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 b03 plr-149943-06 date date ------------------------------------ -------------- ----------------------- ----------------------- ----------------------- ---------------------------------------------------- -------------------------------------- -- ----------------------- ------------------------------------------------------ ----------------------- legend x a b c d e f country d1 dear ------------------------------------ correspondence submitted on behalf of x requesting an extension of time pursuant to this responds to a letter dated date and subsequent ------------------------------------------------ ----------------------- ----------------------- ---------------------------------------------- ------------------------- ----------------- plr-149943-06 sec_301_9100-3 of the procedure and administration regulations for x to file an election under sec_301_7701-3 to be classified as an entity that is disregarded as separate from its owner for federal tax purposes effective d1 facts according to the information submitted x was formed as a limited_liability_company under the laws of country on d1 through tiers of wholly owned entities b c d e and f a owns of x x is not classified as a corporation under sec_301 b or x intended to elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes as of d1 but the election was not timely filed with the appropriate service_center law and analysis 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 an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 entity classification election and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 plr-149943-06 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the 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 file form_8832 with the appropriate service_center to elect to be classified as an entity disregarded as separate from its owner for federal tax purposes effective d1 the election should be made by following the procedures set forth in form_8832 and a copy of this letter should be attached to the election a copy is enclosed for that 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 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 sincerely s william p o'shea associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes


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 corp b03 plr-133277-11 date december internal_revenue_service number release date index number -------------------------- ----------------------------- ----------------------------------- ------------------------------------ ------------------- --------------------------------- legend parent ------------------------------------------------------------ ------------------------------------------------------------------- ------------------------------------ holding ---------------------------------------------- ------------------------ -------------------------------------------------------------- sub -------------------------- ------------------------ ------------------------------------------------------------------------------- seller -------------------------------------------------- ------------------------ ------------------------------- buyer ------------------------------------------------------------ ------------------------------------------------------------------- --------------------------------------------------------- seller --------------------------------------------------- ------------------------ -------------------------------------------------------------- business a ----------------------------------------------- --------------------------------------------------------------------------------- plr-133277-11 y z ------------- -------------- dear ------------------- this letter responds to you’re a letter from your authorized representative dated date requesting rulings under the commissioner’s discretionary rule_of sec_1_1502-13 of the income_tax regulations the proposed transaction the information submitted in that request is summarized below the rulings contained in this letter are based on facts 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 materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts parent is the common parent of an affiliated_group_of_corporations that files a consolidated_return for federal_income_tax purposes all members of the consolidated_group use the accrual_method of accounting parent through its subsidiaries is engaged primarily in business a parent indirectly owns all of the outstanding common_stock of holding holding owns all of the membership interests in sub an entity disregarded as separate from holding for federal_income_tax purposes holding also owns all of the outstanding common_stock of seller sub and seller own the outstanding common_stock of buyer while buyer and seller own the outstanding_stock of seller as a result of past restructurings seller and seller are accounting for intercompany gain under the rules of sec_1_1502-13 seller was a seller of property to buyer and has an intercompany gain of approximately dollar_figurey seller was a seller of property to buyer and has an intercompany gain of approximately dollar_figurez the property which was the subject of the intercompany sales exists as a block of stock block shares that buyer owns in seller parent proposes to effect a merger of buyer into a disregarded_entity of seller proposed transaction representations the taxpayer has made the following representations plr-133277-11 a the merger of buyer into the disregarded_entity of seller will qualify as a reorganization of buyer into seller within the meaning of sec_368 and pursuant to sec_1_368-2 b the effects of the intercompany_transaction between buyer and seller have not previously been reflected on the parent group's consolidated_return c the parent group has not derived and no taxpayer will derive any federal_income_tax benefit from the intercompany_transaction between buyer and seller that gave rise to the intercompany gain or the redetermination of the intercompany gain including any adjustment to basis in member stock under sec_1_1502-32 rulings based solely on the facts and representations submitted we rule as follows because seller will acquire its own stock including the block shares in the merger the merger will result in the elimination of the basis in the block shares sec_1_1502-13 the merger will not result in a successor asset to the block shares of seller within the meaning of sec_1_1502-13 thus no asset will reflect the basis of the intercompany gain that buyer has in the block shares the merger will require seller and seller to account for their intercompany gains arising from the intercompany_transactions with buyer and with respect to the block shares of seller stock under the matching_rule of sec_1_1502-13 and f seller 1’s intercompany gain will be redetermined to be excluded from gross income under the commissioner’s discretionary rule_of sec_1_1502-13 accordingly the gain will be excluded from seller 1’s gross_income for the parent group’s consolidated_return_year that includes the day of the merger the amount of seller 1’s intercompany gain that is redetermined to be excluded from gross_income will not be taken into account as earnings_and_profits of any member and will not be treated as tax-exempt_income under sec_1_1502-32 caveats no opinion is requested and no opinion is expressed whether the merger of buyer into the disregarded_entity of seller will qualify as a reorganization of buyer into seller within the meaning of sec_368 additionally no opinion is expressed concerning the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or plr-133277-11 effects resulting from the proposed transaction that are not specifically covered by the above rulings procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this ruling letter pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely lawrence m axelrod special counsel to the associate chief_counsel corporate cc


internal_revenue_service department of the treasury u i l no washington dc contact person telephone number i in reference to cc dom p si date dec plr-116844-98 legend company state trust husband wife p i e i o a i a l dear u l m t t this letter responds to a letter dated august and supplemental information requesting a ruling under sec_1362 of the internal_revenue_code on behalf of company the information submitted discloses that company was incorporated in state on a an s_corporation effective on b company subsequently elected to be company’s former shareholder husband who held all of company’s stock in his grantor_trust died on death his trust became irrevocable and no longer qualified as a grantor_trust on husband's immediately upon husband’s death trust was established under the provisions of his grantor_trust and was funded with the company stock formerly held by his trust is represented it plr-116844-98 that trust qualified as within the meaning of beneficiary death wife failed to make a qsst election under sec_1362 qsst sec_1361 with wife as its sole income however due to confusion following husband‘s a qualified_subchapter_s_trust on d during the preparation of husband’s federal estate_tax_return it was discovered that company’s s election had terminated on c election under sec_1361 accountant company and its attorney took steps to remedy this situation by submitting a request for relief under sec_1362 a result of wife’s failure to make an after a lengthy illness of its as sec_1361 b provides that the term small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not have as a shareholder a person other than an estate and other than a_trust described in sec_1361 is not an individual or an organization described in sec_1361 who sec_1361 a i provides in part that for sec_1361 which defines the term small_business purposes of corporation a_trust all of which is treated under subpart e of part i who is shareholder of subchapter_j of chapter a citizen or resident_of_the_united_states may be a as owned by an individual sec_1361 provides that in the case of a qsst with the trust shall be treated as respect to which the beneficiary makes an election under sec_1361 sec_1361 sec_678 the beneficiary of the trust shall be treated as the owner of that portion of the trust that consists of stock in an s_corporation with respect to which the qsst election is made a i and for purposes of a_trust described in sec_1361 d provides that an election under sec_1361 shall be effective up to days and months before the date of the election sec_1362 a provides that an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the lst taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation sec_1362 provides that if an election under sec_1362 by any corporation a taxable_year for which made determined without regard to subsection b requirements of b the secretary determines that the circumstances resulting in the sec_1361 or to obtain shareholder consents or was terminated under paragraph was not effective for the a failure to meet the by reason of sec_1362 or of plr-116844-98 b no later so that the corporation is a small_business to acquire the required shareholder consents the corporation and each person who was a shareholder of ineffectiveness or termination were inadvertent than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a corporation or and the corporation at any time during the period specified pursuant to treatment of the corporation as an corporation as may be required by the secretary for that period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1362 agrees to make the adjustments consistent with the applying the relevant law to the facts submitted and the representations made we rule that the termination of company’s subchapter_s_corporation election which resulted from the failure of trust to make a qsst election under sec_1361 described above was an inadvertent termination within the meaning of sec_1362 as pursuant to the provisions of sec_1362 company will be treated as continuing to be an s_corporation from a until the qsst election is filed and thereafter provided company’s election is not otherwise terminated under sec_1362 that period the trust will be treated as sec_1361 c assuming it qualifies as sec_1361 if company the trust or wife fail to treat the owner of trust company trust and wife as described above this ruling shall be null and void and wife must be treated for purposes of a qsst described in a_trust described in sec_678 as during except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing in particular we express no opinion regarding whether facts company otherwise qualifies as a valid s_corporation the trust qualifies as for the trust is valid a qsst under sec_1361 or the qsst election made a plr-116844-98 this ruling is directed only to the taxpayer who requested sec_6110 provides that it may not be used or cited it as precedent sincerely yours jeff erickson assistant to the chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


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 b1 plr-145917-07 date date ---------------------------------------- legend x ---------------------------------------------------- date date dear -------------- ------------------------- ---------------------- this responds to a letter dated date submitted on behalf of x requesting relief under ' b of the internal_revenue_code facts the information submitted states that x was incorporated on date the sole shareholder of x represents that x intended to elect to be an s_corporation effective date but the election to be an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under plr-145917-07 ' b however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no ' a election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and ' b shall not apply conclusion based solely on the facts submitted and the representations made we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective date accordingly provided that x makes an election to be an s_corporation by filing a properly completed form_2553 effective date along with a copy of this letter with the appropriate service_center within days from the date of this letter then such an election will be treated as timely made for date except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes the code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer s requesting it sec_6110 of in accordance with the power_of_attorney on file with this office a copy of this plr-145917-07 letter is being sent to the taxpayers’ authorized representative sincerely s audrey ellis senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c employer_identification_number contact person contact number ore lot date jun u lll numbers e nd n o e z o dear applicant this letter is in reply to the letter from your authorized representative dated date as amended by letter dated date in which m requested rulings with respect to the tax consequences of the formation of a tax exempt entity as a holding_company and the formation of a profit making subsidiary as described below m is an educational_organization recognized by the internal_revenue_service as exempt from federal_income_tax under sec_501 of the internal_revenue_code m is a publicly_supported_organization described in sec_509 of the code m's articles of incorporation state that m's purpose is to aid promote and encourage by all appropriate means including gifts of money or other_property schools facilities and other organizations that are exclusively educational m currently has no members but intends to amend its certification of incorporation to make n its sole member n is a recently incorporated organization that was organized and will be operated exclusively for the benefit of m n has been recognized as exempt from federal_income_tax under sec_501 of the code and has been determined to be a supporting_organization described in section a n’s initial board_of trustees has five members ail of whom except one are also trustees of m after m makes n its sole member n will have the authority to appoint m's trustees n states that it will amend its bylaws to state that at least a majority of its trustees also serve on m's board_of trustees n states that initially it will share ail facilities equipment employees and other assets in allocated portions with m which will be accurately recorded on each organization‘s books_and_records n will reimburse m at fair rental value for_the_use_of the facilities equipment and other assets owned by m lf o was recently incorporated as a for-profit corporation and formed for bona_fide business purposes the establishment of partnerships with other for-profit organizations capital development cash management services and the administration of individual retirement plans o's certificate of incorporation provides that its initial board_of directors shall have seven members one of these seven members is also a trustee of m and n o's bylaws restrict its shareholder's ability to appoint its directors by requiring that a majority of its directors shall not be trustees or officers of m or n states that its daily business operations will be managed by its officers and that neither m nor n will participate in its business planning or day-to-day operations m states that initially o will share certain functions equipment and other assets in allocated portions with m which will be accurately recorded on each company's books_and_records m states that all of its and n's relationships with o will be at arm's length and that o will reimburse m at fair rental value for_the_use_of the facilities equipment and other assets owned by m m states that it is not anticipated that any employees of will be shared with either m or n but that if such sharing of employees is required all shared employees will be compensated by each company in accordance with the amount of time such employees devote to each company m states that o at all times will maintain separate bank accounts and have its own stationery and telephone lines o intends to make dividend distributions to its parent company n which will use a portion of the funds to operate itself and contribute the remainder to m for its exempt purposes sec_501 c of the code provides for exemption from federal_income_tax of organizations organized and operated exclusively for charitable scientific or educational_purposes provided no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_509 of the code excludes from the definition of the term private_foundation an organization which is organized and at all times thereafter is operated exclusively for the benefit of to perform the functions of or to carry out the purposes of one or more specified organizations described in sec_509 or and is operated supervised or controlled by or in connection with one or more organizations described in sec_509 or sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less certain allowable deductions and modifications sec_512 of the code provides that one of the modifications referred to in sec_512 is that all dividends shall be excluded from the term unrelated_business_taxable_income sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of the function constituting the basis of its exemption sec_1_513-1 of the income_tax regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has causal relationship to the achievement of exempt purposes and it is substantially related only if the causal relationship is a substantial one the regulation continues that for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes revrul_67_390 1967_2_cb_179 describes four cases where new applications for recognition of exemption would have to be filed created and each new entity must establish its exemption in accordance with sec_1_501_a_-1 of the regulations accordingly each new entity must file an application_for recognition of exemption to establish that it qualifies for exemption from federal_income_tax in each of the four cases described a new legal entity has been for federal_income_tax purposes a parent_corporation and its subsidiaries are separate taxable entities so tong as the purposes for which the subsidiary is incorporated are the equivalent of business activities or the subsidiary subsequently carries on business activities 319_us_436 431_f2d_227 cir that is where a corporation is organized with a bona_fide intention that it will have some real and substantial business function its existence may not generally be disregarded for tax purposes britt supra pincite however where the parent_corporation so controls the affairs of the subsidiary that it is merely an instrumentality of the parent the corporate entity of the subsidiary may be disregarded 483_f2d_1098 cir you have represented that o was formed for bona_fide business purposes and will conduct various business activities since is organized with a bona_fide intention that it will have some real and substantial business function its existence will not be disregarded for federai tax purposes the only issue therefore is whether o should be deemed for tax purposes to be an instrumentality of mor n as noted above where a parent_corporation so controls the affairs of the subsidiary that it is an instrumentality of the parent the corporate entity of the subsidiary may be disregarded in the absence of such control the existence of the subsidiary will generally not be disregarded based on the above facts and representations the activities and income of o will not be attributed for purposes of i continued qualification for recognition of exemption as organizations to m or n described in sec_501 of the code and ii possible receipt of unrelated_business_taxable_income with respect to o's activities accordingly the creation of will not adversely affect m’s or n’s continued qualification for recognition of exemption as organizations described in sec_501 or result in unrelated_business_taxable_income under sec_512 subsequent to the formation of n and o m will continue to operate exclusively for charitable purposes within the meaning of sec_501 of the code although m will be amending its articles of incorporation to change its membership structure it will not reincorporate or otherwise form itself into a new legal entity the actions described above in and of themselves will have no adverse effect on a determination of exempt status or exception from private_foundation_status of either m or n as provided in sec_512 dividends are specifically excluded from the definition of unrelated_business_taxable_income based on the facts and circumstances concerning the reorganization and related transactions as stated above we rule as follows n is exempt under sec_501 of the code n is determined to be other than a private_foundation pursuant to sec_509 o's for-profit activities will not jeopardize the tax exempt status of either m or n n's receipt of dividend distributions from will not be treated as unrelated_business_taxable_income under sec_511 to either m or n m's change from a non-member organization to a single member organization will not trigger the need for m to file a new application_for recognition of exemption the president of m and n who is also on the board_of trustees of both m and n and on the board_of directors of o may serve as an officer of o without jeopardizing the tax exempt status of either morn these rulings are based on the understanding that there will be no material changes in the facts upon which they are based any such change should be reported to the ohio tax exempt and government entities te_ge customer service office because it could help resolve questions conceming your federal_income_tax status this ruling should be kept in your permanent records a copy of this ruling is being forwarded to the ohio te_ge customer service office except as we have specifically ruled herein we express-no opinion as to the consequences of these transactions under the cited provisions or under any other provisions of the code we have not been asked and we express no opinion on whether any amounts received by m from n or o providing facilities equipment or other assets constitute unrelated_business_taxable_income under sec_512 of the code furthermore we have not been asked and we express no opinion on whether payments of rent by n or o to m would be subject_to tax by reason of sec_512 in return for this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be tised or cited as precedent if you have any questions please contact the person whose name and telephone number are shown in the heading of this fetter sincerely yours signed garland a carter manager exempt_organizations technical group


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 corp br2 plr-120538-10 date november legend taxpayer ------------------------------------------------------------------- ----------------------------------------------------------- --------------------------------------------------- date date year year -------------------------- ------------------- ------- ------- company official -------------------------------------------------------------------------------------- ------------------------------------------------------ tax professionals ------------------------------ ---------------------------------------- ---------------------------------------- -------------------------- ------------------------------------------------ -------------------------- dear ------------- plr-120538-10 this letter responds to your request for a ruling submitted by your authorized representatives dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election the extension is being requested for taxpayer to file an election under sec_1_382-6 of the income_tax regulations the election to make a closing-of-the-books election with respect to an ownership_change within the meaning of sec_382 of the internal_revenue_code summary of facts taxpayer was incorporated in year and has accumulated net operating losses since its incorporation on date taxpayer experienced an ownership_change as defined in sec_382 and consequently sec_382 limited its ability to offset post-change taxable_income by pre-change losses taxpayer experienced a second ownership_change on date the second ownership_change an election under sec_1_382-6 to close its books with respect to the second ownership_change was due by the due_date of taxpayer’s tax_return for the year taxable_year but for various reasons taxpayer did not make the election subsequent to taxpayer filing its return for the year taxable_year taxpayer submitted this request under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for the taxable_year for which the election should have been filed or any subsequent taxable_year sec_1_382-6 allows a loss_corporation to elect to allocate its net_operating_loss or taxable_income and its net_capital_loss or modified capital_gain_net_income for the change year between the pre-change period and the post-change period as if the loss corporation’s books were closed on the change_date under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 b therefore the commissioner has discretionary authority under sec_301_9100-3 to plr-120538-10 grant an extension of time for taxpayer to file the election provided that taxpayer shows that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by taxpayer tax professionals and company official explain the circumstances that resulted in the failure_to_file timely a valid election the information establishes that taxpayer reasonably relied on a qualified_tax professional who failed to make or advise taxpayer to make the election see sec_301_9100-3 based on the facts and information submitted including representations made we conclude that taxpayer has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-3 until forty-five days from the date on this letter for taxpayer to file the election the above extension of time is conditioned on the taxpayer’s tax_liability being not lower in the aggregate for all years to which the election applies and all subsequent years than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the amount of tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the amount of tax_liability is lower see sec_301_9100-3 taxpayer should file the election in accordance with sec_1_382-6 taxpayer’s return must be amended to attach the election statement required by sec_1_382-6 a copy of this letter should be attached to the election statement alternatively if taxpayer files its amended_return electronically taxpayer may satisfy this latter requirement by attaching to the return a statement that provides the date and control number plr- of this ruling letter caveats 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 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 plr-120538-10 in addition we express no opinion as to the tax effects or any other tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by taxpayer tax professionals and company official the appropriate service office however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply procedural statements 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 representatives a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely ken cohen senior technician reviewer branch office of associate chief_counsel corporate


tcmemo_2008_85 united_states tax_court ad dickson oji petitioner v commissioner of internal revenue respondent docket no filed date ad dickson oji pro_se mark d eblen for respondent memorandum findings_of_fact and opinion goeke judge respondent determined deficiencies in petitioner’ sec_2001 and sec_2002 federal_income_tax of dollar_figure and dollar_figure respectively after concessions the issues remaining for decision are whether petitioner is entitled to deductions for advertising expenses above those that respondent allowed we hold that he is not whether petitioner is entitled to deductions for travel_expenses above those that respondent allowed we hold that he is not whether petitioner is entitled to deductions for meals and entertainment_expenses above those that respondent allowed we hold that he is not and whether petitioner is entitled to itemized_deductions above those that respondent allowed we hold that he is not petitioner concedes that his gross_receipts for should be increased by dollar_figure respondent concedes dollar_figure of disputed advertising expenses for leaving dollar_figure in dispute dollar_figure of disputed advertising expenses for leaving dollar_figure in dispute dollar_figure of disputed medical_expenses for leaving dollar_figure in dispute and that petitioner is not liable for penalties under sec_6663 or sec_6673 respondent raised the issue of whether petitioner is entitled to the standard_deduction for because petitioner claimed itemized_deductions in instead of the standard_deduction the amount of itemized_deductions respondent allowed for is greater than the standard_deduction and because respondent made no arguments on this issue in the pretrial memorandum or elsewhere we deem it conceded respondent also raised the issue of whether petitioner must pay self-employment_tax for and because respondent did not make any adjustments to petitioner’s self-employment_tax in the notice_of_deficiency and did not pursue this issue at trial we deem it conceded respondent filed a motion to amend his answer to assert the fraud_penalty under section and made an oral motion to impose sanctions under sec_6673 respondent has conceded these issues therefore we will deny both motions as moot findings_of_fact some facts have been stipulated and are so found the stipulated facts and the accompanying exhibits are incorporated herein by this reference at the time he filed his petition petitioner resided in west virginia during and petitioner worked for the state of west virginia as the program coordinator for the small_business development center he also worked as an independent insurance salesman for each year at issue petitioner timely filed a form_1040 u s individual_income_tax_return which included a schedule c profit or loss from business petitioner’s mother virginia oji was the only dependent petitioner reported on hi sec_2001 and sec_2002 income_tax returns petitioner has two sons who lived in nigeria during and on date respondent issued a statutory_notice_of_deficiency to petitioner determining deficiencies of dollar_figure and dollar_figure for and respectively all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure i advertising expenses petitioner claimed on his schedule c dollar_figure and dollar_figure in advertising expenses for and respectively respondent concedes that petitioner may deduct dollar_figure and dollar_figure for advertising expenses paid in and respectively petitioner claims that the remaining amounts dollar_figure and dollar_figure for and respectively are attributable to telephone and newspaper expenses ii travel_expenses petitioner claimed dollar_figure in travel_expenses for respondent allowed dollar_figure petitioner claimed dollar_figure in travel_expenses for respondent allowed dollar_figure petitioner argues that the disallowed amounts dollar_figure and dollar_figure for and respectively are attributable to trips that he took to nigeria for two insurance brokers and agents association ibaa conferences petitioner created ibaa in and served as its president in and according to the receipts petitioner provided each year he paid for a hotel room a vehicle rental meals and telephone calls iii meals and entertainment petitioner claimed dollar_figure and dollar_figure in meals and entertainment_expenses for and respectively respondent disallowed these deductions in their entirety the claimed deductions are attributable to meals petitioner purchased at fast food restaurants for himself and in some cases other people listed on a spreadsheet petitioner maintained on his computer the spreadsheet provides the dates amounts spent restaurant names business purposes and the people accompanying petitioner during the meals the alleged business_purpose of each meal was to develop goodwill and solicit business iv itemized_deductions petitioner claimed on his schedules a itemized_deductions dollar_figure and dollar_figure in medical_expenses for and respectively respondent concedes that petitioner paid dollar_figure of medical_expenses in the disallowed amounts dollar_figure and dollar_figure for and respectively are attributable to medical_expenses that petitioner allegedly paid to the lagos state university teaching hospital in nigeria the lagos hospital on behalf of his mother as evidence that he paid his mother’s medical_expenses in and petitioner initially stipulated two invoices from the lagos hospital stamped as paid each bearing the name of one of petitioner’s sons living in nigeria petitioner later offered into evidence another two invoices with the same contents as the original bills except that petitioner’s mother was named on the bills instead of his sons petitioner also offered a letter from the lagos hospital that apparently accompanied the second set of invoices the letter stated as requested the attached receipts reflect payments you made on behalf of your mother virginia oji for year sec_2001 and sec_2002 please accept our apologies for any inconvenience caused by the mix-up with your children’s account which should not have happened petitioner explained that the invoices bear his sons’ names because they picked up the invoices from the lagos hospital while one of the invoices states the date of the patient’s admission as date and the date of discharge as date petitioner concedes that this is incorrect and his mother was not hospitalized in nigeria in petitioner is not sure whether his mother was hospitalized in nigeria in petitioner explained that his mother was frequently in and out of hospitals and doctors’ offices and the lagos hospital kept an account of his mother’s expenses and billed him periodically petitioner does not know exactly when his mother was in nigeria or received treatment from the lagos hospital opinion petitioner claims that he is entitled to deductions for business and medical_expenses above the amounts respondent allowed sec_162 allows a taxpayer to deduct ordinary and necessary expenses paid_or_incurred in carrying on any trade_or_business sec_213 allows a taxpayer to deduct personal medical_expenses of the taxpayer his spouse or a dependent to the extent that the expenses exceed percent of the taxpayer’s adjusted_gross_income agi a taxpayer has the burden of proving that the commissioner’s determinations set forth in the notice_of_deficiency are incorrect rule a 290_us_111 deductions are a matter of legislative grace and a taxpayer bears the burden of proving he is entitled to the deductions rule a 503_us_79 292_us_435 in addition a taxpayer must keep sufficient records to substantiate any deductions claimed sec_6001 new colonial ice co v helvering supra pincite i advertising expenses petitioner claims entitlement to deductions respondent disallowed of dollar_figure and dollar_figure for advertising expenses paid in and respectively petitioner asserts that these amounts are attributable to phone and newspaper expenses petitioner presented no evidence or arguments that the expenses were paid in carrying on his trade_or_business and were not personal expenses see sec_162 sec_262 therefore we sustain respondent’s determination disallowing the advertising expenses above those allowed petitioner did not present evidence or arguments that he satisfied the requirements of sec_7491 ii travel_expenses petitioner claims entitlement to deductions respondent disallowed of dollar_figure and dollar_figure for and respectively for travel_expenses incurred while in nigeria for two ibaa conferences sec_274 provides that no deduction shall be allowed for expenses allocable to a convention or similar meeting held outside of north america unless the taxpayer establishes that the meeting is directly related to the active_conduct of his trade_or_business and that it is as reasonable for the meeting to be held outside the north_american_area as within the north_american_area considering a the purpose of such meeting and the activities taking place at such meeting b the purposes and activities of the sponsoring organizations or groups c the residences of the active members of the sponsoring_organization and the places at which other meetings of the sponsoring_organization or groups have been held or will be held and d such other_relevant_factors as the taxpayer may present petitioner asserts that the purpose of his trips to nigeria was to attend ibaa conferences where he learned about the effect of globalization on the insurance_business and developed business contacts with the attendees to substantiate his claim petitioner submitted into evidence the initial drafts of the conference agendas which he printed out in preparation for trial at trial petitioner provided the names of two other members of ibaa who attended the meeting but not their residences we find that petitioner’s testimony and the draft agendas do not establish that any conferences actually took place during petitioner’s trips to nigeria even if we were to find that the conferences were held the draft agendas do not adequately describe the activities that took place at the conferences furthermore petitioner’s testimony about the general purpose of ibaa and the conferences did not establish that it was reasonable for the conferences if they took place to be held in nigeria instead of in north america therefore we sustain respondent’s determination disallowing the travel_expenses above those allowed iii meals and entertainment petitioner claims entitlement to deductions of dollar_figure and dollar_figure for meal and entertainment_expenses incurred in and respectively petitioner’s evidence consisted of his spreadsheet listing basic information about the meals copies of receipts for meals and copies of checks made out to restaurants sec_274 also contains special rules that apply to foreign_travel because we find that petitioner has not satisfied the requirements of sec_274 we need not address sec_274 sec_274 provides that no deduction or credit is allowed for expenses for meals or entertainment unless the taxpayer substantiates by adequate_records or sufficient evidence corroborating the taxpayer’s own statement the amount of such expenses the time and place of the meal or entertainment the business_purpose of the expenses and if the expense is for entertainment the business relationship to the taxpayer of the persons entertained petitioner presented no evidence or arguments as to his relationship to the people listed on the spreadsheet we find that the meals that petitioner apparently ate alone had no business_purpose because petitioner was not developing goodwill or soliciting business and petitioner offered no evidence or arguments of any other business_purpose for the meals therefore we sustain respondent’s determination that petitioner is not entitled to any schedule c deductions for meals or entertainment iv itemized_deductions petitioner claims entitlement to deductions respondent disallowed of dollar_figure and dollar_figure for and respectively for medical_expenses he paid to the lagos hospital for treatment provided to his mother respondent argues that the evidence presented indicates that it was petitioner’s sons who were hospitalized in and not petitioner’s mother even if we were to accept petitioner’s explanation of why the invoices originally contained his sons’ names rather than his mother’s there is no evidence that it was petitioner who paid his mother’s medical_expenses furthermore we find that the invoices from the lagos hospital are not authentic and we accord them no weight if we were to accept petitioner’s explanation the lagos hospital must have prepared the invoices when petitioner’s sons picked them up instead of at the time petitioner was actually billed and consequently they cannot be the original invoices furthermore the lagos hospital could not have been maintaining careful records if it misnamed the patient on two occasions again presuming that the sons picked up the receipts on different days otherwise it is not clear why one son did not pick up both receipts and misrepresented when the patient was hospitalized on one of the invoices therefore we find that petitioner has failed to substantiate that he paid any medical_expenses on behalf of his mother in or in the absence of any credible corroborating evidence we sustain respondent’s determination disallowing deductions for medical_expenses respondent concedes that petitioner paid dollar_figure of medical_expenses in however that amount does not exceed percent of petitioner’s adjusted_gross_income for and therefore is not allowed see sec_213 to reflect the foregoing and the concessions of the parties an appropriate order will be issued and decision will be entered under rule


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 b02 plr-150688-06 date november legend - taxpayer trust family_trust charitable_organization state d1 dear ----------------- -------------------------------------------------------------------------------------------- ------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- ------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of trust by its authorized representative requesting rulings regarding the tax consequences of a proposed division of a charitable_remainder_unitrust crut the information submitted states that taxpayer a resident of state created trust on d1 taxpayer represents that trust qualifies as a net-income with makeup charitable_remainder_unitrust nimcrut under the provisions of sec_664 of the internal_revenue_code the unitrust beneficiaries of trust are taxpayer and family_trust neither taxpayer nor family_trust are organizations described in sec_170 the plr-150688-06 remainder beneficiary of trust is a charitable_organization described in sec_170 sec_170 sec_2055 and sec_2522 trust’s assets consist of cash investments in real_estate and marketable_securities prior to a triggering event the unitrust_amount equals the lesser_of i trust income for such taxable_year as defined in sec_643 and ii seven percent of the net fair_market_value of the assets of trust valued as of the first day of such taxable_year if trust income for any taxable_year exceeds seven percent of the net fair_market_value of trust assets valued as of the first day of such taxable_year the unitrust_amount for such taxable_year shall also include such excess income to the extent that the aggregate of the amount_paid in prior years is less than seven percent of the aggregate net fair_market_value of trust assets for such years at the beginning of the first taxable_year following the year in which the triggering event occurs the unitrust_amount shall be an amount equal to seven percent of the net fair_market_value of the assets of trust valued as of the first day of such taxable_year at the time trust was created taxpayer was a resident of state accordingly trust provides that state law governs the interpretation of trust taxpayer has remained a resident of state since the creation of trust the charitable_organization is an organization described in sec_170 sec_170 sec_2055 and sec_2522 taxpayer proposes to make a contribution of an undivided portion of his unitrust_interest in trust to the charitable_organization in order to accomplish this result taxpayer in his individual capacity and as trustee of trust proposes the following transaction taxpayer as trustee will divide trust into two separate trusts trust a and trust b the terms of trust a and trust b will be the same as the terms of trust taxpayer as trustee represents that at the time trust is divided the assets allocated to trust a and trust b will be fairly representative of the aggregate adjusted bases of the trust assets and that the division of the assets between trust a and trust b will be on a pro_rata basis with respect to each major class of investments held at the date of the division and within each class will be fairly representative of the overall appreciation or depreciation of the assets therein trust a will consist of approximately two-thirds of the pre-division value of trust trust b will consist of the remaining portion of such value the charitable_organization will remain the remainder beneficiary of both trust a and trust b taxpayer will irrevocably terminate the contingent right of family_trust to become the recipient of the unitrust_amount in trust b and agree that he will also exercise the power granted to him under trust to terminate such contingent right in his last will in addition state law permits the trustee of a_trust with court approval to disclaim in whole or in part any interest in property the trustee of family_trust will seek court approval to disclaim its right to become the recipient of the unitrust_amount finally taxpayer will contribute his undivided unitrust_interest in trust b to the charitable_organization plr-150688-06 taxpayer represents that under state law the segregation of assets into trust b taxpayer exercising his power to terminate the contingent right of family_trust to become the recipient of the unitrust_amount of trust b the contribution to the charitable_organization of taxpayer's unitrust_interest in trust b and the designation of the charitable_organization as the remainder beneficiary of trust b will result in a merger of the unitrust and remainder interests in trust b taxpayer represents that he did not divide his interest in trust in order to avoid the partial interest rule_of sec_170 taxpayer requests the following rulings the division of trust by taxpayer as trustee of trust into trust a and trust b pursuant to state law and the inter_vivos distribution to the charitable_organization of the entire corpus of trust b corresponding to the undivided unitrust_interest gifted by taxpayer will not cause trust a to cease to be a_trust as described in sec_664 for the year or years in which taxpayer transfers an undivided portion of his unitrust_interest to the charitable_organization described in sec_170 sec_170 sec_2055 and sec_2522 taxpayer will be entitled to a charitable income_tax deduction under sec_170 to the extent of the present_value of the unitrust_interest transferred as of the date of transfer calculated as provided in sec_664 and sec_7520 and sec_25_2512-5 of the gift_tax regulations for the year or years in which taxpayer transfers an undivided portion of his unitrust_interest to the charitable_organization described in sec_170 sec_170 sec_2055 and sec_2522 taxpayer will be entitled to a charitable gift_tax deduction under sec_2522 to the extent of the present_value of the unitrust_interest transferred as of the date of transfer calculated as provided in sec_664 sec_7520 and sec_25_2512-5 if at the time of any transfers by taxpayer of an undivided portion of his unitrust_interest to the charitable_organization described in sec_170 sec_170 sec_2055 and sec_2522 trust has realized capital_gain income in prior years which income was not included in the unitrust amounts paid to taxpayer and therefore not recognized by taxpayer capital_gain will not then be included in taxpayer 's income by the reason of his transfer of a portion of his unitrust_interest to a charitable_organization ruling sec_664 provides generally that a charitable_remainder_unitrust shall be exempt from federal_income_tax plr-150688-06 sec_664 provides that a charitable_remainder_unitrust is a_trust a from which a fixed percentage which is not less than percent nor more than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in sec_664 and other than qualified gratuitous transfers described in sec_664 may be paid to or for_the_use_of any person other than an organization described in sec_170 c following the termination of the payments described in sec_664 the remainder_interest in the trust is to be transferred to or for_the_use_of an organization described in sec_170 or is to be retained by the trust for such a use or to the extent the remainder_interest is in qualified_employer_securities as defined in sec_664 all or part of such securities are to be transferred to an employee_stock_ownership_plan as defined in sec_4975 in a qualified_gratuitous_transfer as defined by sec_664 and d with respect to each contribution of property to the trust the value determined under sec_7520 of such remainder_interest in such property is at least percent of the net fair_market_value of such property as of the date such property is contributed to the trust sec_1_664-3 provides that no amount other than the unitrust_amount may be paid to or for_the_use_of any person other than an organization described in sec_170 however the governing instrument may provide that any amount other than the unitrust_amount shall be paid or may be paid in the discretion of the trustee to an organization described in sec_170 provided that in the case of distributions in_kind the adjusted_basis of the property distributed is fairly representative of the adjusted_basis of the property available for payment on the date of payment taxpayer proposes to divide trust into trust a and trust b the terms of trust a and trust b will be the same as the terms of trust taxpayer will then contribute to the charitable_organization his unitrust_interest in trust b and designate the charitable_organization as the remainder beneficiary of trust b thereby effectuating a merger of interests under state law although this merger will cause a termination of trust b_trust a will continue to be in the form of and will continue to function as a charitable_remainder_unitrust within the meaning of sec_664 thus the division of trust into trust a and trust b and the inter_vivos distribution of the entire corpus of trust b to the charitable_organization will not cause trust a to cease to function as a charitable_remainder_unitrust within the meaning of sec_664 ruling charitable_contribution as described in sec_170 payment of which is made within the sec_170 provides that there shall be allowed as a deduction any plr-150688-06 taxable_year sec_170 provides that a contribution not made by a transfer in trust of less than the taxpayer's entire_interest in property is not allowed as a charitable_contribution_deduction except to the extent such contribution would have been allowed as a deduction had it been transferred in trust sec_170 provides that sec_170 does not apply to a contribution of an undivided portion of the taxpayer's entire_interest in property sec_1_170a-6 and sec_1_170a-7 provide that a deduction is allowed for a contribution of a partial interest in property if such interest is the taxpayer's entire_interest in the property such as an income_interest or a remainder_interest if however the property in which such partial interest exists was divided in order to create such interest and thus avoid certain provisions of sec_170 the deduction will not be allowed revrul_86_60 1986_1_cb_302 situation considers whether a donation qualifies for the charitable_contribution_deduction under sec_170 if a taxpayer a who is the grantor and life_beneficiary of a charitable_remainder_annuity_trust crat donates a's annuity interest in the crat to the remainder beneficiary of the crat in a had created a crat described in sec_664 a retained an annuity interest in the crat for life although a had previously divided the interest a held in the property the division was not to avoid sec_170 the remainder beneficiary was x a charitable_organization described in sec_170 in a transferred the annuity interest in the crat to x revrul_86_60 concludes based on sec_1_170a-6 and sec_1 170a- a i of the regulations that the gift by a the grantor to the remainder beneficiary of a's retained life_annuity in the crat qualifies for a charitable_contribution_deduction under sec_170 the present case is analogous to situation of revrul_86_60 in the present case taxpayer retained a unitrust_interest in trust which he created on d1 now taxpayer proposes to transfer a portion of his unitrust_interest to the charitable_organization a charity described in sec_170 and sec_170 unlike the situation in revrul_86_60 trust will be divided into two trusts trust a and trust b taxpayer proposes to contribute his unitrust_interest in trust b which will be segregated from trust instead of all of his interest in trust taxpayer represents that the charitable organization’s unitrust and remainder interests will merge and the charitable_organization will be entitled to an immediate distribution of the trust b corpus it is represented that taxpayer did not divide his interest in the property originally transferred to the trust to avoid the partial interest rules taxpayer now intends in effect to contribute an undivided portion of his entire current interest in the property to the charitable_organization taxpayer intends to do this by dividing trust into two plr-150688-06 trusts then contributing his interest in trust b to the charitable_organization similar to taxpayer a in revrul_86_60 taxpayer would be entitled to a charitable_contribution_deduction for a contribution of an undivided portion of his unitrust_interest in trust to the charitable_organization under the rule in sec_170 that taxpayer as trustee will divide trust before making the contribution does not adversely affect the charitable_contribution_deduction therefore taxpayer's transfer of his interest in trust b will qualify for a charitable_contribution_deduction under sec_170 the value of taxpayer's contribution under sec_170 will be the present_value of the right to receive unitrust payments as provided in trust b for a term starting on the date of the transfer of the unitrust_interest to the charitable_organization and ending on taxpayer's date of death the deduction will be subject_to any applicable limitations under sec_170 including sec_170 and subject_to any applicable limitations under other sections of the code ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible under sec_2512 if a gift is made in property the value of the property on the date of the gift is the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money_or_money's_worth the amount by which the value of the property exceeds the value of the consideration received shall be deemed a gift under sec_25_2512-5 the fair_market_value of an annuity or unitrust_interest is its present_value determined in accordance with sec_25_2512-5 sec_2522 provides that in computing taxable_gifts for the calendar_year there shall be allowed as a deduction the amount of all gifts made during such year to or for_the_use_of a corporation or trust or community chest fund or foundation organized and operated exclusively for religious charitable scientific literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_2522 disallows the gift_tax_charitable_deduction where a donor transfers an interest in property other than an interest described in sec_170 to a person or for a use described in sec_2522 and an interest in the same property is retained by the donor or is transferred or has been transferred for less than an plr-150688-06 adequate_and_full_consideration in money_or_money's_worth from the donor to a person or for a use not described in sec_2522 unless a in the case of a remainder_interest such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 or b in the case of any other interest such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly a unitrust_interest under sec_25_2522_c_-3 the present_value of a unitrust_interest is determined by subtracting the present_value of all interests in the transferred property other than the unitrust_interest from the fair_market_value of the transferred property under sec_25_2522_c_-3 the present_value of a remainder_interest in a charitable_remainder_unitrust is to be determined under sec_1_664-4 situation of revrul_86_60 considers a situation where a in creates a charitable_remainder_annuity_trust pursuant to which a retained the right to receive an annuity interest for life on a's death the trust corpus is to pass to charity in a transfers a's entire annuity interest to the charitable_remainder beneficiary following the transfer a did not retain any interest in the trust and neither at that time nor at any prior time did a make a transfer of trust property for private purposes although the transfer of the remainder_interest to charity divided a's prior interest that transfer was for charitable not private purposes consequently a's transfer of the annuity interest to charity was not required to be in a form described in sec_2522 and sec_25_2522_c_-3 in order to qualify for the charitable deduction accordingly a's transfer of the annuity interest to charity qualifies for a deduction under sec_2522 the facts in this case are similar to those described in situation of revrul_86_60 except that taxpayer intends to divide trust into trust a and trust b following the division of trust taxpayer will transfer his entire unitrust_interest in trust b to the charitable_organization and will name the charitable_organization as the remainder beneficiary of trust b thereby effectuating a merger of interests under state law after the transfer taxpayer will not retain any interest in trust b further taxpayer has not made a transfer for private purposes either before or at the time of his unitrust_interest in trust b to the charitable_organization based on the foregoing we conclude that for the year in which taxpayer transfers the entire balance of his unitrust_interest in trust b to the charitable_organization taxpayer will be entitled to a gift_tax_charitable_deduction under sec_2522 to the extent of the present_value of the unitrust_interest transferred as of the date of transfer ruling plr-150688-06 based solely on the facts and the representations submitted we conclude that no amounts should be included in taxpayer's gross_income by reason of the prior capital_gains realized by trust in connection with taxpayer's charitable_contribution of a portion of his unitrust_interest the above conclusion is based on the fact that at the time trust is divided the assets allocated to trust a and trust b must be fairly representative of the aggregate adjusted bases of the trust assets and that the division of the assets between trust a and trust b must be on a pro_rata basis with respect to each major class of investments held at the date of the division and within each class must be fairly representative of the overall appreciation or depreciation of the assets therein 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 we do not express or imply an opinion regarding whether trust otherwise qualifies as a crut under sec_664 in addition we express no opinion as to the method of determining the present_value of the unitrust_interest in trust b for purposes of calculating the amount of the income and gift_tax charitable deductions under sec_170 or sec_2522 letter is being sent to the taxpayer’s authorized representative in accordance with the power_of_attorney on file with this office a copy of this sincerely j thomas hines chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number - ------------------------------------ ----------------------------- ------------- ----------------------------------- re ------------------------------------------------------ ----------------------------------------------------- ------------------------------------ --------------------- - department of the treasury washington dc person to contact ------------------------------------------------ telephone number --------------------- refer reply to cc psi 04-plr-123436-05 date october --------------------------- legend grantor ------------------------------------------------------ spouse trust ---------------------------------------------------- ----------------------- trustee ------------------ date b ---------------------- --------------------------------------- c ---------------------------------- ----------------------------------------------- dear -------------- this is in response to a letter dated date in which you requested rulings concerning the federal estate gift and income_tax consequences of the retention and proposed exercise of a power to substitute trust assets as described below the facts are submitted and represented to be as follows on date grantor established an inter_vivos irrevocable_trust trust trust was funded with cash and marketable_securities trustee is not a descendant of grantor and is not otherwise plr-123436-05 related or subordinate to grantor within the meaning of ' c of the internal_revenue_code article sec_1 1a of trust provides that during grantor s life the trustee may distribute as much income and principal of trust to spouse as the trustee determines for any reason not prohibited by the trust agreement if grantor is not living the trustee shall distribute to spouse as much trust property as trustee determines for her health maintenance and support and may distribute as much additional trust property as trustee determines for any reason not prohibited by the trust agreement any income not distributed within days of the end of a calendar_year shall be added to principal under sec_1 1b of article spouse has the power exercisable during her lifetime to appoint trust property to any one or more of grantor’s issue in such amounts or proportions and upon such terms conditions or trusts as spouse determines however in no event may trustee make a distribution that is in lieu of any obligation of spouse to support any person article sec_1 provides that at spouse’s death the trustee shall distribute the trust property to any one or more persons or entities excluding spouse’s creditors spouse’s estate and the creditors of spouse’s estate in such amount or proportions and upon such terms conditions or trust as spouse appoints by will the trustee shall distribute any unappointed trust property to grantor’s issue per stirpes if none of grantor’s issue is then living the trustee will distribute the trust property equally among those of grantor’s siblings who are then living or to the issue per stirpes of any sibling who is then deceased article ii provides generally that spouse shall have the right to withdraw an amount equal to the value of each qualifying contribution a qualifying contribution is a contribution of principal from grantor to the trust to the extent that when added to all prior contributions from grantor during the calendar_year the total does not exceed the lesser_of i the amount of annual exclusion from gift_tax prescribed under sec_2503 or the corresponding provisions of any future internal revenue law then available to grantor with respect to spouse for such calendar_year and ii the maximum amount that may lapse under sec_2514 and sec_2041 without constituting the release of a general_power_of_appointment contributions that are not qualifying contributions are excess_contributions upon the receipt of a qualifying contribution the trustee shall give spouse notice of spouse s right to withdraw the right to withdraw terminates upon the expiration of days after the receipt of such notice in accordance with article vi sections and trustee has the power to invest dispose_of and otherwise deal with property in trust in his sole and absolute discretion without the approval or consent of any other person plr-123436-05 article vii section of trust provides that grantor may acquire any or all property constituting trust principal by substitution of other_property of equivalent value to the property acquired measured at the time of substitution the instrument provides that grantor’s power to acquire trust property under this section may only be exercised in a fiduciary capacity action in a fiduciary capacity is defined as action that is undertaken in good_faith in the best interests of the trust and its beneficiaries and subject_to fiduciary standards imposed under applicable state law grantor proposes to exercise his power of substitution under section as follows grantor will transfer shares of b a publicly traded company to trust in exchange for shares of c also a publicly traded company that are currently held in trust in addition to the extent necessary grantor either will transfer to trust or withdraw from trust cash or cash equivalents in an amount necessary such that the total value of the assets grantor is transferring to trust will be equal to the total value of the assets grantor is acquiring from the trust incident to the substitution it is represented that the value of the b stock and the c stock subject_to the exchange will be determined in accordance with sec_25_2512-2 of the gift_tax regulations grantor requests the following rulings the retention by grantor of the power of substitution will not cause the property of trust to be included in grantor s gross_estate under a b or the exercise by grantor of the power of substitution as proposed will not constitute a gift to trust by grantor for federal gift_tax purposes trust is a grantor_trust under ' in its entirety with respect to grantor neither grantor nor trust will recognize any income or loss by reason of the exercise of the power of substitution ruling_request 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_2033 provides that the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has plr-123436-05 retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income from the property sec_2036 provides in part that for purposes of ' a the retention of the right to vote directly or indirectly shares of stock of a controlled_corporation shall be considered to be a retention of the enjoyment of transferred property and for purposes of ' b a corporation shall be treated as a controlled_corporation if at any time after the transfer of the property and during the 3-year period ending on the date of the decedent's death the decedent owned with the application of ' or had the right either alone or in conjunction with any person to vote stock possessing at least percent of the total combined voting power of all classes of stock sec_2037 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend or revoke or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent's death sec_2039 provides that the value of the gross_estate shall include the value of an annuity_or_other_payment receivable by any beneficiary by reason of surviving the decedent under any form of contract or agreement if under such contract or agreement an annuity_or_other_payment was payable to the decedent during life in 65_tc_92 acq 1977_1_cb_1 under the terms of an inter_vivos_trust created by the decedent the decedent reserved the power to substitute other_securities or property for those held by the trustee provided that the property substituted was of equal value to the property replaced the court held that the decedent’s reserved power to substitute other_securities or property plr-123436-05 of equal value was not a power to alter amend or revoke the trust within the meaning of sec_2038 rather the court concluded that the requirement that the substituted property be equal in value to the assets replaced indicated that the substitution power was held in trust and thus was exercisable only in good_faith and subject_to fiduciary standards accordingly the decedent could not exercise the power to deplete the trust or to shift trust benefits among the beneficiaries in the instant case under article vii section grantor has retained the power to acquire trust property by substituting other_property of equivalent value to the property acquired measured at the time of substitution under the terms of trust the grantor’s power to acquire trust property under this section may only be exercised in a fiduciary capacity based solely on the facts and representations submitted we conclude that the retention by grantor of the power of substitution as described above will not cause the property of trust to be included in grantor’s gross_estate under sec_2033 sec_2036 sec_2036 sec_2038 or sec_2039 ruling_request sec_2501 imposes a tax on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift shall be considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than an adequate_and_full_consideration in money_or_money's_worth then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift and is included in computing the amount of gifts made during the calendar_year however under ' of the gift_tax regulations a transaction which is bona_fide at arm's length and free from any donative_intent will be considered as made for an adequate_and_full_consideration in money_or_money's_worth under ' the value of property for gift_tax purposes is the price at which such property would change hands between a willing buyer and willing seller neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts sec_25_2512-2 provides that in general if there is a market for stocks or bonds on a stock exchange in an over-the-counter market or otherwise the mean between the highest and lowest quoted selling prices on the date of the gift is the fair_market_value per share or bond plr-123436-05 in the instant case under the terms of trust grantor may substitute property of equivalent value for trust property grantor proposes to transfer shares of b stock to trust in exchange for shares of c stock that are currently held in trust it is represented that the value of the b stock and the c stock subject_to the proposed exchange will be determined in accordance with sec_25_2512-2 of the gift_tax regulations as of the date of the exchange in addition to the extent necessary grantor either will transfer to trust or withdraw from trust cash or cash equivalents in an amount necessary such that the total value of the assets grantor is transferring to trust will equal the total value of the assets grantor is acquiring from the trust incident to the substitution based solely on the facts and representations submitted we conclude that the exercise by grantor of the power of substitution as described above will not constitute a gift to trust by grantor for federal gift_tax purposes ruling_request sec_3 and sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides that the grantor shall be treated as holding any power or interest held by any individual who was the spouse of the grantor at the time of the creation of such power or interest sec_673 through specify the circumstances under which the grantor or a person other than the grantor is treated as owner of a portion of a_trust sec_677 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse or held or accumulated for future distribution to the grantor or the grantor’s spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of sec_671 to inclusive subject a grantor of a_trust to treatment as the owner thereof plr-123436-05 sec_678 provides that sec_678 shall not apply with respect to a power over income as originally granted or thereafter modified if the grantor of the trust or a transferor to whom sec_679 applies is otherwise treated as the owner under the provisions of subpart e other than sec_678 revrul_85_13 1985_1_cb_184 provides that if a grantor is treated as the owner of the entire trust the grantor is considered to be the owner of the trust assets for federal_income_tax purposes the power granted to spouse to withdraw amounts contributed to trust will result in spouse being treated as the owner of the portion of trust subject_to her withdrawal power unless as provided in sec_678 grantor is treated as the owner under the terms of trust both income and corpus are payable to spouse during grantor’s life accordingly grantor is treated as the owner of trust under sec_677 because trust is a grantor_trust under sec_677 with respect to grantor it is a grantor_trust in its entirety with respect to grantor notwithstanding the powers of withdrawal held by spouse that would otherwise make her an owner under sec_678 accordingly all items of income deductions and credits against tax of trust are included in computing the grantor’s taxable_income and credits in addition because grantor is treated as the owner of the entire trust the proposed transfer of assets of trust to grantor in exchange for other assets will be disregarded for federal_income_tax purposes therefore in accordance with revrul_85_13 neither grantor nor trust will recognize any income or loss under sec_61 or sec_1001 by reason of grantor’s exercise of the substitution power any 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 request for the ruling it is subject_to verification on examination except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code plr-123436-05 the 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 sincerely george l masnik chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc-