department of the treasury internal_revenue_service washington d c dec tax_exempt_and_government_entities_division uics legend taxpayer a taxpayer b trustee c taxpayer d taxpayer e trust t date date date date date date jra x ira w page company m state n dear ms this is in response to the request for letter rulings under sec_401 of the internal_revenue_code submitted on your behalf by your authorized representative as supplemented by correspondence dated and the request for letter rulings is based on the following facts and _ representations taxpayer a whose date of birth was date died on date at age as of his date of death taxpayer a was the owner of ira x maintained with company m on date taxpayer a signed and adopted trust t for the benefit of his three children taxpayer b taxpayer d and taxpayer e taxpayer b’s date of birth was date taxpayer d trustee of trust t is the eldest of taxpayers b d and e taxpayer c is the taxpayer b was alive as of the date of this ruling_request the provisions of trust t provide in relevant part that trust t is intended to be the beneficiary of an individual_retirement_arrangement ira maintained by taxpayer a the terms of trust t further provide that upon the death of the trustor the trustee shall divide the trust estate into equal shares one for taxpayer b if he is then living each share shall constitute a separate trust and shall be held and administered as such the terms of trust t also provide that the trust t trustee is required to maintain separate_accounts on a pro_rata basis in accordance with proposed sec_1_401_a_9_-1 q a h-2 b for the separate beneficiaries of trust t finally the terms of trust t provide that its trustee shall withdraw from the beneficiary’s share of any ira and distribute to the beneficiary such beneficiary’s share of the minimum distribution required to be distributed annually from the ira on date taxpayer a signed a beneficiary designation with respect to his ira x pursuant to which ira x was to be distributed to the trustee of trust t at the death of taxpayer a said beneficiary designation provides in relevant part that trust page t is to be divided into equal accounts for three beneficiaries named therein taxpayer b is one of the three named beneficiaries the beneficiary designation also provides that the trust t trustee may establish separate iras in the name of taxpayer a for the benefit of the three above-referenced named beneficiaries in effect the trustee of trust t was authorized to establish a separate ira for the benefit of taxpayer b your authorized representative has asserted that trust t and the separate trusts created under its terms are valid under the laws of state n he has also asserted that trust t and the separate trusts created under its terms became irrevocable upon the death of taxpayer a company m was provided with a copy of trust t and of the related beneficiary designation prior to the death of taxpayer a your authorized representative has provided the service with documentation which indicates that prior to date ira x was subdivided into three iras after the death of taxpayer a each posthumously created ira is titled in the name of taxpayer a deceased for the benefit of a distinct individual thus one ira ira w is titled taxpayer a deceased for the benefit of the trust for taxpayer b ira w has an account number which is different from the account numbers assigned to the iras maintained for the benefit of taxpayer a’s other two children additionally documentation provided by your authorized representative indicates that the trust created for the benefit of taxpayer b under the terms of trust t has a taxpayer_identification_number which is different from the taxpayer identification numbers assigned to the trusts created for the benefit of taxpayer a’s other children your authorized representative has asserted on your behalf that the one-third of ira x which became ira w after ira x was subdivided is payable to the subtrust created under the terms of trust t for the benefit of taxpayer b your authorized representative asserts that distributions from ira w have not been made are not being made and will not be paid to trust t based on the above facts and representations you through your authorized representative request the following letter rulings that for purposes of code sec_401 ira x may be subdivided into three sub-iras with each ira held in the name of taxpayer a deceased for the benefit of a separate beneficiary-in this case taxpayer b and that required distributions from the sub-ira maintained in the name of taxpayer a for the benefit of taxpayer b may be paid over the remaining life expectancy of taxpayer b page with respect to your ruling requests code sec_408 of the code provides that under regulations prescribed by the secretary rules similar to the rules of sec_401 and the incidental death_benefit requirements of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit the ira trust is maintained code sec_401 provides in general that a_trust will not be considered qualified unless the plan provides that the entire_interest of each employee- gi will be distributed to such employee not later than the required_beginning_date or will be distributed beginning not later than the required_beginning_date over the life of such employee or over the lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated_beneficiary code sec_401 provides in general that if a plan participant ira holder dies before the distribution of his interest has begun in accordance with subparagraph a ii prior to his required_beginning_date then his entire_interest must ‘be distributed within years of his death code sec_401qii provides in general that if any portion of the interest of a deceased plan participant ira holder is payable to or for the benefit of a designated_beneficiary such portion will be distributed beginning not later than year after the date of the deceased’s death or a later date as prescribed by the secretary under regulations in accordance with regulations over the life of the designated_beneficiary or a period not extending beyond the life expectancy of the beneficiary sec_401 of the code provides in relevant part that for purposes of this paragraph the term required_beginning_date means april of the calendar_year following the calendar_year in which the employee ira holder attains age with respect to your ruling requests final income_tax regulations under code sec_401 and sec_408 were published in the federal_register pincite federal_register date and in the internal_revenue_bulletin pincite lr b date the preamble to the final regulations in relevant part provide that the regulations apply for determining required minimum distributions for calendar years beginning after date for determining required distributions for calendar_year taxpayers may rely on the proposed_regulations the proposed_regulations or the final regulations page sec_1_401_a_9_-3 of the final regulations q a-3 a provides in general that with respect to the life expectancy exception to the 5-year rule described in code sec_401gii and in a-1 distributions are required to begin to a non-spouse beneficiary on or before the end of the calendar_year immediately following the calendar_year in which the employee died sec_1_401_a_9_-5 of the final regulations q a-5 b provides in general that if an employee dies before his required_beginning_date in order to satisfy the requirements of code sec_401 or iv and the life_expectancy_rule described in a-1 of sec_1_401_a_9_-3 the applicable distribution period for distribution calendar years after the distribution calendar_year containing the employee’s date of death is determined in accordance with paragraph c of this a-5 sec_1_401_a_9_-5 of the final regulations q a-5 c provides in general that with respect to a non-spouse beneficiary the applicable distribution period measured by the beneficiary’s remaining life expectancy is determined using the beneficiary’s age as of the beneficiary’s birthday in the calendar_year immediately following the calendar_year of the employee’s death in subsequent calendar years the applicable distribution period is reduced by one for each calendar_year that has elapsed after the calendar_year immediately following the calendar_year of the employee’s death sec_1_401_a_9_-4 of the final regulations q a-4 provides in relevant part that in order to be a designated_beneficiary an individual must be a beneficiary as of the date of the employee’s or ira holder’s death generally an employee’s designated_beneficiary will be determined based on the beneficiaries designated as of the date of death who remain beneficiaries as of september of the calendar_year following the calendar_year of death sec_1_401_a_9_-4 of the final regulations q a-3 provides that only individuals may be designated beneficiaries for purposes of sec_401 a person who is not an individual such as the employee's estate may not be a designated_beneficiary however q a-5 of sec_1_401_a_9_-4 provides that beneficiaries of a_trust with respect to the trust's interest in an employee's benefit may be treated as designated beneficiaries if the following requirements are met the trust is valid under state law or would be but for the fact that there is no corpus the trust is irrevocable or the trust contains language to the effect it becomes irrevocable upon the death of the employee page the beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the employee's benefit are identifiable within the meaning of a-1 of this section from the trust instrument the documentation described in a-6 of this section has been provided to the plan_administrator sec_1_401_a_9_-4 of the final regulations q a-6 b provides generally with respect to required minimum distributions after the death of the employee that documentation described therein must be provided by the trustee of the trust_beneficiary to the plan_administrator by october of the calendar_year following the calendar_year in which the employee died sec_1_401_a_9_-8 of the final regulations q a-2 a provides the separate_account rules with respect to defined contribution plans a separate_account is an account under which the beneficiary or beneficiaries differ from the beneficiary or beneficiaries of the other accounts in general if separate_accounts are set up for years subsequent to the calendar_year containing the date on which the separate_accounts were established or the date of death if later a separate_account under a plan is not aggregated with the other separate_accounts under the plan in order to determine whether the distributions from such separate_account satisfy the requirements of code sec_401 instead the rules in code sec_401 apply separately to each separate_account under the plan sec_1_401_a_9_-8 of the final regulations q a-3 provides that a separate_account is a separate portion of an employee’s benefit which reflects the separate interest of an employee’s beneficiary under the plan as of the employee’s death for which separate_accounting is maintained the separate_accounting must allocate all post-death investment gains and losses contributions and forfeitures for the period prior to the establishment of the separate_accounts on a pro-rata basis in a consistent and reasonable manner among the separate_accounts sec_1_401_a_9_-4 of the final regulations q a-5 c provides in relevant part that the separate_account rules under a-2 of sec_1_401_a_9_-8 are not available to beneficiaries of a_trust with respect to the trust’s interest in the employee’s benefit as previously noted taxpayers are permitted to compute minimum required distributions for calendar_year in accordance with the final regulations referenced above as noted above if distributions are made to a_trust even if the trust is a see- through trust within the meaning of q a-5 of sec_1_401_a_9_-4 of the final page regulations the separate_account rules of a-2 of sec_1_401_a_9_-8 of the final regulations are not available to the beneficiaries of the trust thus in general each beneficiary of a_trust must receive minimum required distributions over the life expectancy of the eldest beneficiary the issue raised in this ruling_request is whether the general_rule above applies where ira_distributions are made directly to a subtrust created under the terms of a_trust in this case distributions from ira w which was created for and is being maintained for the benefit of taxpayer b are being made directly to the subtrust created under the terms of trust t for taxpayer b’s benefit and are not being paid to trust t taxpayer b is the only beneficiary of the subtrust created for his benefit however the facts presented in this case indicate that the subtrust for the benefit of taxpayer b was created by the trustee of trust t pursuant to the terms of trust t furthermore as noted above the terms of trust t provide that the trustee thereof is charged with the responsibility of creating separate_accounts although neither the code nor the final regulations promulgated under code sec_401 preclude the posthumous division of ira x into three iras including ira w the final regulations do preclude separate_account treatment for code sec_401 purposes where amounts pass through a_trust in this case amounts pass through a_trust thus even though ira x has been divided into three iras including ira w the life expectancy of the eldest beneficiary of all of the iras not merely ira w is the life expectancy to be used to determine the code sec_401 payout period for distributions from ira w tp d is said eldest beneficiary thus based on the specific facts and representations surrounding this ruling_request we conclude as follows that for purposes of code sec_401 ira x may be subdivided into three sub-iras with each ira held in the name of taxpayer a deceased for the benefit of a separate beneficiary-in this case taxpayer b and that iaw sec_1_401_a_9_-8 of the final regulations q a-2 a and sec_1_401_a_9_-4 of the final regulations q a-4 c required distributions from the ira ira w maintained in the name of taxpayer a deceased for the benefit of taxpayer b must be paid over the remaining life expectancy of taxpayer d this ruling letter is based on the assumption that iras x and w either have met are meeting or will meet the requirements of code sec_408 at all times relevant thereto it page also assumes that trust t and the subtrusts created thereunder are valid under the laws of state n as represented pursuant to a power_of_attorney on file with this office the original of this letter_ruling is being sent to your authorized representative this letter is directed only to the taxpayer that requested it and is based solely on the representations made with respect thereto sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours crease v gon - rances v sloan manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of ruling letter notice of intention to disclose


internal_revenue_service department of the treasury sin no third party contact washington dc contact person telephone number in reference to date jan employer_identification_number key district legend a b foundation company x dear taxpayer this ruling revokes and supersedes our ruling that was issued to you company plr on august ruling was issued in response to company’s ruling_request regarding the establishment of related natural disaster relief and emergency hardship grants and loans to employees of foundation and company and its subsidiaries a program to provide employer- the we had not ruled on the foundation’s emergency hardship program in our date letter the ruling_request together with subsequent information indicated that foundation is exempt under sec_501 internal_revenue_code as an organization described in sec_501 c a a substantial_contributor to the foundation and thus a disqualified_person with respect to the foundation under sec_4946 a a for-profit business corporation and is a private_foundation under section and is classified as the company is of the code of the the foundation is governed by a board_of directors comprised of two individuals officer of the company and b vice-chairman chief financial and administrative officer of the company a chairman president and chief executive the foundation established and administers an employee assistance program to provide relief to its current part-time or former employees and the current part-time or former employees of the company and its subsidiaries who have suffered catastrophic losses due to natural disaster or financial hardship there are two components to the assistance program the natural disaster assistance program and the emergency financial assistance program financial hardship program natural disasters would include fires floods earthquakes or other natural disasters any situation which results in an individual being unable to meet financial obligations for reasons beyond his or her control such as medical emergency etc company employees who have suffered catastrophic losses from these events are eligible to receive grants or low or no-interest loans from the foundation grant or loan under both programs is dollar_figure the maximum allowable_amount of each emergency financial need would include current or former foundation or the recipients may only use the grants or low or no-interest personal these items are loans to replace certain items residence but not business property furniture ordinary appliances and typical home furnishings but not extraordinary possessions such as antique collections or electronic equipment not considered as typical home furnishings but not including luxury possessions personal possessions such as books recreational equipment and children’s toys but excluding jewelry boats and recreational vehicles automobiles to the extent not covered by insurance and then only to the extent of fair_market_value emergency financial needs such as living_expenses medical and social services and travel costs and other intangible food clothing the foundation will only provide natural disaster assistance an applicant meets certain the criteria are as follows grants and loans are and emergency hardship assistance if criteria provided only to the extent that an individual is able to demonstrate an unexpected need which cannot be met from his or the grants and loans are provided her available_resources only if that individual’s losses are not covered by insurance federal or state relief funds agencies and available personal financial resources may have to submit evidence to substantiate their losses and to prove that they lack insurance coverage or other financial funds available through recognized applicants resources to cover their catastrophic losses to provide any other information the foundation needs to evaluate his or her application an applicant has the foundation plans to include in the company’s and its subsidiaries’ employee handbooks a brief notice describing the assistance programs and the name address and telephone number of the contact person involved in the operation of those programs the foundation also plans to advertise the programs in the company’s and its subsidiaries’ internal publications foundation plans to publish its own publications that advertise these two programs may be solicited by notice in the local media publications the assistance programs will be clearly identified as being organized and operated by the foundation and not by the company and its subsidiaries in the case of natural disasters applicants in all the the foundation's officers or directors appoint a coordinator and a local selection committee within a geographic area to oversee the selection of grant and loan recipients selection committee consists of members who are current or former officers directors or employees of the foundation the company and its subsidiaries are advised that when administering the assistance programs they are acting as the foundation’s agents and not as employees of the company or its subsidiaries committee forwards the selected applications to the foundation’s officers and board members who then make the final_decision whether to approve such grants or loans members of each local selection committee each local selection each local grants are made by a committee of six persons all of whom are employees of company president public affairs and government relations the general counsel and secretary president outdoor division vice- president treasury services president x group and president y division directors of foundation grants to individuals recommended by the selection committee all six individuals were selected by the board_of this committee will approve payout of they are the senior vice- each program coordinator collects applications which must a current or former employee of the foundation and or contain the applicant's name address telephone number social_security_number a brief description of the loss suffered the type and amount of assistance needed and substantiation that he or she is the company and its subsidiaries identifiable material in each application are then redacted so that the local selection committee making the recommendation and the foundation’s officers and directors making the final_decision will not know who the individual applicant is hence selections the name and all personal wd rv are made upon a blind basis without knowledge of the identities of the individuals within the application pool we ruled in our date letter that any indirect benefit received by the company and it sec_1 subsidiaries as disqualified persons from the operation of the natural disaster assistance program by the foundation is incidental and the grants and loans made by the foundation pursuant to this assistance program will not result in acts of self-dealing within the meaning of sec_4941 of the code and since the natural disaster assistance program will result in qualifying distributions made for a sec_170 b purpose any payment made in furtherance thereof is not a taxable_expenditure under sec_4945 of the code concerning the emergency financial assistance program we letter that we were not prepared at stated in our august the time to rule that grants or loans made by the foundation pursuant to this program would not result in either acts of self- dealing within the meaning of sec_4941 of the code or in taxable_expenditures within the meaning of sec_4945 of the code financial assistance program by separate ruling after further consideration we stated at the time that we would address the emergency charitable purposes and sec_501 of the code and c b sec_501 of the code provides in part for the exemption from federal_income_tax of organizations that are organized and operated exclusively for among others charitable purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_170 b of the code provides that for purposes the term charitable_contribution means a of sec_170 contribution or gift to or for_the_use_of or community chest exclusively for among others charitable purposes cc benefit of any private_shareholder_or_individual fund a corporation trust or foundation organized and operated adds no part of the net_earnings of which inures to the subparagraph sec_1 a -1 c of the income_tax regulations defines private_shareholder_or_individual within sec_501 as persons having a personal and private interest in the activities of the organization sec_1 c -1 a of the regulations defines the term exempt_purpose or purposes as any purpose or purposes specified in sec_501 as defined and elaborated in paragraph d of this section sec_1 c -1 d of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests thus it sec_1 c -1 d of the regulations provides in that the term charitable is used in section of the code relevant part c generally accepted legal sense things relief of the poor and distressed or of the underprivileged thus and such term includes among other in sec_170 b in its sec_1_170a-4a d of the regulations defines needy as being a person who lacks the necessities of life involving physical mental or emotional well-being as of poverty or temporary distress a result sec_1 c -1 c of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if activities which accomplish one or more of such exempt purposes specified in sec_501 so regarded if more than an insubstantial part of its activities is not in furtherance of an organization will not be it engages primarily in an exempt_purpose in better business bureau of washington d cc v the court held that the inc united_states u s presence of nature will preclude exemption regardless of the number or importance of statutorily exempt purposes a single non-exempt purpose if substantial in revrul_75_199 1975_1_cb_160 provides that an organization that restricts its membership to individuals of good moral character and health belonging to a particular ethnic group residing in a stated geographical area and provides sick benefits to members and death_benefits to their beneficiaries is not and by extension is exempt under sec_501 not exempt under sec_501 the organization’s income is derived principally from membership dues and is used for the payment of benefits and operating_expenses the revenue_ruling further states that the membership_organization described is of the code a m o b c o t n a r y o c e c o c l a essentially a mutual self-interest type of organization income is used to provide direct economic benefits to members and any benefit to the larger community is minor and incidental its revrul_81_58 1981_1_cb_331 amplifies revenue the association was created for the membership benefits program revrul_81_58 describes an ruling supra association composed of officers of a police department ina particular community educational_purposes and to provide a lump sum payment to each member upon retirement or a lump sum payment to beneficiaries upon the member’s death constitutes the association’s primary activity organization's primary sources of income are from contributions by the general_public and through fund raising events members are also required to pay a nominal one-time membership fee upon joining the organization economic benefits to members benefitted by the organization consists of police officers engaged in the performance of essential and hazardous public services and there is an incidental benefit provided by the organization to the larger community the fact remains that the primary benefits from the organization are limited to its members therefore the organization is not operated exclusively for the promotion of social welfare within the meaning of sec_501 meaning of sec_501 nor by extension for exempt purposes within the its income is used to provide direct although the class of employees the a disaster relief or emergency hardship organization may be for example in wendy v commissioner t c memo formed for the benefit of distressed individuals but may also overly serve the private interests of its founders principals or even contributors thereby failing to achieve an exempt_purpose despite otherwise good intentions parker rehabilitation foundation inc the organization was created by the parker family to aid an open-ended class of victims of coma organization stated that it anticipated spending percent of its income for the benefit of wendy parker significant contributions were made to the organization by the parker family wendy’s and the parker family controlled the organization selection as a substantial recipient of funds substantially benefitted the parker family by assisting with the economic burden of caring for her the general_public as required under sec_1 c - d ii not exempt from federal_income_tax under sec_501 code the benefit did not flow primarily to therefore the foundation was of the regulations however the of the company and its subsidiaries are foundation’s sponsors and financial supporters its subsidiaries foundation is controlled by company and foundation has established and administers a s w p e c y o c o q k s a l a l a r n c disaster relief assistance fund to provide relief through grants and loans to all of foundation’s and company’s and its subsidiaries’ eligible employees retirees and those employees’ and retirees’ dependents who experience severe financial hardship for reasons beyond their control which are not covered by insurance or other resources by providing an employee assistance program to provide the company employees an enhancement to however it also affords the program is accomplishing two purposes potential employees will consider the advantages relief to company’s and its subsidiaries’ and foundation’s employees who have suffered losses due to natural disasters as described above program provides relief to persons who are distressed or otherwise proper objects of charity company and its subsidiaries with a significant benefit and its subsidiaries benefit because the program provides employees with funds not otherwise available except by reason of their employment by company and its subsidiaries realize a real and significant benefit because they have recourse to funds in times of financial hardship when other avenues have been exhausted of such a program while employees will find it financial security and an incentive to continue employment this respect the provision of financial assistance to employees in times of financial hardship whether from natural disasters or financial emergencies is benefit programs such as sick life death and accident benefits even though an employee would have no legal right to funds from a disaster or emergency hardship relief fund employees would be eligible for disaster and hardship benefits provided they are employed by a particular employer upon the occurrence of disaster or financial emergency and they are in need of such assistance to provide protection from events that cannot be readily guarded against job employer established controlled and funded disaster relief benefit program would have an important advantage over other similarly situated victims of the disaster in having access to assured assistance a the presence of the equivalent of benefits package even if not availed of would constitute a significant benefit derived from an employment relationship fund dedicated to employees’ welfare is benefit in the same way that a life severance or legal assistance benefit provides protection and security whether or not used essentially the employee assistance funds operate a program similar to other employee a particular employer that has an a significant benefit of the a significant employment moreover employees of in this respect it thus in is a a while these programs do benefit persons who may be needy or distressed they also serve the private interests of company and its subsidiaries who utilize such benefit programs to recruit and retain a more stable and productive workforce in this respect foundation’s employee assistance program accomplishes activities that are not exclusively in furtherance of one or more exempt purposes because they further the private purposes of company and its subsidiaries more than insubstantially control and funding company and its subsidiaries are able to direct foundation’s assistance programs to serve their private purposes by limiting disaster and hardship assistance solely to their employees by the private benefit realized by rewarding persons based on their employment with company and its subsidiaries in terms of recruitment retention ensuring a stable workforce and engendering goodwill and loyalty any public benefit is significantly outweighed through their while there is some public benefit in ensuring that the public interest may very well be individuals are provided for in times of disaster or financial crisis there is no assurance that selection of beneficiaries solely among employees of a particular employer serves the best interests of the public better served by providing resources to persons who may be much more dire conditions than persons who happen to be employed by a particular employer related eligibility criteria the general welfare of the public is placed at afforded employees of the particular employer program does not further an exempt_purpose within the meaning of the regulations under sec_501 business bureau supra and sec_170 b a disadvantage compared with the significant benefit therefore such a also by imposing an employment of the code better in the benefit conferred on company and its subsidiaries by the natural disaster relief and emergency hardship program also gives rise to inurement contrary to the requirements under sec_501 qualification for exemption and charitable_contributions only if in addition to other factors the organization inures to the benefit of any private_shareholder_or_individual no part of the net_earnings of of the code which provide for and c b accordingly we rule that the establishment and administration of the natural disaster relief program as described does not further charitable purposes within the meaning of sec_501 code and sec_170 b of the self-dealing sec_4941 of the code sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person as defined in sec_4946 and a private_foundation gk eu sec_4941 e of the code provides that the term self-dealing means any direct or indirect transfer to by or for the benefit of assets of or use a disqualified_person of the income or a private_foundation sec_4946 of the code defines the term disqualified_person to include a substantial_contributor to the foundation a foundation_manager and a corporation of which persons described in subparagraphs a or of the total combined voting power own more than percent b c d sec_53_4941_d_-2 f of the foundation and similar by thus the public a private_foundation to which such person is excise_taxes regulations provides that the fact that a disqualified_person receives an incidental or tenuous benefit from the use by a foundation of its income or assets will not itself make such use an act of self-dealing recognition a person may receive arising from the charitable activities of a substantial_contributor does not in itself result in an act of self-dealing since generally the benefit is incidental and tenuous sec_509 self-dealing merely because such organization is located in the same area as the foundation or merely because one of the sec_509 also a manager of or a substantial_contributor to the foundation similarly a scholarship or a fellowship_grant to a person other than a disqualified_person which is paid_or_incurred by a private_foundation in accordance with a program which is consistent with -- organization's officers directors or trustees is for example a grant by a private_foundation to a substantial_contributor to organization will not be a corporation which is an act of or or a the requirements of the foundation’s exempt status under i sec_501 ii sec_170 for contributions made to the foundation and the requirements for the allowance of deductions under iii the requirements of sec_4945 q will not be an act of self-dealing under sec_4941 d merely because a disqualified_person indirectly receives an incidental benefit from such grant fellowship_grant made by a private_foundation in accordance with a program to award scholarships or fellowship grants to the a substantial_contributor shall not children of employees of constitute an act of self-dealing if the requirements of the preceding sentence are satisfied a scholarship or a se t s o f o c d c loc sec_53_4941_d_-2 f of the regulations provides examples in which benefits conferred upon disqualified persons by the use of private_foundation assets are incidental or tenuous these examples describe situations in which the general reputation or prestige of a disqualified_person is enhanced by a public acknowledgement of some specific donation by him the disqualified_person receives some other relatively minor benefit of an indirect nature or in which such a person merely participates to a wholly incidental degree in the fruits of some charitable program that is general community of broad public interest in the in which example describes a private_foundation which makes a grant to city officials for the purposes of alleviating the slum conditions which exist in a particular neighborhood of the city corporation a substantial_contributor to the foundation is located in the same area in which the grant is although the general improvement of the area may constitute an incidental and tenuous benefit to the corporation such a benefit by itself will not constitute an act of self-dealing to be used revrul_73_407 1973_2_cb_383 held that the a disqualified_person was incidental and tenuous where benefit to a private_foundation conditioned a grant to a public charity on the change_of the public charity’s name to that of the disqualified_person based on the benefit provided to company and its the program is associated with employment and subsidiaries foundation’s natural disaster relief program significantly furthers the interests of company and its subsidiaries accomplishes recruitment and retention incentives and produces a more stable and productive work force company and its subsidiaries more than mere public recognition such a program cannot be dismissed as merely providing a minor or tenuous benefit company and its subsidiaries who are disqualified persons with respect to foundation by reason of being a substantial_contributor a foundation_manager and or a controlled by a substantial_contributor or foundation_manager therefore since the benefits to disqualified persons are not incidental or tenuous pursuant to sec_53_4941_d_-2 of the regulations grants distributed under the program result in e acts of self-dealing within the meaning of sec_4941 of the code it offers a real and substantial benefit to percent corporation the program affords accordingly we rule that since foundation’s program is not operated consistent with sec_501 the code and benefits to company and its subsidiaries as disqualified persons are substantial rather than incidental or and c b of t a e_p n o a e a n x e e ra tenuous grants distributed by foundation pursuant to the program will result in acts of self-dealing within the meaning of sec_4941 da qualifying distributions and taxable_expenditures - sec_4942 and sec_4945 of the code sec_4942 of the code imposes a tax on the undistributed_income_of_a_private_foundation sec_4942 g a i of the code provides in relevant part that the term qualifying_distribution means any amount including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 b other than any contribution to an organization controlled directly or indirectly by the foundation or one or more disqualified persons as defined in sec_4946 with respect to the foundation sec_4945 of the code imposes a tax on each taxable_expenditure of of the code a private_foundation as defined in sec_4945 d sec_4945 of the code provides that a taxable_expenditure includes any amount_paid or incurred by a private_foundation as other similar purposes by such individual unless it satisfies the requirements of subsection g a grant to an individual for travel study or sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation for any purpose other than one specified in sec_170 b sec_4945 of the code provides in relevant part that shall not apply to an individual grant awarded sec_4945 on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary_of_the_treasury if is demonstrated to the satisfaction of the secretary that- it in effect on the day before the date of the enactment of the grant constitutes a scholarship or fellowship_grant which would be subject_to the provisions of sec_117 a as the tax_reform_act_of_1986 an educational_organization described in sec_170 b a ii to be used for study at and is the purpose of the grant is objective produce a report or other similar product or to achieve a specific looe improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides a it states that for purposes of section the term grants shall include but is not limited to definition of grants such expenditures as scholarships fellowships internships prizes_and_awards described in sec_170 b investments payments to exempt_organizations to be used in furtherance of their exempt purposes similarly grants include such expenditures as grants shall also include loans for purposes and program related sec_170 b of the code describes in relevant part an organization that is organized and operated exclusively for charitable or educational_purposes or for the prevention of cruelty to children sec_53_4945-6 v of the regulations provides in relevant part distribution under sec_4942 will not be treated as taxable_expenditure under sec_4945 of the code that any payment which constitutes a qualifying a for the purpose of resolving the issues under sec_4942 the determination of whether the employer related and natural disaster relief program comes within one of the purposes described under sec_170 b of the code is fundamental any amount_paid by a private_foundation to accomplish any purpose other than one specified in sec_170 is not a qualifying_distribution under sec_4942 taxable_expenditure under sec_4945 a and is a the employer related natural disaster relief program does of the code i of the regulations and section not further an exempt_purpose within the meaning of sec_1 c -1 d c b foundation are not qualifying distributions within the meaning of sec_4942 grants and or loans do not accomplish a purpose described in sec_170 b of the code and do not result in qualifying distributions pursuant to sec_4942 such payments made by foundation are taxable_expenditures pursuant to sec_4945 da therefore grants and loans made by consequently since the a i of the code of the code accordingly we rule that grants and loans paid_by foundation under the natural disaster relief program do not accomplish an exempt_purpose under sec_170 b code are not qualifying distributions within the meaning of of the of e n o y w l w sec_4942 sec_4945 a i and are taxable_expenditures under employer related scholarship programs and employer related disaster relief and emergency hardship programs with respect to scholarship programs provided by private_foundations to children of employees of substantial contributors sec_53_4941_d_-2 f of the regulations states that such grants will be considered incidental or tenuous only if the program is consistent with the foundation's exempt status the deductibility of contributions under sec_170 requirements under sec_4945 provision for disaster relief and hardship programs there is no similar specific and the sec_4945 of the code addresses taxes on taxable sec_4945 provides expenditures of private_foundation that taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g provides that subsection d grant awarded on an objective and nondiscriminatory basis pursuant to it demonstrated to the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which would be subject_to the provisions of sec_117 in effect on the day before the date of the enactment of the tax_reform_act_of_1986 described in sec_170 b a ii subsection g shall not apply to an individual a procedure approved in advance by the secretary if an educational_organization to be used for study at and is as revproc_76_47 1976_2_cb_670 and revenue provide guidelines under which procedure c b employer-related private_foundations that make scholarship grants or educational loans will be considered to further a purpose consistent with sec_4945 of the code that scholarships and educational loans are awarded to no more than percent of the number of employees of employer who were eligible were applicants for such grants and were considered by the selection committee in selecting the recipients of grants in that year the scholarships or loans do not overly serve the private interests of the employer because there is no significant probability that employment will make scholarships or loans available to this criterion assures that a qualified_employee the key criterion is a particular however foundation’s disaster relief program is available to all employees who satisfy the eligibility criteria and is limited only by the amount of funding that company and its subsidiaries may provide area of scholarships and educational loans are not directly applicable to foundation’s situation since there is probability that employment will make natural disaster relief assistance available and there is no specific exception for such a program under chapter thus the principles set forth in the as there is for scholarships a high this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described above the assistant_commissioner employee_plans and exempt_organizations has granted you relief under sec_7805 of the code from retroactive application of this ruling for disaster relief payments made up to six months from the date of this ruling and for any such payments made after six months from the date of this ruling under a legal_obligation incurred prior to the end of the six month period we are providing your key district_director with a copy of this ruling you should keep a copy for your permanent records if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading for other matters including questions concerning reporting requirements please contact your key district_director this ruling is directed only to the taxpayer that requested sec_6110 of the code provides that it may not be it used or cited as precedent sincerely marvin friedlander marvin friedlander chief exempt_organizations technical branch


department of the treasury internal_revenue_service washington d c contact person number telephone number date may ui employer_identification_number o q a o o m m e x d n o e e r t dear sir or madam this is in reply to your request of date and subsequent correspondence for rulings on whether certain transactions by the district would result in unrelated_business_taxable_income under sec_511 - of the internal_revenue_code ais exempt from federal iricome tax under sec_501 of the internal_revenue_code and ‘is a private_foundation described in sec_509 a's articles of incorporation state that it is organized ‘to make charitable grants to organizations which have established their tax-exempt status under sec_501 a was formed to centralize the charitable activities of mr and mrs b a makes grants out of income and out of so much of its principal as the directors determine is appropriate in the past a has provided support in the form of grants for the programs of tax-exempt nonprofit_organizations in arts and culture religion education heatth and other charitable purposes a has recently on w purchased a parcel of land ‘land’ in c in furtherance of a’s tax-exempt purposes a intends to construct four buildings on the land a church a school a parsonage and a clothing food bank for the homeless the bulldings’ the total costs are anticipated to be approximately x a intends to lease the land and the buildings to e the church’ a tax-exempt_organization within the meaning of sec_501 and sec_170 of the code a will operate and manage the leasing arrangement with the church as a direct charitable activity a will retain legal_title to the land and buildings under the proposed transaction the lease agreement will provide for nominal rent approximately two percent of fair_market_value for such a lease the lease agreement will also provide that the church will be responsible for paying all taxes maintenance insurance and other costs associated with the building during the lease_term a is responsible for custodial costs legal fiduciary and other professional fees such as negotiating and drafting the lease the lease will further provide that the church is obligated to use the premises exclusively for the accomplishment of its exempt purposes and should the church fail to do so the lease will terminate upan termination of the lease the land and buildings are to revert to a revert to a a intends to either lease the land and buildings for nominal or no consideration to another organization exempt under sec_501 of the code or a will utilize the land and buildings itself for a direct charitable activity if the land and buildings sec_4942 of the code imposes a tax on the undistributed_income_of_a_private_foundation for any taxable_year which has not been distributed before the first day of the second or any succeeding taxable_year following such taxable_year if such first day falls within the taxable_period sec_4942 of the code provides that the term undistributed_income means with respect to any private_foundation for any taxable_year as of any time the amount by which- the distributable_amount for such taxable_year exceeds the qualifying distributions made before such time out of such distributable_amount sec_4942 of the code provides that the term distributable_amount means with respect to any foundation for any taxable_year any amount equal to- the sum of the minimum_investment_return plus the amounts described in subsection f c reduced by the sum of the taxes imposed on such private_foundation for the taxable_year under subtitle a and sec_4940 sec_4942 of the code provides that the minimum_investment_return for any private_foundation for any taxable_year i sec_5 percent of the excess of- a the aggregate fair_market_value of all assets of the foundation other than those which are used or held for use directly in carrying out the foundation's exempt_purpose over b the acquisition indabtedness with respect to such assets determined under sec_514 without regard to the taxable_year in which the indebtedness was incurred sec_4942 of the code provides that the term qualifying_distribution means- a any amount including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled directly or indirectly by the foundation or one or more disqualified persons as defined in sec_4946 with respect to the foundation except as provided in paragraph or fa private_foundation which is not an operating_foundation as defined in subsection j except as provided in paragraph or in carrying out one or more purposes described in sec_170 b any amount_paid to acquire an asset used or held for use directly sec_53_4942_a_-2 of the foundation and similar excise_tax regulations provides in part that an asset is used or held for use directly in carrying out a foundation's exempt_purpose only if the asset is actuality used by the foundation in carrying out the charitable educational or other similar purpose which gives rise to the exempt status of the foundation sec_53_4942_b_-1 of the regulations provides that amounts paid to acquire or maintain assets which are used directly in the conduct of the foundation’s exempt_activities such as the operating_assets of a museum public park or historic site are considered direct expenditures_for the active_conduct of the foundation's exempt_activities a g sec_4944 of the code provides that if a private_foundation invests any amount in such manner as to jeopardize the carrying out of any of its exempt purposes there is hereby imposed on the making of such investment a tax equal to percent of the amount so invested for each year or part thereof in the taxable_period sec_4944 of the code provides that for purposes of this section investments the primary purpose of which is to accomplish one or more of the purposes described in sec_170 and no significant purpose of which is the production_of_income or the appreciation of property shall not be considered as investments which jeopardize the carrying out of exempt purposes sec_53_4944-3 of the regulations provides in part that for purposes of sec_4944 a program-related_investment shall not be classified as an investment which jeopardizes the carrying out of the exempt purposes of a private_foundation a program-related_investment is an investment which possesses the following characteristics accomplish one or more of the purposes described in sec_170 ii no significant purpose of the investment is the production_of_income or the appreciation of property and ii no purpose of the investment is to accomplish one or more of the purposes described in sec_170 i the primary purpose of the investment is to sec_53_4944-3 of the regulations provides in part i an investment shall be considered as made primarily to accomplish one or more of the purposes described in sec_170 if and if the investment would not have been made but for such relationship between the investment and the accomplishment of the foundation's exempt_activities it significantly furthers the accomplishment of the private foundation's exempt_activities a has purchased land and is preparing for the construction of buildings thereon for the purpose providing such assistance is one of a’s exempt of assisting the church in its exempt_activities purposes a will lease the land and the buildings to the church for nominal rent therefore these assets constitute assets held for use in carrying out the exempt_purpose of a within the meaning of sec_53_4942_a_-2 of the regulations and expenditures_for such constitute qualifying distributions within the meaning of sec_4942 of the code also because these assets are used or-held for use in carrying out a's exempt_purpose they are excluded from the value of assets on which the minimum_investment_return is calculated see sec_4942 and sec_53_4942_b_-1 because a will lease the land and buildings to the church for a rate of only about two percent of fair_market_value it is clear that this action is for the furtherance of a’s exempt purposes and that no significant purpose of the purchasing constructing and leasing of the land and buildings to the church will be for the production_of_income or the appreciation of property as there is no political or legislative action involved it is apparent that no purpose of the investment is to accomplish one or more of the purposes described in sec_170 of the code therefore the land and buildings are program related investments within the meaning of sec_53_4944-3 and of the regulations for purposes of sec_4942 and sec_4944 accordingly based on the facts as presented and stated above we have concluded that the acquisition of land and the construction of buildings thereon for use directly in carrying out purposes described in c b of the code as described above via a lease of such land and buildings will constitute a qualifying_distribution within the meaning of sec_4942 of the code av land and buildings acquired for lease to a church for use directly in carrying out of purposes described in sec_170 c b of the code will constitute assets used or held for use in carrying out a's exempt_purpose and are thereby exciuded in determining a's minimum_investment_return within the meaning of sec_4942 of the code the date on which the cost of acquiring land and constructing buildings for lease to a church for use directly in carrying out purposes described in sec_170 of the code will be treated as a qualifying_distribution and excluded from the determination of minimum_investment_return is the date a expends the funds to acquire the land the acquisition of land and buildings to be leased for purposes described in sec_170 of the code will constitute a program related investment within the meaning of sec_4944 of the code this ruling is directed only to you sec_6110 of the code provides that it may not be used or cited as precedent we are informing the ohio ep eo key district_office of this ruling because this letter could help resolve any questions about your exempt status and foundation status you should keep it in your permanent records sincerely ‘ mgned gerland a garter garland a carter chief exempt_organizations technical branch


internal_revenue_service number release date index number ------------------------------------ ---------------------------------------------------------- ----------------------------------------------------------- --------------------------------------------------------- --------------------------- ----------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-149940-06 date date -------------- ----------------------- ----------------------- --------------------------------------------------- ------------------------------------ ----------------------- --------------------------------------- ----------------------- legend x a b c country d1 dear ------------------------------------ correspondence submitted on behalf of x requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations for x to file an election under sec_301_7701-3 to be classified as an entity that is disregarded as separate from its owner for federal tax purposes effective d1 this responds to a letter dated date and subsequent ------------------------- ----------------- facts according to the information submitted x was formed as a limited_liability plr-149940-06 company under the laws of country on d1 x is not classified as a corporation under sec_301_7701-2 or through tiers of wholly owned entities b and c a owns of x x intended to elect under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes as of d1 but the election was not timely filed with the appropriate service_center law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 entity classification election and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government plr-149940-06 conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center to elect to be classified as an entity disregarded as separate from its owner for federal tax purposes effective d1 the election should be made by following the procedures set forth in form_8832 and a copy of this letter should be attached to the election a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s william p o'shea associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes cc


internal_revenue_service number release date index number --------------------------------------------------- --------------------------------------------------- --------------------------------------------- ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-121853-09 date date x y ----------------------------------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------------------------------- ----------------------- state -------- p q r s a b c d ----------------------------------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------------------------------- ------------------------- ----------------------------------------------------------------------------------------------------- ------------------------- ----------------------------------------------------------------------------------------------------- ------------------------- ----------------------------------------------------------------------------------------------------- plr-121853-09 ------------------------- e date date date date n1 n2 n3 n4 n5 n6 year year year ----------------------------------------------------------------------------------------------------- ------------------------- -------------------------- -------------------------- ----------------------- ------------------- -- -------- -------- -- ---- ---- ------- ------- ------- dear -------------- this responds to a letter dated date and prior correspondence submitted on behalf of y by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was formed under the laws of state on date x made an election to be treated as an s_corporation effective date on date a b and c the owners of x contributed all of their interests in x to y in exchange for all of the outstanding interests in y which was formed under the laws of state on date and for which an s_corporation_election under sec_1362 was made effective date as a result x became wholly owned by y plr-121853-09 on date following the contributions p q r and s were merged with and into x under the laws of state with x surviving the merger the owners of p q r and s each received an interest in x in exchange for their interests in p q r and s respectively as a result x was owned as follows n1 by y n2 by a n2 by b n3 by c n4 by d and n1 by e on or about date y made elections to be treated as an s_corporation and to treat x as a qualified_subchapter_s_subsidiary qsub under sec_1361 both effective as of date x and y represent that the contributions by a b and c of their interests in x to y together with a valid election under sec_1361 for x meet the requirements of sec_368 y filed forms 1120s u s income_tax return for an s_corporation for year year and year x and y subsequently discovered that x’s s election had terminated on date due to the fact that x had an ineligible shareholder y x and y also realized at that time that x did not qualify as a qsub due to the fact that x was not wholly owned by y x filed a form_1120s for year which included its items of income loss deduction and credit for all of year on the advice of counsel x filed forms u s return of partnership income for year and year as corrective action a b c d and e contributed their interests in x to y in exchange for interests in y on date as a result x became wholly owned by y and y was owned as follows n5 by a n5 by b n6 by c n4 by d and n1 by e x and y represent that the termination of x’s s election and x’s ineffective election as a qsub were not motivated by tax_avoidance or retroactive tax planning x y and their shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as a qsub effective date and of y as an s_corporation effective date sec_1362 provides that if an election under sec_1362 or sec_1361 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or or sec_1361 the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the plr-121853-09 circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and representations made we conclude that x’s ineffective election as a qsub on date was inadvertent within the meaning of sec_1362 we further hold that pursuant to the provisions of sec_1362 x will be treated as a qsub from date and thereafter provided x’s qsub election was valid and provided that the election was not otherwise terminated under sec_1361 this ruling is conditioned upon x y and y’s shareholders filing any amended returns for year and subsequent taxable years and making such adjustments as necessary consistent with x’s status as a qsub effective date within days from the date of this ruling a copy of this letter must be attached to any return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling if x y or y’s shareholders fail to satisfy this condition this ruling is null and void except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code specifically no opinion is expressed or implied as to whether y is an s_corporation or whether x meets the requirements as a qsub 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 y’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


department of the treasury washington dc person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - plr-162383-03 date date internal_revenue_service number release date index numbers ------------------------------------------------------------ ------------------------------- ------------------------ ------------------------ - legend x ------------------------------- ----------------------- state d1 ------------ --------------------------- this letter responds to your letter dated date requesting a ruling dear ------------- that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as an association_taxable_as_a_corporation for federal tax purposes facts according to the information submitted x was organized on d1 under the laws of state x is an entity that is eligible to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes however x failed to timely file the proper election law and analysis sec_301_7701-3 provides guidance on the classification of a domestic eligible_entity for federal tax purposes generally a domestic eligible_entity is disregarded as an entity separate from its owner if it has a single owner unless the entity makes an election to be treated otherwise sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed plr-162383--03 under ' c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term aregulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under ' will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a conclusion based solely on the facts submitted and the representations made we conclude that the requirements of ' have been satisfied as a result x is granted an extension of time of sixty days from the date of this letter to make an election to be treated as an association_taxable_as_a_corporation for federal tax purposes effective d1 x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form except as specifically provided herein no opinion is expressed or implied this ruling is directed only to the taxpayer requesting it sec_6110 of concerning the federal tax consequences of the facts described above under any other provision of the code the internal_revenue_code provides that it may not be used or cited as precedent plr-162383-03 letter is being sent to your authorized representative in accordance with the power_of_attorney on file with this office a copy of the sincerely s heather c maloy heather c maloy associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes enclosures cc ---------------------------------------------- -------------------------------------- ------------------------------- -------------------------------------------- --------------------------------- ------------------------------ --------------------------- --------------- --------------- ------------------------- ------------------------------- ---------------- --------------- ------------------------- -------------------------------


internal_revenue_service number release date index number --------------------- --------------------------- -------------------------------------------- ---------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no -------------- ----------------- telephone number ---------------------- refer reply to cc intl b05 plr-118171-15 date june parent subsidiary cfc a cfc b cfc c holdco country a country b insurance law act authority annual return date date date month month year year year year w x y dear ---------------- --------------------------------------------- -------------------------------------------- ------------------------- --------------------------------------- ------------------------------------ --------------------------------------- ---------------------- -------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------- ------------------------------------------ --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- - ------------------- -------------------- -------------------------- --------------- ------ ------- ------- ------- ------- ---- ---- ---- in a letter dated date you requested rulings allowing cfc a and cfc b to use certain foreign statement insurance reserves in computing their foreign_personal_holding_company_income under sec_954 you requested these rulings on the grounds that these insurance reserves are an appropriate means of measuring income within the meaning of sec_954 and accordingly such reserves may be used in determining foreign_personal_holding_company_income under sec_954 the rulings given in this letter are based on facts and representations submitted by parent and accompanied by a statement executed under penalty of perjury by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process facts parent is a publicly-traded domestic_corporation that is engaged in investment banking securities investment management insurance and other financial services through its various subsidiaries parent is the common parent of an affiliated_group of companies in year subsidiary an indirect wholly-owned subsidiary of parent established a wholly-owned insurance_company cfc a under the laws of country a cfc a is engaged in the insurance_business in country a in month year subsidiary transferred all of the stock of cfc a to a wholly-owned holding_company holdco and sold w percent of the stock of holdco to various unrelated parties parent retains an x percent ownership_interest in holdco in month year cfc a acquired cfc c a company organized in year under the laws of country a on date cfc c changed its name to cfc b cfc b was engaged in the insurance_business in country a on date after the submission of the date ruling_request cfc b merged all its assets and liabilities into cfc a pursuant to a regulatory reorganization procedure applicable to country a insurance_companies this ruling will therefore refer to cfc a but will include cfc b for the period from date through date cfc a’s operations involve the issuance of payout annuity_contracts designed for the country a defined benefit pension_plan market prior to the merger cfc b issued single premium payout annuity_contracts for which it held reserves the contracts issued by cfc a are designed to provide a stream of guaranteed annuity payments to cover an employer’s existing pension obligations for its country a and country b resident employees the contracts cover obligations to current retirees and active employees the source of consideration for the annuities will be a combination of employer and employee contributions there are no future premiums required by or allowed under the payout annuity_contracts some contracts have surrender rights on a bulk basis whereby the pension_plan trustee of a contract may surrender the contract in exchange for a cash_surrender_value and individual deferred annuitants may also be entitled to individual surrender values in lieu of future annuity payments typically a pension_plan will terminate shortly after the annuity_contract is purchased at which time the employee becomes the policyholder benefits are payable to employees only upon retirement or upon the employee’s death before retirement as a spousal benefit the employee can elect to have benefits commence earlier or later than the date of normal retirement within a restricted range as provided by the contract should the employee make such an election the amount of future benefit payments will be actuarially adjusted using actuarial assumptions guaranteed at issue so that the present_value of the adjusted benefit starting on the adjusted retirement date will be equivalent to the present_value of the original benefit starting on the normal_retirement_date cfc a issues premium payout annuity_contracts cfc a also issues non-single premium payout annuity_contracts to country a pension plans and enters into reinsurance agreements covering a portion of its risks under such contracts cfc a also reinsures annuity_contracts written by unrelated country a insurers cfc a derives more than percent of its aggregate net written premiums from the issuance or reissuance of annuities covering risks in connection with the lives of or health of residents of country a and with respect to which no policyholder insured annuitant or beneficiary is a related_person as defined in sec_954 cfc a issues and reinsures annuity_contracts in connection with the lives and health of residents of country a and derives more than percent of its net written premium from contracts that cover country a risks with respect to which no policyholder insured annuitant or beneficiary is a related_person within the meaning of sec_954 parent has represented that cfc a would be subject_to tax under subchapter_l if it were a domestic_corporation in country a financial services firms including insurance_companies are regulated by the authority the authority is an independent non-governmental body given statutory powers under the act the authority requires that each insurance_company authorized by the authority to conduct insurance_business in country a file an annual insurance return the annual return consists of audited financial information and reports of auditors that the authority uses for supervision annual return requirements include preparation of a revenue account a balance_sheet and profit and loss account for the year an actuarial investigation every twelve months an audit of accounts and the depositing of specific reports with the authority the deposited documents are open to public inspection cfc a is licensed by the authority as an insurance_company and is authorized to sell annuities to residents of country a and to reinsure similar contracts licensing by the authority is required in order to conduct insurance_business in country a cfc a is subject_to regulation by the authority as an insurance_company the annuity_contracts issued by cfc a are regulated as such by the authority under authority rules cfc a is required to maintain financial resources adequate as to amount and quality to ensure that there is no significant risk that its liabilities to policyholders cannot be met as they fall due applicable rules specify the methods and assumptions to be used by an insurance firm in calculating its required reserves in general the authority requires a firm to establish reserves using a prospective actuarial valuation on prudent assumptions of all future cash flows expected to arise under or in respect of each of its long-term insurance contracts a prospective valuation sets reserves at present_value of the future net cash flows the actuarial valuation of reserves must be based on methods and assumptions that are appropriate to the business of the firm consistent year-to-year without arbitrary changes consistent with the method for valuing assets and include appropriate margins for adverse deviation of relevant factors relevant factors include future investment returns expenses mortality morbidity policyholder options persistency and reinsurance under authority rules insurance_company investments generally must be marked to market meaning valued at readily available close-out prices from independent sources where marking to market is not possible assets must be marked to market using a model based on market input and the modeled prices must be checked regularly against market or other relevant sources country a rules also require that reserve methods and assumptions must be consistent with the method of valuing assets or must be consistent with marking the assets to market the authority has established special reserve requirements for index-linked liabilities which include cfc a’s inflation-adjusted benefit described above index- linked liabilities are those in respect of index-linked benefits index-linked benefits are those provided under a long-term_contract of insurance determined by reference to an index of the value of property of any description in addition to computing reserves as described for country a regulatory purposes an insurer will use the same reserve amount in calculating country a income_tax in connection with its pension_plan business parent represents that the reserves cfc a is required to establish under country a rules are not catastrophe deficiency equalization or similar reserves parent has also represented that for purposes of determining foreign_personal_holding_company_income cfc a would follow the country a mark-to-market method applicable to assets under country a financial statement rules and would base reserves only on amounts attributable to policyholder benefits if a favorable ruling is granted allowing cfc a to use foreign statement reserves under sec_954 pursuant to sec_954 and sec_1_964-1 parent has requested a ruling on behalf of cfc a that the reserves as required to be set forth by cfc a for its annuity_contracts on its country a annual return provide an appropriate means of measuring income and accordingly the amount of these reserves may be used in determining foreign_personal_holding_company_income under sec_954 provided that assets are marked to market consistent with country a rules and the reserve is based only on amounts attributable to policyholder benefits law in general a united_states_shareholder of a controlled_foreign_corporation cfc must include in gross_income its pro_rata share of the cfc’s subpart_f_income for each year sec_951 subpart_f_income includes among other types of income insurance_income under sec_953 and foreign_base_company_income under sec_954 sec_952 and sec_953 defines the term_insurance income to include any income which is attributable to issuing or reinsuring an insurance_or_annuity_contract and which would be taxed under subchapter_l if such income were the income of a domestic insurance_company sec_953 provides that sec_953 insurance_income does not include exempt_insurance_income derived by a qualifying_insurance_company sec_953 provides that reserves for any insurance_or_annuity_contract shall be determined in the same manner as under sec_954 sec_954 defines the term foreign_base_company_income to include among other types of income foreign_personal_holding_company_income sec_954 sets forth the types of income eg interest and dividends that are considered to be foreign_personal_holding_company_income sec_954 provides that for purposes of sec_954 foreign_personal_holding_company_income does not include qualified_insurance_income of a qualifying_insurance_company in general sec_953 defines a qualifying_insurance_company as any controlled_foreign_corporation which a is subject_to regulation as an insurance_company by its home_country and is licensed authorized or regulated by the applicable_insurance_regulatory_body for its home_country to sell insurance or annuity_contracts to persons other than related_persons within the meaning of code sec_954 in such home_country b derives more than percent of its aggregate net written premiums from the issuance by such controlled_foreign_corporation of contracts covering applicable plr-118171-15 home_country risks of such corporation and with respect to which no policyholder insured annuitant or beneficiary is a related_person as defined in code sec_954 and c is engaged in the insurance_business and would be subject_to tax under subchapter_l if it were a domestic_corporation sec_954 defines the term qualified_insurance_income to mean income of a qualifying_insurance_company falling into two categories the first category is income received from unrelated persons and derived from investments made by a qualifying_insurance_company or qualifying_insurance_company_branch collectively referred to as a qic either of its reserves allocable to exempt contracts or of percent of its unearned premiums from exempt contracts as both are determined in accordance with sec_954 sec_954 the second category is income received from unrelated persons and derived from investments made by a qic of an amount of its assets allocable to exempt contracts equal to in the case of property casualty or health insurance contracts one-third of the premiums earned on those contracts during such year and in the case of life_insurance or annuity_contracts percent of the reserves described in sec_954 for such contracts sec_954 exempt contracts are defined under sec_953 to include insurance or annuity_contracts issued by a qualifying_insurance_company in connection with the lives or health of residents of a country other than the u s but only if such company derives more than percent of its net written premiums from otherwise exempt contracts which cover applicable_home_country_risks and with respect to which no policyholder insured annuitant or beneficiary is a related_person within the meaning of sec_954 sec_954 generally provides that in the case of life_insurance and annuity_contracts a qic’s reserves allocable to exempt contracts are equal to the greater of the net_surrender_value of the contract or the reserve determined under sec_954 sec_954 however provides the amount of the reserves under sec_954 shall be the foreign statement reserve for the contract less any catastrophe deficiency equalization or similar reserves if pursuant to a ruling_request submitted by the taxpayer or as provided in published guidance the secretary determines that the factors taken into account in determining the foreign statement reserve provide an appropriate means of measuring income sec_954 was originally enacted by sec_614 of the job creation and worker assistance act of under the protecting americans from tax hikes path act of p l sec_954 was permanently plr-118171-15 extended and made effective for taxable years of foreign_corporations beginning after date and for taxable years of u s shareholders with or within which such taxable years of such foreign_corporations end in its technical explanation to the path act the staff of the joint_committee on taxation explains sec_954 as follows the provision does however permit a taxpayer in certain circumstances subject_to approval by the irs through the ruling process or in published guidance to establish that the reserve for such contracts is the amount taken into account in determining the foreign statement reserve for the contract reduced by catastrophe equalization or deficiency reserve or any similar reserve irs approval is to be based on whether the method the interest rate the mortality and morbidity assumptions and any other factors taken into account in determining foreign statement reserves taken together or separately provide an appropriate means of measuring income for federal_income_tax purposes joint comm on taxation technical explanation of the revenue provisions of the protecting americans from tax hikes act of house amendment to the senate amendment to h_r rules committee print jcx-144-15 date analysis cfc a is subject_to regulation as an insurance_company by country a cfc a is licensed authorized and regulated by the authority which is the insurance regulatory body for country a to sell annuity_contracts to persons other than related_persons within the meaning of code sec_954 in country a parent has represented that cfc a derives more than percent of its aggregate net written premiums from its issuance of annuity_contracts covering risks in connection with the lives or health of residents of country a and with respect to which no policyholder insured annuitant or beneficiary is a related_person as defined in code sec_954 finally parent has represented that cfc a is engaged in the insurance_business and would be subject_to tax under subchapter_l if it were a domestic_corporation accordingly cfc a is a qic cfc a issues annuity_contracts in connection with the lives and health of residents of country a a country other than the u s cfc a derives more than of its net written premiums from contracts that cover country a risks with respect to which no policyholder insured annuitant or beneficiary is a related_person within the meaning of sec_954 such contracts are therefore exempt contracts within the meaning of sec_953 cfc a must establish maintain and calculate the reserves in accordance with rules prescribed by the authority cfc a must set forth the reserves on the country a annual return which must be filed annually with the authority as such the reserves are the measure of the legal obligations to policyholders on the financial statement used plr-118171-15 for regulatory purposes by life_insurance_companies doing business in country a generally whether u s -owned locally owned or owned by companies headquartered in other foreign countries the authority requires that cfc a hold reserves for the fulfillment of claims of policyholders and their beneficiaries the reserves are not catastrophe deficiency equalization or similar reserves under the rules prescribed by the authority for determining reserves set forth on the country a annual return the method the interest rate the mortality and morbidity assumptions and other factors taken into account provide an appropriate means of measuring income for federal_income_tax purposes rulings based on the information submitted and the representations made we rule as follows under the facts set forth above the foreign statement reserves maintained by cfc a and cfc b for years prior to the merger into cfc a with respect to its exempt annuity_contracts are an appropriate means of measuring income within the meaning of sec_954 and accordingly the amount of these reserves may be used in determining cfc a’s and cfc b’s for years prior to the merger into cfc a foreign_personal_holding_company_income under sec_954 provided that assets are marked to market consistent with country a rules and the reserves include only amounts attributable to policyholder benefits caveats we express no opinion on any provisions of the code or regulations not specifically covered by the above ruling this ruling will be subject_to revocation if any of the following circumstances occurs a change in the material facts on which this ruling was based a material_change in the business circumstances of cfc a which would impact its reserving method or a change in the applicable law or foreign rules relating to cfc a’s current reserving method procedural statements this ruling is directed only to cfc a and cfc b for the period from date through date sec_6110 provides that it may not be used or cited as precedent except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives plr-118171-15 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely steven d jensen senior counsel branch office of associate chief_counsel international