tax_exempt_and_government_entities_division date ct sin -0512 department of the treasury internal_revenue_service washington d c no third party contacts t eo b2 employer_identification_number lege id z l z l o l w l d dear sir or madam we have considered your form_1024 application_for exemption under sec_501 of the internal_revenue_code along with the private letter rulings you requested on date we sought assistance from chief_counsel corporate_division regarding your request for a ruling that your conversion from a taxable corporation to a tax-exempt_organization will not cause recognition of gain_or_loss under sec_1_337_d_-4 of the income_tax regulations and have incorporated that assistance herein you were created in a as a result of the consolidation of m and n two pre-existing corporations both of these corporations had been in existence prior to m was recognized as tax-exempt under sec_501 of the code until b at which time the irs retroactively revoked its exemption you as the successor of m have been treated as a taxable corporation since a and have filed a form_1120 annually your purposes as set forth in m's initial charter and carried forward in your articles of incorporation include e the promotion and development of the use understanding and appreciation of the language literature drama music art history phitosophies values and other elements of the c culture the enhancement and extension of the principles of democracy which foster freedom of the aa individual with equal rights for all regardless of race color sex or creed and the support of all lawful efforts to achieve for labor improved standards of living and general economic security and the opposition to any use of force and violence against such aims when exerted by totalitarian or dictatorship governments and groups of all kinds whether communists fascist and otherwise the education and development of ail cultural minorities within a democratic society by all lawful and democratic means in order to effect the preservation and enhancement of their respective mores values and cultures all to be carried out in furtherance of an ethical and viable pluralistic civilization based upon a concern for the public welfare and encompassing the philosophy of humanism and the fundamental rights of man and social justice and the promotion and diffusion especially among the c people in the united_states of a general knowledge of literature economic social political and historical science and other useful information by any and all available media of communication and the assistance including financially of other progressive civic scientific economic philanthropic and similar movements and organizations in the public social welfare e since a you have continued to publish newspapers papers in several languages you have also owned and operated a popular radio station station the papers have historically played - and continue to play - an important role in the lives of the american c people and new c immigrants you have indicated that the publishing function has consistently operated at a substantial loss the station in contrast has evolved from its roots as a forum for progressive ideas and programs aimed at various immigrant and ethnic cultures and is currently operated in a manner similar to other commercial radio stations the revenues generated by the station have been used to subsidize the papers in order to concentrate on the publication of the papers and other social welfare activities consistent with your mission you decided to discontinue the operation of the station and to re-apply for exemption as an organization described in sec_501 of the code you did not have to amend your charter nor transfer assets to another entity however to obtain tax exemption you had to discontinue operating the station by either leasing its airtime to a station operator or selling the station on b you entered into a local marketing agreement lma with programmer that provides both a license for programmer to use the airtime on the station for two years in exchange for a royalty and an option option that allows programmer to negotiate the programmer's purchase of the station's operating_assets from you for a fixed purchase_price at any time during the two- year term the lma will not take effect until after the tax rulings requested in this case are issued and certain regulatory approvals are obtained for the option which if the lma goes into effect you will retain whether or not programmer exercises the option the lma states that upon exercise of the option the parties must negotiate in good_faith the sale of the station the lma specifies several terms in addition to the price that would govern such purchase if the option is exercised but an agreement is not reached programmer can extend the license for five years in exchange for an additional royalty in the event you default under the lma programmer has a right of specific performance programmer agreed to pay a premium you have also represented that a to the best of your knowledge and belief the exercise price of the option represents the fair_market_value of the station b to the best of your knowledge and belief the royalty payments specified in the lma represent the fair_market_value of the right to use the airtime of the station under the terms of that agreement under the lma the programmer will develop the programming to be broadcast and collect all commercial advertising and revenues for its own account you will continue to retain legal and beneficial_ownership of the station during the term of the lma but will not be involved in the management of the programmer or in the formulation of its programs you state that your activities will be limited solely to those necessary to comply with fcc rules and regulations and the terms of your fcc license you will perform the following activities employ a general manager gm to report to and carry out your obligations under the fcc license the gm will not provide services to the lessee and will have no employment consulting or other material relationship to the lessee employ at least one full time employee to assist the gm in performing your obligations under the fcc license this includes maintaining the station’s transmission facilities retain ultimate control_over the operation of the station in accordance with the fcc license maintain a main studio consistent with the license requirements at which the gm and employee of the station will be available during normal business hours comply with the fcc requirements with respect to the ascertainment of community problems needs and interests and the broadcast of programming responsive thereto and timely prepare and place in the station's public inspection files appropriate documentation thereof and comply with all fcc requirements that are applicable to the operation of the station the programmer will be responsible for the programming and utilization of air time while you remain responsible for ensuring the programmer's performance under the lma and that its use of the air time is consistent with the license requirements to fulfill the public programming requirement you will retain the use of one hour of broadcast time per week for non-commercial programming you have asked that we issue the following rulings that payments from the programmer of the station that are attributable to the licensing of the station’s broadcast rights will be treated as royalties under sec_512 of the code and neither such payments nor any deductions directly connected with such payments will be taken into account in determining your unrelated_business_taxable_income ubti that gain_or_loss from the sale of the station after you have been recognized as exempt under sec_501 of the code will be treated as gain_or_loss described in sec_512 and not taken into account in determining ubti when you converted from a taxable corporation to an exempt entity you fell within sec_1_337_d_-4 of the regulations so that you will not be treated as if you transferred all of your assets in a taxable transaction on d based on your form_1024 and subsequent submissions the internal_revenue_service recognized you as exempt under sec_501 of the code effective that date the basis for this recognition is that you will no longer be operating the commercial radio station your primary remaining activity will be the non-commercial publication and distribution of the papers you have represented that the papers will continue to have an ethnic and cultural focus and will continue to fulfill an important role in the lives of the american c people and new c immigrants in addition to the non-commercial publication of the papers you will expand your other social welfare activities including education and outreach to the various communities served by the papers and educational forums on topics of general interest in the field of c studies you will continue to collaborate with and provide support to other nonprofit tax-exempt organizations active in preserving and maintaining the c language and culture and the cultures of immigrant c populations sec_512 of the code defines the term unrelated_business_taxable_income as gross_income derived by an organization from an unrelated_trade_or_business regularly carried on by it less the deductions directly attributable to such business activity sec_512 of the code provides that one of the modifications to be taken into account in determining unrelated_business_taxable_income is that all royalties including overriding royalties wnether measured by production or by gross or taxable_income_from_the_property and all deductions directly connected with such income shall be excluded however if royalty income is derived from debt-financed_property sec_514 or controlled organizations sec_512 it is included in computing ubti to the extent provided in those sections sec_1 b -i of the income_tax regulations provides that whether a particular item_of_income falls within any of the modifications provided in sec_512 shall be determined by all of the facts and circumstances of each case a royalty is generally defined as a payment for a licensee's valuable right to use the property of another without requiring any significant action on the part of the party offering the use of the right revrul_81_178 1981_2_cb_135 supports this view and defines a royalty as any payment received in consideration for_the_use_of a valuable intangible_property right whether or not payment is based on the use made of such property for example the rev_rul lists items such as trademarks trade names service marks and members names photos and facsimile signatures as the type of intangibles that payments for_the_use_of which would constitute royalties payments for personal services provided in connection with the granting of olf such rights are not royalties under sec_512 of the code such income and related expenses must be taken into account in computing the organization's unrelated_business_taxable_income under sec_512 under the lma effective d the programmer has full availability of the station's air time except for one hour per week the programmer is responsible for the operation and maintenance of the station your responsibilities are limited to ensuring compliance with your obligations under the fcc requirements and your fcc license in this regard your rights under the lma are similar to those retained by the organization described in revrul_81_178 situation which involved the maintenance of certain quality control rights and the ability to approve the quality and style of the licensed property the right granted to the programmer under the lma to use your radio broadcast capacity is intangible_property we conclude therefore that the payments you received for the rights granted the programmer are royalties within the meaning of sec_512 of the code you have represented that this income is not from debt-financed_property and the programmer is not a controlled organization should not be taken into account in determining your ubti accordingly such payments and directly connected deductions sec_512 of the code provides that in computing the ubti of an exempt_organization there shail be excluded all gains or losses from the sale exchange or other_disposition of property other than a stock_in_trade or other_property of a kind which would properly be includible in inventory if on hand at the close of the taxable_year or b property_held_primarily_for_sale to customers in the ordinary course of business you have represented that following the recognition of your exempt status you expect to sell the station either pursuant to the purchase option contained in the lma or in a separate transaction unrelated to the lma a sale of the station would include the following assets and properties your fcc license your interest in the transmitter site and the transmitter towers and station and broadcast equipment none of these properties would be categorized as stock_in_trade or other_property includible in inventory or property_held_primarily_for_sale to customers in the ordinary course of business the station would be treated as a capital_asset under sec_1221 property used in a trade_or_business under sec_1231 or other_property that is not either inventory type property or property_held_for_sale to customers in the ordinary course of business sec_1 b d of the regulations provides that the exclusion from the computation of ubti does not apply to the gain derived from the sale_or_other_disposition of debt-financed_property you have represented that your indebtedness consists of accounts_payable to trade creditors and accrued expenses attributable to the day-to-day operations of your current business no indebtedness is acquisition_indebtedness as defined in sec_514 nor does any property you hold that is subject_to sale under the lma constitute debt-financed_property as defined in sec_514 accordingly we rule that any gain_or_loss from your sale of the station will be treated as gain_or_loss described in sec_512 of the code and will not be - taken into account in determining your ubti under sec_512 sec_337 authorizes regulations to prevent avoidance of the repeal of the general_utilities_doctrine including prevention of the circumvention of those provisions through the use of a tax-exempt_entity under sec_1_337_d_-4 of the regulations if a taxable corporation transfers all or substantially_all of its assets to a tax-exempt_entity the taxable corporation generally must recognize gain_or_loss as if the assets transferred were sold at their fair market values under sec_1_337_d_-4 a taxable corporation’s change in status to a tax- exempt entity generally will be treated as if it transferred all its assets to a tax-exempt_entity in a transaction subject_to gain_or_loss recognition sec_1_337_d_-4 of the regulations provides that sec_1_337_d_-4 does not apply to a corporation that was previously tax-exempt under sec_501 or that applied for but did not receive recognition of exemption under sec_501 before date if such corporation is tax-exempt under sec_501 within three years from date based solely on the information submitted we rule that you are a corporation described in sec_1_337_d_-4 because you were previously exempt and re-obtained tax- exempt status within three years from date accordingly your sale of the station after that date will not be treated as if you transferred all of your assets in a taxable transaction pursuant to sec_1_337_d_-4 and d -4 a we express no opinion as to whether a if the option is exercised by programmer and the station is sold your receipt of the proceeds from the sale of the radio station will be treated as gain_or_loss before your change in status to a tax-exempt_entity and b whether or not the option is exercised whether the premium paid for the option by programmer upon the exercise lapse or disposition of the option will be treated as income gain_or_loss before your change in status to a tax-exempt_entity in addition we express no opinion on the tax treatment of your change in status to a tax-exempt_entity the airtime license for the station or the possible sale of the station under other provisions of the code or regulations including provisions relating to depreciation_recapture or investment_credit recapture or the tax treatment of any condition existing at the time of or effect resulting from the transaction not specifically covered by the above ruling except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the transactions described above under any other provision of the code this ruling is based on the understanding that there will be no material changes in the facts upon which it is based 2oz this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed gerald v sack gerald v sack manager exempt_organizations technical group


id office uilc cca_2008102911324237 -------------- number release date from ------------------- sent wednesday date am to --------------------------------------- cc --------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- subject re --------- pcs automatically updates to the parent's address since the partners have two separate parents for the same year and two separate consolidated parent returns nbaps and fpaa's should be issued to both as well as directly to the subs ultimately there may also be two separate assessments one for the first consolidated parent and one for the second consolidated parent for the partnership items allocated to each separate period


internal_revenue_service number release date index number ---------------------- ---------------------------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b02 plr-140408-13 date date settlor child child a b c d e f trust state corporate trustee dear ----- ----- ---------------------------------------------- -------------------------- -------------- ------------------- ----------------------- ---------------- ------------------------ -------------------- ------------------ ------------------------------------------------- ---------- ------------------------------------------------------ this responds to a letter dated date and subsequent correspondence requesting rulings under sec_671 sec_2501 and sec_2514 of the internal_revenue_code the information submitted states that settlor proposes to create an irrevocable_trust trust for the benefit of himself his daughters his daughters’ issue and six individuals a through f corporate trustee is a_trust company located in state trust provides that during settlor’s lifetime the corporate trustee shall distribute as much of the net_income and or principal as distribution committee may at any time and from time to time determine to members of a class consisting of the settlor and the distribution committee members in such amounts or proportions as the distribution committee members may acting by unanimity select for any purpose unanimous member power the corporate trustee shall also distribute as much of the net_income and or principal as the majority of the distribution committee members excluding however any distribution committee member who if he or she were a trustee would be considered an interested trustee or an insured trustee may at any time and from plr-140408-13 time to time determine to the settlor and or any one or more of the settlor’s lineal_descendants if such determination is consented to in writing by the settlor settlor’s consent power further the corporate trustee shall distribute as much of the principal to any one or more of the lineal_descendants of the settlor as the settlor in a non-fiduciary capacity determines is for the health education maintenance and support of any such lineal descendant settlor’s sole power the settlor is not required to exercise the settlor’s sole power any net_income not distributed by the corporate trustee will be accumulated and added to principal trust further provides that upon settlor’s death the trust property will be distributed to such one or more persons other than the settlor the settlor’s estate the settlor’s creditors and the creditors of the settlor’s estate as the settlor may appoint by a will specifically referring to this power_of_appointment settlor’s testamentary power in default of appointment the trust property shall be set_aside into per stirpital shares for the settlor’s then living descendants and each share so set_aside for a descendant will be distributed to the trustees of a descendant’s separate trust to be held as a separate trust and to be disposed of under the terms of such trust trust further provides that child child and individuals a through f are designated as the distribution committee members if any distribution committee members are unable to serve for any reason he or she shall not be replaced and the remaining distribution committee members shall continue to serve and act with full authority trust terminates at the death of settlor thus the distribution committee ceases to exist finally trust provides that if both child and child are no longer serving as distribution committee members or if there are fewer than two serving distribution committee members the trust property will be distributed to the settlor and trust shall terminate you have requested the following rulings during the period distribution committee members are serving no portion of the items of income deductions and credits against tax of the trust will be included in computing the taxable_income deductions and credits of the settlor under sec_671 or any distribution committee member under sec_678 the contribution of property to trust by settlor will not be a completed_gift subject_to federal gift_tax any distribution_of_property by the distribution committee from trust to settlor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee plr-140408-13 any distribution_of_property by distribution committee from trust to any beneficiary of trust other than settlor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee other than settlor ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides that for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceed sec_5 percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the power in sec_674 regardless of by whom held sec_674 describes a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard which is set forth in the trust instrument sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party under sec_675 and applicable regulations the grantor is treated as the owner of plr-140408-13 any portion of a_trust if under the terms of the trust agreement or circumstances attendant to its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to re-vest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof based solely on the facts submitted and representations made we conclude an examination of trust reveals none of the circumstances that would cause settlor to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 or sec_677 because none of the other distribution committee members has a power exercisable solely by himself to vest trust income or corpus in himself none shall be treated as the owner of any portion of the trust under sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of settlor under sec_675 thus the circumstances attendant on the operation of trust will determine whether settlor will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2 and sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 applies whether plr-140408-13 the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in the donor no power to change its disposition whether for the donor’s own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 also provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor's descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to re-vest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard sec_25_2511-2 provides that a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax plr-140408-13 sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a coholder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer's gift was complete in when he relinquished his right to change the beneficiaries of the trust a grantor’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case settlor retained the settlor’s consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom the distribution committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power the distribution committee ceases to exist upon the death of settlor under sec_25_2514-3 a co- holder of a power is only considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in this case the distribution committee ceases to exist upon settlor’s death accordingly the distribution committee members do not have interests adverse to settlor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore settlor is considered as possessing the power to distribute income and principal to any beneficiary himself because he retained the settlor’s consent power the retention of this power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes settlor also retained the settlor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries in this case settlor’s sole power gives settlor the power to change the interests of the beneficiaries accordingly the retention of the settlor’s sole power plr-140408-13 causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes further settlor retained settlor’s testamentary power to appoint the property in trust to anyone including trusts other than settlor’s estate settlor’s creditors or the creditors of settlor’s estate under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder in trust for federal gift_tax purposes finally the distribution committee possesses the unanimous member power over income and principal this power is not a condition_precedent to settlor’s powers settlor’s powers over the income and principal are presently exercisable and not subject_to a condition_precedent settlor retains dominion and control_over the income and principal of trust until the distribution committee members exercise their unanimous member power accordingly this power does not cause the transfer of property to be complete for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by settlor is not a completed_gift subject_to federal gift_tax any distribution from trust to settlor is merely a return of settlor’s property therefore we conclude that any distribution_of_property by the distribution committee from trust to settlor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further upon settlor’s death the fair_market_value of the property in trust is includible in settlor’s gross_estate for federal estate_tax purposes ruling sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor’s estate the possessor’s creditors or the creditors of the individual’s estate sec_25_2514-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor’s estate plr-140408-13 or the creditors of the estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor’s power sec_25_2514-3 provides in part that a co-holder of a power has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the powers held by the distribution committee members under the settlor’s consent power are powers that are exercisable only in conjunction with the creator settlor accordingly under sec_2514 the distribution committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the distribution committee members under the unanimous member powers are not general powers of appointment as in the example in sec_25_2514-3 the distribution committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than settlor pursuant to the exercise of these powers the settlor’s consent power and the unanimous member powers are not gifts by the distribution committee members instead such distributions are gifts by settlor based upon the facts submitted and representations made we conclude that any distribution_of_property by the distribution committee from trust to any beneficiary of plr-140408-13 trust other than settlor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further we conclude that any distribution_of_property from trust to a beneficiary other than settlor will be a completed_gift by settlor except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on the trust provisions permitting corporate trustee to distribute income or principal to trustees of other qualified trusts decanting this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


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-105773-01 date date x a b d1 year year dear this letter responds to a letter date written on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x began doing business on d1 of year a and b are the shareholders of x a the president of x represents that it was intended for x to be an s_corporation beginning in year however no timely completed form_2553 election by a small_business_corporation was filed on behalf of x for year subsequently a completed form_2553 was filed and accepted for year for year x filed form_1120s u s income_tax return for an s_corporation sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause mr montfort jones for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative branch sincerely yours jeanne m sullivan assistant to the chief office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c nov 9au lnifdiren tow cie yig l- ow fol of of soy of lil of -03 00-c person to contact telephone number op e eo t employer_identification_number key district legend m l f o v n o d n o dear applicant this is in response to your letter dated date prepared by your authorized representative in which you requested rulings relating to the hoted sections of the internal_revenue_code m is a holding_company created in conjunction with the merger in march a substantial number of n's employees are represented by one of two of n and its subsidiaries and affiliates with o and its subsidiaries and affiliates local unions affiliated with p approximately of o’s employees are represented by a third local union affiliated with p none of the represented employees are employees who are owners officers or executives of the employer ct prior to the merger n maintained a single trust fund q an irrevocable_trust that qualified for tax exemption under sec_501 of the code q maintained five sub-trusts whose assets were pooled for investment purposes but for which separate_accounting was maintained the assets of each sub-trust were available only to pay benefits under the following groupings one sub-trust provided post-retirement medical benefits for current and retired union-represented employees and their dependents where such benefits were the product of good-faith labor negotiations one sub-trust provided post-retirement life_insurance benefits for current and retired union-represented employees and their dependents where such benefits were the product of good-faith labor negotiations the first two sub- trusts have been identified by you as sub-trusts du one sub-trust provided post-retirement medical benefits for current and retired non-union management employees and their dependents one sub-trust provided post-retirement life_insurance benefits not in excess of dollar_figure per retiree for current and retired management employees and one sub-trust provided post-retirement life_insurance benefits in excess of dollar_figure per retiree for some current and retired management employees the three foregoing sub-trusts have been identified by you as sub-trusts dm’ none of the above sub-trusts benefit any key_employee within the meaning of sec_416 of the code contributions to q were based on the amounts allowable for such purposes pursuant to the rate-making process of the agencies regulating public_utilities in the states in which n operated and were allocated to sub-trusts du and dm on the basis of actuarial calculations contributions to sub-trusts du were deducted by n on the basis that the account limits of sec_419a of the code do not apply to them because of the exception set forth in sec_419a and contributions to sub-trusts dm were deducted to the extent allowed under the account limits of sec_419a prior to the merger o maintained r an irrevocable_trust that qualified for tax exemption under sec_501 of the code r maintained two sub-trusts one for post-retirement medical benefits and the other for post-retirement life_insurance benefits although approximately of o's employees were and are represented by a labor_organization and although post-retirement welfare benefits for active and retired employees of o and their dependents were the product of good_faith labor negotiations o did not segregate the assets of r o2 attributable to such negotiated benefits contributions to r were based on the amounts allowable for such purposes pursuant to the rate-making process of the agencies regulating public_utilities in the state in which o operated and contributions to r were deducted to the extent allowed by the account limits of sec_419a of the code without regard to the exception set forth in sec_419a f upon creation of s on date the prior sub-trusts du dm and r s which was recently were maintained as separate_accounts within s recognized as tax exempt under sec_501 of the code now wishes to establish five sub-trusts identical to those within q as outlined above the sub- trusts cu providing post-retirement medical and life_insurance benefits to union-represented employees and retirees of m's subsidiaries and affiliates and their dependents will contain the assets of sub-trusts du along with a proportional amount approximately of the two r sub-trusts the proportional amount of r was determined by the actuarial consultant to m such that the portion of r that is transferred to sub-trusts cu will bear a relation to the entire amount of r prior to the transfer equal to the relation that the actuarial present_value of the collectively bargained post-retirement benefits earned by the o union-represented employees and retirees and payable from r bears to the total actuarial present_value of all such benefits earned by all employees of o and payable from r allocated to the two sub-trusts on the basis of r’s obligations for post-retirement medical and life_insurance benefits respectively for such union-represented employees and retirees the other three sub-trusts cm will contain the assets of sub-trusts dm along with the remainder of r allocated on the basis of r's obligations for medical life_insurance under dollar_figure and life_insurance over dollar_figure respectively the assets of cu may be used only to provide post-retirement benefits to current and retired employees of m its affiliates and subsidiaries and their dependents whose benefits have been the subject of good-faith collective bargaining under no circumstances may the assets of sub-trusts cu be used for any purpose other than the provision of welfare benefits to union-represented employees and former employee retirees and their dependents and under no circumstances may the assets of sub-trusts cm be used for any purpose other than the provision of post-retirement welfare benefits to non-union employees and former employees retirees and their dependents no key_employee within the meaning of sec_416 of the code will be eligible to receive benefits from any of the sub-trusts no individuals who are owners of m its affiliates or subsidiaries other than through shares held by qualified_retirement_plans or de_minimis shares held personally by retirees officers or executives will be eligible to receive benefits from any of the sub- trusts b m has requested the following rulings on behalf of s and the merging trusts q and r the merger of q and r into s will not adversely affect the tax exempt status of q and r under sec_501 of the code the merger of q and r into s and the allocation of all of sub-trusts du and a proportional share of r assets to sub-trusts cu as determined by an actuarial consultant and the allocation of all of sub-trusts dm and the remainder of r assets to sub-trusts cm will not result in any portion of a welfare_benefit_fund reverting to the benefit of the employer and therefore will not be subject_to the imposition of any excise_tax under sec_4976 of the code the cu sub-trusts as established on the transfer date and with the allocation to them of sub-trusts du and the proportional share of r assets as determined by an actuarial consultant are separate welfare_benefit funds maintained under a collective bargaining agreement within the meaning of sec_419a of the code and therefore no account limits shall apply so long as the assets of each sub-trust are not available to pay any benefits to be provided by the other sub-trusts the income of sub-trusts cu set_aside to provide post-retirement welfare benefits for union-represented employees and their dependents is exempt_function_income and is not treated as unrelated_business_taxable_income under sec_512 of the code the non-discrimination rules of sec_505 of the code will not be applicable to benefits provided through the assets set_aside in sub-trusts cu sub-trusts cu do not have to meet the special limitation for medical reserves set out in sec_419 of the code inasmuch as we do not have jurisdiction with respect to the special limitation for medical reserves set out in sec_419 of the code we cannot respond to your last ruling_request instead we will forward this question to our employee_plans division which will rule on the matter you need not pay any additional user_fee sec_501 of the code describes a voluntary employees’ beneficiary association veba’ providing for the payment of life sick accident or other_benefits to its members or their dependents or designated beneficiaries loe and in which no part of its net_earnings inures other than through such payments to the benefit of any private_shareholder_or_individual sec_1_501_c_9_-2 ii of the income_tax regulations identifies certain generally permissible restrictions on eligibility for benefits under subsection f of that section a veba may provide life benefits in amounts that are a uniform percentage of compensation received by the individual whose life is covered sec_1_501_c_9_-4 of the regulations provides that no part of the net_earnings of a veba may inure to the benefit of any shareholder or individual other than through the payment of permitted types of life sick accident or other_benefits whether prohibited inurement has occurred is a question to be determined with regard to al the facts and circumstances of a particular case the term net_earnings is given a broad interpretation subjecting all of the assets of an organization to the inurement prohibition see knoliwood memorial gardens v commissioner 46_tc_764 appeal dismissed nolle pros sec_1_501_a_-1 of the regulations provides that the words ‘private shareholder or individual’ in sec_501 refer to persons having a private interest in the activities of the organization sec_1_501_c_9_-4 of the regulations provides that it will not constitute prohibited inurement if upon the dissolution of a veba remaining assets after satisfaction of all liabilities to existing beneficiaries of the plan are applied to provide either directly or through the purchase of insurance life sick accident or other_benefits within the meaning of sec_1_501_c_9_-3 pursuant to criteria that do not provide for disproportionate benefits to officers shareholders or highly compensated employees of the employer sec_505 of the code provides that for purpose of the nondiscrimination requirements there may be excluded from consideration d employees not included in the plan who are included in a unit of employees covered by an agreement between employee_representatives and or more employers which the secretary finds to be a collective bargaining agreement if the class of benefits involved was the subject of good_faith bargaining between such employee_representatives and such employer or employers sec_511 of the internal_revenue_code imposes a tax on the unrelated_business_taxable_income defined in sec_512 of organizations exempt from tax under sec_501 sec_512 of the code defines the term unrelated_business_taxable_income to mean the gross_income derived by any organization from any unrelated_trade_or_business defined in sec_513 regularly carried on by it ob s less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in subsection b sec_513 of the code provides that the term unrelated_trade_or_business means in the case of any organization subject_to the tax imposed by sec_511 any trade_or_business the conduct of which is not substantially related to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption sec_1_513-1 of the income_tax regulations provides that a trade_or_business is related to exempt purposes only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes other than through the production_of_income further it is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one for this relationship to exist the production or the performance of the service from which the gross_income is derived must contribute importantly to the accomplishment of exempt purposes whether the activities productive of gross_income contribute importantly to such purposes depends in each case upon the facts and circumstances involved sec_512 of the code provides that in the case of an organization described in sec_501 the term unrelated_business_taxable_income means the gross_income excluding any exempt_function_income less the deductions allowed by chapter which are directly connected with the production of the gross_income excluding exempt_function_income both computed with the modifications set forth in certain paragraphs of sec_512 sec_512 of the code provides that for purposes of subparagraph a the term exempt_function_income means the gross_income from dues fees charges or similar amounts paid_by members of the organization as consideration for providing such members or their dependents or guests goods facilities or services in furtherance of the purposes for which the organization is tax exempt such term also means all income other than an amount equal to the gross_income derived from any unrelated_trade_or_business regularly carried on by such organization computed as if the organization were subject_to sec_512 which is set_aside in the case of a sec_501 organization to provide for the payment of life sick accident or other_benefits if during the taxable_year an amount which is attributable to income so set_aside is used for a purpose other than that just described such amount shall be included under subparagraph a in unrelated_business_taxable_income for the taxable_year by y sec_512 of the code provides that in the case of an organization described in sec_501 a set_aside for the payment of life sick accident or other_benefits may be taken into account under sec_512 only to the extent that such set-aside does not result in an amount of assets set_aside for such purpose in excess of the account limit determined under sec_419a for the taxable_year not taking into account any reserve described in sec_419a for post retirement medical benefits sec_419 of the code sets forth rules with respect to the tax treatment of funded_welfare_benefit_plans a plan which is determined by the service to be a veba under sec_501 is also considered a welfare_benefit_fund within the meaning of sec_419 of the code sec_419a of the code provides that for purposes of sec_512 the term qualified_asset_account means any account consisting of assets set_aside to provide for the payment of disability medical sub or severance_pay benefits or life_insurance benefits sec_1_419a-2t of the temporary regulations states under q-1 that contributions to a welfare_benefit_fund maintained pursuant to one or more collectively bargained agreements and the reserves of such a fund generally are subject_to the rules of sec_419 sec_419a and sec_512 however neither contributions to nor reserves of such a collectively bargained welfare_benefit_fund shall be treated as exceeding the otherwise applicable limits of sec_419 sec_419a or sec_512 until the earlier of i the date on which the last of the collective bargaining agreements relating to the fund in effect on or ratified on or before the date_of_issuance of final regulations concerning such limits for collectively bargained welfare_benefit funds terminates determined without regard to any extension thereof agreed to after the date_of_issuance of such final regulations or ii the date years after the issuance of such final regulations sec_419a of the code provides that no account limits shall apply in the case of any qualified_asset_account under a separate welfare_benefit_fund formed pursuant to a collective bargaining agreement sec_1_419a-2t q-2 of the regulations defines a welfare_benefit_fund maintained pursuant to a collective bargaining agreement sec_7701 of the code states that in determining whether there is a collective bargaining agreement between employee_representatives and one or more employers the term employee_representatives shall not include any organization more than one-half of the members of which are employees who are owners officer or executives of the employer an agreement shall not be treated as a collective bargaining agreement unless it is a bona_fide agreement between bona_fide employee_representatives and one or more employers sec_419a of the code provides that for purposes of sec_419 and sec_419a of the code related employers will be governed by rules similar to the rules that apply to controlled groups of employers under sec_414 of the code sec_4976 of the code imposes an excise_tax on an employer equal to percent of any disqualified_benefit provided by an employer maintained welfare_benefit_fund sec_4976 defines disqualified_benefit to include any portion of a welfare_benefit_fund reverting to the benefit of the employer concerning the present ruling_request m proposes to transfer assets currently allotted to seven separate funds into five new separate funds two new funds cu will provide benefits only to individuals who were represented by a labor_organization prior to their retirement and their dependents all of the benefits to be paid out by the funds are permissible benefits under code sec_501 and amplifying regulations further you represent that an actuarial determination established that the amounts allocated to funds cu were reasonably and properly due to the qualifying members inasmuch as the benefits provided through sub-funds cu were the subject of arms length negotiations between employee_representatives the three union locals and the employers and in light of the fact that none of the represented employees are executives officers or owner of more than a de_minimis amount of employer stock the various collective bargaining agreements meet the requirements of sec_7701 of the code accordingly sub-funds cu are maintained pursuant to a collective bargaining agreement within the meaning of sec_512 of the code and sec_1_419a-2t of the regulations based on the foregoing we are able to rule as follows the merger of q and r into s will not adversely affect the tax exempt status of q and r under sec_501 of the code the merger of q and r into s and the allocation of all of sub-trusts du and a proportional share of r assets to sub-trusts cu as determined by an actuarial consultant and the allocation of all of sub-trusts dm and the remainder of r assets to sub-trusts cm will not result in any portion of a welfare_benefit_fund reverting to the benefit of the employer and therefore will not be subject_to the imposition of any excise_tax under sec_4976 of the code the cu sub-trusts as established on the transfer date and with the allocation to them of sub-trusts du and the proportional share of r assets as determined by an actuarial consultant are separate welfare_benefit funds maintained under a collective bargaining xbb agreement within the meaning of sec_419a of the code and therefore no account limits shall apply so long as the assets of each sub-trust are not available to pay any benefits to be provided by the other sub-trusts the income of sub-trusts cu set_aside to provide post-retirement welfare benefits for union-represented employees and their dependents is exempt_function_income and is not treated as unrelated_business_taxable_income under sec_512 of the code the non-discrimination rules of sec_505 of the code will not be applicable to benefits provided through the assets set_aside in sub-trusts cu this ruling is based on the understanding that there will be no material changes in the facts upon which it is based any changes that may have a bearing upon your tax status should be reported to your key district_director we are sending a copy of this ruling to your key district_director for exempt_organization matters because this letter could help resolve any questions about your tax status you should keep it with your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent thank you for your cooperation sincerely erate y book gerald v sack chief exempt_organizations technical branch bo


department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l number release date cc intl br wta-n-113336-00 uilc date internal_revenue_service national_office field_service_advice memorandum for rob stanchik supervisory attorney group op in d c ex from w edward williams senior technical reviewer cc intl br1 subject advice concerning closing_agreement this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 b and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice wta-n-113336-00 legend a b country c country d year e period f issues review of proposed closing_agreement for legality and accuracy of facts conclusions the closing_agreement as redrafted provides a basis for resolving the outstanding issues and fully protects the internal_revenue_service the closing agreements also bring noncompliant taxpayers back into the federal_income_tax system and reasonably ensure future compliance we have attached a redrafted closing_agreement containing more accurate representations with respect to the statutory requirements under sec_887 of the internal_revenue_code code facts a is a corporation organized in country c a is engaged in the international operation of ships that transport cargo around the world a does not have a u s permanent_establishment but uses independent agents in the united_states that receive commissions for finding customers for a after paying expenses the agents pay a net amount to a a derives transportation_income that is u s source income under sec_863 and sec_863 a files form 1120-f u s income_tax return of a foreign_corporation to report its united_states source transportation_income that is taxable under sec_861 and sec_887 of the code a is eligible for benefits under the income_tax treaty between the united_states and country c a is the direct or indirect owner of a number of country d subsidiaries that each own a ship for purposes of this memorandum these subsidiaries are collectively identified as b a has entered into bareboat leases for_the_use_of these ships with b since a uses these ships to transport cargo to the united_states a portion of the bareboat rental income received by b is treated a sec_50 percent u s source transportation_income under sec_863 of the code a has represented that this income is trade_or_business income but is not effectively connected with the wta-n-113336-00 conduct of a u s trade_or_business within the meaning of sec_887 because neither a nor b maintains an office or other fixed place of business in the united_states b is not entitled to an exemption for this income under sec_883 of the code thus the income that is united_states source income under sec_863 is united_states_source_gross_transportation_income ussgti under sec_887 and is subject_to the percent tax on the gross amount under sec_887 in addition since a also uses these ships to transport cargo between united_states ports a portion of the bareboat rental income attributable to such use and received by b is treated as u s source transportation_income under sec_863 of the code this portion of the bareboat rental income is considered fixed and determinable annual or periodic_income fdap because this income is trade_or_business income but is not effectively connected with the conduct of a u s trade_or_business within the meaning of sec_864 it is subject_to the percent tax under sec_881 thus b has both fdap_income subject_to tax at a rate of percent of gross and also ussgti that is subject_to tax at the rate of percent of gross in the past each of the country d corporations collectively referred to as b herein obtained a u s taxpayer_identification_number if it owned a boat that was operated in u s waters in a given year each such corporation filed a form 1120-f u s income_tax return of a foreign_corporation with the service to report its u s source income because a single boat might not operate in u s waters in a particular year or in any year however forms 1120-f were not filed for each boat owning corporation in each taxable_year a and b were current on their u s filing obligations through year e when an internal reorganization occurred in the group responsible for tax compliance as a result of this reorganization the resignation and departure of the person whose duties included u s tax compliance and mis-communication between the new tax group and its outside advisors no us tax returns have been filed on behalf of any of the country d subsidiaries collectively referred to as b herein and b has paid no u s tax for period f a and b are not currently under audit by the service on this or any other tax issue and b has not received any notice for its failure_to_file a and b wish to file all delinquent returns and to pay all the tax and interest due but have requested that the service not assert penalties for failure_to_file failure to deposit and failure to pay and that the service enter into a closing_agreement with a and b to that effect a and b have provided the service and the service has reviewed redacted copies of all outstanding corporate_income_tax returns forms 1120f a and b have agreed to identify themselves before the service wta-n-113336-00 enters into the closing_agreement moreover a c international concurs with a and b’s assertions that there is reasonable_cause not to assert the penalties law and analysis pursuant to your request we have reviewed the closing_agreement that taxpayer’s counsel provided and your office forwarded to our offices on date in our view the draft closing_agreement forwarded requires a number of changes to correctly reflect certain statutory requirements with respect to the underlying tax imposed under sec_881 and sec_887 of the code in addition there are certain other changes that should be made to more completely protect the service’s position therefore we have enclosed a revised draft containing language that would be acceptable as an agreement in principal any closing_agreement with b should be entered into on behalf of the commissioner only after a reveals its identity and the identities of each of its affected country d subsidiaries as you know the internal_revenue_service does not enter into closing agreements with anonymous taxpayers a separate closing_agreement should be made with each affected country d subsidiary the bracketed language in the attached draft agreement will permit the agreement to be tailored to the specific facts of each affected country d subsidiary in addition prior to signing these agreements your office should-- obtain the appropriate forms power_of_attorney from each affected country d subsidiary permitting a or its representatives to sign the closing_agreement on its behalf confirm that a and its affected country d subsidiaries are not presently under examination and have not been notified of the initiation of any such examination obtain from a corrected unredacted copies of the forms 1120f that it filed in accordance with this agreement with the irs for taxable years ended december period f on behalf of each affected country d subsidiary for each affected country d subsidiary that has bareboat rental income treated as fdap_income in taxable years during period f obtain separate schedules showing the calculation of the gross amount of bareboat rental income treated as fdap the amount of tax imposed on that income under sec_881 of the code the amount of tax withheld under sec_1441 if any and the amount of tax reported on forms 1120f section i line for each taxable_year and paid in accordance with this agreement wta-n-113336-00 for each affected country d subsidiary that has bareboat rental income treated as ussgti in taxable years during period f obtain separate schedules showing the calculation of the gross amount of bareboat rental income treated as ussgti the amount of tax imposed on that income under sec_887 of the code and the amount of tax reported on forms 1120f section i line for each taxable_year and paid in accordance with this agreement it is our view that the closing_agreement as redrafted provides a basis for resolving the outstanding issues fully protects the internal_revenue_service brings noncompliant taxpayers back into the federal_income_tax system and reasonably ensures future compliance by this group of taxpayers case development hazards and other considerations pursuant to sec_7121 a closing_agreement may be entered into in any case in which there appears to be an advantage in having the case permanently and conclusively closed or if good and sufficient reasons are shown by the taxpayer for desiring a closing_agreement and it is determined by the commissioner that the united_states will sustain no disadvantage through the consummation of such an agreement your office has concluded that under the facts of this case there is reasonable_cause for failure_to_file and pay the tax further we agree that entering into these closing agreements would bring noncompliant taxpayers back into the federal_income_tax system and reasonably ensure future compliance these taxpayers may never have been identified and examined in the absence of this request thus it is the opinion of this office that the service will receive a greater benefit to tax_administration and convenience by receiving payment of the tax_liabilities and interest thereon for the taxable years at issue and by getting these taxpayers back into the system than any potential loss the united_states would sustain from a waiver of the penalties for which any single_taxpayer in the group would otherwise be liable accordingly each closing_agreement provides for a waiver of the failure_to_file_penalty under sec_6651 of the code the failure to pay penalty under sec_6651 and the failure to deposit penalty under sec_6656 in regard to the federal_income_tax liabilities set forth in the relevant agreement a has provided schedules setting forth the amounts of bareboat rental income from use of the ships to carry cargo between united_states ports sec_863 and between ports in the united_states and foreign ports sec_863 however the tax_liability reflected on these schedules and on the redacted returns was calculated by applying sec_887 to all such income wta-n-113336-00 new schedules must be prepared to attach to each closing_agreement demonstrating the proper application of the percent tax_rate of sec_881 to the gross_income sourced under sec_863 and the application of the percent tax_rate of sec_887 to the ussgti percent of the gross amount sourced under sec_863 simultaneously with the signing of the agreements each relevant country d subsidiary must file corrected unredacted forms 1120f for period f and pay the tax agreed in the closing_agreement and reflected on these corrected schedules and returns as well as any interest accrued at the prescribed rate in accordance with sec_6621 of the code for any_tax liabilities resulting from filing these returns nevertheless we recommend that the service should not agree to accept the income and tax calculations that are provided by b on the unredacted returns and corrected schedules to be attached to the agreements without reserving the right to examine the underlying books_and_records of b and make any necessary adjustments to the underlying tax_liability or resulting interest this recommendation is reflected in the language of the attached draft closing_agreement if you have any questions or need further assistance please do not hesitate to call me or patricia bray w edward williams senior technical reviewer attachment wta-n-113336-00 closing_agreement on final_determination covering specific matters _______________ under sec_7121 of the internal_revenue_code_of_1986 as amended the code b corporation a corporation with its principal_place_of_business at u s ein and the commissioner of internal revenue referred to herein as the irs make the following closing_agreement agreement alternative a1 in the case of a taxpayer that only has bareboat rental income that is united_states source transportation_income under sec_863 and subject_to tax under sec_887 whereas b corporation represents that it owns at least one ship and is in the business of bareboat leasing of a ship or ships for use in water transportation of cargo between ports in the united_states and foreign ports whereas b corporation represents that the income it receives from bareboat leasing of its ship or ships is transportation_income as defined under sec_863 of the code that is treated a sec_50 percent from sources within the united_states under wta-n-113336-00 sec_863 and is also united_states_source_gross_transportation_income as defined in sec_887 ussgti taxable under sec_887 whereas b corporation represents that it does not maintain a fixed place of business in the united_states involved in the earning of ussgti and that in the case of income from bareboat leasing of a ship substantially_all of the ussgti of b corporation determined without regard to sec_887 is not attributable to a fixed place of business in the united_states alternative a2 in the case of a taxpayer that has bareboat rental income that is united_states source transportation_income under sec_863 and subject_to tax under sec_881 as well as bareboat rental income that is united_states source transportation_income under sec_863 and subject_to tax under sec_887 whereas b corporation represents that it owns at least one ship and is in the business of bareboat leasing of a ship or ships for use in water transportation of cargo partly between ports in the united_states and partly between united_states ports and foreign ports whereas b corporation represents that a portion of the bareboat rental income it receives is transportation_income as defined under sec_863 of the code percent from sources within the united_states under sec_863 and taxable under sec_881 of the code wta-n-113336-00 whereas b corporation represents that a portion of the bareboat rental income it receives is transportation_income as defined under sec_863 of the code percent from sources within the united_states under sec_863 and is also united_states_source_gross_transportation_income as defined in sec_887 ussgti taxable under sec_887 whereas b corporation represents that it does not maintain a fixed place of business in the united_states involved in the earning of ussgti and that in the case of income from bareboat rental of a ship substantially_all of the ussgti of b corporation determined without regard to sec_887 of the code is not attributable to a fixed place of business in the united_states whereas b corporation represents that during the taxable periods prior to it filed forms 1120-f to report its transportation_income taxable under sec_887 of the code and paid its annual federal_income_tax liability whereas b corporation represents that during the taxable periods prior to it filed forms 1120-f to report its transportation_income taxable under sec_881 of the code and paid its annual federal_income_tax liability not satisfied by withholding wta-n-113336-00 whereas b corporation represents that it had transportation_income taxable under sec_887 of the code of dollar_figure and transportation_income taxable under sec_881 of dollar_figure________ for the taxable_period it had transportation_income taxable under sec_887 of dollar_figure and transportation_income taxable under sec_881 of dollar_figure for the taxable_period and it had transportation_income taxable under sec_887 of dollar_figure and transportation_income taxable under sec_881 of the code of dollar_figure for the taxable_period but has not filed forms 1120-f for these taxable periods or paid its federal_income_tax liabilities for these taxable periods whereas b corporation represents that it has not been notified by the internal_revenue_service that it is or will be under audit whereas b corporation has voluntarily brought the above described failures to timely remit federal income taxes and file forms 1120-f for the taxable periods through to the attention of the assistant_commissioner international internal_revenue_service the service in order to resolve the tax_liability of b corporation arising by reason of such failures whereas the parties wish to resolve the income_tax liabilities of b corporation that result from b corporation's failure_to_file the above described forms 1120-f and pay the required income taxes wta-n-113336-00 and whereas in recognition of b corporation’s voluntary disclosure to the irs of the above facts and circumstances its immediate self-implementation of u s tax compliance its immediate filing of its forms 1120-f and its full and immediate payment of the u s taxes and interest due the parties desire to enter into this agreement now therefore for good and adequate_consideration the receipt and sufficiency of which are acknowledged and intending to be legally bound it is hereby determined and agreed for federal_income_tax purposes that contemporaneous with the execution of this agreement b corporation shall file federal_income_tax returns for the taxable periods reporting income_tax liabilities in accordance with paragraph contemporaneous with the execution of this agreement b corporation shall pay to the irs the sum of dollar_figure representing b corporation’s computation of its u s income_tax under sec_887 and sec_881 for the taxable_year ended december the sum of dollar_figure representing b corporation’s computation of its u s income_tax under sec_887 and sec_881 for the taxable_year ended december and the sum of dollar_figure representing b corporation’s computation of its u s income_tax under sec_887 and sec_881 for the taxable_year ended december computed in accordance with this agreement attached as exhibit a wta-n-113336-00 is a schedule setting forth the basis for b corporation’s computation of this tax based on a good_faith and reasonable review of its accounting_records in addition contemporaneous with the execution of this agreement b corporation will pay all interest accrued at the prescribed rate in accordance with sec_6621 of the code for any_tax liabilities resulting from filing said returns required by paragraph the irs agrees to waive the failure_to_file_penalty under sec_6651 of the code the failure to pay penalty under sec_6651 and the failure to deposit penalty under sec_6656 of the code in regard to the federal_income_tax liability set forth in paragraph above the irs reserves the right to examine whether b corporation maintained an office or other place of business in the united_states during taxable years the irs reserves the right to examine any issues arising under sec_881 or sec_887 and the regulations thereunder for the parties agree that no public disclosure of the existence of this closing_agreement or its terms will be made without prior approval of the irs now this closing_agreement witnesseth that b corporation and the irs hereby mutually agree that this agreement only resolves those issues relating to b corporation's failure_to_file federal_income_tax returns forms 1120-f for the taxable periods and to timely pay the tax reported on these returns this agreement does not preclude the service wta-n-113336-00 from auditing and making adjustments to b corporation or any entity related to b corporation for any year in regard to any corporate_income_tax returns for any issues other than those issues being resolved by this agreement this agreement is final and conclusive except that the matter it relates to may be reopened in the event of fraud malfeasance or misrepresentation of material fact and this agreement is subject_to the internal_revenue_code sections that expressly provide that effect be given to their provisions including any stated exception for code sec_7122 notwithstanding any other law or rule_of law by signing the above parties certify that they have read and agreed to the terms of this document taxpayer other than individual b corporation by date signed title commissioner of internal revenue by date signed wta-n-113336-00 title i have examined the specific matters involved and recommend acceptance of the proposed agreement receiving officer date signed name title i have examined the specific matters involved and recommend approval of the proposed agreement receiving officer date signed name title


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date aug s p- contact person identification_number telephone number employer_identification_number dear sir or madam this is in response to a letter dated date which requested certain rulings with respect to a proposed transfer of all of the assets of b to c b is exempt under sec_501 of the internal_revenue_code and is classified as a private_foundation under sec_509 c a charitable_trust is exempt under sec_501 of the code and is classified as a private_foundation under sec_509 d is the sole director of b and its substantial contributors are d and e c’s initial trustees and substantial contributors are d and e b has always had as its primary charitable purpose the distribution of gifts and grants to other organizations that are exempt under sec_501 to be used in furtherance of programs for the control and study of the growth in human populations according to the trust agreement that created c c will make grants to charitable organizations that support work being done abroad and in the united_states in connection with promoting reproductive rights and providing abortion and modern methods of family planning c will also support certain non- governmental organizations that give women access to the education and means to limit their family size to the number of children they can financially and emotionally sustain since its inception b has had specific goals and patterns of giving that carry out the charitable goals of d and e d and e want to insure that their charitable goals and patterns of giving continue beyond their lifetimes they are specifically concerned that future board members could easily change b’s existing charitable purposes by amending its bylaws or articles of incorporation therefore b's board_of directors has created c currently owns to c terminate its private_foundation_status within the meaning of sec_507 thereafter b will dissolve b proposes to transfer all of the assets it at least one day after the transfer b will notify the service of its intent to b has never notified the service in the past that it intends to terminate its private_foundation_status nor has b ever received notification that its status as a private_foundation has been terminated furthermore b has not committed willful repeated acts or failures to act ora willful and flagrant act or failure to act giving rise to liability for tax under chapter sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_507 of the code and the regulations to sec_507 sets forth rules applicable to terminating foundations the internal_revenue_service in revrul_2002_28 2002_20_irb_941 copy attached has issued guidance on the filing obligations and tax issues that arise when a private_foundation transfers all of its assets to one or more other private_foundations under sec_507 of the code the rev_rul presents three situations in which a private_foundation transfers all of its assets to one or more other private_foundations in situation one the foundation under a plan of dissolution distributes all of its remaining assets in equal shares to three other private_foundations in situation two the trustees of a private_foundation trust create a not-for-profit corporation to carry on the trust’s charitable activities which the trustees have determined can be more effectively accomplished by operating in corporate form all of the trust’s assets and liabilities are transferred to the not-for-profit corporation in situation three two private_foundations transfer all of their assets and liabilities to a newly formed private_foundation in the rev_rul the service has ruled that a private_foundation that transfers all of its assets to one or more private_foundations in a transfer described in sec_507 is not required to notify the manager exempt_organizations determinations tax exempt government entities that it plans to terminate its private_foundation_status under sec_507 the ruling further states that if the private_foundation does not provide notice and does not terminate it is not subject_to termination_tax under sec_507 if the private_foundation provides notice and terminates then it is subject_to the tax however if the private_foundation has no assets on the day it provides notice the sec_507 tax will be zero the rev_rul gives detailed information as to the applicability of the excise_taxes imposed by sections of the code the ruling further provides that a private_foundation that has disposed of all its assets and terminates its private_foundation_status must file a form pf for the tax_year of the disposition and must comply with any expenditure_responsibility reporting obligations on the return a private_foundation that has disposed of all its assets and does not terminate its private_foundation_status must file a form_990-pf for the tax_year of the disposition and must comply with any expenditure_responsibility reporting obligations on the return but does not need to file returns in the following tax years if it has no assets and does not engage in any activities activities in later years it must resume filing form_990-pf for those years if the private_foundation receives additional assets or resumes our evaluation of the facts and circumstances in your ruling_request indicates that the transfer of b’s assets to c would be similar to the facts and circumstances described in situation two of the rev_rul under the facts described the foundations would not be subject_to tax under sec_507 and sections of the code accordingly based on the information furnished and the code and regulations as interpreted in revrul_2002_28 we rule as follows the proposed transfer will constitute a transfer described in sec_507 of the code and as such will not result in a termination of b’s private_foundation_status under sec_507 and will not cause the imposition of the termination_tax described in sec_507 the proposed transfer will not constitute a willful and flagrant act or failure to act giving rise to liability for tax under chapter the proposed transfer will not adversely affect the tax-exempt status of either b or c under sec_501 of the code the proposed transfer will not result in any liability for tax under sec_4940 of the code the proposed transfer will not constitute an act of self-dealing under sec_4941 of the code and will not subject b or c to tax under sec_4941 of the code b will not be required to meet the qualifying_distribution requirements under sec_4942 of the code for the taxable_year of the proposed transfer provided that c’s distributable_amount for the year of the proposed transfer if any is increased by b’s distributable_amount for the year of the proposed transfer if any and any excess qualifying_distribution carryover of b under sec_4942 if any will be carried over to c and may be used by c to meet its distribution_requirements under sec_4942 the proposed transfer will not constitute a jeopardizing investment within the meaning of sec_4944 of the code the proposed transfer will not constitute a taxable_expenditure within the meaning of sec_4945 of the code and b will not be required to exercise expenditure_responsibility with respect to the assets transferred to c the legal accounting and other expenses_incurred by b and c in connection with this ruling_request and effectuating the proposed transfer will be considered qualifying distributions under sec_4942 of the code and will not constitute taxable_expenditures pursuant to sec_4945 if after the transfer of all of its assets to c b properly notifies the service of its intent to terminate its private_foundation_status such notice will be effective to terminate the private_foundation_status of b terminates its private_foundation_status is zero then b will not be liable for any termination_tax under sec_507 of the code if the value of b's net assets at the time it gives notice and _ we are informing the te_ge office of this action please keep a copy of this ruling in your organization’s permanent records this ruling is directed only to the organization that requested it sec_611 o k of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely spe ate vv sack gerald v sack manager exempt_organizations technical group