internal_revenue_service ‘ index number department of the treasury washington dc number release date person to contact telephone number refer reply to cc dom p si 1-plr-115125-99 date jan legend tt tr1 tr2 tr3 llc p1 p2 p3 p4 p5 pr sec_1 pr sec_2 plr-115125-99 this letter responds to your letter dated date submitted on behalf of tt as trustee of tr3 requesting a ruling concerning the federal_income_tax consequences of a proposed contribution of substantially_all of the assets of three trusts to a limited_liability_company under sec_721 of the internal_revenue_code facts tt is the trustee of tr1 tr2 and tr3 tt proposes to contribute substantially_all of the assets of each trust to llc a newly formed limited_liability_company that will be taxed as a partnership after contributing the assets of the three trusts to llc the members of llc will be each trust the three trust’s assets include cash securities foreign_currency and evidences of indebtedness in addition tr1 and tr2 each own a p1 interest in pr sec_1 a limited_partnership the sole asset of the pr sec_1 except for a nominal amount of cash is a p2 limited_partnership_interest in pr sec_2 a registered limited_liability partnership pr sec_2 owns a fee simple interest in two parcels of commercial real_estate real_estate the fee simple interest comprises p3 of pr sec_2's value pr sec_2 is not a reit or ric pr sec_1 and pr sec_2 are not publicly_traded_partnerships after the trusts contributions of assets to llc p4 of llc’s assets will be the interests in real_estate the remainder of llc’s assets p5 will be cash securities foreign_currency and evidences of indebtedness the service has been requested to rule that sec_721 will not apply to the transfers by tt of substantially_all of the assets of t1 t2 and t3 to llc and under sec_721 no gain_or_loss will be recognized by t1 t2 t3 on the contribution by such trusts of their assets to llc in exchange for interests in llc law and analysis sec_721 provides that no gain_or_loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership sec_721 provides that sec_721 shall not apply to gain realized on a transfer of property to a partnership that would be treated as an investment_company within the meaning of sec_351 if the partnership were incorporated sec_351 provides that no gain_or_loss will 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 the transferors are in control as defined plr-115125-99 in sec_368 of the corporation sec_351 provides that sec_351 will not apply to transfers of property to an investment_company under sec_1_351-1 of the income_tax regulations a transfer of property after date will be considered to be a transfer to an investment_company if i the transfer results directly or indirectly in diversification of the transferors’ interests and ii the transferee is a a regulated_investment_company b a real_estate_investment_trust or c a corporation more than percent of the value of whose assets excluding cash and nonconvertible debt obligations are held for investment and are readily marketable stocks or securities or interests in regulated_investment_companies or real_estate_investment_trusts sec_1_351-1 provides that the determination of whether a corporation is an investment_company is ordinarily made by reference to the circumstances in existence immediately_after_the_transfer in question however sec_1_351-1 also provides that where circumstances change thereafter pursuant to a plan in existence at the time of the transfer this determination will be made by reference to the later circumstances less than percent of the llc’ assets are readily marketable stocks or securities or interests in regulated_investment_companies or real_estate_investment_trusts accordingly llc is not an investment_company under sec_351 conclusions based solely on the facts as presented in this ruling_request and viewed in light of the applicable law and regulations we conclude that the contribution of substantially_all the assets of t1 t2 and t3 to llc would not be treated as a transfer to an investment_company within the meaning of sec_351 accordingly no gain_or_loss will be recognized by t3 from the contribution of substantially_all the assets of t3 to llc in exchange for a partnership_interest under sec_721 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-115125-99 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer signed david r haglund sincerely david r haglund senior technical reviewer office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court ralph thomas whitecavage petitioner v commissioner of internal revenue respondent docket no filed date ralph thomas whitecavage pro_se jonae a harrison for respondent memorandum findings_of_fact and opinion thornton judge respondent determined the following deficiencies and penalty in petitioner’s federal income taxes year deficiency dollar_figure big_number big_number accuracy-related_penalty sec_6662 -- dollar_figure -- the issues for decision are whether during and petitioner engaged for profit in the activity of breeding greyhounds for racing and whether petitioner is liable for a sec_6662 accuracy-related_penalty for all section references are to the internal_revenue_code in effect for the taxable years at issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact the parties have stipulated some facts which are so found when he petitioned the court petitioner resided in arizona petitioner was an auditor for the internal_revenue_service irs for years including the years at issue he was stationed in the yuma arizona office of the irs where he worked about hours a week before retiring in petitioner resided on his property about miles from yuma in petitioner began breeding greyhounds there for the purpose of entering them in dog races each year he bred a litter of pups over years he raised about greyhounds before petitioner kept his greyhounds in crates in his garage twice a day he would take them out for exercise during petitioner built a big_number square-foot kennel and added a new run and fencing because of his full-time job at the irs petitioner could not spend much time with the dogs during workdays but he fed and cleaned up after them mornings and evenings petitioner did not hire any caretaker to tend the dogs while he was at work petitioner would keep the pups on his property until they were a little over year old then he would send them to florida oklahoma or new mexico to train for racing on a track after being trained petitioner’s greyhounds were taken to be raced in florida and arizona petitioner received a percentage of any winnings not all the greyhounds survived training petitioner lost about greyhounds because of bad training methods by the trainers in the racing kennels the greyhounds that survived spent the rest of their racing lives on the track and generally did not return to petitioner instead at the end of their racing lives the greyhounds generally would be petted out ie sent into an adoption program or to a veterinarian presumably to be euthanized petitioner received no money for these dogs upon their retirement before he commenced breeding greyhounds for racing petitioner did not consult an economist or other professional business adviser although he received some racetrack winnings petitioner never realized a profit from breeding and racing greyhounds petitioner ceased his greyhound activity in the same year he retired from the irs on schedules c profit or loss from business of his form sec_1040 u s individual_income_tax_return petitioner reported losses from his greyhound activity as follows gross dog-race winnings total expenses net_loss dollar_figure big_number big_number dollar_figure big_number big_number dollar_figure big_number big_number by notice_of_deficiency respondent determined that these reported losses were not allowable under sec_183 because petitioner’s greyhound activity was not entered into for profit respondent also determined that for petitioner was liable for the sec_6662 accuracy-related_penalty on the basis that petitioner’s corrected income_tax_liability for was dollar_figure rather than the dollar_figure that petitioner had reported giving rise to a substantial_understatement_of_income_tax within the meaning of sec_6662 a petitioner’s greyhound activity opinion under sec_183 if an individual engages in an activity without the primary objective of making a profit deductions attributable to the activity are allowable only to the extent of gross_income from the activity see 72_tc_28 the critical inquiry i sec_1 respondent allowed petitioner miscellaneous_itemized_deductions equal to the amounts of gross_income reported from the greyhound activity whether making a profit is the taxpayer’s predominant primary or principal objective 4_f3d_709 9th cir affg tcmemo_1991_212 machado v commissioner tcmemo_1995_526 affd without published opinion 119_f3d_6 9th cir warden v commissioner tcmemo_1995_176 affd without published opinion 111_f3d_139 9th cir although the taxpayer need not have a reasonable expectation of realizing a profit he or she must have a bona_fide objective to do so 809_f2d_355 7th cir affg tcmemo_1985_523 72_tc_411 affd without published opinion 647_f2d_170 9th cir sec_1_183-2 income_tax regs whether the taxpayer has the requisite objective to realize a profit is a question of fact to be resolved on the basis of all relevant circumstances with greater weight being given to objective factors than to mere statements of intent 78_tc_642 affd without opinion 702_f2d_1205 d c cir golanty v commissioner supra pincite the taxpayer generally bears the burden of establishing that the activity was engaged in for profit see rule a petitioner has not claimed or shown that he meets the requirements under sec_7491 to shift the burden_of_proof to respondent as to any factual issue relating to his liability for tax the regulations under sec_183 provide a nonexclusive list of factors to be considered in determining whether an activity is engaged in for profit the factors include the manner in which the taxpayer carried on the activity the expertise of the taxpayer or his advisers the time and effort the taxpayer spent in carrying on the activity the expectation that assets used in the activity may appreciate in value the taxpayer’s success in carrying on other activities the taxpayer’s history of income or losses with respect to the activity the amount of occasional profits if any which are earned the taxpayer’s financial status and whether elements of personal pleasure or recreation are involved sec_1_183-2 income_tax regs see golanty v commissioner supra pincite as discussed below on the basis of all the evidence in the record we conclude that petitioner did not engage in his greyhound activity for profit within the meaning of sec_183 manner in which petitioner carried on the activity petitioner did not carry on his greyhound activity in a businesslike manner he did not maintain complete and accurate books_and_records regarding his greyhound activity did not maintain a written business plan and did not contemporaneously prepare budgets or financial analyses for his greyhound activity although petitioner claims to have prepared a cost analysis plan at trial he acknowledged that this plan was prepared only in the course of the audit and examination of the tax years at issue his substantiation of claimed expenses was spotty and consisted largely of some canceled checks supported by his vague testimony he had no written contracts with the third parties who trained hauled and raced his greyhounds petitioner was licensed with the arizona department of racing at least for he alleges that he was also licensed with the texas department of racing and the florida department of racing he also alleges that he had some of the best blood lines in greyhound racing in the state of arizona such circumstances do not suffice to establish however that petitioner conducted his greyhound activity in a businesslike manner this factor weighs against petitioner at trial petitioner indicated that he wished to call as a witness lonnie boyle who allegedly hauled petitioner’s dogs to training sites and leased petitioner’s dogs to run under mr boyle’s kennel name petitioner stated that he expected to elicit from mr boyle testimony about the mechanics of the racing kennel and basically what happens to the dogs through the racing end of it and what happens when it’s petted out having failed to subpoena mr boyle however petitioner failed to have him available at trial the court declined petitioner’s request to continue the trial to receive mr boyle’s testimony at some later date insofar as it might be pertinent to our analysis of whether petitioner engaged in his greyhound activity for profit within the meaning of sec_183 the subject matter of mr boyle’s expected testimony as described by petitioner appears largely redundant of undisputed information already in the record moreover insofar as petitioner may have sought to elicit expert testimony from mr boyle petitioner failed to submit an expert report pursuant to rule f expertise of petitioner or advisers preparation for an activity by extensive study of its accepted business economic and scientific practices or consultation with those who are expert therein may indicate a profit_motive if the taxpayer carries on the activity in accordance with such practices sec_1_183-2 income_tax regs in analyzing profit_motive a distinction must be drawn between expertise in the mechanics of an activity and expertise in the business and economic aspects of an activity see burger v commissioner supra pincite failure to consult economic experts or to develop an economic expertise may indicate a lack of a profit_motive id although petitioner presumably acquired some knowledge about the mechanics of greyhound breeding and racing before he commenced his greyhound activity he has not demonstrated that he consulted economic experts or developed any personal economic expertise as to how to make a profitable business of his greyhound activity this factor weighs against petitioner time and effort expended in activity time and effort expended in carrying on an activity may be indicative of profit_motive particularly in the absence of substantial personal or recreational elements associated with the activity sec_1_183-2 income_tax regs during the years at issue petitioner was a full-time irs employee at trial petitioner acknowledged that his full-time irs job limited the time he could devote to the greyhound activity petitioner had time to breed only one litter of pups annually at trial he conceded that for his greyhound activity to be profitable he would have needed to breed at least three or four litters annually this factor weighs strongly against petitioner expectation that assets may appreciate in value on brief petitioner contends that the expectation that one or more of his greyhounds might become a winning stakes dog was a major component in his decision to engage in his greyhound activity he claims that such a dog could easily have an expected value price of between dollar_figure to dollar_figure the evidence strongly suggests however that petitioner’s greyhounds generally depreciated in value being either lost during training or else petted out at the end of their racing careers insofar as the record shows in all the years that petitioner engaged in his greyhound activity he never sold any of his dogs on the basis of the evidence in the record we are unpersuaded that petitioner had a bona_fide expectation of making a profit on his greyhound activity by selling his dogs at a price that would generate sufficient income to offset past losses petitioner claims that in one of his greyhounds won a race but acknowledges that by the greyhound had finished her career as a brood on his farm petitioner claims that improvements made to his property in such as the addition of a kennel house added considerable value to his property there is no evidence however that petitioner held his property with a view of subsequently selling it for a profit to defray the costs of his greyhound activity accordingly we do not take these improvements into account in judging petitioner’s objective in conducting the greyhound activity see golanty v commissioner t c pincite in any event the evidence in the record does not establish either the cost of the improvements or the extent to which they might have added to the property’s value this factor weighs against petitioner petitioner’s success in other activities if the taxpayer has engaged in similar activities in the past and converted them from unprofitable to profitable enterprises it may tend to show that the current activity was entered into for profit even though it is presently unprofitable sec_1_183-2 income_tax regs insofar as the record reveals petitioner has not engaged in other activities similar to the greyhound activity by which we might evaluate his success in those other activities this factor is neutral on brief petitioner alleges that before going to work for the irs he worked in the hotel industry history of income or losses from activity where losses continue beyond the period which is customarily necessary to bring the operation to profitable status it may be an indication that the activity is not engaged in for profit sec_1_183-2 income_tax regs as of petitioner had realized losses from his greyhound activity for straight years this factor weighs against petitioner amount of occasional profits the amount and frequency of occasional profits earned from the activity may be indicative of a profit objective sec_1_183-2 income_tax regs petitioner never realized a profit from his greyhound activity this factor weighs against petitioner petitioner’s financial status substantial income from sources other than the activity may indicate lack of a profit_motive especially if there are personal or recreational elements involved sec_1_183-2 income_tax regs during the years at issue petitioner had a full-time job with the irs this factor weighs against petitioner elements of personal pleasure the presence of personal motives in carrying on an activity especially if recreational or personal elements are involved may indicate that the activity is not for profit sec_1 b income_tax regs the mere fact that a taxpayer derives pleasure from an activity however does not show a lack of profit objective if the activity is conducted for profit as evidenced by other factors id certain aspects of petitioner’s activity such as feeding grooming and cleaning up after the greyhounds generally might not be considered pleasurable even though they are not so different from the duties of any pet owner ultimately however it seems to us that petitioner’s activity of breeding greyhounds for racing although conducted by petitioner in a seemingly inhumane manner for many years keeping numerous dogs confined in crates in his yuma arizona garage while he worked a full-time job at the irs sending the pups off to training that almost a fourth of them would not survive and ultimately casting off most of the others for possible adoption or destruction involved recreational elements as are common to other forms of recreational gambling with those elements being enhanced by such sense of sport or gamesmanship as might derive from having one’s own dogs in the races this factor weighs against petitioner on the basis of all the evidence we conclude that petitioner failed to establish that he engaged in his greyhound in making these observations we intend no inference as to any finding of criminal liability of petitioner an issue which is beyond the purview of this court activity with a predominant primary or principal objective to make a profit within the meaning of sec_183 b sec_6662 accuracy-related_penalty sec_6662 and b imposes a 20-percent accuracy-related_penalty on any portion of a tax underpayment that is attributable to among other things any substantial_understatement_of_income_tax defined in sec_6662 as an understatement that exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6662 petitioner’s understatement_of_tax for dollar_figure exceeds dollar_figure which is greater than percent of the tax required to be shown on hi sec_2002 return dollar_figure respondent has satisfied his burden of production under sec_7491 the accuracy-related_penalty does not apply with respect to any portion of the underpayment if it is shown that the taxpayer had reasonable_cause and acted in good_faith sec_6664 petitioner has not shown or even expressly claimed that he had reasonable_cause or acted in good_faith with respect to his understatements of income_tax any such defense appears especially problematic in the light of petitioner’s employment as an irs auditor contentions advanced by the parties and not addressed herein we conclude to be moot or without merit decision will be entered for respondent in particular petitioner states on brief that he believes that he has been audited twice for tax_year sec_2001 and sec_2002 the first time as part of an investigation by the u s treasury_inspector_general_for_tax_administration tigta he appears to suggest that because of this purported tigta investigation the subsequent irs examination which resulted in the notice_of_deficiency that is the subject of this proceeding was a second_examination of petitioner’s books_and_records that was prohibited pursuant to sec_7605 petitioner cites no authority and we are aware of none for the proposition that sec_7605 applies to a tigta investigation of an irs employee in any event the evidence in the record does not establish that respondent ever examined petitioner’s books_and_records in connection with any tigta audit to the contrary according to petitioner’s representations on brief the tigta audit appears to have been concluded upon the basis of an interview with petitioner


cca_2017040416063446 id uilc number release date from sent tuesday april pm to cc bcc subject question regarding irm and sec_6331 ------- you are correct that under sec_6331 the service is prohibited from levying on a taxpayer’s property while an offer for an installment_agreement is pending and if such offer is rejected by the secretary during the days thereafter and if an appeal of such rejection is filed within such days during the period that such appeal is pending the csed is suspended during this time as well the tc ac that is input on a taxpayer’s account when the taxpayer submits an offer for an installment_agreement both prevents levy and suspends the csed in idrs see irm - irm a systemic suspension of the csed during the time a proposed ia is pending is built into mf processing and is triggered by the following dates tc ac the 45-day time frame you pointed to in irm b for reversing the tc ac after a proposed installment_agreement is rejected is designed to provide a 15-day window to allow for an appeals request to come in with respect to a rejection decision see irm allow at least fifteen additional days after the thirty day period in case taxpayers mail requests for hearing regarding rejections of proposed installment agreements as you noted however when a revenue_officer follows the instructions in the irm and reverses the tc ac days after a proposed installment_agreement is rejected the resulting csed computation in idrs is off by days i have spoken with the author of irm and he is open to revising irm b and exhibit a to clarify that although the tc ac should be reversed days after a rejection decision the reversal should be input as of days after the rejection this should help ensure that the cseds shown in idrs are accurate ------------------------ -------------------------- ----------------------------------------- ------------------------------- ---------------------


t c memo united_states tax_court robert musselman and adrianne magd petitioners v commissioner of internal revenue respondent docket no filed date robert musselman and adrianne magd pro sese loren b mark for respondent memorandum opinion laro judge this case is before the court on respondent’s motion to dismiss for lack of jurisdiction on the ground that petitioners failed to file their petition within the time prescribed in sec_6213 or sec_7502 on date section references are to the applicable versions of the continued petitioners filed with this court a petition for redetermination of the deficiency reflected in a notice_of_deficiency that was sent to them by certified mail on date respondent mailed the notice_of_deficiency to petitioners’ last_known_address of woodhill ln chino hills california petitioners bear the burden of proving that this court has jurisdiction to decide this case see 72_tc_313 it is well established that our jurisdiction requires a valid notice_of_deficiency and a timely filed petition and we must dismiss a case in which either one or the other is not present sec_6213 98_tc_613 sec_6213 provides that where a notice_of_deficiency is addressed to a person within the united_states the taxpayer may file with this court a petition to redetermine the deficiency within days of the mailing of that notice_of_deficiency sec_7502 provides that in general timely mailing is treated as timely filing if a petition is delivered to the court by u s mail after the period prescribed for its filing and the u s postmark date stamped on the envelope is within the appropriate period continued internal_revenue_code when this petition was filed petitioners lived in chino hills california their petition stated that taxpayer has additional deductions to claim under sec_6213 and sec_7503 the 90-day period within which petitioners could challenge respondent’s determination in this court expired on date the envelope in which the petition was mailed to this court bears no postmark date but petitioners did not even sign the petition until date which wa sec_3 days after the deadline further petitioners failed to respond to respondent’s motion and do not argue that they mailed the petition on or before the deadline because petitioners failed to file their petition within the statutory 90-day period we must grant respondent’s motion to dismiss for lack of jurisdiction our decision however does not deprive petitioners of their right to contest respondent’s determination by paying the tax filing a claim_for_refund and then if the claim is denied bringing a suit_for_refund in a u s district_court or the court of federal claims our decision instead forecloses petitioners from contesting respondent’s determination in this suit see 58_tc_850 n accordingly an order of dismissal will be entered


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 ita b03 plr-106154-11 date date ty ------- ty ------- legend taxpayer ----------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- parent -------------------------------------------------------- subsidiary ---------------------------------------------------------- fund group -------------------------------- owning funds ---------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------------------- year ------- extended due_date --------------------------- discovery date ------------------------- dear -------------------- this is in response to your letter dated date in your letter you requested an extension of time to file the forms necessary to make a consent_dividend election under sec_565 of the internal_revenue_code for the tax_year ending december year the request is based on sec_301_9100-1 and sec_301_9100-3 of the procedure and administrative regulations facts taxpayer a corporation is a regulated_investment_company owned by parent subsidiary and the owning funds in parent’s fund group parent administers the various funds in the fund group parent and subsidiary hold shares of each of the funds in the fund group in separate_accounts established for the purpose of funding variable_annuity contracts and variable life_insurance policies investors in parent and subsidiary may select one of the funds in the fund group including taxpayer as an plr-106154-11 investment option for a variable_annuity contract or life_insurance_policy taxpayer must make minimum distributions each tax_year to continue to be subject_to tax as a regulated_investment_company for future tax years parent prepared taxpayer’s form 1120-ric u s income_tax return for regulated_investment_companies for the tax_year ending december year and filed it before the extended due_date before filing taxpayer’s form 1120-ric the board_of directors approved taxpayer’s issuance of consent dividends to parent subsidiary and the owning funds to satisfy the taxpayer’s year distribution_requirements parent’s employees had no prior experience issuing consent dividends after consulting outside accountants and lawyers parent’s employees prepared an internal memorandum outlining the process of how funds in the fund group should issue consent dividends and the tax consequences of issuing them the memorandum stated that parent needed to file a form_973 corporation claim for deduction for consent dividends with each form 1120-ric of each fund in the fund group but the memorandum did not mention the additional regulatory requirement that parent file a form_972 consent of shareholder to include specific amount in gross_income with each fund’s return for each consent_dividend paid to a different shareholder of taxpayer time passed between when parent’s employees prepared the memorandum and when they began preparing the forms 1120-ric for each fund in the fund group when parent prepared form 1120-ric on behalf of taxpayer parent’s employees followed the memorandum’s instructions thus taxpayer’s return included an executed form_973 with the filing but not any executed form sec_972 the form sec_972 were not attached even though parent’s employees possessed two executed originals of form_972 one authorizing the inclusion of consent dividends in parent’s gross_income and the other authorizing the inclusion of consent dividends in subsidiary’s gross_income parent’s employees never obtained executed form sec_972 authorizing the inclusion of consent dividends in the gross_income of the various owning funds because they were inexperienced in issuing consent dividends they believed the law did not require them to obtain form sec_972 for the owning funds because the gross_income would flow through to parent and subsidiary for whom they had obtained executed form sec_972 taxpayer’s shareholders parent subsidiary and the various owning funds each included the appropriate amount of consent_dividend income in their respective gross incomes on parent’s consolidated_income_tax_return for year after the extended due_date but before the discovery date parent’s auditor discovered that no form sec_972 had been attached to taxpayer’s form 1120-ric to taxpayer’s knowledge the irs was not aware of the omission of the form_972 and has not contacted parent about the year consent_dividend election nor has it notified parent that taxpayer’s year form 1120-ric is under examination plr-106154-11 law and analysis sec_852 provides that a regulated_investment_company may claim a deduction for dividends_paid as defined in sec_561 in computing its investment_company_taxable_income sec_852 provides that a regulated_investment_company may claim a deduction for dividends_paid as defined in sec_561 in computing its net capital_gains determined with reference to capital_gain dividends only sec_561 provides that the deduction for dividends_paid includes consent dividends for the taxable_year as determined under sec_565 sec_565 of the code provides that if any person owns consent_stock as defined in sec_565 in a corporation on the last day of the taxable_year of such corporation and such person agrees in a consent filed with the return of such corporation in accordance with the regulations to treat as a dividend the amount specified in such consent the amount so specified shall except as provided in sec_565 constitute a consent_dividend for purposes of sec_561 relating to the deduction for dividends_paid consent_stock which is the type of stock with respect to which consent dividends are allowed sec_565 includes what is generally known as common_stock and participating preferred_stock the participation rights of which are unlimited sec_1_565-6 of the income_tax regulations sec_1_565-1 provides that the dividends_paid deduction as defined in sec_561 includes the consent dividends for the taxable_year a consent_dividend is a hypothetical distribution as distinguished from an actual distribution made by certain corporations to any person who owns consent_stock on the last day of the taxable_year of such corporation and who agrees to treat the hypothetical distribution as an actual dividend subject_to specified limitations by filing a consent at the time and in the manner specified in sec_1_565-1 sec_1_565-1 provides that a consent may be filed no later than the due_date of the corporation's income_tax return for the taxable_year for which the dividends_paid deduction is claimed with such return and not later than the due_date the corporation must file form sec_972 for each consenting shareholder and a return on form_973 showing by classes the stock outstanding on the first and last days of the taxable_year the dividend rights of such stock distributions made during the taxable years to shareholders and give all other information required by the form under revrul_78_296 1978_2_cb_183 the due_date for purposes of sec_1_565-1 includes the extended due_date of a return filed pursuant to an extension of time to file sec_301_9100-1 through of the procedure and administration regulations provide the standards the commissioner uses to determine whether to plr-106154-11 grant an extension of time to make a regulatory election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 provides that 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_9100-3 provides extensions of time to make a regulatory election under code sections other than those for which sec_301_9100-2 expressly permits automatic extensions requests for extensions of time for regulatory elections will be granted when the taxpayer provides evidence including affidavits described in the regulations to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 states that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer -- i requests relief before the failure to make the regulatory election is discovered by the service ii failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer -- i seeks to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking plr-106154-11 into account sec_1_6664-2 and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief taxpayer in this case requested relief before the failure to make the regulatory election was discovered by the service and thus under sec_301_9100-3 the taxpayer will be deemed to have acted reasonably and in good_faith taxpayer has also represented that none of the circumstances listed in sec_301_9100-3 apply sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 provides in part that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under these criteria the interests of the government are not prejudiced in this case taxpayer has represented that granting relief would not result in a lower tax_liability in the aggregate for all taxable years affected by the election than taxpayer would have had if the election had been timely made taking into account the time_value_of_money furthermore the taxable_year in which the regulatory election should have been made and any taxable years that would have been affected had it been timely made are not closed by the period of assessment conclusion taxpayer's election is a regulatory election as defined under sec_301_9100-1 because the due_date of the election is prescribed in the regulations under sec_1_565-1 in the present situation the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been satisfied the information and representations made by taxpayer establish that taxpayer acted reasonably and in good_faith furthermore granting an extension will not prejudice the interests of the government taxpayer represented that it will not have a lower tax_liability in the aggregate for all taxable years affected by the election if given permission to make the plr-106154-11 election than taxpayer would have if the election were made by the original deadline for making the election taxpayer also represented that the period of assessment for year will not be closed before receipt of a ruling accordingly taxpayer is granted an extension of time for making the election to issue consent dividends until days following the date of this ruling the election should be made by filing the forms necessary to make the sec_565 consent_dividend election for year and by including a copy of this ruling with an amended_return for year this ruling is limited to the timeliness of the consent_dividend election taxpayer wishes to make for year this ruling’s application is limited to the facts representations code sections and regulations cited herein except as expressly provided herein no opinion is expressed or implied concerning the federal_income_tax consequences of any aspect of any transaction or item discussed or referenced in this ruling 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 representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely robert casey acting branch chief branch income_tax accounting


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 ----------------------------------------------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-108522-14 date august legend decedent spouse date date date date attorney trustee year family_trust a b -------------------------------- ------------------------ --------------------------- ---------------------- ---------------------------- -------------------------- ---------------------- --------------- ------- ------------------------------------------------------------------------- -------------------------- ------------- ------------- dear -------------- this letter responds to your authorized representative’s letter dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to treat a_trust as two separate trusts for purposes of sec_26_2652-2 of the generation-skipping_transfer_tax regulations and a ruling that the automatic allocation rules under sec_2632 of the internal_revenue_code apply to automatically allocate the unused portion of decedent’s gst_exemption to marital trust the facts submitted are as follows on date decedent and spouse established family_trust decedent died on date survived by spouse three children and two grandchildren thereafter one of the children died leaving two issue surviving and three great-grandchildren were born plr-108522-14 family_trust provides that on decedent's death family_trust is divided into three trusts survivor’s trust marital trust and bypass_trust survivor’s trust contains spouse’s separate_property and spouse’s share of the community_property of the remaining property the amount of decedent’s unused applicable_exclusion_amount was placed in the bypass_trust and the rest was placed in the marital trust on date within nine months of date spouse executed a qualified_disclaimer and disclaimed her interest in the bypass_trust spouse is still alive family_trust provides that after the death of decedent the trustee is to pay to spouse the entire net_income of marital trust in quarterly or other convenient installments but in no event less often than annually the trustee is to also distribute to spouse such amounts from the principal of marital trust as the trustee in its discretion deems necessary or advisable to provide for spouse’s maintenance and support upon spouse’s death the assets of marital trust are distributable in part to trusts for the grandchildren and in part to trusts that benefit the children and or the issue of a deceased child spouse in her role as executor of decedent’s estate hired attorney to prepare form_706 united_states estate and generation-skipping_transfer_tax return attorney elected to treat marital trust as qualified_terminable_interest_property qtip so that marital trust qualified for the marital_deduction under sec_2056 in addition attorney made a special election under sec_2652 to treat the assets of marital trust for generation-skipping_transfer gst tax purposes as if the election under sec_2056 had not been made a reverse_qtip_election attorney allocated dollar_figurea of decedent’s gst_exemption to bypass_trust but did not allocate decedent’s remaining gst_exemption spouse timely filed the return with extensions on date prior to date subsequent to the filing of decedent's form_706 sec_26_2652-2 was issued this regulation provides a transitional rule that allows certain trusts subject_to a reverse_qtip_election to which gst_exemption had been allocated to be treated as two separate trusts so that only a portion of the trust would be treated as subject_to the reverse_qtip_election and that portion would be treated as having a zero inclusion_ratio the deadline for making the election set forth in the transitional rule was date in year spouse resigned as trustee of family_trust and all subtrusts created thereunder including marital trust during spouse’s term as trustee attorney never advised spouse of the election under sec_26_2652-2 upon the appointment of trustee trustee obtained advice from a law firm regarding administration of marital trust and trustee became aware of the election under sec_26_2652-2 you have requested the following rulings plr-108522-14 the automatic allocation rules under sec_2632 apply to automatically allocate decedent’s unused gst_exemption to marital trust an extension of time under sec_301_9100-3 to elect to treat marital trust as two separate trusts pursuant to sec_26_2652-2 so that one trust has an inclusion_ratio of zero due to the previous automatic allocation of decedent's unused gst_exemption to marital trust and the other has an inclusion_ratio of one for gst tax purposes the reverse_qtip_election would be treated as applying only to the trust with the zero inclusion_ratio ruling sec_1 and sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2612 provides that the term direct_skip means a transfer subject_to a tax imposed by chapter or of an interest in property to a skip_person sec_2613 provides that the term skip_person means a natural_person assigned to a generation that is two or more generations below the generation assignment of the transferor or a_trust if all interests in the trust are held by skip persons sec_2631 as in effect for the year at issue provided that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 formerly sec_2632 for the year in issue provides that any portion of an individual's gst_exemption which has not been allocated within the time prescribed by sec_2632 is deemed to be allocated a first to property which is the subject of a direct_skip occurring at such individual's death and b second to trusts with respect to which such individual is the transferor and from which a taxable plr-108522-14 distribution or a taxable_termination might occur at or after such individual's death sec_2632 formerly sec_2632 for the year in issue provides that the allocation under sec_2632 is made among the properties described in sec_2632 and the trusts described in sec_2632 in proportion to the respective amounts at the time of allocation of the nonexempt portions of such properties or trusts sec_26_2632-1 provides that a decedent's unused gst_exemption is automatically allocated on the due_date for filing the form_706 or form 706na to the extent not otherwise allocated by the decedent's executor on or before that date unused gst_exemption is allocated pro_rata subject_to the rules of sec_26_2642-2 on the basis of the value of the property as finally determined for purposes of chapter chapter value first to direct skips treated as occurring at the transferor's death the balance if any of unused gst_exemption is allocated pro_rata subject_to the rules of sec_26_2642-2 on the basis of the chapter value of the nonexempt_portion of the trust property to trusts with respect to which a taxable_termination may occur or from which a taxable_distribution may be made no automatic allocation of gst_exemption is made to a_trust that will have a new transferor with respect to the entire trust prior to the occurrence of any gst with respect to the trust the automatic allocation is irrevocable sec_2642 provides in part that the inclusion_ratio with respect to any property transferred in a gst is the excess of over the applicable_fraction determined for the trust sec_2642 provides in part that the applicable_fraction is a fraction the numerator of which is the amount of the gst_exemption allocated to the trust and the denominator of which is the value of the property transferred to the trust reduced by the sum of any federal estate_tax or state death_tax actually recovered from the trust attributable to such property and any charitable deduction allowed under sec_2055 or sec_2522 with respect to such property sec_2652 provides that for purpose of chapter the term transferor means a in the case of any property subject_to the tax imposed by chapter the decedent and b in the case of any property subject_to the tax imposed by chapter the donor an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides in pertinent part that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 the estate of the decedent may elect to treat all of the property in such trust for gst tax purposes as if the election to be treated as qualified_terminable_interest_property had not been made reverse_qtip_election the consequence of a reverse_qtip_election is that the decedent remains for gst tax purposes the transferor of the qtip_trust for which the election is made as a result the decedent's gst_exemption may be allocated to plr-108522-14 that qtip_trust sec_26_2652-2 provides in part that a reverse_qtip_election is not effective unless it is made with respect to all of the property in the trust to which the qtip_election applies sec_26_2652-2 provides that an election under sec_2652 is made on the return on which the qtip_election is made sec_26_2652-2 provides that if a reverse_qtip_election is made with respect to a_trust prior to date and the gst_exemption has been allocated to that trust the transferor or the transferor's executor may elect to treat the trust as two separate trusts one of which has a zero inclusion_ratio by reason of the transferor's gst_exemption previously allocated to the trust the separate trust with the zero inclusion_ratio consists of that fractional share of the value of the entire trust equal to the value of the nontax_portion of the trust under sec_26_2642-4 the reverse_qtip_election is treated as applying only to the trust with the zero inclusion_ratio an election under this section is made by attaching a statement to a copy of the return on which the reverse_qtip_election was made under sec_2652 the statement is to be filed before date sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute sec_301_9100-3 provides in part that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election in this case attorney allocated dollar_figurea of decedent’s gst_exemption to bypass_trust attorney also made a reverse_qtip_election with respect to marital trust for gst tax purposes decedent was considered the transferor for the entire marital trust thus the remaining dollar_figureb of decedent’s gst_exemption was automatically allocated to marital trust by operation of sec_2632 furthermore based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly an extension of time of days from the date of this letter is granted in which to make the election under sec_26_2652-2 to treat marital trust as two separate trusts one of which plr-108522-14 has a zero inclusion_ratio by reason of decedent's gst_exemption that was automatically allocated to marital trust the reverse_qtip_election will be treated as applying only to the trust with the zero inclusion_ratio the election should be made by completing the statement required in sec_26_2652-2 and submitting the election a copy of the return on which the reverse_qtip_election was made under sec_2652 and a copy of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs and special industries _________________________ by lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter