internal_revenue_service number release date index number ------------------------------------------ --------------------------- ---------------------------------- ------------------------------ - department of the treasury washington dc person to contact ---------------- id no ------------- telephone number --------------------- refer reply to cc psi b09 - plr-137142-03 date date -------------------------------------------------- ------------------------ ------------------- ------------------------------ ------------------------ -------------------------------- ------------------------------- ------------------ ---------------------- ------------------------ -------------------------- ------------------------ ------------------------- -------------------------------------------------------------- ---------- -------------- legend trust decedent date trustee bank child child child grandchild grandchild grandchild grandchild date court a b daughter-in-law ---------------- state state statute dear ----------------- date and subsequent correspondence requesting rulings on your behalf as trustee of the trust on the income and generation-skipping_transfer gst tax consequences of the proposed reformation and partition of the trust died on date a date prior to date survived by three children four the facts and representations submitted are summarized as follows decedent ------------ -------------------------------------------- this is in response to your authorized representative’s letter dated article seventh paragraph c of decedent’s will provides that the class of article seventh paragraph b of decedent’s will provides generally that the grandchildren and four great-grandchildren pursuant to article seventh of decedent’s last will and testament will the trust was established to provide for the health support maintenance welfare and education of decedent’s grandchildren trustees shall pay to or apply for the benefit of each grandchild so much income as the trustees in their sole and absolute discretion may elect if the income from the trust is insufficient to fully realize the purposes of the trust the trustees may pay to or apply for the benefit of each grandchild so much of the principal as the trustees in their sole and absolute discretion may determine is necessary to fully realize the purposes of the trust beneficiaries grandchildren shall remain open until the date when the first of decedent’s grandchildren reaches the age of thirty-five or until the first of decedent’s grandchildren should die leaving a child or children surviving whichever event occurs first the division date on the division date all of the principal and any accumulated income of the trust shall be divided into as many equal shares as there are then living grandchildren of decedent plus if applicable a share for the deceased grandchild who is survived by a child or children one share shall be distributed in fee simple and absolutely to the grandchild who has reached age thirty-five or if applicable to the children of the deceased grandchild in equal shares as each succeeding grandchild reaches age thirty-five his or her share shall be distributed in fee simple and absolutely in a like manner beneficiaries shall have vested and a grandchild dies prior to reaching age thirty-five leaving a child or children that grandchild’s share of the trust shall be distributed in fee simple and absolutely to said child or children in equal shares if a grandchild dies prior to reaching age thirty-five without children that grandchild’s share shall be distributed to those of decedent’s then living grandchildren share and share alike the share of any grandchild who has reached the age of thirty-five to be distributed outright and absolutely and the share of any grandchild who has not yet reached the age of thirty- five years to be added to the share of such grandchild presently held in trust and to be administered in accordance with all of the terms of the trust article seventh paragraph f of decedent’s will provides that the trustees in exercising their discretion as to whether to make distributions of income or principal shall take into consideration the other income and resources available to the beneficiary and may rely upon financial statements supplied by the beneficiary for information as to said income and resources trustees are directed to generally treat the beneficiaries equally with respect to the distribution of income and principal but the trustees may favor one beneficiary over the others if such action is deemed reasonably warranted by the trustees if compelling article seventh paragraph g of decedent’s will provides in part that the article seventh paragraph d of decedent’s will provides that if the shares of the article twelfth of decedent’s will provides the trustees with all the powers article ninth of decedent’s will provides in part that trustee hereinafter called article eleventh of decedent’s will provides in part that the day-to-day operation reasons related to the health of a beneficiary warrant it that beneficiary may be preferred with income and principal distributions even to the complete exclusion of the other beneficiaries individual trustee shall serve as trustee of any and all trusts provided for in decedent’s will if trustee predeceases decedent or for any reason fails to qualify resigns or becomes incapable of acting as trustee decedent appoints bank hereinafter called corporate trustee as substitute trustee decedent appoints his children child child and child hereinafter called co-trustees as trustees of any and all trusts provided for in decedent’s will and management of the trust shall be conducted by the individual trustee or corporate trustee as the case may be all other powers and all discretions of the trustees shall be exercised only after appropriate consultation between the co-trustees and the individual trustee or corporate trustee in the event of any disagreement the decision of a majority of the co-trustees shall be controlling granted by law and by the laws of state and by state statute the will provides that the exercise of such powers shall be in the sole and absolute discretion of the trustees and without order or license of court for the benefit of each grandchild all of the payments to the grandchildren have been made out of the general trust estate the common fund grandchild and grandchild who are siblings have required and received substantial distributions from the trust over the years while grandchild and grandchild who are also siblings have required less support from the trust the trustees sought to balance the disparate needs of the grandchildren by establishing four sub-accounts of the trust one for each grandchild periodically the trustees have equalized the common fund payments among the grandchildren by making distributions in varying amounts to the four sub-accounts each time the trustees made equalizing distributions they distributed compensating amounts to the sub-accounts established for the grandchildren who received smaller distributions during that particular period so that the total amount the trustees distributed to or for the benefit of each grandchild was equal to the total amount distributed to or for the benefit of each of the other grandchildren certain disagreements however arose among the grandchildren and their families regarding the proper construction of decedent’s will and administration of the trust on date the trustees and decedent’s grandchildren executed a settlement agreement upon receipt of a favorable letter_ruling from the service the parties will petition the court to reform the trust pursuant to the terms of the settlement agreement pursuant to the settlement agreement the trust will be modified generally to provide the trustees represent that they have kept records of all expenditures made to or each grandchild’s trust shall be administered for the primary benefit of the as follows the trustees will determine the cumulative common fund distributions to or for the benefit of each grandchild made since the last previous equalizing distribution and shall make a final equalizing distribution to the sub-accounts so that the total amount_paid or distributed over the entire term of the trust to or for the benefit of each grandchild is equal to the total amount_paid or distributed over the entire term of the trust to or for the benefit of each other grandchild the trustees shall distribute to grandchild 1’s sub-account the sum of dollar_figurea from the principal of the common fund to compensate her in full for certain medical_expenses the remaining balance of the trust estate shall then be added equally to each sub-account each asset constituting the trust estate shall be fractionalized and allocated pro-rata to each sub-account each sub-account shall thereupon become a separate grandchild’s trust particular grandchild for whom it is created the purpose of each grandchild’s trust shall be to provide for the health support maintenance welfare and education of the beneficiary grandchild the trustees of the particular grandchild’s trust shall have the power and authority described in article seventh paragraph b of decedent’s will except that i payments shall be made exclusively to or for the benefit of the beneficiary grandchild and not to or for the benefit of any of the other grandchildren ii distributions of principal out of each trust prior to the division date shall not exceed dollar_figureb per trust and iii trust accounting_income shall to the extent not distributed be accumulated as income and not added to principal constituting his or her trust shall be distributed to the beneficiary grandchild and his or her trust shall then terminate if the beneficiary grandchild dies before the division date without one or more surviving children the assets then constituting his or her trust shall be added equally to the other grandchildren’s trusts then in existence including the grandchildren’s trusts if any then in existence for after-born grandchildren if a beneficiary grandchild dies after the division date before attaining the age of thirty-five and without one or more surviving children the assets then constituting his or her trust shall be distributed in equal shares to those of decedent’s grandchildren who are born or adopted prior to the division date who are then living provided however that the share of a grandchild born or adopted prior to the division date who is then less than age thirty-five shall be added to the grandchild’s trust for that grandchild if a beneficiary grandchild dies before attaining age thirty-five with one or more surviving children the assets then constituting his or her trust shall be divided into a sufficient number of separate equal shares to provide one such share for each of his or her surviving children each such share shall be allocated to a separate trust for the benefit of a child of the beneficiary grandchild so that a separate trust a great-grandchild’s trust is created for each of them child a grandchild’s trust shall be established for the after-born grandchild each if prior to the division date a child is born or adopted by child child or when the beneficiary grandchild attains age thirty-five the assets then each great-grandchild’s trust shall be administered for the primary benefit of pre-existing grandchild’s trust shall contribute a percentage of its value toward the funding of the new grandchild’s trust the particular great-grandchild for whom it is created the purpose of each great-grandchild’s trust is to provide for the health support maintenance welfare and education of the beneficiary great-grandchild the trustees shall pay to or apply for the benefit of the beneficiary great-grandchild as much of the net_income and principal of the trust as the trustees deem necessary or appropriate to accomplish the trust purpose when the beneficiary great-grandchild attains age thirty-five the assets then constituting his or her trust shall be distributed to the beneficiary great-grandchild and his or her trust shall then terminate each beneficiary grandchild shall have the right exercisable by his or her duly probated will and exercisable solely with respect to each great-grandchild’s trust created for his or her children to accelerate the date of the terminating distribution as to all or any part of the trust if the beneficiary great-grandchild dies prior to complete distribution of the trust the remaining trust estate shall upon the death of the beneficiary great-grandchild be distributed in the following manner i the beneficiary great-grandchild shall have a testamentary general_power_of_appointment to direct the distribution of his or her trust upon his or her death to any one or more persons or entities including his or her estate provided however specific reference must be made to this power_of_appointment to effectively exercise it and ii if the beneficiary great-grandchild fails to effectively appoint some part or all of his or her trust the unappointed part shall be distributed to the estate of the beneficiary great-grandchild administrative trustee and the other of whom shall be the family_member trustee trustee shall be the initial administrative trustee of each grandchild’s trust if trustee for any reason ceases to act as the administrative trustee of any grandchild’s trust bank shall upon acceptance of this nomination become the successor administrative trustee for that trust if for any reason bank or any subsequent successor administrative trustee ceases to act as the administrative trustee of any grandchild’s trust or declines to accept its nomination or if a successor administrative trustee is removed the incumbent family_member trustee shall designate a bank or trust company as the next successor administrative trustee of that particular trust each successor administrative trustee other than bank shall be subject_to removal by the incumbent family_member trustee of the particular trust grandchild and the grandchild’s trust for grandchild daughter-in-law shall be the initial family_member trustee of the grandchild’s trust for grandchild and the grandchild’s trust for grandchild if a grandchild’s trust is created for an after-born grandchild the initial family_member trustee shall be appointed by child if the after- born grandchild is her child by child if the after-born grandchild is his child and by child shall be the initial family_member trustee of the grandchild’s trust for each grandchild’s trust shall have two trustees one of whom shall be the prior to the division date all other power and authority of the trustees shall be if for any reason the family_member trustee of a grandchild’s trust ceases to child if the after-born grandchild is her child the person making the appointment may appoint herself or himself serve as trustee child may appoint a successor family_member trustee if the vacancy arises in a grandchild’s trust for one of her children daughter-in-law may appoint a successor family_member trustee if the vacancy arises in the grandchild’s trust for grandchild or grandchild child may appoint a successor family_member trustee if the vacancy arises in a grandchild’s trust for a child of his other than grandchild or grandchild child may appoint a successor family_member trustee if the vacancy arises in a grandchild’s trust for a child of hers the parent making the appointment may appoint any person including him or herself whether or not a member of his or her family if an appointment is not effectively made the beneficiary grandchild of the grandchild’s trust in which the vacancy arises may make the appointment the beneficiary grandchild making the appointment may appoint any person older than age thirty-five whether or not a member of his or her family exercised only by joint action of the administrative trustee and the family_member trustee of the particular trust after the division date all other power and authority of the trustees shall be exercised by joint action of the administrative trustee and the family_member trustee of the particular trust if they are able to agree but if they are unable to agree then by the sole action of the family_member trustee of the particular trust probated will and exercisable solely with respect to each great-grandchild’s trust created for his or her children to i designate the initial trustees of each such trust ii designate the successor trustees or a method of selecting successor trustees of each such trust and iii designate the manner in which the duties and responsibilities of the trustees are to be shared between or among them if there are multiple trustees designated to the extent that the parent of a great-grandchild fails to exercise these rights the following default provisions shall apply administrative trustee and the other of whom shall be the family_member trustee trustee shall have the right to be the initial administrative trustee of each great-grandchild’s trust if for any reason trustee does not act as the initial administrative trustee or once having commenced acting should later cease to act bank shall upon acceptance of this nomination become the initial or successor as the case may be administrative trustee for that trust if for any reason bank or any subsequent successor administrative trustee ceases to act as the administrative trustee of any trust or declines to accept its nomination in the first instance or if a successor administrative trustee is removed the incumbent each great-grandchild’s trust shall have two trustees one of whom shall be the each beneficiary grandchild shall have the right exercisable by his or her duly the initial family_member trustee shall be appointed by child if the family_member trustee shall designate a bank or trust company as the initial or successor administrative trustee of that particular trust each successor administrative trustee other than bank shall be subject_to removal by the incumbent family_member trustee of the particular trust great-grandchild is her descendant by daughter-in-law if the great-grandchild is her descendant by child if the great-grandchild is a descendant of a child of his other than grandchild or grandchild and by child if the great-grandchild is her descendant the person making the appointment may appoint him or herself if for any reason the family_member trustee of a great-grandchild’s trust ceases to serve as trustee a successor family_member trustee shall be appointed in the following manner child may make the appointment if the vacancy arises in a great-grandchild’s trust for one of her descendants daughter-in-law may make the appointment if the vacancy arises in a great-grandchild’s trust if the beneficiary is a child of grandchild or a child of grandchild child may make the appointment if the vacancy arises in a great-grandchild’s trust for a descendant of his who is neither a child of grandchild nor a child of grandchild child may make the appointment if the vacancy arises in a great-grandchild’s trust for a descendant of hers the person making the appointment may appoint any person including him or herself whether or not a member of his or her family if an appointment is not effectively made the beneficiary of the great-grandchild’s trust in which the vacancy arises may make the appointment the beneficiary making the appointment may appoint any person older than age thirty-five whether or not a member of his or her family shall be conducted by the administrative trustee all other power and authority of the trustees shall be exercised by joint action of the administrative trustee and the family_member trustee of the particular trust if they are able to agree but if they are unable to agree then by the sole action of the family_member trustee of the particular trust be established upon the partition of the existing trust and any resulting successor great-grandchildren’s trusts will not forfeit their exemption from the gst tax imposed under sec_2601 as a result of the proposed reformation of the trust the proposed reformation of the trust will not constitute an addition to the trust or a change in the substance of the trust that will cause it to lose its exempt status under b a of the tax_reform_act_of_1986 and neither the partition of the trust nor the distribution of its assets to the newly created grandchildren’s trusts on a fractional share basis will require the recognition of gain_or_loss for federal_income_tax purposes ruling_request sec_1 and trustee requests the following rulings the trust the grandchildren’s trusts to the day-to-day operation and management of each great-grandchild’s trust sec_2601 imposes a tax on every generation-skipping_transfer gst sec_26_2601-1 provides that any trust in existence on sec_26_2601-1 provides rules for determining when a modification sec_2611 defines the term generation-skipping_transfer as a taxable_distribution a taxable_termination and a direct_skip under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation-skipping_transfer_tax provisions do not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date however this exemption does not apply if additions actual or constructive are made to the trust after date date will be considered an irrevocable_trust except as provided in sec_26_2601-1 or c which relates to property includible in a grantor’s gross_estate under sec_2038 and sec_2042 in the present case trust is considered to have been irrevocable on date because neither sec_2038 nor sec_2042 applies judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status the rules contained in sec_26_2601-1 are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if sec_26_2601-1 provides that a modification of an exempt trust sec_26_2601-1 provides that a modification of the governing the proposed modification to the trust provides among other things that if a in the present case the trust was created and became irrevocable on date the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust and there have been no additions made to the trust after date accordingly the trust is exempt from the gst tax under sec_26_2601-1 grandchild dies before attaining age thirty-five with one or more surviving children the assets then constituting his or her trust shall be divided into a sufficient number of separate shares to provide one share for each of his or her surviving children each such share shall be allocated to a separate trust for the benefit of a child of the beneficiary grandchild so that a separate trust great-grandchild’s trust is created for each of them in addition if a beneficiary great-grandchild dies prior to complete distribution of his or her respective great-grandchild’s trust the remaining trust estate shall upon the death of the beneficiary great-grandchild be distributed in the following manner i the beneficiary great-grandchild shall have a testamentary general_power_of_appointment to direct the distribution of his or her trust upon his or her death to any one or more persons or entities including his or her estate and ii if the beneficiary great-grandchild fails to effectively appoint some part or all of his or her trust the unappointed part shall be distributed to the estate of the beneficiary great-grandchild accordingly the assets of the great-grandchild’s trust will be included in the great-grandchild’s gross_estate for estate_tax purposes under sec_2041 further the great-grandchild will be treated as the transferor of the trust corpus for gst tax purposes under sec_2652 interest in the trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the modification further the modification of the trust will not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust representations made we conclude that the proposed modification complies with the provisions of sec_26_2601-1 and will not cause the trust the grandchildren’s trusts and any resulting successor great-grandchildren’s trusts to be subject_to the tax_on_generation-skipping_transfers in addition the proposed reformation of the trust will not constitute an addition to or a change in the substance of the trust in addition the proposed modification will not result in a shift of any beneficial under these circumstances and based on the facts submitted and the ruling_request in property sec_61 provides that gross_income includes gains derived from dealings sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a of the code the gain_or_loss realized from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result thereof thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 in revrul_69_486 1969_2_cb_159 distinguished by revrul_83_61 1983_1_cb_78 a non-pro rata distribution of trust property was made in_kind by the trustee although the trust instrument and local law did not convey authority to the trustee to make a non-pro rata distribution_of_property in_kind the distribution was effected as a result of a mutual agreement between the trustee and the beneficiaries because neither the trust instrument nor local law conveyed authority to the trustee to make a non-pro rata distribution revrul_69_486 held that the transaction was equivalent to a pro_rata distribution followed by an exchange between the beneficiaries and was subject_to the provisions of sec_1001 and sec_1002 in the present case decedent’s will grants broad authority to the trustees to make unequal distributions that could in fact result in non-pro rata distributions for instance article seventh of decedent’s will specifically acknowledges that the trustees may pay to or apply for the benefit of each grandchild so much of the principal as the trustees in their sole and absolute discretion may determine is necessary to fully realize the purposes of the trust article seventh paragraph f of decedent’s will provides that the trustees in exercising their discretion as to whether to make distributions of income or principal shall take into consideration the other income and resources available to the beneficiary and may rely upon financial statements supplied by the beneficiary for information as to said income and resources such language implicitly recognizes that because the financial situation of one beneficiary may differ from that of the others the trustees could make unequal distributions that would benefit a particular beneficiary more than the others moreover the language in article seventh paragraph g of decedent’s will governs the treatment of the grandchildren with respect to payments of income or principal by the trust and directs the trustees to generally treat the beneficiaries equally with respect to the distribution of income and principal but the trustees may favor one beneficiary over the others if such action is deemed reasonably warranted by the trustees this provision also recognizes the possibility of unequal and possibly non-pro rata distributions that may favor a particular beneficiary in addition article twelfth of decedent’s will grants very broad discretionary powers to the trustees including all the powers granted by law and by the provisions of the will by the laws of state and all the powers set forth in state statute and provides that the exercise of the powers shall be in the sole and absolute discretion of the trustees and without order or license of court state statute is very broad and permits the incorporation of certain powers of fiduciaries into any will or trust including the power to make distributions in cash or in_kind or partly in each at valuations to be determined by the fiduciary whose decision as to values shall be conclusive accordingly state statute and the numerous provisions of decedent’s will grant broad authority to the trustees with respect to the making of distributions such authority is what distinguishes the instant case from revrul_69_486 consequently distributions pursuant to the settlement agreement should not be treated as a pro_rata distribution followed by an exchange of assets among the beneficiaries of the trust pursuant to the settlement agreement the remaining balance of the assets of the trust will apparently be divided pro_rata and added to the four sub-accounts for distribution to each of the respective grandchild’s trusts created out of each such sub-account there would be no sec_1001 consequences of such a pro_rata division see revrul_56_437 an exchange of property results in the realization of gain_or_loss under sec_1001 if the properties exchanged are materially different 499_us_554 properties exchanged are materially different if the properties embody legal entitlements different in_kind or extent or if the properties confer different rights and powers id pincite in cottage savings the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans id pincite in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent id pincite distributions of income and principal under decedent’s will and the governing law the exercise of such powers by the trustee pursuant to the settlement agreement does not result in the beneficiaries receiving legal entitlements with respect to distributions of because of the broad scope of the trustees’ discretionary powers to make income and principal that are materially different in_kind or extent from what the beneficiaries had prior to the settlement agreement accordingly we conclude that no gain_or_loss will be recognized under sec_1001 upon the partition of the trust as provided under the above facts and circumstances the rulings contained in this letter are based upon information and except as expressly provided herein no opinion is expressed or implied representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party if there is a change in material fact or law local or federal before the transactions considered in this ruling take effect the ruling will have no force or effect 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 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed or implied with respect to the income_tax consequences of any transaction of the code provides that it may not be used or cited as precedent being sent to your authorized representative these rulings are directed only to the taxpayer requesting it sec_6110 pursuant to the power_of_attorney on file with this office a copy of this letter is sincerely katherine a mellody senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


tax_exempt_and_government_entities_division 201i lu5u of the treasury_department internal_revenue_service washington d c nov s e z p’ a tt uniform issue list joni ioe kkkkhkkkkk ka kkkkhhhh legend taxpayer a rete companya companyb kkk kkk ahhh kak amount dollar_figure wkknreaakke plan xx rna ki plan y wk ik kh dear kkk kkih this is in response to your request dated as supplemented by correspondence dated jaar eoin and te ereee in which your authorized representative requests a waiver of the -day rollover tequirement contained i in sec_402 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested for a period of time after leaving company a taxpayer a taxpayer a was employed at company a and participated in plan x which was sponsored by company a when she ended her employment with company a taxpayer a began employment with company b maintained her savings in plan x sought to roll the funds directly from plan x into plan y which was sponsored by company b on taxpayer a withdrew amount from plan x with the intent of depositing those funds into plan y the withdrawal was made in the form of a check for amount made payable to company b fbo taxpayer a representatives of plan y accepted the check as drawn provided it was endorsed for deposit only by a principal of company b taxpayer a held onto - the check until at which time it was deposited into plan y represents that amount had not been used for any other purpose after speaking with individuals from company b taxpayer a until then taxpayer a it has been represented that during calendar_year taxpayer a received a calendar_year 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc showing a plan x distribution to taxpayer a with respect to calendar_year for amount box distribution code s of said form 1099-r was coded g indicating a direct_rollover to a qualified_plan based on the above facts and representations you request a ruling that the internal_revenue_service the service waive the 60-day rollover requirement with respect to the distribution of amount contained in sec_402 of the code in this instance with respect to your ruling_request sec_402 of the code provides that except as otherwise provided in sec_402 any amount distributed out of an employees’ trust described in sec_401 that is exempt from tax under sec_501 shall be taxable to the distributee in the taxable_year of the distributee in which distributed in the manner provided under sec_72 of the code relating to annuities sec_402 of the code provides rules governing rollovers of amounts from exempt trusts to eligible retirement plans including iras sec_402 of the code provides that except as provided in subparagraph b paragraph which excludes rolled over amounts from gross_income shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed sec_402 of the code provides that the secretary may waive the 60-day requirement under sec_402 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_402 of the code sec_402 of the code provides that an eligible_rollover_distribution shall not include any distribution to the extent such distribution is required under sec_401 sec_401 of the code provides that a_trust shall not constitute a qualified_trust under this section unless the plan of which such trust is a part provides that if the distributee of any eligible_rollover_distribution -- i elects to have such distribution paid directly to an eligible_retirement_plan and ii specifies the eligible_retirement_plan to which such distribution is to be paid in such form and at such time as the plan_administrator may prescribe such distribution shall be made in the form of a direct trustee-to-trustee transfer to the eligible_retirement_plan so specified sec_401 of the code provides that for purposes of code sec_401 the term eligible_retirement_plan has the meaning given such term by sec_402 with an exception not pertinent to this ruling_request thus a direct transfer defined in code sec_401 may be made into an ira sec_1_401_a_31_-1 of the income_tax regulations question and answer-3 provides in relevant part that a direct_rollover that satisfies sec_401 is an eligible_rollover_distribution that is paid directly to an eligible_retirement_plan for the benefit of a distributee sec_1_401_a_31_-1 of the income_tax regulations question and answer-4 provides in summary that providing a distributee with a check and instructing the distributee to deliver the check to the eligible_retirement_plan is a reasonable means of direct payment as long as there is compliance with the requirements contained therein sec_1_401_a_31_-1 of the income_tax regulations question and answer-5 provides in relevant part that a direct_rollover described in code sec_401 is a distribution and rollover of the eligible_rollover_distribution and not a transfer of assets and liabilities thus for example the consent and requirements of code sec_401 sec_411 and sec_417 apply to transactions described in code sec_401 the preamble to the final income_tax regulations under code sec_401 provides in relevant part that the direct_rollover option is provided in addition to the pre-existing rollover provisions under sec_402 thus an employee who receives an eligible_rollover_distribution but does not elect a direct_rollover still has the option to subsequently roll over the distribution to an eligible_retirement_plan within days of receipt revproc_2003_16 ilr b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred in this case the service notes that taxpayer a received a plan x distribution in the form of a direct_rollover as that term is defined in code sec_401 of amounts due her from contributions and earnings from plan x the distribution check was given to taxpayer a but made out to company b fbo taxpayer a thus the check was not payable to taxpayer a and taxpayer a lacked control_over the check and could not have disposed of it the form 1099-r received by taxpayer a supports this conclusion by showing code g in box with no withholding for federal_income_tax in short taxpayer a never received a distribution subject_to the 60-day rollover requirement found in sec_402 of the code thus the service concludes as follows with respect to your ruling_request that taxpayer a’s receipt of her distribution from plan x was in the form of a direct_rollover as that term is used in sec_401 of the code and the regulations promulgated thereunder as a result it was not subject_to the 60-day rollover requirement of sec_402 of the code furthermore consistent with the language on the check which indicates that it is payable to company b fbo taxpayer a taxpayer a may place the check into plan y maintained by company b no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with the service the original of this letter_ruling is being sent to you and a copy to your authorized representative 201v405u y you wish to inquire about this ruling if at - please address all correspondence to pp please contact identification_number wananaanee sincerely yours cilbler h watkins carlton a watkins manager employee_plans technical group


internal_revenue_service number release date index number ---------------------------- --------------------------------- --------------------------- ------------------------------------ in re ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ----------------- telephone number ---------------------- refer reply to cc intl b06 plr-106079-17 date date -------------- legend ---------------------------------------------------- ------------------------- -------------------- ------------------ taxpayer company affiliate affiliate accounting firm ---------------------- date ---------------------- ------------------------ date ---------------------- date date --------------------------- dear ---- ---------------- this responds to correspondence dated date requesting that the internal_revenue_service service grant taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 to file form 4876-a election to be treated as an interest_charge_disc for taxpayer’s first taxable_year the rulings contained in this letter are based upon information and representations submitted by taxpayer and accounting firm and accompanied by affidavits and penalties of perjury statements executed by appropriate parties this office has not verified any of the materials submitted in support of the request for rulings they are subject_to verification on examination facts plr-106079-17 taxpayer is a domestic_corporation that was formed on date for the purpose of qualifying and operating as an interest charge domestic_international_sales_corporation ic-disc taxpayer is wholly owned by company and has a commission arrangement with affiliate and affiliate taxpayer retained accounting firm to assist in taxpayer’s qualification as a disc on or around date accounting firm provided copies of form 4876-a to taxpayer with instructions to sign and mail the form on or before date taxpayer failed to file form 4876-a due to an internal miscommunication and administrative error in addition taxpayer does not have in-house personnel dedicated to the administration of tax compliance and the election was unfamiliar to taxpayer taxpayer and accounting firm were unaware that taxpayer had failed to timely file form 4876-a taxpayer filed form 1120-ic-disc for taxpayer’s first taxable_year ending on date after doing so taxpayer received correspondence from the service indicating that taxpayer was ineligible to file form 1120-ic-disc because taxpayer had not filed form 4876-a as a result taxpayer has requested a ruling that grants an extension of time of days from the date of the ruling letter to file form 4876-a and that such filing will be treated as a timely election to be treated as an ic-disc for taxpayer’s first taxable_year law and analysis sec_992 of the internal_revenue_code code provides that an election by a corporation to be treated as a disc1 shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 of the code provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election temp sec_1_921-1t provides in part that a corporation electing ic- disc status must file form 4876-a and that a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year as used in this letter the terms ic-disc and disc have the same meaning plr-106079-17 sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government in the present situation the election described in temp sec_1_921-1t is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards for relief set forth in sec_301_9100-3 based on the facts and representations submitted with taxpayer’s ruling_request we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a such filing will be treated as a timely election to be treated as an ic- disc for taxpayer’s first taxable_year the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim ic-disc status or benefits see sec_301_9100-1 taxpayer should attach a copy of this ruling letter to its form 4876-a and federal_income_tax return for the taxable years to which this letter applies 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 except as expressly provided herein this letter does not express or imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-106079-17 pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representatives sincerely _____________________________________ christopher j bello chief branch office of associate chief_counsel international enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court raymond wright petitioner v commissioner of internal revenue respondent docket no 6240-01l filed date raymond wright pro_se patricia a riegger for respondent supplemental memorandum opinion vasquez judge this case is before the court on remand from the u s court_of_appeals for the second circuit for further consideration consistent with its opinion in 381_f3d_41 2d cir vacating and this opinion supplements wright v commissioner tcmemo_2002_312 vacated and remanded 381_f3d_41 2d cir remanding tcmemo_2002_312 unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure background on date in response to a payoff figure that respondent gave him for his and tax_liabilities petitioner made a voluntary payment of dollar_figure respondent applied dollar_figure to petitioner’s tax_liability this satisfied petitioner’s tax_liability in full in 126_tc_1 we held that in sec_6330 proceedings when the tax_liability for a particular year has been paid in full we lack jurisdiction to determine whether an overpayment exists or to order a refund_or_credit for that year and we must dismiss that year as moot petitioner’s case is before the court pursuant to our sec_6330 jurisdiction--it is not before the court pursuant to our sec_6404 jurisdiction see id pincite the parties do not dispute that petitioner’s tax_liability has been paid in full accordingly we shall dismiss the year as moot see id respondent applied the balance of the dollar_figure date payment to petitioner’s tax_year respondent alleges that after applying the remaining dollar_figure to petitioner’s tax_year there remained a balance due of dollar_figure which consisted solely of interest although the date payment was made during the pendency of petitioner’s appeal apparently neither party brought this payment or the satisfaction of petitioner’s tax_year to the attention of the court_of_appeals nor does it appear that the court_of_appeals took it into account furthermore the satisfaction of petitioner’s tax_year was not brought to the court’s attention until after the second trial of this case in on date the court_of_appeals issued its mandate vacating and remanding the decision of this court in remanding this case to this court for further proceedings the court_of_appeals ordered that such a proceeding should be confined to consideration of the following issues the four issues a whether petitioner’s tax_refund was sent to him by the internal_revenue_service irs in b if not whether petitioner timely received notice from the irs that his refund had not been applied to his and tax deficiencies c if not whether petitioner’s current tax_liability should be consequently adjusted by inter alia an abatement of interest pursuant to sec_6404 and d in any case whether the current interest abatement that petitioner had already received was correct in the light of the irs’s failure to give petitioner the appropriate withholding credits for and and his date payment of dollar_figure on date the court ordered the parties to file on or before date written status reports in which the parties were to advise the court of their positions regarding the appropriate means for this court to implement the mandate of the court_of_appeals on date respondent filed his status report and on date petitioner filed his status report with a service date of date in his date status report respondent stated that he was awaiting detailed transcripts of petitioner’s tax accounts to address the four issues as outlined in the mandate of the court_of_appeals on date the court again ordered the parties to file on or before date written status reports in which the parties were to advise the court of their positions regarding the appropriate means for this court to implement the mandate of the court_of_appeals on date respondent filed his status report and on date petitioner filed his status report with a service date of date in his date status report respondent stated that he had forwarded to petitioner copies of petitioner’s transcripts of accounts which addressed the four issues as outlined in the mandate of the court_of_appeals he had asked petitioner to contact him as soon as possible to discuss the same petitioner had not contacted respondent and respondent was preparing computations pursuant to rule for petitioner to review in his date status report petitioner alleged that inappropriate ex_parte communications had taken place between the court and respondent complained about the date petitioner’s date status report was filed alleged that the court_of_appeals made conclusions regarding the four issues outlined in its mandate rather than remanding the four issues for further proceedings and stated that he received on date copies of his transcripts of accounts that respondent had forwarded to him despite being ordered by the court twice to advise the court of their positions regarding the appropriate means for this court to implement the mandate of the court_of_appeals neither party advised the court what further proceedings he believed were necessary to implement the mandate of the court_of_appeals from the submitted status reports it appeared to the court that in order to implement the mandate of the court_of_appeals a trial with the presentation of testimonial and documentary_evidence might be required accordingly on date upon due consideration of and in order to implement the mandate of the court_of_appeals which remanded this case to this court for further proceedings and for cause the court ordered a the parties to file status reports outlining proposed schedules for the preparation of this case for trial in order to advise the court regarding the appropriate means for this court to implement the mandate of the court_of_appeals b that the proposed schedules shall include dates for filing any dispositive motions on any issue completing of all discovery requests and requests for admissions taking into account the scope of the requests and the responses required and to permit timely responses to be served and if required filed filing all motions to compel stipulation filing all motions to compel discovery filing any motions with respect to the conduct of the trial filing motions in limine exchanging by the parties initial listings of transcripts stipulations and documents that they would like considered by the court during remand proceedings providing the court complete identification of the parts of the record transcripts stipulations of fact and documents that have previously been marked as part of the record in this case that the parties would like to be considered during remand proceedings and filing and completion of any other matters required to prepare for trial c that the parties advise the court whether they believed that a trial of this case will be necessary that the case may be disposed of by a motion for summary_judgment or that the case may be submitted fully stipulated pursuant to rule d that respondent’s and petitioner’s status reports shall be limited to discussing their proposed schedules for the preparation for trial of this case and advising the court whether they believe that a trial of this case will be necessary that the case may be disposed of by a motion for summary_judgment or that the case may be submitted fully stipulated pursuant to rule in order for this court to implement the mandate of the court_of_appeals and e that the status report shall not include any arguments addressing the merits of four issues remanded to this court for further proceedings respondent’s status report was due on or before date petitioner’s status report was due on or before date on date respondent filed his status report with the court on date petitioner filed his status report with the court petitioner and respondent agreed that further trial was not necessary and that this case could be disposed of by a motion for summary_judgment the parties advised the court that they each would file a motion for summary_judgment by date on date the court ordered the parties to file any motions for summary_judgment on or before date on date respondent filed a motion for summary_judgment an affidavit in support of respondent’s motion for summary_judgment from marie e small and a declaration of jeanne moisa court witness coordinator in support of respondent’s motion for summary_judgment with attached exhibit a certificate of assessments payments and other specified matters for petitioner’s and tax years and exhibit b certificate of assessments payments and other specified matters for petitioner’s and years that same day petitioner filed a motion to submit case under rule on date petitioner filed a motion for summary_judgment with attached exhibits transcripts and a letter on date the court denied respondent’s above- referenced motion for summary_judgment petitioner’s above- referenced motion for summary_judgment and petitioner’s above- referenced motion to submit case under rule on date petitioner filed a motion for reconsideration of the court’s date order denying his motions for summary_judgment and to submit the case without trial under rule on date the court denied this motion we stated that at some time it might have been possible for the parties to settle this matter after an informal meeting and exchange of information see 61_tc_691 that it also might have been possible for the parties to submit pursuant to rule the evidence necessary to allow the court to implement the mandate of the court_of_appeals and that although the court gave the parties ample opportunity to resolve this case without additional trial from the motions and status reports submitted by the parties it was evident to the court that in order to implement the mandate of the court_of_appeals a trial with the presentation of testimonial and documentary_evidence would be required additionally the court ordered petitioner and respondent to present at the trial testimonial and documentary_evidence to establish whether the irs sent petitioner his tax_refund in if not whether petitioner timely received notice from the irs that his refund had not been applied to his and tax deficiencies if not whether petitioner’s current tax_liability should be consequently adjusted by an abatement of interest pursuant to sec_6404 whether the current interest abatement that petitioner had already received was correct in the light of a the irs’s failure to give petitioner the appropriate withholding credits for and and b petitioner’s date payment of dollar_figure and how respondent computed the interest for the years in issue furthermore the court ordered the case set for further trial at a special session of the court that was to commence on date and advised the parties that the court would not be inclined to grant any continuances in this case additionally the court ordered the parties to identify the parts of the record transcripts stipulations of fact and documents that previously had been marked as part of the record in this case and that the parties would like to be considered during remand proceedings the court also ordered that the evidence and argument presented in all subsequent filings with the court and at the trial that was to be held during the date special session should be confined to the four issues as outlined in the mandate of the court_of_appeals on date despite the court’s statement in the date order that we would not be inclined to grant any continuances in this case respondent filed a motion for continuance of trial on date after giving petitioner the opportunity to file an objection which he filed on date we denied respondent’s motion for continuance of trial on date petitioner filed a motion to sanction respondent’s counsel a motion to strike and a motion to require respondent to file motion to withdraw or substitution of counsel on january and the court conducted further trial of the case on date petitioner filed a motion for mistrial or in the alternative to enforce court rules on withdrawal and substitution of counsel and other remedies the court took this motion and the three motions petitioner filed on date under advisement on date respondent filed his opening brief and on date petitioner filed his opening brief on date respondent filed his reply brief and on date petitioner filed his reply brief on date on account of our ongoing review of this case we ordered respondent to file on date a status report stating and containing documentation to support whether petitioner’s liability had been fully paid as of that date and if not the amount of petitioner’s outstanding balance for as of that date furthermore we ordered petitioner to file on or before date a reply to respondent’s status report stating whether petitioner agreed with respondent’s status report or if petitioner disagreed with respondent’s status report stating and containing documentation to support whether his liability had been fully paid as of date and if not the amount of his outstanding balance for as of that date in his date status report respondent stated that petitioner’s balance due for as of date was dollar_figure that petitioner had paid his tax and additions to tax for in full and that the balance due was interest on date petitioner paid dollar_figure towards his tax_year on the basis of an irs employee’s misstatement that this amount would pay his balance in full the payment however resulted in a credit balance of dollar_figure being reflected on petitioner’s account petitioner’s account balance however mistakenly did not include dollar_figure of interest due in addition to the dollar_figure as of date respondent admitted that pursuant to sec_301_6404-2 example proced admin regs quoting petitioner an incorrect balance due was a ministerial error on date respondent issued petitioner an erroneous refund of dollar_figure for and on date petitioner’s account reflected a balance due of dollar_figure discussion the extended proceedings of this case recounted supra have brought to light the numerous misstatements and errors made by respondent through the handling of petitioner’s and tax years for example respondent represented to the court that as of the date of the filing of his reply brief following the trial of this case in respondent had abated the interest associated with petitioner’s withholding credit for wright v commissioner tcmemo_2002_312 n on the basis of respondent’s proffer we stated the record does not contain evidence that the aforementioned interest has been abated therefore we will incorporate respondent’s concession of this issue into our decision id respondent’s proffer to the court however was a misstatement as the court_of_appeals stated we also observe that wright was entitled to receive an additional interest abatement based on the irs’s failure to give him a proper withholding credit of dollar_figure in the tax court’s decision stated that the irs had represented that statutory interest related to this withholding credit would be abated wright ii tax ct memo lexi sec_332 at n wl although the irs assures us that an interest abatement has been credited to wright for this withholding credit it has made no effort either to substantiate this claim in the appellate record or even to describe the amount of the abatement wright v commissioner f 3d pincite n during the appeal and remand respondent and respondent’s witnesses recounted numerous errors regarding the handling of petitioner’s and tax years--and oftentimes neither respondent nor the witness could account for how those errors occurred as recently as his date status report respondent essentially admitted that the irs made mistakes regarding the computation of petitioner’s interest including but not limited to quoting petitioner an incorrect payoff figure and sending petitioner an allegedly erroneous refund on account of respondent’s erroneous calculations and a keystroke error by an irs employee another example is contained in respondent’s opening brief and his date status report in his opening brief respondent alleged that as of date the amount of the court_of_appeals stated the irs seemed equally unsure about several basic and crucial facts the parties' confusion is understandable the relevant timeline and tax amounts have been reconstructed using photocopied forms computer screen printouts and dot-matrix printouts of tax account balances many of these records have no supporting explanation and therefore are inscrutable to any non-employee of the irs many are from time periods that are not the same and even the documents that are from similar time periods often contain amounts that are inexplicably contradictory this 21-r report is a computer screen printout of approximately twenty lines of abbreviations alphanumeric codes dates and digits that are indecipherable to us without additional explanation 381_f3d_41 2d cir vacating and remanding tcmemo_2002_312 the court_of_appeals also noted that it had doubts inspired by the irs’s past calculation errors against wright’s account id pincite interest systematically and manually assessed for on petitioner’s tax account after an alleged abatement of interest was dollar_figure in his date status report respondent alleged that as of that date the outstanding balance due ie interest due on petitioner’s tax account was dollar_figure petitioner’s testimony at both trials was credible he consistently testified and averred that he did not receive his refund respondent contended however that petitioner received his refund in the documentary and testimonial evidence respondent offered was contradictory contained numerous errors and lacked credibility furthermore this contention is a concession by respondent that petitioner was correct and that respondent did not send the refund to petitioner in accordingly with regard to the first question posed by the court of appeals--whether the irs sent petitioner his tax_refund in 1994--we conclude that it did not furthermore we conclude that respondent never sent petitioner his refund for in his date motion for summary_judgment respondent did not answer the second and third questions posed by the court of appeals--if not whether petitioner timely received notice from the irs that his refund had not been applied to his and tax deficiencies and if not whether petitioner’s current tax_liability should be consequently adjusted by inter alia an abatement of interest pursuant to sec_6404 with regard to the second question posed by the court of appeals--if not whether petitioner timely received notice from the irs that his refund had not been applied to his and tax deficiencies--we conclude on the basis of petitioner’s credible_evidence respondent’s admissions and the lack of credibility of the documentary and testimonial evidence respondent offered--which was contradictory and contained numerous errors--that petitioner did not receive notice from the irs that his refund had not been applied to his and tax deficiencies with regard to the third question posed by the court of appeals--if not whether petitioner’s current tax_liability should be consequently adjusted by inter alia an abatement of interest pursuant to sec_6404 e --we conclude on the basis of petitioner’s credible_evidence respondent’s admissions and the lack of credibility of the documentary and testimonial evidence respondent offered--which was contradictory and contained numerous errors--that petitioner’s current tax_liability should be adjusted by abating the interest for pursuant to sec_6404 since petitioner has repeatedly asked respondent for a payoff figure so that he could pay the liabilities at issue in full when he received a payoff figure from respondent he paid that amount in his date status report respondent admitted that on date petitioner was quoted an incorrect payoff figure and this was a ministerial error pursuant to the regulations see also 112_tc_230 douponce v commissioner tcmemo_1999_398 accordingly we conclude that for interest from date to the present shall be abated we note however that we lack jurisdiction to determine whether an overpayment exists or to order a refund_or_credit for to the extent that the amount of the abatement of interest exceeds the amount remaining unpaid for see 126_tc_1 with regard to the fourth question posed by the court of appeals--in any case whether the current interest abatement that petitioner had already received was correct in light of the irs’s failure to give petitioner the appropriate withholding credits for and and his date payment of dollar_figure--on the basis of petitioner’s credible_evidence respondent’s admissions and the lack of credibility of the documentary and testimonial evidence offered by respondent which was contradictory and contained numerous errors that respondent has failed to establish that the current interest abatement is correct as a final matter we shall deny petitioner’s outstanding motions to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service index nos ruling release date cc ebeo - plr-113381-98 date corporation c plan dear this responds to a request for a supplemental ruling you submitted in a letter dated date on behalf of corporation c concerning the tax law impact of c’s proposed election of the participation option relating to certain group annuity_contracts these contracts relate to a nonqualified_deferred_compensation_plan and the associated grantor_trust established by c some years ago to provide nonqualified supplemental retirement benefits to certain highly compensated and key management employees pursuant to the plan in date this office issued a ruling letter ltr tr-31- concluding that c’s plan and trust deferred the inclusion in a participant’s income of certain compensation until received or made available the plan was later amended subsequently c purchased these annuity_contracts to provide security for amounts previously recorded in the bookkeeping accounts of its nonqualified_deferred_compensation_plan the plan and set_aside in the associated grantor_trust providing nonqualified supplemental retirement benefits to certain highly compensated and key management employees pursuant to the plan after receiving a private_letter_ruling issued by this office ltr plr-75389-96 in ltr this office concluded that generally participants entitled to benefit under the purchased annuity_contracts had to include in their income the purchase_price for the contract benefits plus the gross-up payment made by c in the year of the contracts’ purchase and payment and that c was entitled to deduct the purchase_price plus the gross-up payments in that year your letter indicates that the annuity_contracts c purchased were originally non-participating contracts which included an option for c to elect the participation option at a later time and that the presence of the participation option did not affect the price at which c purchased such contracts the letter explains that if c elects the participation option c will receive rebates from the insurance_company that issued the annuity_contracts if the level of reserves backing such contracts exceeds the required level determined pursuant to these contracts due to favorable investment mortality or retirement-date experience conversely if after c makes the participation election the necessary reserves dip below the required minimum due to unfavorable experience c would have to make a payment to the insurer in an amount needed to restore the reserves backing these contracts to the required minimum level your letter represents that c’s participation election has absolutely no effect upon the amounts which the plan’s participants and their beneficiaries would be entitled to receive under the plan and the annuity_contracts the plan now secured_by the contracts provides for the payment of deferred benefits to a participant or his beneficiary in the time and the manner prescribed under such plan upon the participant's death retirement or other termination of employment after receiving ltr company c purchased group annuity_contracts securing the promised benefits accrued to date for the plan’s participants and their beneficiaries pursuant to the arrangement participants whose benefits were secured_by the annuity_contracts received contract certificates representing their interests in such contracts every participant whose benefits were secured_by these contracts received a tax gross-up payment from c for his or her approximate income_tax_liability due to his or her receipt of the contract certificate sec_83 of the internal_revenue_code provides that the excess if any of the fair_market_value of property transferred in_connection_with_the_performance_of_services over the amount_paid if any for the property is includible in the gross_income of the person who performed the services for the first taxable_year in which the property becomes transferable or is not subject_to a substantial_risk_of_forfeiture sec_1_83-3 of the income_tax regulations provides that for purposes of sec_83 the term property does not include an unfunded and unsecured promise to pay money or property in the future however the term property does include a beneficial_interest in assets including money transferred or set_aside from claims of the transferor's creditors for example in a_trust or escrow account sec_403 of the code states that premiums_paid by an employer for a nonqualified_annuity contract shall be included in the employee’s gross_income in accordance with sec_83 except that the value of such contract shall be substituted for the fair_market_value of the property for purposes of applying sec_83 sec_1_403_c_-1 of the regulations provides that if an employer pays premiums for a nonqualified_annuity contract for the benefit of an employee the amount of such premiums shall be included as compensation in the employee’s gross_income for the taxable_year during which such premiums are paid but only to the extent that the employee’s rights in such premiums are substantially_vested as defined in sec_1_83-3 at the time such premiums are paid sec_451 of the code and sec_1_451-1 of the regulations provide that an item_of_gross_income is includible in gross_income for the taxable_year in which actually or constructively received by a taxpayer using the cash_receipts_and_disbursements_method of accounting under sec_1_451-2 of the regulations income is constructively received in the taxable_year during which it is credited to the taxpayer’s account set apart or otherwise made available so that the taxpayer may draw on it at any time however income is not constructively received if the taxpayer’s control of its receipt is subject_to substantial limitations or restrictions various revenue rulings have considered the tax consequences of nonqualified_deferred_compensation arrangements revrul_60_31 situations 1960_1_cb_174 holds that a mere promise to pay not represented by notes or secured in any way does not constitute receipt of income within the meaning of the cash_receipts_and_disbursements_method of accounting see also revrul_69_650 1969_2_cb_106 and revrul_69_649 1969_2_cb_106 under the economic_benefit_doctrine an employee has currently includible income from an economic or financial benefit received as compensation though not in cash form economic benefit applies when assets are unconditionally and irrevocably paid into a fund or trust to be used for the employee’s sole benefit 16_tc_244 aff’d per curiam 194_f2d_541 6th cir revrul_60_31 situation_4 in revrul_72_25 1972_1_cb_127 and revrul_68_99 1968_1_cb_193 an employee does not receive income as a result of the employer’s purchase of an insurance_contract to provide a source of funds for deferred_compensation because the insurance_contract is the employer’s asset subject_to claims of the employer’s creditors provided that c’s election of the annuity contracts’ participation option neither increases nor decreases the amounts payable under such contracts to the plan’s participants and their beneficiaries and based upon the information and documents submitted we conclude as follows neither the exercise of the participation option under the annuity_contracts nor participation payments from the insurer to company c nor participation payments from c to the insurer will result in the current inclusion of any amount in income by the participants under the plan and their beneficiaries this ruling is directed only to the taxpayer who requested it and it applies only to the above-described plan annuity_contracts c’s proposed participation election and the participants and beneficiaries under the plan in addition no opinion is expressed regarding the tax consequences of any significant revision to the plan or annuity_contracts other than c’s election of the participation option described above your requested rulings concerning the application of sec_61 and sec_162 to the above-described transaction as impacting on corporation c will be the subject of a separate letter sec_6110 of the code provides that this ruling may not be used or cited as precedent except as specifically ruled on above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the code moreover if either the plan or the annuity_contract arrangement are further and significantly revised this ruling may not necessarily remain in effect sincerely yours robert d patchell assistant chief branch office of the associate chief_counsel employee_benefits and exempt_organizations


internal_revenue_service department of the treasury index number 468a 468a washington dc person to contact telephone number refer reply to cc dom p si-6 ate aug plr-105868-99 re request for a revised schedule of ruling amounts taxpayer parent plant location commission a commission b district fund dear this letter responds to the request of taxpayer dated date and supplemental information submitted on behalf of taxpayer for a revised schedule of ruling amounts in accordance with sec_1_468a-3 of the income_tax regulations taxpayer was previously granted a revised schedule of ruling amounts on date information for the schedule of ruling amounts was submitted on behalf of the taxpayer pursuant to sec_1_468a-3 taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer is percent owned by parent and files a consolidated federal_income_tax return with parent taxpayer has a direct ownership_interest of as a tenant-in-common with other electric utility companies in plant which is situated at location percent ol sy plr-105868-99 taxpayer is under the audit jurisdiction of the district_director of district plant's taxpayer is subject_to the jurisdiction of commission percent of the taxpayer's total electric sales and commission b operating license expires in a which covers percent these percentages may vary which covers slightly from year to year the estimated base cost for decommissioning the plant is based on an independent study and is premised on the prompt removal immediate dismantlement method percent for a total of commission a in docket no effective authorized nuclear decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes for the plant in the amount of tax_rate of return on assets of estimated cost of decommissioning to be escalated using an estimated inflation rate of decommissioning cost of after taking into consideration the tax and investment changes made to sec_468a of the internal_revenue_code made by of the energy policy act of amounts for commission b are not specifically reviewed herein percent the commission also determined the total percent results in an estimated future these rates were not estimated and estimated an after- this base cost there are no proceedings pending before either commission a or commission b that may result in an increase or decrease in the amount of decommissioning costs for the plant to be included in taxpayer's cost of service for ratemaking purposes the funding_period and level_funding limitation period for the plant extends from the estimated period for which the fund will be in effect is the estimated_useful_life of the plant is pursuant to sec_1_468a-8 of the regulations the qualifying percentage is based upon the percentage of the remained to be recovered as of date the amount of the original depreciation costs is date is percentage to be thus the taxpayer has calculated its qualifying and the amount remaining to be recovered as of vintage depreciation costs that percent sec_468a of the internal_revenue_code provides that a taxpayer may elect to deduct the amount of payments made to a qualified nuclear decommissioning fund however sec_468a limits the amount_paid into the fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to the fund that is included in the taxpayer's cost of service for ratemaking purposes for the taxable_year or the ruling_amount applicable to that year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any taxable_year is defined under sec_468a as the amount which the secretary 25s plr-105868-99 determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the taxable_year if the payment is made on account of the taxable_year within months after the close of the taxable_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 is a taxpayer that has a qualifying interest in a nuclear power plant as defined under sec_1_468a-1 a qualifying interest is among other things a direct ownership_interest including an interest held as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any taxable_year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such taxable_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such taxabie year sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the taxable years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission s in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes taking into account amounts that are otherwise required to be included in the taxpayer's income under sec_88 of the code and the regulations thereunder each schedule of ruling amounts shal be based on the public_utility commission's reasonable assumptions concerning i the after-tax rate of return to be earned by the amounts collected for decommissioning ii the total estimated cost of decommissioning the nuclear power plant and iii the frequency of contributions to the nuclear decommissioning fund for a taxable_year plr-105868-99 sec_1_468a-3 of the regulations requires the internal_revenue_service to provide a schedule of ruling amounts that is identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of this section sec_1_468a-3 of the regulations provides that the ruling_amount specified in a schedule of ruling amounts for any taxable_year in the level_funding limitation period shall not be less than the ruling_amount specified in such schedule for any earlier taxable_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the funding_period for a nuclear decommissioning fund is the period that begins on the first day of the first taxable_year for which a deductible payment is made or deemed to be made to such nuclear decommissioning fund and ends the later of i the last day of the taxable_year that includes the estimated date on which decommissioning costs of the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer's cost of service for ratemaking purposes or ii the last day of the taxable_year that includes the estimated date on which the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning the plant multiplied by the taxpayer's qualifying interest in the plant of plr-105868-99 sec_1_468a-3 of the regulations provides that the qualifying percentage for any nuclear decommissioning fund is equal to the fraction the numerator of which is the number of taxable years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of taxable years in the estimated_useful_life of the applicable nuclear power plant sec_1_468a-3 of the regulations provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that if two or more public_utility commissions establish or approve rates for electric energy generated by a single nuclear power plant then the schedule of ruling amounts shall be separately determined pursuant to the rules of sec_1_468a-3 through e for each public_utility commission that has determined the amount of decommissioning costs to be included in the cost of service for ratemaking purposes for this plant under sec_1_468a-3 this separate determination shall be based on the reasonable assumptions and determinations used by the relevant public_utility commission and shall take into account only that portion of the total estimated cost of decommissioning that is properly allocable to the ratepayer whose rates are established or approved by the public_utility plr-105868-99 - commission according to sec_1_468a-3 the ruling amounts for any taxable_year is the sum of the ruling amounts for such taxable_year determined under the separate schedules of ruling amounts sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant to which the nuclear decommissioning fund relates has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 of the regulations enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 of the regulations provides that a taxpayer is required to request a revised schedule of ruling amounts for a nuclear decommissioning fund if a any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by a nuclear power plant to which the nuclear decommissioning fund relates increases the proposed period over which decommissioning costs of the nuclear power plant will be included in cost of service for ratemaking purposes adjusts the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes or reduces the amount of decommissioning costs to be included in cost of service for any taxable_year and b the taxpayer's most recent request for a schedule of ruling amounts did not provide notice to the service of such action by the public_utility commission sec_1_468a-3 of the regulations provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year of sf plr-105868-99 we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in the sec_468a of the code and the regulations thereunder the following conclusions based solely on these representations of the facts we reach taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commission a has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations taxpayer has determined that pursuant to sec_1_468a-3 of the regulations the qualifying percentage is percent taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commission a and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund the maximum amount of cash payments made or deemed made to the fund during any taxable_year is restricted to the lesser amount of the decommissioning costs applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 b of the regulations taxpayer subject_to the jurisdiction of two public_utility commissions for ratemaking purposes has calculated its share of the total allocable decommissioning costs as required by sec_1_468a-3 of the regulations based on the above determinations we conclude that the taxpayer's proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code plr-105868-99 approved schedule of ruling amounts taxable_year commissions a and b year comm a comm b' total approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time this ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code as stated above payments made to the fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to the fund or the ruling amounts applicable to the fund in the taxable_year this letter_ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that this ruling may not be used or cited as precedent pursuant to the power_of_attorney on file with this office the original of this letter is being sent to the authorized legal_representative - ' amounts for commission b are not specifically reviewed herein and are merely reprinted to arrive at the amount for the total annual ruling_amount for purposes of the review and revision under sec_1_468a-3 of the regulations the date of the schedule of ruling amounts approved by the service on date governs the review period for the commission b ruling amounts plr-105868-99 pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each taxable_year in which the taxpayer claims a deduction for payments made to the fund sincerely yours signed deter c selman peter c friedman assistant to the branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy