internal_revenue_service number release date index number ----------------------- -------------------------- ------------------------------------- attn ---------------------- ------------------- ------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc ita b02 plr-130425-17 date date ty date legend taxpayer date date date date date a b c d dear ------------------- ---------------------------------------------- ---------------------------- ---------------------------- ----------------------- ------------------- -------------------- ----- --------------- ----------------------- ----------------------------------------------- this is in response to your letter dated date requesting permission to file a copy of the request to use the alternative_cost_method with the a director for the region of your principal_place_of_business for your taxable_year ending date the copy of the request to use the alternative_cost_method was not timely filed with the a director for the region of your principal_place_of_business although it was required in order for taxpayer to use the alternative_cost_method of accounting in conformity with the requirements of revproc_92_29 1992_1_cb_748 the request is made in accordance with sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations facts taxpayer represents the following plr-130425-17 taxpayer is a b real_estate builder and developer taxpayer files a consolidated federal_income_tax return taxpayer sold the initial home in one or more communities under development in the taxable_year beginning date and ending date taxpayer used the alternative_cost_method described in sec_4 of revproc_92_29 to compute the gain_or_loss on the homes sold in those communities during the year on its federal_income_tax return for the taxable_year ending date taxpayer filed its original federal_income_tax return for the taxable_year ending date on date taxpayer intended to determine the estimated cost of common improvements with regard to the ten-taxable year horizon as defined in section dollar_figure of revproc_92_29 taxpayer attached the following to its return for the taxable_year ending date i a request to use the alternative_cost_method on a project-by-project basis and ii a form_921 consent to extend the time to assess income_tax extending the period of limitation on the assessment of tax with respect to the use of the alternative_cost_method on a project-by-project basis taxpayer failed to file a duplicate of the request to use the alternative_cost_method with the a director for the region of its principal_place_of_business on or before the due_date of the return including extensions for the taxable_year ending date taxpayer’s c completed the duplicate request but failed to timely mail it taxpayer was in the process of d at the time the request was due and inadvertently misplaced the request taxpayer’s c discovered this oversight on date taxpayer represents that other than timely filing a duplicate copy of the request with the a director it qualifies to use the alternative_cost_method law revproc_92_29 1992_1_cb_748 provides rules for the treatment of common improvement costs and an automatic procedure for developers to follow to use the alternative_cost_method generally consent to use that method is conditioned on the following the developer must be contractually obligated or required_by_law to provide the common improvements and the cost of the common improvements must not be properly recoverable through depreciation by the developer the developer must file a request to use the alternative_cost_method on a project- by-project basis in accordance with the procedures set forth in section of revproc_92_29 these procedures include a requirement to file the request with the district_director for the internal_revenue_district in which is located the principal_place_of_business of the person required to make the return on or before the due_date of the developer’s original federal_income_tax return determined with regard to extensions of time for the taxable_year in which the first benefitted property in the project is sold plr-130425-17 the developer must sign a consent extending the period of limitation on the assessment of income_tax with respect to the use of the alternative_cost_method on a project-by-project basis as described in section of revproc_92_29 the developer must file an annual_statement for each project for which the developer has received permission to use the alternative_cost_method in accordance with section of revproc_92_29 the developer must file a supplemental request for each project if required pursuant to section of rev_proc taxpayer requests permission with this ruling_request to file a copy of the request to use the alternative_cost_method with the a director for the region of its principal_place_of_business sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines a regulatory election as 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 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for extensions of time for regulatory elections other than automatic changes covered under sec_301_9100-2 will be granted when the taxpayer provides evidence including affidavits described in the regulations to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer -- i requests relief before the failure to make the regulatory election is discovered by the internal_revenue_service irs ii failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the irs or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election plr-130425-17 sec_301_9100-3 provides that a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer -- i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the irs will not ordinarily grant relief sec_301_9100-3 provides that the commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the government will not be prejudiced by the granting of relief the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer's receipt of a ruling granting relief under this section sec_301_9100-3 provides special rules for accounting_method regulatory elections sec_301_9100-3 provides that the interests of the government are deemed prejudiced except in unusual or compelling circumstances if the accounting_method regulatory election for which relief is requested is subject_to the advance consent procedures for method changes requires a sec_481 adjustment would permit a change from an impermissible method_of_accounting that is an issue under consideration by examination or in any other setting and the change would provide a more favorable method or more favorable terms and conditions than if the change were made as part of an examination or provides a more favorable method_of_accounting or more favorable terms and conditions if the election is made by a certain date or taxable_year ruling based upon our analysis of the facts and representations provided taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government therefore the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file the copy of the request to use the alternative_cost_method with the a director for the region of its principal_place_of_business for its taxable_year ending date plr-130425-17 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter no opinion is expressed as to the federal tax treatment of the transaction under any other provisions of the internal_revenue_code and the treasury regulations that may be applicable or under any other general principles of federal income_taxation this letter_ruling is only applicable to matters under our jurisdiction see revproc_2018_1 2018_1_irb_1 sec_3 no opinion is expressed as to the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above ruling in particular no opinion is expressed as to whether taxpayer qualifies to use the alternative_cost_method this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination enclosed is a copy of this letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 we are sending a copy of this letter to the appropriate operating division director sincerely ______________________________ bridget e tombul branch chief branch office of the associate chief_counsel income_tax accounting enc copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------- ----------- ----------- ------------------- ----------- ----------------------------- ----------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp b04 plr-133233-06 date date ------------- ------------------- legend distributing ---------------------------------------------------------------------------- controlled ---------------------------------------------------------------------------- newholdco ---------------------------- ---------------------------------------------------------------- newholdco ---------------------------------------------------------------------------- newholdco ---------------------------------------------------------------------------- sub ---------------------------------------------------------------------------- sub -------------------------------------- ---------------------------------------------------------------------------- sub ---------------------------------------------------------------------------- sub -------------------------------- ----------------------------- --------------------------- -------------------- ----------------------------------------------- ------------------- -------------------- --------------------- ------------------------- ------------------------- ---------------------------- ------------------------------- plr-133233-06 ---------------------------------------------------------------------------- sub ---------------------------------------------------------------------------- sub ---------------------------------------------------------------------------- sub ---------------------------------------------------------------------------- sub ---------------------------------------------------------------------------- business a business b jurisdiction y jurisdiction z a currency a business a group business b group debt c --------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- debt d --------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- e dear ------------ federal_income_tax consequences of the transaction defined below the information provided in that letter and in later correspondence is summarized below this letter responds to your date letter requesting rulings on certain --------------------- ----------------- ---------------- --------- --------- -------- the rulings contained in this letter are based on facts and representations plr-133233-06 submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process moreover no information provided by the taxpayer has been reviewed and no determination has been made regarding whether the transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 summary of facts distributing a foreign_corporation was the parent of a corporate group which included domestic and foreign_corporations engaged in various businesses including business a and business b the distributing group distributing had one class of stock outstanding which was widely held by both foreign and domestic public shareholders we have received financial information indicating that business a and business b have had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years distributing determined for valid business reasons to separate business a and business b by means of a jurisdiction y de-merger which is described below specifically the separation was intended to i facilitate the raising of capital on the public markets through a public offering involving newholdco a newly-formed jurisdiction z holding_company which indirectly conducts business b ii increase the aggregate stock value of business a and business b following the separation as compared to the combined stock value of both businesses prior to the separation thereby enabling each business to more efficiently acquire needed assets and needed services with its stock and iii enhance the ability of the two businesses to attract retain and properly incentivize key employees preliminary restructuring after the preliminary restructuring and immediately prior to the transaction distributing owned percent of the issued and outstanding_stock of each of sub and sub each a foreign_corporation sub owned percent of the issued and outstanding_stock of sub a foreign_corporation sub owned to facilitate the separation of the business distributing engaged in an internal plr-133233-06 percent of the issued and outstanding_stock of sub also a foreign_corporation sub directly conducted business a sub owned all of the issued and outstanding_stock of sub sub owned all of the issued and outstanding_stock of sub sub owned all of the issued and outstanding_stock of sub sub owned all of the issued and outstanding_stock of sub sub directly conducted business b sub sub sub and sub were and are foreign_corporations transaction to accomplish the stated business purposes distributing completed the following steps which included the jurisdiction y de-merger collectively the transaction group newholdco was incorporated by a party unconnected to the distributing new holdco was incorporated by a party unrelated to the distributing group controlled was incorporated by newholdco distributing reclassified one authorized but unissued ordinary share as a deferred share and issued it to newholdco i distributing canceled all of its ordinary shares in except for the single ii distributing issued new ordinary shares to newholdco deferred share issued above in step to newholdco pursuant to the laws of jurisdiction y iii newholdco issued ordinary shares to the former shareholders of distributing in the same proportion as the shareholders of distributing previously held shares in distributing i sub canceled its shares then held by distributing by way of a reduction in capital pursuant to the laws of jurisdiction y ii sub issued new ordinary shares to controlled the number of shares issued and their par_value are the same as the shares canceled in step i above direction of distributing the number of shares issued and their par_value are the same as the shares issued in step ii above iii controlled issued new ordinary shares to newholdco at the plr-133233-06 i controlled canceled its existing shares held by newholdco by way of a reduction in capital pursuant to the laws of jurisdiction y of shares issued and their par_value are the same as the shares canceled in step i above ii controlled issued new ordinary shares to newholdco the number iii newholdco completed a separate share capital reduction pursuant to the laws of jurisdiction z by an amount equal to the value of the canceled shares of controlled and an additional_amount for the purpose of creating new distributable reserves for utilization following the de-merger iv newholdco issued shares to the shareholders of newholdco the former distributing shareholders equal to the value of the canceled shares in controlled the newholdco shares were issued in exchange for the controlled shares these shares were issued on a pro_rata basis to the shareholders of newholdco in accordance with their shareholdings in newholdco i two shares of distributing were issued and transferred to directors to hold as nominees of newholdco for local law purposes ii distributing held a meeting to approve step iii below iii distributing reclassified an authorized but unissued share of stock as an income access share ias the ias was then settled into trust by newholdco the ias was immediately transferred by newholdco to a jurisdiction y trust the trust the trustee of the trust is a trustee company the trustee the beneficiary of the trust is a charitable_organization unrelated to distributing no rights are conferred on the trustee or applicable shareholders of newholdco to receive a dividend from distributing the ias carries a right to one vote at any distributing shareholder meeting the liquidation rights of the ias are limited to repayment of its nominal par_value the purpose of this step iii was to put in place an arrangement which preserves the current jurisdiction y tax treatment of dividends_paid to distributing shareholders in jurisdiction y with respect to future dividends_paid by newholdco the ias arrangement provides that each registered holder of ordinary shares in newholdco on the dividend record_date who has made or who has been automatically treated as having made a valid election will be entitled to receive from the trustee an amount equal to the dividend they would have received from newholdco to the extent that the trustee has actually received an amount by way of a dividend from distributing in practice distributing will pay the dividend directly to newholdco shareholders on behalf of the trustee pursuant to the ias arrangement the shareholders of newholdco will have the ability to effectively elect jurisdiction y sourcing for the equivalent of future newholdco1 dividends plr-133233-06 newholdco applied to jurisdiction y for approval to make a reduction of capital for the purposes of creating new distributable reserves for utilization following the de-merger newholdco transferred its holdings in distributing to newholdco a newly formed foreign_corporation in exchange for common shares in newholdco no fractional shares were issued in any of the steps of the transaction all inter- corporate indebtedness between entities conducting business a and business b was extinguished except for debt c and debt d which will be extinguished within e months representations the following representations are made with respect to the transaction c a b the distribution is not part of a plan or a series of related transactions any indebtedness owed between controlled and distributing described in distributing controlled and the shareholders of distributing each have contribution and distribution paid or will pay its or their own expenses if any incurred in connection with the distribution as defined below within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation representation d below will not constitute stock_or_securities ordinary course of business through continuing transactions at terms comparable to those which could be obtained in an arm’s length transaction and payables created for all transitional services negotiated at arm’s length no inter-corporate debt existed between distributing and controlled at the time of or after the distribution no part of the consideration distributed by distributing in the distribution was received by a distributing shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing of its respective affiliated_group sag as one corporation in determining whether it met the requirements of sec_355 regarding an active trade_or_business distributing and controlled pursuant to sec_355 treated all members other than debt c debt d and trade account indebtedness created in the e f d j i k g h the five years of financial information submitted on behalf of the the five years of financial information submitted on behalf of the no person holds a or greater interest in the stock of distributing or following the distribution the distributing sag and the controlled sag plr-133233-06 controlled after the distribution within the meaning of sec_355 who did not hold such an interest immediately before the transaction business conducted by sub a member of distributing’s sag is representative of sub 8's present operations and with regard to sub there have been no substantial operational changes since the date of the last financial statements submitted business conducted by sub a member of controlled’s sag is representative of sub 4’s present operations and with regard to sub there have been no substantial operational changes since the date of the last financial statements submitted have and will continue the active_conduct of their respective businesses independently and with their separate employees business a with transitional services for a period not expected to exceed months distributing's post distribution transitional services will include tax compliance pension and insurance services any compensation_for such services provided by distributing to business a including its affiliated entities conducting business a will be based on the total allocated costs incurred by distributing the distribution was carried out for the following corporate business purposes i facilitating the raising of capital on the public markets through a public offering involving newholdco ii increasing the aggregate stock value of the business a and business b following the transaction as compared to the combined stock value of both businesses prior to the transaction thereby enabling each business to more efficiently acquire needed assets and services with its stock and iii to enhance the ability of the two businesses to attract retain and properly incentivize key employees the distribution is motivated in whole or substantial part by these corporate business purposes the earnings_and_profits of distributing or controlled or both determined after applying sec_355 holds stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was m the distribution was not used principally as a device for the distribution of following the distribution distributing may provide the entities conducting for purposes of sec_355 immediately after the distribution no person n l p q o no liabilities of distributing were assumed by controlled in the the total adjusted bases and the fair_market_value of the assets for purposes of sec_355 immediately after the distribution no person plr-133233-06 acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the distribution determined after applying sec_355 holds stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on the distributing stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the distribution transferred to controlled by distributing in the contribution as defined below equaled or exceeded the sum of the liabilities assumed if any as determined under sec_357 by controlled in the contribution the fair_market_value of the assets of controlled exceeds the amount of its liabilities immediately_after_the_exchange contribution between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length in sec_368 and iv controlled in the contribution equaled or exceeded the aggregate adjusted tax basis of the transferred assets owned or more of distributing by value owned indirectly by distributing and which are all members of a consolidated_group for u s federal_income_tax purposes changed in connection with the distribution business b contribution distributing shareholders who received newholdco common_stock received their no two parties to the distribution were investment companies as defined payments made in connection with all continuing transactions if any at all times relevant to the distribution no u s shareholder of distributing no direct ownership_interest of any of the u s companies which are pursuant to the business b contribution as defined below the the total fair_market_value of assets transferred by distributing to w u v s_r t x y z bb the shareholders of distributing did not retain any rights in their in connection with the business b contribution no stock_or_securities in connection with the business b contribution no stock was issued for aa the business b contribution was not the result of the solicitation by a plr-133233-06 newholdco common_stock in exchange for the transfer or cancellation of their distributing common_stock was issued for services rendered to or for the benefit of newholdco indebtedness of newholdco that was not evidenced by a security or for interest on indebtedness of newholdco that accrued on or after the beginning of the holding_period for the debt no income items interests in or assets of a partnership patents or patent applications copyrights franchises trademarks or trade names technical know how or accounts_receivable was transferred to newholdco pursuant to the business b contribution promoter broker or investment house distributing common_stock transferred to newholdco assumed by newholdco in the business b contribution the shareholders of distributing to newholdco pursuant to the business b contribution equaled or exceeded the sum of the liabilities assumed by newholdco if any plus any liabilities to which such assets were or are subject distributing will not make the election described in sec_362 as supplemented by irs guidance set forth in notice_2005_70 2005_41_irb_694 to reduce the basis of the newholdco stock received by the distributing shareholders gg there is no indebtedness between newholdco and the shareholders of distributing and no indebtedness was or will be created in favor of the shareholders of distributing as a result of the business b contribution before the transaction in which the rights of the parties are defined dd the adjusted_basis and the fair_market_value of the assets transferred by hh the business b contribution occurred pursuant to a plan agreed upon if sec_362 is applicable to the business b contribution newholdco ee newholdco did not assume any liabilities of the shareholders of cc no debt relating to the distributing common_stock transferred was ff ii ll jj to the knowledge of distributing newholdco and their respective taking into account any issuance of additional shares of newholdco mm the shareholders of distributing received stock in newholdco all exchanges in connection with the business b contribution occurred kk there is no plan or intention on the part of newholdco to redeem or plr-133233-06 on approximately the same date representatives there is no plan or intention on the part of any transferor to dispose_of any newholdco stock received pursuant to the business b contribution otherwise reacquire any stock to be issued in the business b contribution stock any issuance of stock for services the exercise of any newholdco stock_rights warrants or subscriptions a public offering of newholdco stock and the sale exchange transfer by gift or other_disposition of any of the stock of newholdco to be received in the business b contribution the shareholders of distributing are in control of newholdco within the meaning of sec_368 approximately equal to the fair_market_value of the property transferred to newholdco in the business b contribution transferred to it pursuant to the business b contribution in a trade_or_business oo there is no plan or intention by newholdco to dispose_of the assets transferred to its pursuant to the business b contribution other than in the normal course of business operations paid or will pay its or their own expenses if any incurred in connection with the business b contribution sec_351 and sec_1_351-1 immediately after the business b contribution taxed as a small_business_corporation as defined in sec_1361 no shareholders of distributing are under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock_or_securities received in the exchange will not be used to satisfy the indebtedness of such debtor ss to the knowledge of newholdco distributing and their representatives pp each of the shareholders of distributing distributing and newholdco rr newholdco is not eligible to make an election under sec_1362 to be nn newholdco will remain in existence and retain and use the property qq newholdco was not an investment_company within the meaning of xx in connection with the business a contribution no stock_or_securities ww pursuant to the business a contribution as defined below the uu the business b contribution step of the transaction allowed the newholdco was not a personal_service_corporation within the meaning vv the commercial purposes of the income access share trust do not plr-133233-06 tt of sec_269a distributing group to relocate to the most appropriate jurisdiction for a stand alone business b and to manage non-u s taxation include u s tax mitigation nor any commercial activities apart from ministerial activities related to these non-u s tax purposes business a contribution distributing shareholders who received newholdco stock received their stock in exchange for the transfer or cancellation of their controlled common_stock were issued for services rendered to or for the benefit of newholdco in connection with the business a contribution no stock was issued for indebtedness of newholdco that was not evidenced by a security or for interest on indebtedness of newholdco that accrued on or after the beginning of the holding_period for the debt zz no income items interests in or assets of a partnership patents or patent applications copyrights franchises trademarks or trade names technical know how or accounts_receivable were transferred to newholdco pursuant to the business a contribution promoter broker or investment house common_stock transferred to newholdco by newholdco in the business a contribution the shareholders of controlled to newholdco pursuant to the business a contribution equaled or exceeded the sum of the liabilities assumed by newholdco if any plus any liabilities to which such assets were and are subject bbb the shareholders of controlled did not retain any rights in their controlled ccc no debt relating to the controlled common_stock transferred was assumed ddd the adjusted_basis and the fair_market_value of the assets transferred by aaa the business a contribution was not the result of the solicitation by a yy iii jjj fff to the knowledge of controlled newholdco and their respective if sec_362 is applicable to the business a contribution newholdco eee newholdco did not assume any liabilities of the shareholders of all exchanges in connection with the business a contribution occurred on hhh the business a contribution occurred pursuant to a plan agreed upon ggg there is no indebtedness between newholdco and the shareholders of plr-133233-06 controlled in the business a contribution will not make the election described in sec_362 as supplemented by irs guidance set forth in notice_2005_70 2005_41_irb_694 to reduce the basis of the newholdco stock received by the controlled shareholders controlled and no indebtedness was or will be created in favor of the shareholders of controlled as a result of the business a contribution before the transaction in which the rights of the parties are defined approximately the same date representatives there is no plan or intention on the part of any transferor to dispose_of any of the stock of newholdco received pursuant to the business a contribution otherwise reacquire any stock to be issued in the business a contribution stock any issuance of stock for services the exercise of any newholdco stock_rights warrants or subscriptions a public offering of newholdco stock and the sale exchange transfer by gift or other_disposition of any of the stock of newholdco received in the business a contribution the shareholders of controlled are in control of newholdco within the meaning of sec_368 approximately equal to the fair_market_value of the property transferred to newholdco in the business a contribution transferred to it pursuant to the business a contribution in a trade_or_business transferred to it pursuant to the business a contribution other than in the normal course of business operations ooo there is no plan or intention by newholdco to dispose_of the assets kkk there is no plan or intention on the part of newholdco to redeem or nnn newholdco will remain in existence and retain and use the property mmm the shareholders of controlled received stock in newholdco taking into account any issuance of additional shares of newholdco lll ttt newholdco was not a personal_service_corporation within the meaning uuu the business contribution a step of the transaction allowed the ppp each of the shareholders of controlled controlled and newholdco rrr newholdco is not eligible to make an election under sec_1362 to be qqq newholdco was not an investment_company within the meaning of plr-133233-06 paid or will pay its or their own expenses if any incurred in connection with the business a contribution e and sec_1_351-1 immediately after the business a contribution taxed as a small_business_corporation as defined in sec_1361 sss to the knowledge of newholdco controlled and their representatives no shareholders of controlled are under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock_or_securities received in the exchange will not be used to satisfy the indebtedness of such debtor of sec_269a distributing group to relocate to the most appropriate jurisdiction for a stand alone business a and to manage non-u s taxation business b contribution newholdco common_stock in exchange for the transfer or cancellation of its distributing common_stock were issued for services rendered to or for the benefit of newholdco indebtedness of newholdco that was not evidenced by a security or for interest on indebtedness of newholdco that accrued on or after the beginning of the holding_period for the debt yyy no income items interests in or assets of a partnership patents or patent applications copyrights franchises trademarks or trade names technical know how or accounts_receivable were transferred to newholdco pursuant to the business b contribution promoter broker or investment house zzz the business b contribution was not the result of the solicitation by a www in connection with the business b contribution no stock_or_securities vvv pursuant to the business b contribution newholdco received its in connection with the business b contribution no stock was issued for xxx bbbb no debt relating to the distributing common_stock transferred was dddd newholdco did not assume any liabilities of newholdco in the aaaa newholdco did not retain any rights in its distributing common_stock cccc the adjusted_basis and the fair_market_value of the assets transferred by eeee if sec_362 is applicable to the business b contribution newholdco plr-133233-06 transferred to newholdco assumed by newholdco in the business b contribution newholdco to newholdco pursuant to the business b contribution equaled or exceeded the sum of the liabilities assumed by newholdco if any plus any liabilities to which such assets were or are subject business b contribution will not make the election described in sec_362 as supplemented by irs guidance set forth in notice_2005_70 2005_41_irb_694 to reduce the basis of the newholdco stock received by newholdco no indebtedness was or will be created in favor of newholdco as a result of the business b contribution before the transaction in which the rights of the parties are defined on approximately the same date representatives there is no plan or intention on the part of newholdco to dispose_of any newholdco stock received pursuant to the business b contribution otherwise reacquire any stock to be issued in the business b contribution stock any issuance of stock for services the exercise of any newholdco stock_rights warrants or subscriptions a public offering of newholdco stock and the sale exchange transfer by gift or other_disposition of any of the stock of newholdco received in the business b contribution newholdco is in control of newholdco within the meaning of sec_368 hhhh all exchanges in connection with the business b contribution occurred ffff there is no indebtedness between newholdco and newholdco and gggg the business b contribution occurred pursuant to a plan agreed upon kkkk taking into account any issuance of additional shares of newholdco iiii to the knowledge of newholdco newholdco and their respective jjjj there is no plan or intention on the part of newholdco to redeem or oooo each of newholdco and newholdco paid or will pay its own pppp newholdco was not an investment_company within the meaning of nnnn there is no plan or intention by newholdco to dispose_of the assets mmmm newholdco will remain in existence and retain and use the property llll newholdco received stock in newholdco approximately equal to the plr-133233-06 fair_market_value of the property transferred to newholdco in the business b contribution transferred to it pursuant to the business b contribution in a trade_or_business transferred to its pursuant to the business b contribution other than in the normal course of business operations expenses if any incurred in connection with the business b contribution sec_351 and sec_1_351-1 immediately after the business b contribution taxed as a small_business_corporation as defined in sec_1361 not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock_or_securities received in the exchange will not be used to satisfy the indebtedness of such debtor meaning of sec_269a distributing group to relocate to the most appropriate jurisdiction for a stand alone business b and to manage non-u s taxation rrrr to the knowledge of newholdco and newholdco newholdco is qqqq newholdco is not eligible to make an election under sec_1362 to be ssss newholdco was not be a personal_service_corporation within the tttt the business b contribution step of the transaction allowed the rulings based solely on the information submitted and the representations made we rule as follows on the transaction contribution and distribution for u s federal_income_tax purposes notwithstanding the order of step sec_5 and the transaction is treated as if i distributing formed controlled ii distributing transferred the stock of sub to controlled in exchange for all of the stock of controlled the contribution iii distributing distributed the plr-133233-06 stock of controlled to its shareholders the distribution cf revrul_77_191 c b iv the shareholders of distributing contributed the stock of controlled to newholdco solely in exchange for newholdco shares the business a contribution a and v the shareholders of distributing contributed the stock of distributing to newholdco solely in exchange for newholdco shares the business b contribution c f rev_rul the contribution followed by the distribution is a reorganization within the meaning of sec_368 of the code distributing and controlled are each a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss is recognized by distributing on the contribution sec_361 no gain_or_loss is recognized by controlled on the contribution sec_1032 controlled’s basis in each asset received in the contribution is equal to the basis of that asset in the hands of distributing immediately before the transfer sec_362 controlled’s holding_period in each asset received in the contribution includes the period during which that asset was held by distributing sec_1223 no gain_or_loss is recognized by distributing on the distribution sec_361 the distributing shareholders do not recognize any gain_or_loss and do not otherwise include any amount in income on their receipt of the controlled stock sec_355 each distributing shareholder’s basis in a share of distributing stock as adjusted under sec_1_358-1 is allocated between the share of distributing stock with respect to which the distribution was made and the share or shares of controlled stock or allocable portions thereof received with respect to the share of distributing stock in proportion to their fair market values in accordance with sec_1_358-2 sec_358 and sec_358 each distributing shareholder’s holding_period in the controlled stock received includes the holding_period of the distributing stock with respect to which the distribution of the controlled stock was made provided that the distributing stock was held as a capital_asset on the date of the distribution sec_1223 earnings_and_profits are allocated between distributing and controlled in accordance with sec_1_312-10 plr-133233-06 business b contribution i the distributing shareholders do not recognize any gain_or_loss on the deemed transfer to newholdco of the stock of distributing solely in exchange for newholdco stock sec_351 each distributing shareholder's basis in the newholdco stock received in exchange for their distributing stock is equal to the basis in the distributing shares surrendered in exchange therefor sec_358 each distributing shareholder’s holding_period in the newholdco stock received includes the holding_period of the distributing shares surrendered in exchange therefor provided that the distributing stock was held as a capital_asset on the date of the business b contribution sec_1223 no gain_or_loss is recognized by newholdco on the business b contribution sec_1032 newholdco basis in the distributing stock received is determined in accordance with sec_362 newholdco 1’s holding_period in the distributing stock received includes the holding_period of those shares of stock in the hands of the distributing shareholders sec_1223 given the limited purposes of the ias and the limited authority granted to the trustees the ias arrangement is not a_trust within the meaning of sec_301_7701-4 and therefore is disregarded see generally revrul_73_100 1973_1_cb_309 and revrul_76_265 1976_2_cb_448 for illustrations of arrangements that do not constitute trusts for u s federal_income_tax purposes the ias share is disregarded and is considered merely a mechanical means of paying certain distributions on the distributing stock dividends_paid to the holders of the newholdco stock including dividends_paid in respect of the newholdco stock through the ias are considered for u s federal_income_tax purposes to be distributions paid_by newholdco to its shareholders with respect to its stock under sec_301 business a contribution plr-133233-06 the controlled shareholders do not recognize any gain_or_loss on the deemed transfer to newholdco of the stock of controlled solely in exchange for newholdco stock sec_351 each controlled shareholder's basis in the newholdco stock received in exchange for their controlled stock is equal to the basis in such controlled shares surrendered in exchange therefor sec_358 each controlled shareholder’s holding_period in the newholdco stock received includes the holding_period of the controlled shares surrendered in exchange therefor provided that the controlled stock was held as a capital_asset on the date of the business a contribution sec_1223 no gain_or_loss is recognized by newholdco on the business a contribution sec_1032 newholdco 2’s basis in the controlled stock received is determined in accordance with sec_362 newholdco 2’s holding_period in the controlled stock includes the holding_period of the shares of stock in the hands of the controlled shareholders sec_1223 business b contribution newholdco does not recognize any gain_or_loss on the transfer to newholdco of the stock of distributing solely in exchange for newholdco stock sec_351 newholdco 1's basis in the newholdco stock received in exchange for its distributing stock equals the basis in the distributing shares surrendered in exchange therefor sec_358 newholdco 1’s holding_period in the newholdco stock received includes the holding_period of the distributing shares surrendered in exchange therefor provided that the distributing stock was held as a capital_asset on the date of the business b contribution sec_1223 no gain_or_loss is recognized by newholdco on the business b contribution sec_1032 newholdco 3’s basis in the distributing shares received is determined in accordance with sec_362 plr-133233-06 newholdco 3’s holding_period in the distributing shares received includes the holding_period of those shares of stock in the hands of newholdco sec_1223 caveats we express no opinion about the tax treatment of the transaction described above under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the transaction satisfies the business_purpose requirement of sec_1_355-2 ii whether the transaction is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both of them iii whether the transaction is part of a plan or series of related transactions under sec_355 iv the federal_income_tax consequences with respect to the preliminary restructuring or the public offering and iv any international tax consequences of the transaction procedural statements this ruling 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 each taxpayer involved in this transaction should attach a copy of this ruling letter to the taxpayer's federal_income_tax return for the taxable_year in which the transaction is completed alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling plr-133233-06 in accordance with the power_of_attorney on file in this office a copy of this ruling letter will be sent to your authorized representative sincerely ____________________ lewis k brickates chief branch office of associate chief_counsel corporate ----------------- cc -------------------------------------------------- ------------------------ ------------------------------- ----------------------------------------- ------------------------------------------- --------------------------------------- ------------------------------------------------------------------------ ------------------------ ----------------------------------- ---------------------- -------------------------------------------


internal_revenue_service number release date index number ------------------------------------- -------------------- ----------------- ------------------------------- -------------------- ----------------- ------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------ telephone number -------------------- refer reply to cc corp b06 plr-140538-05 date november ------------------------------------- legend distributing --------------------------------------------------------------------------- ------------------------------------------------------------------- controlled ------------------------------------------------------------------------------------------------------------ controlled ------------------------------------------------------------------------------------------------------------ controlled ------------------------------------------------------------------------------------------------------------ controlled ------------------------------------------------------------------------------------------------------------ shareholder shareholder shareholder shareholder shareholder ------------------------------- --------------------------- --------------------- --------------------- -------------------- ------------------------------------------------------------------------ ----------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------- ------------------- --------------------- ----------------------- ------------------------ ------------------------- ----------------------------- ---------------------------------- ----------------------------------------------- plr-140538-05 shareholder shareholder shareholder shareholder shareholder shareholder shareholder shareholder shareholder shareholder shareholder shareholder shareholder shareholder shareholder ---------------------------------------------------------------------------------------------------------- --------------------------------------------------------- shareholder shareholder shareholder shareholder shareholder a b ----------------------------------------------------------------------- -------------------------------- ------------------------------- ------------------------------ ----------------------------- ---------------------------- ---------------------------- ---------------------------- ---------------------------- --------------------------- ------------------- ---------- ---------- ---------- ---------- ---------- ------------ -------------------- ---------------------- plr-140538-05 c d e pc’s busine sec_1 state a dear ------------ this responds to your authorized representative’s letter dated date requesting rulings concerning the federal_income_tax consequences of a proposed transaction additional information was submitted in letters dated date september and date the information submitted for consideration is summarized below the rulings contained in this letter are predicated upon the facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process moreover no information provided by the taxpayer has been reviewed and no determination has been made regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 and iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7t distributing is a state a corporation individual shareholders own all the common_stock of distributing the common_stock is the only class of distributing stock outstanding distributing is engaged in busine sec_1 busine sec_1 has employees who perform operational and managerial duties distributing will enter into lease agreements with pc’s to perform certain operational busine sec_1 activities on behalf of distributing plr-140538-05 we have received financial information that busine sec_1 has had gross_receipts and operating_expenses representative of an active trade_or_business for each of the past five years for what has been represented to be a valid business_purpose the taxpayers have proposed the following transaction distributing will transfer approximately a of the fair_market_value of the busine sec_1 assets and liabilities as well as cash to newly created controlled in exchange for all of the stock of controlled distributing will then distribute this controlled stock to distributing shareholders in exchange for all their distributing stock distributing will transfer approximately b of the fair_market_value of the busine sec_1 assets and liabilities as well as cash to newly created controlled in exchange for all of the stock of controlled distributing will then distribute this controlled stock to distributing shareholders in exchange for all their distributing stock iii distributing will transfer approximately c of the fair_market_value of the busine sec_1 assets and liabilities as well as cash to newly created controlled in exchange for all of the stock of controlled distributing will then distribute this controlled stock to distributing shareholders in exchange for all their distributing stock iv distributing will transfer approximately d of the fair_market_value of the busine sec_1 assets and liabilities as well as cash to newly created controlled in exchange for all of the stock of controlled distributing will then distribute this controlled stock to distributing shareholders in exchange for all their distributing stock i ii v distributing will retain approximately e of the fair_market_value of busine sec_1 assets and liabilities as well as cash distributing will remain actively engaged in busine sec_1 shareholders will be the exclusive shareholders of distributing controlled controlled controlled and controlled will hereinafter be referred to as the controlled corporations the following representations are made with respect to the proposed transaction a no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation plr-140538-05 b c d e f g the years of financial information submitted on behalf of the distributing_corporation is representative of the corporation’s present operation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted following the transaction the distributing and controlled corporations will each continue independently and with its separate employees the active_conduct of its share of all the integrated activities of the business conducted by the distributing_corporation prior to the consummation of the transaction the distribution of the stock of the controlled corporations is carried out for the following corporate business purposes to resolve shareholder disputes and reduce liability exposure the distribution of the stock of the controlled corporations is motivated in whole or substantial part by these corporate business purposes the total adjusted_basis and the fair_market_value of the assets transferred to each of the controlled corporations by distributing will in each instance equal or exceed the sum of the liabilities assumed as determined under sec_357 by each of the controlled corporations plus the fair_market_value of any other_property and the amount of any money transferred by each of the controlled corporations to distributing that is distributed to the shareholders of distributing or transferred to the creditors of distributing pursuant to the plan_of_reorganization the sum of the liabilities assumed as determined under sec_357 were incurred in the ordinary course of business and are associated with the assets being transferred for purposes of sec_355 immediately after the distributions no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of any controlled corporation’s stock entitled to vote or percent or more of the total value of shares of all classes of any controlled corporation’s plr-140538-05 stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the distribution date or ii attributable to distributions on distributing_corporation stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 and during the five-year period determined after applying sec_355 ending on the distribution date no intercorporate debt will exist between the distributing_corporation and the controlled corporations at the time of or subsequent to the distribution of the controlled corporations’ stock payments made in connection with all continuing transactions if any between the distributing and controlled corporations will be for fair_market_value based on the terms and conditions arrived at by the parties bargaining at arm’s length no two parties to the transaction are investment companies as defined in a f iii and iv the distributing_corporation neither accumulated its receivables nor made extraordinary payments of its payables in anticipation of the transaction the transaction is not used principally as a device for the distribution and earnings_and_profits of the distributing_corporation or the controlled corporations or both there is no acquisition of stock of the distributing_corporation or any controlled_corporation including any predecessor or successor of any such corporation that is part of a plan or series of related transactions within the meaning of sec_1_355-7t that includes the distribution of the controlled_corporation stock h i j k l m n the fair_market_value of the stock of a controlled_corporation received by a shareholder of the distributing_corporation will be approximately equal to the fair_market_value of the distributing_corporation stock surrendered by the shareholder in the exchange based solely on the information submitted and on the representations set forth above we rule as follows the transfer by distributing of its assets and liabilities to each of the controlled corporations in exchange for all their stock followed by the distribution by distributing of all the stock of controlled_corporation controlled_corporation controlled_corporation and controlled plr-140538-05 corporation to distributing shareholders distributing shareholders distributing shareholders and distributing shareholders respectively in exchange for their respective shares of distributing stock constitutes a reorganization within the meaning of sec_368 distributing and each of the controlled corporations will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing upon its transfer of assets subject_to liabilities to the controlled corporations in exchange for the stock of the controlled corporations sec_361 and sec_357 no gain_or_loss will be recognized by controlled_corporation controlled_corporation controlled_corporation and controlled_corporation on their respective receipt of assets of distributing in exchange for the stock of controlled_corporation controlled_corporation controlled_corporation and controlled_corporation respectively sec_1032 the basis of each asset received by the controlled corporations will be in each instance the same as the basis of such assets in the hands of distributing sec_362 the holding_period of the distributing assets received by the controlled corporations will include the period during which such assets were held by distributing sec_1223 no gain_or_loss will be recognized by and no amount will be includable in the income of any of the shareholders upon their receipt of stock in a controlled_corporation in exchange for the distributing stock they currently hold sec_355 no gain_or_loss will be recognized by distributing upon the distribution of its stock in the controlled corporations to its shareholders in exchange for all of the distributing stock currently held by those shareholders sec_361 the basis of the stock of each of the controlled corporations in the hands of its shareholders will be the same as the basis of each shareholder’s distributing stock surrendered in the exchange therefore sec_358 the holding_period of the stock in each of the controlled corporations received by its shareholders will include the holding_period of the distributing stock surrendered in the exchange provided that the plr-140538-05 distributing stock is held as a capital_asset on the date of the exchange sec_1223 as provided in sec_312 proper allocation of earnings_and_profits among distributing and each of the four controlled corporations will be made under sec_1_312-10 no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the proposed transaction is used principally as a device for the distribution of the earnings_and_profits of either the distributing_corporation or the controlled corporations or both see sec_355 and sec_1_355-2 and iii whether the distribution and an acquisition or acquisitions are part of a plan or series of related transactions under sec_355 this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent a copy of this letter must be attached to the federal_income_tax return of each taxpayer involved for the taxable_year in which the transaction is consummated under a power_of_attorney on file with this office the original letter is being sent to the taxpayer and a copy to the taxpayer’s authorized representative sincerely steven j hankin office of associate chief_counsel corporate cc steven j hankin senior technician reviewer branch


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-133555-02 date date legend company shareholders state date dear this letter responds to your letter dated date as well as subsequent correspondence requesting a ruling under sec_1362 of the internal_revenue_code regarding company's late s_corporation_election facts company was incorporated under the laws of state on date company’s shareholders intended company to be an s_corporation from inception however form_2553 election by a small_business_corporation was not filed timely with the internal_revenue_service company filed form_1120s u s income_tax return for an s_corporation for its first tax_year plr-133555-02 law and analysis sec_1362 provides in general that an election by a small_business_corporation under sec_1362 to be an s_corporation may be made for any_tax year- a at any time during the preceding tax_year or b at any time during the tax_year and on or before the 15th day of the 3d month of the tax_year sec_1362 provides that if-- a a small_business_corporation makes an election under sec_1362 for any_tax year and b that election is made after the 15th day of the 3d month of the tax_year and on or before the 15th day of the 3d month of the following tax_year then that election shall be treated as made for the following tax_year sec_1362 provides that if-- a an election under sec_1362 is made for any_tax year determined without regard to sec_1362 after the date prescribed by this subsection for making the election for that tax_year or no such election is made for any_tax year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such election as timely made for that tax_year and sec_1362 shall not apply based on the facts submitted and representations made we conclude that there was reasonable_cause for company’s failure to make a timely s_corporation_election therefore company's late election under sec_1362 is to be treated under sec_1362 as filed timely for its tax_year beginning date this ruling is contingent however on company filing form_2553 to be effective on date with the appropriate service_center no later than days from the date of this letter a copy of this letter should be attached to the form_2553 plr-133555-02 except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion on whether company otherwise is eligible to be an s_corporation this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely s christine ellison chief branch office of associate chief_counsel passthroughs and special industries enclosure copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br - plr-119104-01 date date legend x state d1 this responds to your letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x began doing business under state law on d1 the shareholders of x intended that x elect to be treated as an s_corporation effective d1 however the election to be treated as an s_corporation was not timely filed law and analysis sec_1362 provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 provides when an s election becomes effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made if an election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will generally not be treated as an s_corporation until the following taxable_year however sec_1362 provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determines reasonable_cause existed for the failure to plr-119104-01 timely make the election then the secretary can treat such an election as timely made for that taxable_year and effective as of the first day of that taxable_year in the present case x failed to timely elect s_corporation treatment effective d1 however x has established reasonable_cause for not making a timely election and is thus entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent s david r haglund sincerely senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa apjp b2 amielke postn-115819-06 uilc date date to jan b geier special counsel to sb division small_business self-employed josephine bonaffini supervisory attorney estate_tax small_business self-employed mary l edelstein appeals officer office of appeals from blaise g dusenberry special counsel administrative provisions judicial practice procedure administration subject sec_6166 reasonable_cause exception for an untimely filed estate_tax_return and an untimely installment_payment this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issue sec_1 whether like a failure_to_file_penalty under sec_6651 there is a reasonable_cause exception for denial of a sec_6166 election because it was made in connection with an untimely filed estate_tax_return whether reasonable_cause may be considered by appeals when there has been a late installment_payment under sec_6166 postn-115819-06 conclusion sec_1 there is no reasonable_cause exception for denial of a sec_6166 election if it was made in connection with an untimely filed estate_tax_return however it may be possible for the taxpayer to seek relief under sec_301 there is no reasonable_cause exception for avoiding the imposition of late payment penalties when an estate makes an untimely sec_6166 installment_payment and has not timely requested an extension of time pursuant to sec_6161 to pay such installment or the sec_6161 extension has expired facts an estate has elected on its untimely filed united_states estate and generation skipping transfer_tax return form_706 to pay a portion of the estate_tax in installments under sec_6166 the estate had reasonable_cause for not filing a timely form_706 the estate has been granted a sec_6166 election to pay the estate_tax in annual installments the next installment_payment is due and payable on date the estate does not make the required_payment on date but rather makes the payment on date which falls after date at no time has the estate requested an extension of time under sec_6161 to pay the tax on date it appears the estate has reasonable_cause for not making the prescribed installment_payment on date law and analysis as a general_rule the estate_tax_return form_706 and payment of the estate_tax liability of a decedent is due within nine months of the decedent’s death sec_6075 a sec_6166 of the internal_revenue_code as an exception to the above rule provides that if the value of an interest_in_a_closely_held_business included in determining the value of the gross_estate of a decedent exceed sec_35 percent of the adjusted_gross_estate the executor of the estate may elect to pay part or all of the tax imposed by sec_2001 estate_tax in two or more but not exceeding ten equal installments the first installment of tax must be paid on or before the date selected by the executor which is not more than years after the date prescribed by sec_6151 for payment of the tax an executor electing to defer estate_taxes under sec_6166 must make annual payments of interest during the deferral_period in particular interest must be paid annually during the five-year period before the first installment of tax is due sec_6166 when an estate fails to make payments of principal or interest the service may terminate the deferred payment election and force an acceleration of payment of the estate_tax by issuing notice_and_demand sec_6166 issue sec_6166 provides that the election to defer payment of an estate_tax liability shall be made not later than the time prescribed by sec_6075 for filing the return postn-115819-06 of tax imposed by sec_2001 including extensions thereof in this case the sec_6166 election was made with the tax_return but the tax_return was not timely filed as a result the sec_6166 election was not timely made therefore the sec_6166 election was not valid see estate of hinz v commissioner t c memo 93_tc_462 stating that an untimely sec_6166 election was not valid 98_tc_294 sec_6651 provides for an addition_to_tax for failure_to_file a return by the extended due_date of the return and a separate addition_to_tax for failure to pay the tax when due taking into account extensions of time to pay unless it is shown that such failure is due to reasonable_cause and not due to willful neglect generally if a taxpayer fails to pay the tax due shown on the return the service can impose the failure to timely file penalty under sec_6651 under sec_6651 a taxpayer’s failure to pay the tax_shown_on_the_return is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to pay the tax within the prescribed time see sec_301_6651-1 while sec_6651 specifically provides a reasonable_cause exception to those taxpayer’s who fail to pay the tax_shown_on_the_return when due we note that there is no similar reasonable_cause exception listed under sec_6166 accordingly we do not believe there is a reasonable_cause exception for a denial of a sec_6166 election made in connection with an untimely filed estate_tax_return issue sec_6166 provides that if an election is made under the first installment shall be paid on or before the date selected by the executor which is not more than five years after the date prescribed by sec_6151 for payment of the tax and each succeeding installment shall be paid on or before the date which is one year after the date prescribed for payment of the proceeding installment an executor may elect to pay estate_tax in equal installments starting at the end of a five-year period during which only interest is payable if a closely_held_business constitutes more than percent of the adjusted_gross_estate sec_6166 sec_6166 provides that if the time for payment of any amount of tax has been extended under sec_6166 interest payable under sec_6601 on any unpaid portion of such amount attributable to the first five years the date prescribed by sec_6151 for payment of the tax shall be paid annually sec_6166 provides that interest payable under sec_6601 on any unpaid portion of such amount attributable to any period after the five-year period shall be paid annually at the same time as and as a part of each installment_payment of tax sec_6161 and b provide that the secretary may extend for reasonable_cause the time for payment of the amount of federal estate_tax determined by the taxpayer on postn-115819-06 the return or the amount determined by the commissioner as a deficiency generally an extension of time to pay under sec_6161 may be authorized for an installment_payment due under a sec_6166 election for a period of time not exceeding one year from the date the tax is due under sec_6161 the service may extend the time for payment of estate_tax under sec_6166 for a reasonable period that does not exceed years from the date the tax is due upon a showing of reasonable_cause certain activities trigger the acceleration of the estate_tax payments in this regard sec_6166 identifies the activities which terminate the deferred payment election and force an acceleration of payment of the estate_tax in particular sec_6166 provides that if an election is made under the first installment shall be paid on or before the date selected by the executor which is not more than five years after the date prescribed by sec_6151 for payment of the tax and each succeeding installment shall be paid on or before the date which is one year after the date prescribed for payment of the proceeding installment in addition that section also provides that if any installment is not paid on or before the date fixed for its payment including any extension of time for the payment of such installment the unpaid portion of the tax payable in installments shall be paid upon notice_and_demand as a general_rule when an estate fails to pay a sec_6166 installment a letter is issued to inform the estate to pay the installment or lose the installment privilege revproc_2005_33 2005_24_irb_131 in addition the letter will advise the taxpayer of the taxpayer’s right to appeal the determination by requesting a conference with the office of appeals the taxpayer must request in writing an appeals_conference within calendar days after the mailing date of the preliminary determination_letter or by such later date for responding to the preliminary determination_letter as is agreed to between the taxpayer and the service id although an estate defaults on a payment acceleration of the remaining installment payments does not actually occur until the service serves notice_and_demand for payment on the estate see 419_f2d_958 7th cir note however that if an estate fails to make a timely payment but pays within six months of the due_date the estate loses the benefit of the two percent interest rate for that payment and must include in its late payment a penalty equal to five percent of the payment originally due multiplied by the number of months including fractions thereof from the original due_date to the date of actual payment sec_6166 iii in the present situation the taxpayer did not timely pay the amount due on date nor did the taxpayer pay the amount within six months of the due_date in addition the taxpayer did not seek an extension of time to pay the amount due under sec_6161 as noted previously sec_6166 does not provide a reasonable_cause exception under any circumstance thus appeals may not consider whether the taxpayer has reasonable_cause for the late installment_payment accordingly we believe that the postn-115819-06 service is entitled to issue notice_and_demand to terminate the taxpayer’s installment privileges sec_6166 case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call --------------------- if you have any further questions


t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n department of the treasury inte rnal reve nue s ervi ce washington d c contact telephone number uil person to contact and id number number release date date date dear i am responding to your inquiry to congressman mike kelly you asked about the tax consequences of income a sec_501 tax-exempt_organization received from an oil_and_gas lease with specifically you asked whether risks losing its exemption because of the oil_and_gas lease and if not whether royalties received under the lease are taxable congressman kelly wrote to us on your behalf and asked us to respond directly to you i cannot give you a ruling on the tax consequences of any specific activities except in accordance with the provisions of revproc_2012_4 2012_1_irb_125 updated annually however i can provide general information that i hope you find helpful in general a sec_501 tax-exempt_organization risks losing its exemption if more than an insubstantial part of its activities does not further one or more tax-exempt purposes sec_501 of the internal_revenue_code the code a sec_501 tax-exempt_organization must be organized and operated exclusively for the support of one or more tax-exempt purposes sec_501 of the code and c -1 a of the treasury regulations an organization operates exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of the exempt purposes specified in sec_501 of the code an organization is not operating exclusively in this manner if more than an insubstantial part of its activities does not further an exempt_purpose sec_1_501_c_3_-1 of the treasury regulations an organization may meet the requirements of sec_501 of the code even though it operates a trade_or_business as a substantial part of its activities if its operations further the organization’s exempt_purpose and its primary purpose is not the carrying on of an unrelated_trade_or_business sec_1_501_c_3_-1 of the treasury regulations under the regulations an unrelated_trade_or_business is not substantially related aside from the organization’s need for income funds or use of derived profits to an organization’s exercise or performance of charitable educational or other functions that constitute the basis for sec_501 exemption sec_513 of the code a tax applies to unrelated_business_taxable_income ubti of sec_501 organizations sec_512 of the code the ubti is the gross_income an organization derives from any unrelated_trade_or_business described above that it regularly carries on less the deductions that are directly connected with carrying on the trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code an organization excludes from the calculation of the ubti all royalties including overriding royalties whether measured by production or by gross or taxable_income from property and all deductions directly connected with the income sec_512 of the code however an organization does not exclude from the calculation of the ubti the income from a working_interest in an oil_and_gas property where under the terms of the agreement an organization owning the interest either is not relieved of its share of the development costs associated with the interest or is relieved of the development costs but not of the operating costs sec_1_512_b_-1 of the treasury regulations revrul_69_179 c b this letter is for informational purposes only and provides general statements of well defined law this letter is not a ruling and taxpayers cannot rely on it as such revenue_procedure internal_revenue_bulletin irb or its successor we will make this letter available for public inspection after deleting names addresses or other identifying information as appropriate under the freedom_of_information_act announcement i r b if you would like a ruling specific to your oil_and_gas lease you or your representative can submit a letter_ruling request and user_fee to you can find instructions for submitting a letter_ruling request in section of revproc_2012_4 available at www irs gov irb 2012-01_irb ar09 html the user_fee for letter_ruling requests is dollar_figure revenue_procedure section internal_revenue_service attention eo letter rulings p o box mcpherson station washington dc i hope this information is helpful if you have any questions please contact identification_number at sincerely lois g lerner director exempt_organizations cc the honorable mike kelly attention