and generation-skipping_transfer_tax return which was timely filed on schedule m accounting firm reported property passing to trust b as qtip and therefore the executor of decedent’s estate is deemed to have made the qtip_election to have trust b treated as qtip under sec_2056 accounting firm failed to make a reverse_qtip_election under sec_2652 with respect to trust b accounting firm also failed to attach schedule r to the form_706 and as a result decedent’s gst_exemption was not affirmatively allocated to trust b it is represented that decedent has sufficient remaining gst_exemption to allocate to trust b law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall except as limited by sec_2056 be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property which passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides that where on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur an interest passing to the surviving_spouse will terminate or fail no deduction shall be allowed under this section with respect to such interest - a if an interest in such property passes or has passed for less that an adequate_consideration in money or money’s worth from the decedent to any person other than such surviving_spouse or the estate of such spouse and plr-104126-18 b if by reason of such passing such person or his heirs or assigns may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving_spouse and no deduction shall be allowed with respect to such interest sec_2056 provides that in the case of qualified_terminable_interest_property for purposes of sec_2056 such property shall be treated as passing to the surviving_spouse and for purposes of sec_2056 no part of such property shall be treated as passing to any person other than the surviving_spouse sec_2056 defines the term qualified_terminable_interest_property as property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under this paragraph applies sec_2056 provides in part that an election with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 sec_2601 imposes a tax on every generation-skipping_transfer within the meaning of subchapter_b made by a transferor to a skip_person under sec_2611 the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines the term applicable_rate with respect to any generation- skipping transfer as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 as in effect for the year at issue provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that any portion of an individual’s gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows a first to property which is the subject of a direct_skip occurring at such individual’s death and b second to trusts with respect to which such plr-104126-18 individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual’s death sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in part that a decedent’s unused gst_exemption is automatically allocated on the due_date for filing form_706 to the extent not otherwise allocated by the decedent’s executor on or before that date unused gst_exemption is allocated pro_rata on the basis of the value of the property as finally determined for purposes of chapter first to direct skips treated as occurring at the transferor’s death the balance if any of unused gst_exemption is allocated pro_rata on the basis of the chapter value of the nonexempt_portion of the trust property to trusts with respect to which a taxable_termination may occur or from which a taxable_distribution may be made sec_2652 provides in part that for purposes of chapter the term transferor means in the case of any property subject_to the tax imposed by chapter the decedent an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides in part that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 by reason of subsection b the estate of the decedent may elect to treat all of the property in such trust for gst tax purposes as if the election to be treated as qualified_terminable_interest_property had not been made reverse_qtip_election sec_26_2652-2 provides in part that a reverse_qtip_election is not effective unless it is made with respect to all of the property in the trust to which the qtip_election applies sec_26_2652-2 provides that an election under sec_2652 is made on the return on which the qtip_election is made sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-1 and sec_301_9100-3 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 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute plr-104126-18 based on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 are satisfied therefore an extension of time is granted until days from the date of this letter to make a reverse_qtip_election with respect to the trust b and that the automatic allocation rules of sec_2632 apply to automatically allocate decedent’s unused gst_exemption to trust b the reverse_qtip_election should be made on a supplemental form_706 the supplemental form_706 should be filed with the cincinnati service_center at the following address internal_revenue_service center - stop cincinnati oh a copy of this letter should be attached to the supplemental form_706 a copy of this letter is enclosed for this purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries lorraine e gardner by _________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc