department of the treasury int ernal revenue service washington d c date of f i c e of c h i e f c ou n s e l number release date cc ita tl-n-5009-00 uilc internal_revenue_service national_office field_service_advice memorandum for associate area_counsel cc lm mct cin attn james kagy from associate chief_counsel income_tax accounting cc ita subject donation of memorabilia and records this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 b and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice tl-n-5009-00 legend individual a individual b individual c entity entity entity location location location trust corporation company corporation a corp subsidiary b corp c corp d corp acquisition co acquisition co taxpayer charitable_organization merchandise date date date date date date date date date year year year year year year year year year year year year year tl-n-5009-00 issue whether the corporate records donated by corporation to charitable_organization are properly excluded from the definition of capital assets in accordance with sec_1221 for purposes of determining whether the contribution is subject_to the limitation imposed by sec_170 conclusions the corporate records qualify as property that is similar to a letter or memorandum within the meaning of sec_1221 however we do not recommend pursuing the argument that the successor entity here is the taxpayer for whom the property was prepared or produced we do not have sufficient facts to assess the strength of the argument that the basis of the property donated by corporation can be determined in whole or in part by reference to the basis of such property in the hands of a taxpayer for whom the property was prepared or produced this is particularly true of the records created on or before date facts we rely on the facts set forth in your memorandum requesting advice including the attachments in year individual a and individual b formed entity a partnership that operated in location and manufactured merchandise in year the company moved to a site in location owned by individual c the name of the company was changed and eventually individual a and individual b sold their majority interest in this venture to individual c in year individual a and individual b reformed their partnership and moved to location because of the need for merchandise during the civil war the partnership became one of the leading manufacturers of merchandise and related equipment in the united_states it was eventually known as entity taxpayer is the parent of corporation and filed a consolidated_return in which the charitable_contribution now in dispute was claimed the contribution was made by corporation and the issue we address is whether the donated property should be included in the definition of a capital_asset tl-n-5009-00 on date a corporation succeeded entity on date trust was formed to take over the business_trust operated the business until date when corporation was formed in year a corp acquired a controlling_interest in corporation in year corporation was merged with subsidiary a subsidiary of a corp subsidiary was the surviving entity with corporation operating as a division in year subsidiary was merged into a corp in year b corp purchased a controlling_interest in a corp late in year b corp was acquired in a leveraged_buyout headed by d corp in order to help finance the acquisition corporation was immediately placed on the market an agreement dated date between a corp and b corp provides a plan for the reorganization and liquidation of a corp under sec_332 of the internal_revenue_code a second agreement of the same date between the subsidiaries of a corp including the successor to corporation b corp and c corp provides for the reorganization and liquidation of b corp under sec_332 the agreement identifies the successor to corporation as company formerly acquisition co a certificate filed on date evidences the merger of a corp into b corp under the name of b corp a second certificate filed on date evidences the merger of b corp into c corp under the name of b corp on date the assets of the successor to corporation were transferred to company acquisition co in anticipation of its sale a certificate dated date certifies that a resolution has been adopted amending the articles of incorporation of acquisition co to change the name to company a second certificate of the same date certifies that company has adopted a resolution changing the name from company to corporation on date taxpayer formed acquisition co to acquire the stock of corporation on date acquisition co entered into an agreement with a corp a wholly owned subsidiary of b corp to purchase all of the stock of corporation the sale was completed during year and on date acquisition co changed its name to taxpayer taxpayer remained the owner of corporation during year the year of the donation in year corporation donated a large amount of merchandise and boxes of records to charitable_organization a qualified charitable_organization the records included the books_and_records of the predecessors to corporation dating from year to year on its consolidated_return for year taxpayer claimed a deduction for a charitable_contribution in an amount equal to the full market_value of the property donated we understand that the service does not dispute the tl-n-5009-00 taxpayer’s treatment of the merchandise in addition the service disputes neither the fact that corporation made a qualified_contribution of the books_and_records nor the estimation of the fair_market_value of the books_and_records the sole issue for consideration is whether the contribution is subject_to the limitation imposed by sec_170 because the books_and_records should properly be excluded from the definition of capital assets in accordance with sec_1221 now sec_1221 law and analysis sec_170 provides that for contributions made in property other than money the amount of the contribution is equal to the fair_market_value of the property on the date of the contribution reduced as provided in sec_170 sec_170 provides that the amount of any charitable_contribution of property must be reduced by the sum of the amount of gain which would not have been long-term_capital_gain if the contributed_property had been sold by the taxpayer at its fair_market_value determined at the time of the contribution generally for purposes of applying this paragraph property which is property_used_in_the_trade_or_business as defined in sec_1231 shall be treated as a capital_asset sec_1222 defines long-term_capital_gain as gain from the sale_or_exchange of a capital_asset held for more than one year if and to the extent such gain is taken into account in computing gross_income in year sec_1221 provided that for purposes of subtitle a the term capital_asset meant property held by the taxpayer whether or not connected with his trade_or_business but did not include- a copyright a literary musical or artistic composition a letter or memorandum or similar_property held by- a a taxpayer whose personal efforts created the property b in the case of a letter memorandum or similar_property a taxpayer for whom such property was prepared or produced or c a taxpayer in whose hands the basis of such property is determined for purposes of determining gain from a sale_or_exchange in whole or in part by reference to the tl-n-5009-00 basis of such property in the hands of a taxpayer described in subparagraph a or b sec_1_1221-1 provides in the case of sales or other dispositions occurring after date that a letter a memorandum or similar_property is excluded from the term capital_asset if held by i a taxpayer whose personal efforts created such property ii a taxpayer for whom such property was prepared or produced or iii a taxpayer in whose hands the basis of such property is determined for purposes of determining gain from a sale_or_exchange in whole or in part by reference to the basis of such property in the hands of a taxpayer described in subdivision i or ii above sec_1_1221-1 further provides that the phrase similar_property includes property such as a draft of a speech a manuscript a research paper an oral recording a transcript of an oral interview or of dictation a personal or business diary a log or journal a corporate archive including a corporate charter office correspondence a financial record a drawing or a dispatch a letter memorandum or property similar to a letter or memorandum addressed to a taxpayer shall be considered as prepared or produced for him however property such as a corporate archive office correspondence or a financial record shall not be considered similar_property if it is sold or disposed of as part of a going business and it has no significant value separate and apart from its relation to and use in such business sec_1_1221-1 provides that a letter memorandum or property similar to a letter or memorandum which is prepared by personnel who are under the administrative control of a taxpayer such as a corporate executive shall be deemed to have been prepared or produced for him whether or not such letter memorandum or similar_property is reviewed by him in p l sec_532 substituted a in general for purposes for for purposes in sec_1221 sec_1_1221-1 was amended by treasury_decision to conform the regulations to amendments to sec_1221 made in the tax reform act of pub l 83_stat_643 c b according to t d certain terms suggesting that the regulations applied only to individual taxpayers were replaced to make clear that the references also included corporations 1975_2_cb_335 the final regulations were approved on date tl-n-5009-00 sec_1231 provides that the term property_used_in_the_trade_or_business does not include a copyright a literary musical or artistic composition a letter or memorandum or similar_property held by a taxpayer described in paragraph of sec_1221 other similar_property in 97_tc_445 the issue was whether the taxpayer’s contribution of a newspaper clippings library was subject_to the limitation under sec_170 the taxpayer argued that the clippings library was a capital_asset because it was not an asset described in sec_1221 alternatively the taxpayer argued that sec_1221 did not apply to corporate taxpayers addressing the issue of the proper characterization of the clippings library the tax_court indicated that the characterization of the library depended on whether it fell within the category of a letter or memorandum or similar_property described in sec_1221 chronicle publishing t c pincite the court cited sec_1_1221-1 with approval and relied on the regulation in analyzing whether the clippings library constituted similar_property for purposes of sec_1221 the court concluded that the library fell within the scope of a corporate archive and therefore in accordance with the regulation was included within the phrase similar_property id pincite similarly in revrul_82_9 1982_1_cb_39 well cuttings scout tickets and well logs donated by the taxpayer were excluded from the definition of capital assets under sec_1221 the revenue_ruling relied on sec_1_1221-1 in concluding that the donated items provided records of the taxpayer’s well drilling operations and thus were sufficiently similar to memoranda or business logs to be similar_property within the meaning of sec_1221 c b pincite we have reviewed the list of donated business records that you provided and we agree that the description of similar_property in sec_1_1221-1 is sufficiently broad to cover the listed documents thus we conclude the records constitute property similar to a letter or memorandum within the meaning of sec_1221 held by the proper taxpayer once it is determined the records are property similar to a letter or memorandum a determination must be made whether at the time of the gift to charitable_organization they were held by a taxpayer for whom such property was prepared tl-n-5009-00 or produced or a taxpayer in whose hands the basis of such property would be determined for purposes of determining gain from a sale_or_exchange in whole or in part by reference to the basis of such property in the hands of a taxpayer for whom the property was prepared or produced we understand that corporation donated the records in year although there is no question that corporation is the successor-in-interest to the entities that prepared and produced the records whether corporation should be considered the same taxpayer or a taxpayer in whose hands the basis of the records would be determined by reference to a predecessor’s basis is not free from doubt the same taxpayer the regulations under sec_1221 provide little guidance on this issue sec_1 c merely indicates that a letter or memorandum or property similar to a letter or memorandum which is prepared by personnel who are under the administrative control of a taxpayer such as a corporate executive shall be deemed to have been prepared or produced for the corporate executive whether or not the document was reviewed by him or her this does not answer the question in this case which is whether a taxpayer that has been involved in several reorganizations should be considered the same taxpayer as its predecessor entities for purposes of sec_1221 although we believe arguments could be fashioned to support both affirmative and negative answers to this question we have concluded it is inadvisable to argue that corporation is the same taxpayer as the original creators of the records in this case this position would be inconsistent with service position in a number of cases concerning issues unrelated to sec_1221 we conclude sec_1221 is inapplicable to corporation sec_1_1221-1 provides generally that property is created in whole or in part by the personal efforts of a taxpayer if the taxpayer performs literary theatrical musical artistic or other creative or productive work which affirmatively contributes to the creation of the property or if the taxpayer directs and guides others in the performance of such work a taxpayer such as a corporate executive who merely has administrative control of writers actors artists or personnel and who does not substantially engage in the direction of such persons in the performance of their work does not create property by his personal efforts in the instant case corporation is a manufacturer and is not involved in the creation of literary or artistic work accordingly corporation does not create property by its personal efforts tl-n-5009-00 in 92_tc_206 the primary issue was the propriety of changing a business’ method_of_accounting taxpayer-husband operated a publishing business as a sole_proprietorship the change in method_of_accounting included an adjustment under sec_481 and the taxpayers argued that if the court determined sec_481 was applicable the adjustment should not include amounts attributable to the business’ pre-1954 years according to the taxpayers under sec_481 the business was entitled to limit the sec_481 adjustment in respect of any taxable_year to which sec_481 did not apply the commissioner argued that the taxpayers were not entitled to relief under sec_481 because the entity that existed prior to was a different taxpayer from the taxpayer that existed in the year_of_change the taxpayers’ publishing business had been founded in by petitioner- husband’s parents and operated as a partnership in petitioner-husband became a partner causing the partnership to be reorganized in when petitioner-husband’s father died the partnership was reorganized again with petitioner-husband and his mother as the partners in when petitioner- husband’s mother died the business became a sole_proprietorship based on these facts the commissioner took the position that the business existing in the year in dispute was not the same entity or the same taxpayer as had been in existence in and in prior years accordingly the commissioner argued the business was not entitled to a reduction in the sec_481 adjustment for years prior to the tax_court agreed indicating that the benefits of the pre-1954 code exclusion under sec_481 were available only to the person or entity who is the taxpayer within the meaning of sec_481 id pincite according to the court for purposes of applying sec_481 a successor entity whose existence arose after should be treated as a different taxpayer from its predecessor in 1_tc_513 the tax_court denied the taxpayer a dividend_carryover credit based on a similar argument the taxpayer in marion-reserve power had been formed through the consolidation of sec_481 reads as follows there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted except there shall not be taken into account any adjustment in respect of any taxable_year to which this section does not apply unless the adjustment is attributable to a change in the method_of_accounting initiated by the taxpayer tl-n-5009-00 four companies prior to the consolidation in one of the four companies had paid dividends which exceeded its adjusted_net_income that company thus became entitled to a dividends_paid credit after the four companies consolidated the resulting company the taxpayer claimed the credit on its return the commissioner disallowed the credit carryover based on a determination that the taxpayer claiming the credit was not the same taxpayer as the taxpayer that had earned the credit again the court agreed with the commissioner the tax_court rejected the taxpayer’s argument that a successor_corporation in a statutory merger consolidation was as a matter of law the continuing corporate entity of its constituent companies despite the fact that there were no material differences in business operations and the fact that the resulting corporation was clearly related to the predecessor company the court was not persuaded that the taxpayer was the same entity after the consolidation id pincite because the credit was allowable only to the extent a corporate taxpayer had paid dividends and the taxpayer was not the same taxable entity the court concluded it was not entitled to the deduction similarly in 22_bta_97 the board_of_tax_appeals upheld the commissioner’s disallowance of net_operating_loss carryovers by a successor_corporation the board agreed that the taxpayer was not the same taxpayer as had generated the losses and that it accordingly was not entitled to claim the carryover losses in the supreme court changed the focus of the test for determining whether a successor_corporation should be allowed to carry over net operating losses of a predecessor in 353_us_382 the government argued that a net_loss carryover was not available unless the corporation claiming the loss was the same taxable entity as that which sustained the loss the supreme court specifically declined to reach this issue instead it upheld the disallowance of the loss carryover based on the fact that the income against which the offset was claimed was not produced by substantially the same businesses as those incurring the losses before the loss carryover issue was resolved through legislation the cases subsequent to libson generally applied the substantially the same business test however the fact remains that in three different situations the commissioner has fashioned arguments based on a narrow interpretation of what constitutes the same taxpayer under the circumstances we do not recommend arguing for purposes of sec_1221 that corporation is the same taxpayer as the entity responsible for the preparation or production of the books_and_records in years before year tl-n-5009-00 a taxpayer in whose hands the basis of such property would be determined sec_351 generally provides that no gain_or_loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately_after_the_exchange such person or persons are in control of the corporation under sec_368 certain transactions such as statutory mergers are treated as reorganizations and as such are non-taxable sec_362 generally provides that the basis_of_property acquired by a corporation in a sec_351 transfer shall be the same as the basis of the transferor increased by gain recognized to the transferor sec_362 provides the same basic rule if the property is received in a reorganization under sec_368 the records donated by corporation would be excluded from the definition of capital assets under sec_1221 if at the time of the donation corporation 2's basis in the records was determined in whole or in part by reference to the basis of such property in the hands of a taxpayer whose personal efforts created such property or by reference to the basis of such property in the hands of a taxpayer for whom such property was prepared or produced corporation would receive such basis in the property if the property was received in a transaction in which gain_or_loss was not at least partially recognized a corporate taxpayer generally recognizes no gain_or_loss on the receipt of property under sec_351 and the reorganization provisions of sec_368 our research did not reveal authority directly on point under the circumstances presented in this case however the legislative_history to sec_1221 and revrul_75_202 1975_1_cb_170 shed some light the legislative_history to sec_1221 indicates that paragraph c was intended to apply to situations where the taxpayer receives property in a transaction that is partly or wholly subject_to non-recognition such as transfer by gift see s rep 81st cong 2nd sess in revrul_75_202 an author organized corporation x and transferred his copyright to a work he had written in exchange for all the stock of the corporation corporation x subsequently transferred its rights in the copyright to corporation y the issue was whether the amounts received by corporation x were the proceeds of a sale of the copyright or royalty income from the license of the copyright it was determined that the amounts constituted proceeds from the sale of the copyright further the service held that sec_1221 excluded the copyright property from the definition of a capital_asset and that hence corporation x received tl-n-5009-00 ordinary_income on the transfer although the revenue_ruling did not elaborate on why the property fell within the definition of sec_1221 it is apparent that this is because corporation x determined its basis in the property by reference to the author thus it appears likely that the transfer to corporation x of the copyright qualified for non-recognition under sec_351 of the code our analysis of the transactions submitted for our review begins with year because we do not have adequate_records with respect to the earlier transactions with regard to the transactions entered into beginning in year our analysis is as follows year 6-a controlling_interest in corporation was acquired by a corp this acquisition appears to be a taxable stock acquisition however corporation the corporate owner of the records remains in existence as the same entity before and after the acquisition accordingly corporation’s basis in assets would be the same before and after the acquisition and the records probably would be excluded from capital assets under sec_1221 or c year 7-corporation was merged with subsidiary this merger may have been a tax-free reorganization as defined in sec_368 since both entities were owned by a corp under sec_381 subsidiary would probably be treated as the successor to corporation and the basis of the assets of corporation in its hands would probably be the same as the basis of the assets in the hands of corporation consequently this transaction might fall within the exclusion of sec_1221 year 9-subsidiary was merged with a corp this transaction may qualify for non-recognition treatment under sec_332 under sec_381 a corp would be treated as the successor to subsidiary and in accordance with above as the successor to corporation consequently the basis of corporation’s assets in the hands of a corp would probably be the same and the transaction would appear to fall within the exclusion of sec_1221 year 10-b corp purchased a majority of the stock of a corp and merged the two companies tl-n-5009-00 we would need to know the details of the transaction however it appears that the merger may not constitute a reorganization under the principles of 61_tc_168 year 11-b corp was purchased by d corp which immediately put corporation up sale this transaction appears to be a taxable stock acquisition with corporation remaining intact the transaction would appear to fall under sec_1221 the transaction however may not fall under sec_1221 if a valid sec_338 election was made sec_338 provides that if a purchasing_corporation makes an election under the section then in the case of any qualified_stock_purchase or more stock purchase the target_corporation shall be treated as having sold all of its assets and shall be treated as a new corporation which purchased all of the assets sold by the target_corporation consequently under sec_1221 corporation the target_corporation would not be treated as the same entity following the stock purchase the transaction would not fall under sec_1221 because the inside assets of corporation would be treated as having been acquired in a purchase by the new target_corporation year 12-corporation’s name was changed to corporation and taxpayer acquired all of corporation 2's stock this transaction appears to be a taxable stock acquisition the transaction would appear to fall under sec_1221 because corporation the corporate owner of the records remains in existence as the same entity before and after the acquisition similar to above however this result could change if a valid sec_338 election was made by the purchasing_corporation as we have indicated the facts concerning these mergers and acquisitions particularly concerning the transactions that occurred before year are not fully developed thus we are unable to assess the strength of our argument that the basis of the property donated by corporation is determined in whole or in part by reference to the basis of the property in the hands of a taxpayer whose personal efforts created the records or for whom such records were prepared or produced tl-n-5009-00 case development hazards and other considerations the agent does not appear to question the validity of the consolidated_return filed by taxpayer under the facts before us the purchaser of corporation appears to be listed as taxpayer plc incorporated in great britain the facts also state that taxpayer filed a consolidated_return with corporation it is not clear whether the purchasing_corporation and the corporation that filed the consolidated_return with corporation are the same corporations we note that only domestic corporations are entitled to file u s consolidated_returns see sec_1501 and sec_1504 taxpayer plc would not be entitled to file a consolidated_return with corporation if it is a foreign_corporation even if corporation is precluded from filing a return with taxpayer corporation would probably be able to claim the charitable_contribution_deduction assuming the deduction is otherwise valid on its own behalf in terms of additional factual development in addition while we have attempted to analyze these transactions as thoroughly as possible we note that the facts surrounding each merger acquisition and restructuring must be fully developed in order for the service to make a meaningful determination on the application of sec_1221 we also acknowledge the fact that there is little direct authority under sec_1221 in support of the position that corporation is either the taxpayer for whom the donated property was prepared or a taxpayer in whose hands basis would be is determined by reference to a taxpayer for whom the property was prepared finally we point out that in 110_tc_189 the tax_court concluded that business records were not covered under sec_1221 in martin ice cream one of the issues in dispute was whether the stock of a subsidiary was a capital_asset in the hands of the taxpayer the tl-n-5009-00 taxpayer argued that because business records that were transferred to the subsidiary were not capital assets under sec_1221 the stock received in exchange could not be a capital_asset the court held that the stock was a capital_asset and in dicta relied on sec_1221 to reject the taxpayer’s argument that the business records were excluded from the definition of capital assets the court reasoned that because the legislative_history of the predecessor to sec_1221 indicated that the provision was intended to deal only with writings and artistic works business records did not fall within the narrow category of assets described in the provision the argument made by the taxpayer in martin does not appear to have been addressed by the service on brief so we cannot tell how the court reached its conclusion in any event while we agree with the court’s conclusion in martin ice cream that the stock was a capital_asset we do not agree with the court’s interpretation of sec_1221 sec_1221 was amended in to include letters memoranda and property similar to letters and memoranda as well as copyrights and compositions of a literary musical or artistic nature the court relied on legislative_history that did not reflect the expansion in the scope of the statute service position on the scope of sec_1221 as amended is reflected in the regulations which have already been discussed these regulations which were promulgated in make it clear that sec_1221 is no longer intended to be limited to literary or artistic works and that business records may be excluded from the definition of capital assets under certain circumstances in light of the regulations we view it unlikely that taxpayer will make an argument based on the court’s conclusion in martin ice cream nevertheless we wanted to bring martin ice cream to your attention as a precautionary measure heather c maloy associate chief_counsel income_tax accounting thomas d moffitt acting branch chief cc ita by


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi 2-plr-161040-01 date date number release date index number llc x y date dollar_figurea dollar_figureb dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg state country dear this is in reply to a letter dated date together with subsequent correspondence submitted on behalf of llc requesting a ruling that neither llc nor x will recognize any discharge_of_indebtedness income under sec_61 of the internal_revenue_code as a result of the following restructuring transaction plr-161040-01 facts llc is a state limited_liability_company that was organized on date llc is treated as a partnership for federal tax purposes and is a registered broker and dealer under the securities exchange act of llc is owned by x a banking corporation formed in country that has a permanent_establishment in the united_states through its u s branch operations the remaining interest is owned by y a wholly owned u s subsidiary of x llc operates independently from x the performance of llc’s transactions with counterparties is not guaranteed by x x y and llc plan to restructure llc as a single member llc the purpose of the restructuring is to simplify x’s corporate structure reduce administrative costs eliminate the need to file federal state and local partnership tax returns for llc and reduce state taxes under the proposed restructuring llc will redeem y’ sec_1 interest by distributing cash to y in complete redemption of its interest llc will terminate as a partnership for federal tax purposes because llc will have only one member after y’s interest is redeemed llc will continue its operations after the proposed restructuring the total value of llc’s assets is approximately dollar_figurea and the total amount of llc’s liabilities is approximately dollar_figureb llc has represented that when llc redeems y’s interest the fair_market_value of llc’s assets will exceed the amount of its liabilities llc is required to calculate its profits and losses daily for federal_income_tax purposes under sec_475 therefore the bases of llc’s assets are always equal to their fair market values approximately dollar_figurec of llc’s liabilities are owed to x of this amount dollar_figured is nonrecourse debt represented by three subordinated notes llc represents that the notes require semi-annual or annual payments of interest at a market rate and that all interest payments are current the remainder of llc’s debt to x approximately dollar_figuree consists of short-term repurchase repo agreements between llc and x llc represents that the repurchase transactions occurred in the ordinary course of llc’s business approximately dollar_figuref of llc’s assets are attributable to reverse repurchase transactions reverse repos with x llc’s net liability to x arising from repos and reverse repos is approximately dollar_figureg dollar_figuree minus dollar_figuref law under sec_61 of the internal_revenue_code except as otherwise provided gross_income means all income including income from the discharge_of_indebtedness sec_1_61-12 of the income_tax regulations provides that an issuer realizes plr-161040-01 income from the discharge_of_indebtedness upon the repurchase of a debt_instrument for an amount less than its adjusted_issue_price within the meaning of sec_1_1275-1 the amount of discharge_of_indebtedness income is equal to the excess of the adjusted_issue_price over the repurchase price sec_301_7701-3 of the procedure and administration regulations provides that a business_entity not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes under sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is classified as a partnership if it has two or more members sec_301_7701-3 provides that an eligible_entity classified as a partnership becomes disregarded as an entity separate from its owner when the entity’s membership is reduced to one member sec_301_7701-2 provides that if a business_entity with only one owner is disregarded its activities are treated in the same manner as a sole_proprietorship branch or division of the owner sec_708 and sec_1_708-1 provide that a partnership shall terminate when the operations of the partnership are discontinued and no part of any business financial operation or venture of the partnership continues to be carried on by any of its partners in a partnership sec_752 provides that any increase in a partner’s share of the liabilities of a partnership or any increase in a partner’s individual liabilities by reason of the assumption by such partner of partnership liabilities shall be considered as a contribution of money by such partner to the partnership sec_752 provides that any decrease in a partner’s share of the liabilities of a partnership or any decrease in a partner’s individual liabilities by reason of the assumption by the partnership of such individual liabilities shall be considered as a distribution of money to the partner by the partnership sec_1_752-1 provides that if as a result of a single transaction a partner incurs both an increase in the partner’s share of the partnership’s liabilities or the partner’s individual liabilities and a decrease in the partner’s share of the partnership’s liabilities or the partner’s individual liabilities only the net decrease is treated as a distribution from the partnership and only the net increase is treated as a contribution to the partnership sec_1_752-1 also provides that generally the termination of a partnership under sec_708 will require that increases and decreases in liabilities associated with the transaction be netted to determine if a partner will be deemed to have made a contribution or received a distribution as a result of the transaction plr-161040-01 analysis and conclusion based on the information submitted and the representations made in the ruling_request when y’s interest is redeemed llc will terminate as a partnership for federal tax purposes because it will have only one partner immediately upon termination of the partnership percent of llc’s remaining assets and liabilities will be deemed distributed to x in liquidation of the partnership llc represents that the fair_market_value of the assets deemed distributed to x as part of this deemed liquidation will exceed the amount of these liabilities and the tax basis of the assets will equal their fair_market_value at that time after the distribution llc will be disregarded for federal tax purposes as the sole owner of llc x will receive in the deemed_distribution nearly dollar_figurea in assets and approximately dollar_figureb in liabilities including dollar_figurec of debt owed to x because a person cannot be both creditor and debtor llc’s obligations to x are cancelled the amount of discharge_of_indebtedness income is equal to the amount by which the issue_price adjusted for any premium or discount of the indebtedness exceeds the amount_paid on the indebtedness under the facts of this case llc is treated as paying the full issue_price of the cancelled out debts accordingly neither llc nor x will realize any discharge_of_indebtedness income under sec_61 upon the termination of the partnership except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under sec_751 or any other provision of the code specifically no opinion is expressed concerning whether the liabilities discussed above are properly classified as debt or equity for federal_income_tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours matthew lay senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c ric ara v uniform issue list ep lat legend taxpayer a ira x amount a individual h financial_institution p fund k entity v date date date dear this is in response to your request dated date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age received a distribution on date from individual_retirement_account ira x in the sum of amount a with the intent to roll over amount a failure to accomplish a d was due to the misappropriation of funds by individual h into another individual_retirement_account taxpayer a asserts that his rollover within the 60-day period prescribed by section page taxpayer a had previously established ira x with the assistance of individual h a securities licensed representative of financial_institution p on date taxpayer a acting on the advice of individual h closed ira x and withdrew the total of amount a intending to roll it over into an ira invested in fund k on date taxpayer a wrote a check for amount a to individual h made payable to entity v individual h's business_entity to establish the fund k ira taxpayer a asserts that contrary to his representations to taxpayer a individual h retained the funds for his own personal_use it is further represented that on date individual h committed suicide leaving a note confessing to the misappropriation of funds of a number of financial_institution p customers including taxpayer a taxpayer a and financial_institution p have entered into a settlement agreement and taxpayer a seeks a ruling waiving the day period to roll over amount a based on the facts and representations you request a ruling that the service waive the 60-day rollover requirement contained in sec_408 of the code regarding amount a sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distribute as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not page apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer ain support of the requested ruling is consistent with his assertion that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to the misappropriation of these funds by individual h therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount a from ira x taxpayer a is granted a period of days from the issuance of into an ira maintained in this ruling letter to complete the rollover of amount a his name page no opinion is expressed as to the tax treatment of the transaction described _ herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact me at please address all correspondence to se t ep ra t3 sincerely yours frances v sloan employee_plans technical group manager enclosures deleted copy of letter_ruling notice of intention to disclose


tcmemo_2008_87 united_states tax_court michael a and mary pettit petitioners v commissioner of internal revenue respondent docket no filed date richard b tomlinson for petitioners bryan e sladek for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a dollar_figure deficiency in and a dollar_figure sec_6662 penalty on petitioners’ federal_income_tax the issues for decision are whether dollar_figure petitioner michael a pettit received in connection with all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure the settlement of a lawsuit is excludable from gross_income for pursuant to sec_104 and whether petitioners are liable for the sec_6662 penalty for findings_of_fact none of the facts but all of the exhibits have been stipulated and the exhibits are incorporated herein by this reference at the time the petition was filed petitioners resided in michigan before date michael a pettit petitioner was employed by electronic data systems corp eds as a facilities project coordinator on date eds terminated petitioner as part of a workforce reduction petitioner’s supervisor at eds informed petitioner that he was selected for termination on the basis of his age and pay at the time of his termination petitioner was approximately years old eds replaced petitioner with a facilities project coordinator who was younger than petitioner petitioner filed an age discrimination lawsuit pursuant to michigan law against eds the case eventually went to trial in the u s district_court for the eastern district of michigan lawsuit in the lawsuit petitioner set forth a claim alleging physical injuries emotional distress and family problems arising out of his termination from eds the lawsuit went to trial in date however after days of trial the parties settled the case by executing a settlement agreement and release settlement agreement the settlement agreement provided that petitioner presented evidence of serious emotional distress during trial of the lawsuit pursuant to the settlement agreement eds agreed to pay petitioner dollar_figure eds paid petitioner dollar_figure in dollar_figure payment the settlement agreement provides that the dollar_figure payment is to be apportioned as follows of the first payment of one hundred twenty thousand dollars dollar_figure forty four thousand two hundred and fifty dollars and sixteen sic dollar_figure shall be attributed to lost wages and shall be tendered in a check which will be issued as a payroll check with applicable withholding on which an irs form_w-2 will be issued the remaining seventy five thousand seven hundred and forty nine dollars and eighty eight cents dollar_figure of the first payment and the entire second payment of one hundred and twenty thousand dollars dollar_figure shall be attributed to emotional distress pain suffering and other non-wage damages and an irs form_1099 shall be issued petitioner’s annual salary at eds was dollar_figure in the settlement agreement petitioner and eds agreed to and calculated the allocation of dollar_figure to lost wages to reflect the amount of salary petitioner would have earned if he had not been terminated and had remained employed with eds until date in return for the money eds paid petitioner pursuant to the settlement agreement petitioner agreed to the following second complete release and dismissal of lawsuit with prejudice in return for the consideration set forth above pettit agrees to release eds from all claims or demands pettit may have against eds including but not limited to any claims related to pettit’s employment with eds or separation from that employment and any claims for attorneys fees and costs this includes without limitation a release of any rights or claims asserted by pettit in the lawsuit styled pettit v electronic data systems inc case no 02-cv-74357 which is currently pending before the united_states district_court for the eastern district of michigan southern division this release also includes without limitation a release by pettit of any related or unrelated wrongful discharge claims contractual claims tort claims or any other actions this release covers both claims that pettit knows about and those he may not know about fourth no future lawsuits pettit promises never to file a lawsuit demand action or otherwise assert any claims that are released in the second paragraph of this agreement thirteenth entire agreement for the purpose of implementing a full and complete release and discharge of claims pettit expressly acknowledges this agreement is intended to include in its effect without limitation all the claims described in the preceding paragraphs whether known or unknown suspected or unsuspected and that this agreement contemplates the extinction of all such claims including claims for attorneys’ fees pettit expressly waives any right to assert after the execution of this agreement that any such claim demand obligation or cause of action has through ignorance oversight or for any other reason been omitted from the scope of this agreement this is the entire agreement between pettit and eds and supersedes and prevails over all other prior agreements understandings or representations by or between the parties whether oral or written this agreement may not be modified or amended and there shall be no waiver of its provisions except by a written instrument executed by pettit and a corporate officer of eds eds has made no promises to pettit other than those in this agreement the accounting firm of belger and associates prepared petitioners’ joint federal_income_tax return on petitioners’ timely filed return petitioners reported dollar_figure of the dollar_figure payment as wages petitioners did not include dollar_figure of the dollar_figure payment as other income instead on statement - form_1040 line - other income petitioners calculated their other income as follows description amount debt canceled debt canceled settlement nontaxable sec_104 total dollar_figure big_number big_number big_number big_number the disclosure on their return reflected petitioners’ understanding that the dollar_figure of the dollar_figure payment was not taxable ie it was excludable under sec_104 respondent determined that the amount of petitioners’ other income on their return should be increased by dollar_figure because this amount was not excludable from income respondent also determined a sec_6662 penalty for i burden_of_proof opinion generally the taxpayer bears the burden of proving the commissioner’s deficiency determinations incorrect rule a 290_us_111 petitioners have neither claimed nor shown that they satisfied the requirements of sec_7491 to shift the burden_of_proof to respondent accordingly petitioners bear the burden_of_proof see rule a ii deficiency it is well established that pursuant to sec_61 gross_income includes all income from whatever source derived unless otherwise excluded by the internal_revenue_code see 348_us_426 exclusions from gross_income are construed narrowly 515_us_323 we note that although petitioners round up the dollar_figure to dollar_figure on their return in the statutory_notice_of_deficiency respondent rounded down the dollar_figure to dollar_figure this accounts for the dollar_figure difference the small_business job protection act of sbjpa publaw_104_188 sec 110_stat_1838 amended sec_104 as relevant here to provide sec_104 compensation_for injuries or sickness a in general --except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical etc expenses for any prior taxable_year gross_income does not include-- the amount of any damages other than punitive_damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal physical injuries or physical sickness for purposes of paragraph emotional distress shall not be treated as a physical injury or physical sickness the preceding sentence shall not apply to an amount of damages not in excess of the amount_paid for medical_care described in subparagraph a or b of sec_213 attributable to emotional distress t he term emotional distress includes symptoms eg insomnia headaches stomach disorders which may result from such emotional distress h conf rept pincite ndollar_figure 1996_3_cb_741 sec_104 as amended by the sbjpa generally is effective for amounts received after date sbjpa sec d 110_stat_1839 damages received means amounts received through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution sec_1_104-1 income_tax regs in evaluating whether amounts received pursuant to a settlement agreement are excludable from income pursuant to sec_104 we look to the written terms of the settlement agreement to determine the origin and allocation of the settlement proceeds see 88_tc_834 affd without published opinion 845_f2d_1013 3d cir jacobs v commissioner tcmemo_2000_59 affd sub nom 22_fedappx_967 10th cir petitioner and eds entered into a written settlement agreement petitioner testified that he was paid dollar_figure of the dollar_figure payment for emotional distress pain and suffering petitioner testified that the pain and suffering consisted of irritable bowel syndrome a digestive problem and headaches the term emotional distress includes symptoms such as insomnia headaches and stomach disorders which may result from such emotional distress congress amended sec_104 to specifically address the issue of whether damages for emotional distress are excluded from gross_income and determined that such damages generally are not excludable from income the settlement agreement states that petitioner filed a lawsuit alleging physical injuries emotional distress and family problems arising out of eds’s termination additionally the settlement agreement explicitly states that petitioner presented evidence of serious emotional distress during the trial and it does not contain language indicating that petitioner presented any evidence of physical injuries or physical sickness sec_104 as amended by the sbjpa requires not only that damages compensate for personal injury but also that the injury be physical the settlement agreement makes no allusion to compensation_for a physical injury or physical sickness there is no apportionment of any of the settlement proceeds to a physical injury or physical sickness the settlement agreement divides the dollar_figure into two portions one portion of the dollar_figure payment is allocable to wages and the remainder of the dollar_figure payment and the entire second payment which also totaled dollar_figure are allocable to emotional distress leaving no residue susceptible of attribution to physical injury or to anything else this omission and the affirmative language of the settlement agreement further support the conclusion that petitioner’s damage award does not qualify for the sec_3 we note that the pleadings setting forth petitioner’s claims in the lawsuit were not offered as evidence a exclusion see seidel v commissioner tcmemo_2007_45 accordingly we sustain respondent’s deficiency determination iii sec_6662 penalty a burden of production sec_7491 sec_7491 provides that the commissioner will bear the burden of production with respect to the liability of any individual for additions to tax and penalties the commissioner’s burden of production under sec_7491 is to produce evidence that it is appropriate to impose the relevant penalty addition_to_tax or additional_amount 118_tc_358 see also 116_tc_438 the commissioner however does not have the obligation to introduce evidence regarding reasonable_cause or substantial_authority higbee v commissioner supra pincite b sec_6662 respondent determined that petitioners are liable for the sec_6662 penalty for pursuant to sec_6662 a taxpayer may be liable for a penalty of percent on the portion of an underpayment_of_tax due to negligence or disregard of rules or regulations or a substantial_understatement_of_income_tax sec_6662 and an understatement is the difference between the amount of tax required to be shown on the return and the amount of tax actually shown on the return sec_6662 a substantial_understatement exists if the understatement exceeds the greater of percent of the tax required to be shown on the return for a taxable_year or dollar_figure see sec_6662 respondent met his burden of production as there was a substantial_understatement_of_income_tax the accuracy-related_penalty is not imposed with respect to any portion of the underpayment as to which the taxpayer acted with reasonable_cause and in good_faith sec_6664 the decision as to whether the taxpayer acted with reasonable_cause and in good_faith depends upon all the pertinent facts and circumstances sec_1_6664-4 income_tax regs relevant factors include the taxpayer’s efforts to assess his proper tax_liability including the taxpayer’s reasonable and good_faith reliance on the advice of a professional see id the record establishes that petitioners acted with reasonable_cause and in good_faith petitioners reasonably and in good_faith relied on their return preparer petitioners disclosed dollar_figure of the dollar_figure payment and their basis for excluding this amount from income on their return accordingly we conclude that petitioners had reasonable_cause and acted in good_faith as to any underpayment for therefore we hold that petitioners are not liable for the penalty pursuant to sec_6662 iv conclusion in reaching our holdings herein we have considered all arguments made by the parties and to the extent not mentioned above we find them to be irrelevant or without merit to reflect the foregoing decision will be entered under rule


department of the treasury internal_revenue_service washington d c date cc dom fs proc uilc number release date internal_revenue_service national_office field_service_advice memorandum for district_counsel from subject sara m coe chief field service procedural branch cc dom fs proc deficiency_interest computation this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend x e i n authorized representative year year tax_year ending tax_year ending -- filing due_date for tax_year -- filing_date for tax_year - filing due_date for tax_year due dates and for making estimated_tax payments for tax_year issue s as of what date or dates does underpayment interest begin to accrue on an underpayment_of_tax for x’s year where the underpayment is attributable to x’s election on to have an overpayment_of_tax from year credited to its estimated_tax liability for year without designating the estimated_tax payments to which the overpayment was to be credited conclusion where x has reported an overpayment on its year return and has elected to have the overpayment credited to its estimated_taxes for the succeeding tax_year interest will be assessed on the portion of any subsequently determined deficiency less than or equal to the overpayment as of the date or dates the overpayment is applied to the succeeding year’s estimated_tax liabilities or to the original due_date of the succeeding year’s income_tax return to the extent the overpayment is not needed to satisfy specific installments of estimated_tax if the deficiency is less than the amount of the overpayment that was credited to the next tax_year interest on the deficiency should be computed by matching the amount of the deficiency against each application of the overpayment starting with the portion of the overpayment that was paid on the most recent date facts x timely filed its year tax_return under extension on the return reported a tax_liability of dollar_figurem previous tax_payments of dollar_figurem and an overpayment of dollar_figurem all of the tax_payments were made before the original due_date for the year return on the return x elected to have the entire dollar_figurem overpayment credited to its estimated_tax liabilities for year under sec_6402 but did not designate the installment to which the overpayment was to be applied pursuant to revrul_88_98 1988_2_cb_356 and revrul_77_475 1977_2_cb_476 as modified by revrul_84_58 1984_1_cb_254 the service applied the entire overpayment to the first installment_payment for year which was due on x made no other estimated_tax payments for year for year x reported dollar_figurem of tax_liability dollar_figurem of previous tax_payments credited from and an overpayment of dollar_figurem which it elected to have credited to the next tax_year in year the service assessed an audit deficiency of dollar_figurem against x for year x has paid the tax_deficiency together with underpayment interest computed from through the date the tax was paid the service computed the underpayment interest starting as of and has attempted to collect the difference from x collection efforts have been stopped pending this request for advice law and analysis sec_6601 of the internal_revenue_code provides i f any amount of tax is not paid on or before the last date prescribed for payment interest on such amounts shall be paid for the period from such last date to the date paid the date prescribed for payment of income_tax is the due_date for the tax_return without regard to extensions sec_6151 b in situations where the service determines a deficiency in tax after a taxpayer has elected to have an overpayment that is claimed on a timely filed return including one filed under extension for the deficiency year credited against an installment of the succeeding year’s estimated_tax liability revrul_88_98 1988_2_cb_356 concludes that interest on the subsequently determined deficiency runs from the due_date of the installment_payment against which the overpayment was credited on the part of the deficiency that is equal to or less than the claimed overpayment and from the original due_date of the first year’s return on the remainder of the deficiency revrul_88_98 follows 588_f2d_342 2d cir in which the court interpreted sec_6601 to mean that interest on a deficiency can only be charged when the tax is both due and unpaid no one disputes that an income_tax_liability is due as of the original return filing due_date under the avon products analysis however it is also paid as of that due_date to the extent that there are sufficient payments in the account to cover the liability the tax_liability does not become unpaid until the date on which amounts that were in the account on the due_date have been refunded to the taxpayer or credited to another tax_liability in rev_rul the service took the position that the critical date as of which the tax became unpaid was the due_date for the estimated_tax installment_payment that the taxpayer designated for payment with the overpayment credit if the taxpayer designated no specific installment_payment revrul_88_98 provided that the service would use the earliest installment date for the succeeding year in 36_fedclaims_680 acq aod cc date the taxpayer elected to credit an overpayment from its tax_year to its estimated_tax liability but did not attach a a statement indicating the installment to which the service should credit the overpayment when a tax_deficiency was later determined for the tax_year the service relied upon revrul_88_98 to compute interest on the underpayment from the due_date of the first estimated_tax installment however before the credit election was made on date with the filing of the return the taxpayer had already made sufficient estimated_tax payments for the first two quarters of to avoid any addition_to_tax that might have been imposed under sec_6655 for failure to pay estimated_tax the court of federal claims concluded that the service’s application of the overpayment credit to the first installment period was not material because the overpayment was not needed to satisfy any installment_obligation prior to the date when the return was filed the service had the use of the taxpayer’s money from the due_date of the first installment may to the date the return was filed october in light of may department stores the service has reconsidered the manner in which interest on a subsequently determined deficiency is to be computed under sec_6601 when the taxpayer has made an election to apply an overpayment to the succeeding year’s estimated_taxes when such an election is made the overpayment will be applied to unpaid installments of estimated_tax due on or after the date the overpayment arose in the order in which they are required to be paid to avoid an addition to the tax for failure to pay estimated income_tax under sec_6654 and sec_6655 the service will assess interest on a subsequently determined deficiency for the overpayment year from the date or dates that the overpayment is applied to the succeeding year’s estimated_tax obligations in all situations the estimated_tax rules in effect for the tax_year to which the overpayment is credited will be used to determine the amount of estimated_taxes due and thus the amount of the overpayment needed to satisfy the obligation for each installment of estimated_tax any remaining balance of the overpayment credit will be applied as of the due_date without extensions for filing the successive year’s income_tax return except for the credit overpayment from year x made no estimated_tax payments for year your request for advice does not include information about x’s potential estimated_tax liability x’s liability for each installment_payment for the year can be readily ascertained however by having a computation done of the amount of payment necessary each quarter to avoid an addition_to_tax for failure to pay estimated_tax for purposes of computing interest on the year deficiency the overpayment credit from year of dollar_figurem can then be allocated to each estimated_tax payment due in year with the balance being applied as of the due_date for the year income_tax return in this case the dollar_figurem overpayment credit greatly exceeds the total dollar_figurem tax_liability for year and the dollar_figurem deficiency subsequently determined for year assuming that an estimated_tax liability equal to the total year liability of dollar_figurem was to be paid in four equal payments of dollar_figure 5m dollar_figurem of the year overpayment would not have become unpaid until the dollar_figurem deficiency determined for year in year is easily payable out of that amount which was paid until because the full amount of the tax_deficiency would not have become unpaid until deficiency_interest on that underpayment would not start to accrue until the service is not entitled to assess interest on the deficiency starting as of further provided that a timely refund claim is filed x would be entitled to a refund of deficiency_interest paid for the period from through case development hazards and other considerations the service should recompute the underpayment interest due from x on the year deficiency and make the appropriate adjustments to x’s account for year if the computation is consistent with that provided by x and the interest has in fact been overpaid no further collection action should be taken and x should be notified of the overpayment it appears that x may file a timely claim_for_refund inasmuch as a significant portion of the total_payment of the deficiency plus interest was paid within the last two years for the year the total amount of tax paid would have decreased over the year as follows date dollar_figureapplied to year tax paid balance - year -dollar_figure m - m - m - m - m dollar_figure m m m m m m


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc dom p si plr-113928-99 date date number release date legend x a b c d1 d2 dear this letter responds to your representative’s letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code that x's s_corporation status will be effective as of the taxable_year beginning d2 according to the information submitted x was incorporated on d1 a b and c x’s shareholders intended x to be an s_corporation however x's form_2553 election by a small_business_corporation with an effective date of d2 was not timely filed facts x requests a ruling that it will be recognized as an s_corporation effective for the taxable_year beginning d2 under sec_1362 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr-113928-99 sec_1362 provides when an s election will be effective if an s election is made within the first two and one half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation beginning the year in which the election is made if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year conclusions based solely on the facts submitted and representations made we conclude that x has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d2 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is an s_corporation for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely yours william p o’shea chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------- ----------------------------------------- ----------------------- ------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number ---------------------- refer reply to cc intl b03 plr-139090-16 date february ty ------- corp a corp b corp c corp d country z date ---------------------- --------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------- ------------------------------------- ---------------------------------------- ---------------- ---------- ------------------- dear --------------- this is in response to your representative’s letter dated date requesting a ruling on behalf of corp b’s consolidated_group that the consolidated_group members be permitted to value their assets on the basis of the tax_book_value_method of asset valuation for purposes of the consolidated group’s ------- taxable_year the rulings contained in this letter are based upon information and representations submitted by corp b and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination corp b a domestic_corporation is a calendar_year taxpayer that uses the accrual_method as its overall_method_of_accounting corp b is the common parent of a group of affiliated corporations that files a consolidated u s federal_income_tax return corp plr-139090-16 b consolidated_group utilized the fair_market_value_method of asset valuation for taxable years prior to taxable_year ------- corp b is wholly owned by corp a corp a is a corporation created under the laws of country z corp a also wholly owns corp c corp c is a domestic_corporation that is not part of the corp b consolidated_group corp b and corp c are related_persons within the meaning of sec_1_861-8t accordingly corp c also utilized the fair_market_value_method of asset valuation for taxable years prior to taxable_year ------- corp c is simultaneously requesting to value its assets on the basis of the tax_book_value_method on date a date in calendar_year ------- corp b completed the acquisition of corp d the common parent of a u s consolidated_group of corporations for several years prior to date the corp d consolidated_group utilized the tax_book_value_method of asset valuation as a result of the acquisition the corp d consolidated_group members became members of the corp b consolidated_group and will be included in the corp b consolidated federal_income_tax return starting from the day after date sec_864 provides that all allocations and apportionments of interest_expense shall be made on the basis of assets rather than gross_income sec_1_861-8 through and sec_1_861-8t through 861-13t set forth the rules specific to the allocation and apportionment of interest_expense sec_1 9t g ii provides that a taxpayer may elect to determine the value of its assets on the basis of either tax book_value or the fair_market_value of its assets sec_1_861-8t provides that once a taxpayer uses the fair_market_value_method the taxpayer and all related_persons must continue to use such method unless expressly authorized by the commissioner to change methods based solely on the information submitted and the representations made pursuant to sec_1_861-8 and sec_1_861-8t and sec_1_861-9t the corp b consolidated_group members may value their assets on the basis of the tax_book_value_method of asset valuation for purposes of apportioning interest_expense for all operative sections including sec_199 and sec_904 of the code for the consolidated group’s ------- taxable_year and future years this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by plr-139090-16 attaching a statement to their return that provides the date and control number of the letter_ruling sincerely jeffrey l parry senior counsel branch office of associate chief_counsel international