internal_revenue_service number release date index number ----------------------------------------------------------- --------------------------------- ------------------------- -------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b06 plr-140117-14 date date legend --------------------------------- ----------------------------- taxpayer ---------------------------------------------------------- parent ----------------------------------------------------------- state a state b commission date a director --------- ------------- ----------------------------------------------------- ----------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------- dear ------------- this letter responds to parent’s request made on behalf of taxpayer dated date for a ruling on the consequences under the normalization provisions of taxpayer’s use of the commission-approved formula rates as described below the representations set out in your letter follow taxpayer a single member limited_liability_company is an independent transmission utility engaged in the transmission of electricity and operates a high- voltage system in states a and b it is subject_to regulation by commission with respect to terms and conditions of services including the rates it may charge for its services taxpayer uses commission-approved formula rates that are set annually the formula uses a cost-of-service model on date a of each year taxpayer estimates its revenue requirement for the following calendar_year the service year based in part plr-140117-14 on the facilities in service at that time or expected to be placed_in_service during that year this estimate of taxpayer’s revenue requirement and a commission-approved rate of return are entered into the template for the formula to calculate the rates the rates for that calendar_year are determined under that formula approved by commission and go into effect on january of the following calendar_year with no additional action by commission in calculating its net annual revenue requirement for the formula taxpayer calculates average rate base all elements of average rate base are calculated using the same test period the service year taxpayer reduces its gross rate base by the average accumulated deferred income taxes when taxpayer estimates accumulated deferred income taxes for purposes of estimating it’s revenue requirement for the service year taxpayer does not use the proration formula required for future test periods by sec_1_167_l_-1 of the income_tax regulations average rate base is computed using monthly averages for plant balances including accumulated depreciation for this purpose depreciation begins when the asset is placed_in_service certain other elements of average rate base such as land held for future use materials_and_supplies prepayments and accumulated deferred income taxes are calculated using an average of the beginning and end of year balances in both cases the averages are calculated in accordance with the provisions of the commission-approved template the formula rate template contains a true-up mechanism under which the taxpayer compares its actual revenue requirement to its actually-billed revenues for the service year if billed revenue is greater than the actual revenue requirement for the service year the over-collection is refunded in customer bills within two years of the service year if billed revenue is less than the actual revenue requirement for the service year the under-collection is collected two years after the service year for both under and over collections a carrying_charge equivalent to commission’s standard refund interest rate is imposed commission at all times has required that all public_utilities under its jurisdiction use normalized methods_of_accounting taxpayer requests that we rule as follows the computation of average rate base by taxpayer with reference to 13-month average for plant and accumulated depreciation for a given service year and a simple average of the beginning- and end-of-year balances for accumulated deferred income taxes for the same service year complies with the consistency_requirement of the normalization rules for accelerated_depreciation under sec_168 of the internal_revenue_code in the event that the service does not agree with the taxpayer’s conclusion regarding the first issue taxpayer’s historical use of the averaging methodology plr-140117-14 described above is nevertheless not inconsistent with the requirements of sec_168 and therefore the sanctions for violation of the deferred tax normalization requirements involving disallowance of accelerated_depreciation do not apply to taxpayer as a result of its use of the historical averaging methodology employed the computation by taxpayer of accumulated deferred income taxes for purposes of calculating average rate base without application of the rules for future test periods under sec_1_167_l_-1 involving the proration formula complies with the normalization requirements of sec_168 in the event that the service does not agree with the taxpayer’s conclusion regarding issue sanctions for violation of the deferred tax normalization requirements involving disallowance of accelerated_depreciation do not apply as a result of the methodology employed law and analysis issue sec_1 and former sec_167 of the code generally provided that public_utilities were entitled to use accelerated methods for depreciation if they used a normalization method_of_accounting a normalization method_of_accounting was defined in former sec_167 in a manner consistent with that found in sec_168 sec_1 -1 a of the income_tax regulations provides that the normalization requirements for public_utility_property pertain only to the deferral of federal_income_tax liability resulting from the use of an accelerated method_of_depreciation for computing the allowance for depreciation under sec_167 and the use of straight-line_depreciation for computing tax expense and depreciation expense for purposes of establishing cost of services and for reflecting operating results in regulated books of account these regulations do not pertain to other book-tax timing differences with respect to state income taxes f i c a taxes construction costs or any other taxes and items sec_168 of the code provides that the depreciation deduction determined under sec_168 shall not apply to any public_utility_property within the meaning of sec_168 if the taxpayer does not use a normalization method_of_accounting in order to use a normalization method_of_accounting sec_168 requires that a taxpayer in computing its tax expense for establishing its cost of service for ratemaking purposes of establishing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account to use a method_of_depreciation with respect to public_utility_property that is the same as and a depreciation period for such property that is not shorter than the method and period used to compute its depreciation expense for such purposes under section plr-140117-14 i a ii if the amount allowable as a deduction under sec_168 differs from the amount that-would be allowable as a deduction under sec_167 using the method period first and last year convention and salvage_value used to compute regulated tax expense under sec_168 the taxpayer must make adjustments to a reserve to reflect the deferral of taxes resulting from such difference sec_168 of the code provides that one way the requirements of sec_168 will not be satisfied is if the taxpayer for ratemaking purposes uses a procedure or adjustment which is inconsistent with such requirements under sec_168 such inconsistent procedures and adjustments include the use of an estimate or projection of the taxpayer’s tax expense depreciation expense or reserve for deferred taxes under sec_168 unless such estimate or projection is also used for ratemaking purposes with respect to all three of these items and with respect to the rate base in order to satisfy the requirements of sec_168 there must be consistency in the treatment of costs for rate base regulated depreciation expense tax expense and deferred tax revenue purposes here rate base depreciation expense and accumulated deferred income taxes are all calculated in consistent fashion - all are averaged over the same period while there are minor differences in the convention used to average all elements of rate base including depreciation expense on the one hand and accumulated deferred income taxes on the other for purposes of sec_168 it is sufficient that both are determined by averaging and both are determined over the same period of time thus the calculation of average rate base and accumulated deferred income taxes as described above complies with the consistency_requirement of sec_168 because of the conclusion reached above taxpayer’s second issue is moot and will not be considered further issue sec_1_167_l_-1 sets forth additional normalization requirements with respect to public_utility_property under sec_1_167_l_-1 a taxpayer does not use a normalization method_of_accounting if for ratemaking purposes the amount of the reserve for deferred taxes excluded from the rate base or treated as cost-free capital exceeds the amount of the reserve for the period used in determining the taxpayer’s ratemaking tax expense sec_1_167_l_-1 also provides the procedure for determining the amount of the reserve for deferred taxes to be excluded from rate base or to be included as no-cost capital if in determining depreciation for ratemaking tax expense a period the test period is used which is part historical and part future then the amount of the reserve_account for this period is the amount of the reserve at the end of the historical portion of the period and a pro_rata amount of any projected increase to be credited to the account during the future portion of the period the pro_rata amount plr-140117-14 of any increase during the future portion of the period is determined by multiplying the increase by a fraction the numerator of which is the number of days remaining in the period at the time the increase is to accrue and the denominator of which is the total number of days in the future portion of the period sec_1_167_l_-1 makes it clear that the reserve excluded from rate base must be determined by reference to the same period as is used in determining ratemaking tax expense a taxpayer may use either historical data or projected data in calculating these two amounts but it must be consistent as explained in sec_1_167_l_-1 the rules provided in sec_1_167_l_-1 are to insure that the same time period is used to determine the deferred tax reserve amount resulting from the use of an accelerated method_of_depreciation for cost of service purposes and the reserve amount that may be excluded from the rate base or included in no-cost capital in determining such cost of services if a taxpayer chooses to compute its ratemaking tax expense and rate base exclusion amount using projected data then it must use the formula provided in sec_1_167_l_-1 to calculate the amount of deferred taxes subject_to exclusion from the rate base this formula prorates the projected accruals to the reserve so as to account for the actual time these amounts are expected to be in the reserve as explained in sec_1_167_l_-1 the formula in sec_1_167_l_-1 provides a method to determine the period of time during which the taxpayer will be treated as having received amounts credited or charged to the reserve_account so that the disallowance of earnings with respect to such amounts through rate base exclusion or treatment as no-cost capital will take into account the factor of time for which such amounts are held by the taxpayer the purpose of the proration formula is the same as that of the requirement for consistent periods discussed above to prevent the immediate flow-through of the benefits of accelerated_depreciation to ratepayers the proration formula stops flow- through by limiting the deferred tax reserve accruals that may be excluded from rate base and thus the earnings on rate base that may be disallowed according to the length of time these accruals are actually in the reserve_account the effectiveness of sec_1_167_l_-1 in resolving the timing issue has been limited by its failure to define some key terms nowhere does this provision state what is meant by the terms historical and future in relation to the period for determining depreciation for ratemaking tax expense the test period how are these time periods to be measured one interpretation focuses on the type or quality of the data used in the ratemaking process according to this interpretation the historical period is that portion of the test period for which actual data is used while the portion of the period for which data is estimated is the future period the second interpretation focuses on when the utility rates become effective under this interpretation the historical period is that portion of the test period before rates go into effect while the portion of the test period plr-140117-14 after the effective date of the rate order is the future period the first interpretation which focuses on the quality of the ratemaking data is an attractive one it proposes a simple rule easy to follow and to enforce any portion of the reserve for deferred taxes based on estimated data must be prorated in determining the amount to be deducted from rate base the actual passage of time between the date ratemaking data is submitted and the date rates become effective is of no importance but this interpretation of the regulations achieves simplicity at the expense of precision in other words it is overbroad the proration of all estimated deferred tax data does serve to magnify the benefits of accelerated_depreciation to the utility but this is not the purpose of normalization congress was explicit normalization in no way diminishes whatever power the utility regulatory agency may have to require that the deferred taxes reserve be excluded from the base upon which the utility’s permitted rate of return is calculated h_r rep no 91st cong 1st sess in contrast the second interpretation of sec_1_167_l_-1 of the regulations is consistent with the purpose of normalization which is to preserve for regulated utilities the benefits of accelerated_depreciation as a source of cost-free capital the availability of this capital is ensured by prohibiting flow-through but whether or not flow-through can even be accomplished by means of rate base exclusions depends primarily on whether at the time rates become effective the amounts originally projected to accrue to the deferred tax reserve have actually accrued if rates go into effect before the end of the test period and the rate base reduction is not prorated the utility commission is denying a current return for accelerated_depreciation benefits the utility is only projected to have this procedure is a form of flow-through for current rates are reduced to reflect the capital cost savings of accelerated_depreciation deductions not yet claimed or accrued by the utility yet projected data is often necessary in determining rates since historical data by itself is rarely an accurate indication of future utility operating results thus the regulations provide that as long as the portion of the deferred tax reserve based on truly projected future estimated data is prorated according to the formula in sec_1_167_l_-1 a regulator may deduct this reserve from rate base in determining a utility’s allowable return in other words a utility regulator using projected data in computing ratemaking tax expense and rate base exclusion must account for the passage of time if it is to avoid flow-through but if rates go into effect after the end of the test period the opportunity to flow through the benefits of future accelerated_depreciation to current ratepayers is gone and so too is the need to apply the proration formula in this situation the only question that is important for the purpose of rate base exclusion is the amount in the deferred tax reserve whether actual or estimated once the future period the period over which accruals to the reserve were projected is no longer future the question of when the plr-140117-14 amounts in the reserve accrued is no longer relevant at the time the new rate order takes effect the projected increases have accrued and the amounts to be excluded from rate base are no longer projected but historical even though based on estimates taxpayer uses formula rates with the elements determined by estimates of the various elements being averaged as discussed above rates go into effect as of the beginning of the service year as such the rates are in effect during the test year and the proration formula must be used the addition of the true up increases the ultimate accuracy of the rates but does not convert a future test period into a historical test period as those terms are used in the normalization regulations therefore taxpayer is required to apply the proration formula in calculating accumulated deferred income taxes for purposes of calculating rate base issue because the service has ruled in issue that taxpayer’s use of formula rates with true-up adjustments with carrying charges mandates use of the proration formula applicable to future test periods for the projected revenue requirement prospectively adhering to the service’s interpretation of sec_1_167_l_-1 may require taxpayer to seek and obtain an order from commission to make the necessary changes to the rate templates not simply unilaterally adjusting the calculations or the manner in which the templates are completed in the next annual projections or true-up adjustments if taxpayer must request these changes through a filing with commission taxpayer has represented that in the event of an adverse conclusion with respect to issue by the service it will make a filing with commission to amend its formula rate template within six months of receipt of this ruling letter requesting that commission apply a methodology in accordance with this letter using an effective date of the first month following the date of the filing made with commission following commission’s order in that filing taxpayer will prospectively apply the methodology consistent with this letter approved by commission until commission acts on the filing taxpayer will continue to use the methodology described above if taxpayer determines that it is not required to make a formal filing with commission to implement the computational changes required by the letter_ruling taxpayer would reflect the holding of the private_letter_ruling in its next annual projected revenue requirement filing for example assuming that the letter_ruling is received in date indicating that the projected revenue requirement is based solely on a future period and the actual revenue requirement used for the true-up mechanism is based solely on a historical period taxpayer would compute its year-end accumulated deferred income_tax amount for its beginning-of-year end-of-year average of accumulated deferred income taxes based on application of the proration formula to the monthly net increases or decreases to its accumulated deferred income taxes for we note that because taxpayer is using estimated data for the test period the test period at issue here constitutes a future test period under the first interpretation discussed above as well plr-140117-14 annual projected revenue requirement filings after receipt of the private_letter_ruling ie beginning with the filing due_date for the calendar-year test year and service period sec_168 of the code provides that the depreciation deduction determined under sec_168 shall not apply to any public_utility_property within the meaning of sec_168 if the taxpayer does not use a normalization method_of_accounting however in the legislative_history to the enactment of the normalization requirements of the investment_tax_credit congress has stated that it hopes that sanctions will not have to be imposed and that disallowance of the tax_benefit there the itc should be imposed only after a regulatory body has required or insisted upon such treatment by a utility see senate report no 92nd cong 1st sess 1972_2_cb_559 here taxpayer has used a template approved by commission to calculate formula-based rates commission has at all times required that utilities under its jurisdiction use normalization methods_of_accounting taxpayer also intended at all times to comply with the normalization rules however taxpayer concluded that the use of the true-up would allow the entirety of the rate calculation to be considered a purely historical period and thus not require the application of the proration formula described in sec_1_167_l_-1 as concluded above this conclusion is not in accord with the normalization rules however because both commission and taxpayer at all times sought to comply because taxpayer merely populated a commission-approved formula template rather than commission carefully considering the calculation and ordering its use by taxpayer and because taxpayer will take the corrective actions described above it is not currently appropriate to apply the sanction of denial of accelerated_depreciation to taxpayer conclusion sec_1 the computation of average rate base by taxpayer with reference to 13-month average for plant and accumulated depreciation for a given service year and a simple average of the beginning- and end-of-year balances for accumulated deferred income taxes for the same service year complies with the consistency_requirement of the normalization rules for accelerated_depreciation under sec_168 of the internal_revenue_code because of the conclusion reached in issue issue is moot the computation by taxpayer of accumulated deferred income taxes for purposes of calculating average rate base without application of the rules for future test periods under sec_1_167_l_-1 involving the proration formula for its projected revenue requirement does not comply with the normalization requirements of sec_168 the computation by taxpayer of accumulated deferred income taxes for purposes of calculating average rate base without application of the rules for future test periods under sec_1_167_l_-1 involving plr-140117-14 the proration formula for its actual revenue requirement used for the true-up mechanism complies with the normalization requirements of sec_168 if the taxpayer takes the corrective actions described above and assuming compliance by the commission with this methodology on a prospective basis sanctions for violation of the deferred tax normalization requirements involving disallowance of accelerated_depreciation do not apply as a result of the methodology employed except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the matters described above this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides 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 we are also sending a copy of this letter_ruling to the director sincerely peter c friedman senior technician reviewer branch office of the associate chief_counsel passthroughs special industries cc


internal_revenue_service number release date index number ---------------------- ----------------------------------------- -------------------------- ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ id no ---------------- telephone number ---------------------- refer reply to cc psi b01 plr-106995-18 date date legend x ---------------------------------------------------------------- ------------------------ a ------------------------------------------------------------- ------------------------------ b ----------------------- ------------------------------------------------------------- c ------------------------ ------------------------------------------------------------- partnership ------------------------------------------------------------ --------------------------------- state date date date date date -------------- -------------------- -------------------- --------------------------- ----------------- ---------------------------- plr-106995-18 dear ---------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x's authorized representative requesting relief under sec_1362 of the internal_revenue_code the code facts according to the information submitted x was formed under the laws of state on date as a limited_liability_company x elected to be treated as an s_corporation effective date on date all of the shares in x were transferred to partnership a partnership for federal tax purposes partnership as a partnership was an ineligible shareholder of an s_corporation on date x learned that the transfer of stock to partnership terminated x's s election on date x and its shareholders took remedial action by having partnership transfer all of its shares in x to eligible s_corporation shareholders a b and c after date all income and other items from the x shares were allocated to a b and c between date and date all the partners of partnership were eligible shareholders of an s_corporation x represents that it did not intend for its s_corporation_election to terminate and that the events that resulted in the termination were not motivated by tax_avoidance or retroactive tax planning x represents that all shareholders filed their returns consistent with x being an s_corporation further x and its shareholders agree to make any adjustments required by the secretary consistent with the treatment of x as an s_corporation law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1362 provides that an election under sec_1362 shall be terminated whenever the corporation ceases to be a small_business_corporation plr-106995-18 sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in termination steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make any adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to the period then notwithstanding the circumstances resulting in the termination the corporation will be treated as continuing to be an s_corporation during the period specified by the secretary conclusion based solely on the information submitted and the representations made we conclude that x's s election terminated on date when all of the shares of x stock were transferred to partnership we further conclude that the termination was inadvertent within the meaning of sec_1362 accordingly under sec_1362 x will be treated as continuing to be an s_corporation on and after date provided that x's s_corporation_election was valid and not otherwise terminated under sec_1362 partnership will be treated as the shareholder of x from date until date at which point a b and c will be treated as the shareholders accordingly the shareholders of x must include in income their pro_rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 make an adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 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 specifically no opinion is expressed concerning whether x is otherwise eligible to be treated as an s_corporation plr-106995-18 this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent pursuant to the power_of_attorney on file with this office we are sending a copy of this letter to x's authorized representative sincerely laura c fields laura c fields senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service number release date index number --------------------------------------- ------------------------------- --------------------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ---------------- telephone number ---------------------- refer reply to cc corp b03 plr-135881-18 date may legend distributing controlled state a sub sub dre dre dre -------------------------- ---------------------------- ------------------------ -------------------------------------------- ---------------------------- ------------------------ ---------- ------------------------------------ ---------------------------- ------------------------ ------------- ---------------------------- ------------------------ ------------------------- ---------------------------- ------------------------ ----------------------------- ------------------------------ ------------------------ ---------------------------- ---------------------------- ------------------------ plr-135881-18 dre dre dre dre dre shareholder shareholder shareholder shareholder shareholder ------------------------------------------- ---------------------------- ------------------------ ---------------------------------------------- ---------------------------- ------------------------ --------------------------- ---------------------------- ------------------------ -------------------- ---------------------------- ------------------------ ----------------------------- ---------------------------- ------------------------ ------------------------------------------ ---------------------------------- -------------------------- ----------------------------------------------------------------------------- -------------------------------------- -------------------------- ------------------------------------------- ----------------------------------- -------------------------- -------------------------------------------------------------------------- ----------------------------------- -------------------------- ------------------------------------------------ ------------------------------------- ------------------------- c business ---------------- plr-135881-18 d business -------- dear ------------------ this letter responds to the letter dated date submitted on behalf of distributing its affiliates and its shareholders requesting rulings on certain federal_income_tax consequences of a proposed transaction the proposed transaction as defined herein the material information submitted in that request and subsequent correspondences is summarized below this letter is issued pursuant to revproc_2017_52 2017_41_irb_283 regarding one or more covered transactions under sec_355 of the internal_revenue_code the code the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process this office has made no determination regarding whether the distribution as defined below i satisfies the business_purpose requirement of sec_1_355-2 ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 and sec_1_355-2 or iii is part of a plan or series of related transaction pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation or any predecessor or successor of the distributing_corporation or the controlled_corporation within the meaning of sec_1_355-8t see sec_355 and sec_1_355-7 summary of facts distributing a state a corporation is owned by shareholder shareholder shareholder shareholder and shareholder distributing shareholder or collectively distributing shareholders through a single class of voting common_stock issued and outstanding distributing common_stock distributing wholly owns sub sub dre dre dre and controlled sub wholly owns dre and dre sub wholly owns dre controlled wholly owns dre and dre distributing is the common parent of an affiliated_group filing a consolidated federal tax_return the distributing group distributing sub sub dre dre dre dre dre plr-135881-18 and dre are engaged in the d business controlled dre and dre are engaged in the c business the proposed transaction for what are represented to be a valid business_purpose distributing proposes to separate controlled from the distributing group and will distribute all of the stock of controlled to the distributing shareholders the distribution it is anticipated that after the distribution some of the distributing shareholders may transfer some shares of distributing common_stock to their children it is not anticipated that the value of the stock transferred to the distributing shareholders’ children will exceed percent of either vote or value of distributing in the five year period following the distribution representations with respect to the distribution except as otherwise provided below distributing has made all the representations provided in sec_3 of the appendix to revproc_2017_52 2017_41_irb_283 distributing has made the following alternative representations set forth in sec_3 of the appendix to rev_proc representation sec_3 a a a a and a distributing does not make representation which does not apply to the distribution rulings based solely on the information submitted and the representations set forth above we rule as follows no gain_or_loss will be recognized by and no amount will be included in the income of distributing shareholders upon the receipt of controlled stock in the distribution sec_355 distributing will not recognize gain_or_loss on the distribution sec_355 each distributing shareholder’s basis in the controlled stock and distributing common_stock immediately following the distribution will equal the basis of the distributing common_stock that the shareholder held immediately before the distribution allocated in the manner described in sec_1_358-2 sec_358 and b plr-135881-18 each distributing shareholder’s holding_period in the controlled stock received in the distribution will include the holding_period of the distributing common_stock with respect to which the distribution is made provided the distributing common_stock is held as a capital_asset on the date of the distribution sec_1223 earnings_and_profits of distributing if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the distribution under any provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the distribution that are not specifically covered by the above rulings procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be sued or cited as precedent pursuant to a power_of_attorney on file with this office copies of this letter are 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 attaching a statement to their returns that provides the date and control number plr- of the letter_ruling sincerely ______________________ maurice m labrie assistant to the branch chief branch office of associate chief_counsel corporate cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-147995-01 date date legend x y d1 state dear this letter responds to a letter and subsequent correspondence written by your authorized representative on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on d1 under the laws of state y the president and shareholder of x relied on an accountant to file x's form_2553 election by a small_business_corporation with an effective date of d1 x's form_2553 however was not filed timely law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on 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 the corporation will be treated as an s_corporation for 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 the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made plr-147995-01 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 conclusion based solely on the facts submitted and representations made we conclude that x has established reasonable_cause for its failing to make a timely election and that x 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 d1 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 expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative 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 sincerely jeanne sullivan senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court estate of leon spear deceased jeannette spear harvey spear and robin spear administrators and jeannette spear petitioners v commissioner of internal revenue respondent docket no filed date barry a furman for petitioners ruth m spadaro and james c fee jr for respondent memorandum opinion colvin judge this case is before the court on petitioners' motion for award of administrative and litigation costs under sec_7430 and rule we have previously issued opinions in this case at t c continued to prevail petitioners must show that respondent's position in this case was not substantially justified we conclude that petitioners did not meet this requirement thus we will deny petitioners' motion in light of this conclusion we need not decide respondent's contentions that petitioners are not entitled to relief because they unreasonably protracted the proceedings the amount of costs they claim is not reasonable and they did not pay or incur the amounts claimed the parties have submitted affidavits and memoranda supporting their positions we decide the motion based on the memoranda affidavits and exhibits attached to the affidavits the parties do not dispute the material facts in the affidavits or the authenticity of the exhibits attached to the affidavits respondent requested a hearing but we conclude that a hearing is not necessary to properly decide this motion rule a unless otherwise indicated section references are to the internal_revenue_code all references to sec_7430 are to the section as amended by sec_1551 of the tax_reform_act_of_1986 publaw_99_514 100_stat_2752 and by section a of the continued memo vacated and remanded 41_f3d_103 3d cir and tcmemo_1996_137 in those opinions we decided whether for and petitioners failed to report substantial amounts of income and whether they were liable for the addition_to_tax for fraud technical_and_miscellaneous_revenue_act_of_1988 publaw_100_647 102_stat_3342 rule references are to the tax_court rules_of_practice and procedure background a petitioners leon spear the decedent and jeannette spear mrs spear lived in philadelphia pennsylvania when they filed their petition they operated parking lot businesses from through the years in issue and dealt extensively in cash the decedent and mrs spear kept cash in safe deposit boxes and entered their safe deposit boxes many times from to they destroyed the records of their cash receipts from their parking lot businesses including daily settlement sheets before respondent's audit b respondent's investigations of the decedent and mrs spear respondent's agents interviewed the decedent and mrs spear and sent document requests to them before respondent issued the notice_of_deficiency respondent interviewed the decedent and mrs spear's federal_income_tax preparer and a bookkeeper for their corporations respondent summoned third parties reviewed public records and examined the decedent and mrs spear's bank accounts and financial statements on date revenue_agent michael mcguckin mcguckin asked the decedent and mrs spear how much cash they had whether they kept cash at home or at their business and whether they carried a significant amount of cash mrs spear said they did not keep cash at home or at the business and that they did not carry cash in date mcguckin recommended that the decedent and mrs spear be prosecuted for criminal_fraud special_agent lawrence trepple trepple conducted a criminal investigation of the decedent and mrs spear he examined their tax returns bank accounts financial statements and records that were filed at courthouses he interviewed adrienne wolf the decedent's and mrs spear's bookkeeper he reviewed the revenue agents' work and discussed matters with them trepple interviewed the decedent and mrs spear on date trepple found that the value of the decedent and mrs spear's assets had increased substantially during the years in issue the decedent and mrs spear destroyed their records of cash receipts the decedent and mrs spear reported different amounts of income on their philadelphia parking lot tax returns and federal_income_tax returns and the decedent and mrs spear used corporate funds for their personal benefit without reporting them as income he did a net_worth analysis and appropriately investigated leads for nontaxable sources of income he learned that the decedent and mrs spear's net_worth increased dramatically during the years in issue he concluded that the decedent and mrs spear skimmed cash from the parking lot businesses and used corporate funds for their personal benefit without reporting them as income trepple attended the decedent's and mrs spear's criminal trial in date and date during that trial the decedent and mrs spear claimed for the first time that the decedent's father abe spear had given the decedent dollar_figure in cash in the decedent testified about his father's will the will_contest and the fact that his father pawned family jewelry and borrowed money including dollar_figure from the decedent's sister sadie c notice_of_deficiency respondent issued the notice_of_deficiency in this case on date on date the decedent and mrs spear filed a petition in this court petitioners did not contest respondent's use of the net_worth_method or respondent's net_worth computation except they contended that they had more opening cash on hand than respondent allowed and that payments to them from their closely held corporations were nontaxable loan repayments petitioners also disputed that they were liable for the addition_to_tax for fraud discussion a motion for administrative and litigation costs generally a taxpayer who has substantially prevailed in a tax_court proceeding may be awarded reasonable administrative and litigation costs sec_7430 c to be entitled to an award the taxpayer must exhaust administrative remedies sec_7430 respondent concedes that petitioners meet this requirement substantially prevail with respect to the amount in controversy sec_7430 respondent concedes that petitioners meet this requirement be an individual whose net_worth did not exceed dollar_figure million or an owner of an unincorporated business or any partnership corporation etc the net_worth of which did not exceed dollar_figure million when the petition was filed sec_7430 u s c sec d b respondent concedes that petitioners meet this requirement show that the position_of_the_united_states in the action was not substantially justified sec_7430 this requirement does not apply to an award for reasonable_administrative_costs sec_7430 respondent contends and we hold that petitioners do not meet this requirement establish that the amount of costs and attorney's_fees claimed by the taxpayers is reasonable sec_7430 c and respondent contends that the amount of costs petitioners claim is not reasonable we need not decide this issue a taxpayer has the burden of proving that he or she meets each of these requirements before the court may award administrative and litigation costs under sec_7430 rule e 985_f2d_1315 5th cir 92_tc_192 affd 905_f2d_241 8th cir b whether the position_of_the_united_states is substantially justified a taxpayer must establish that the position_of_the_united_states in the litigation was not substantially justified to be entitled to an award for administrative and litigation costs sec_7430 position_of_the_united_states the position_of_the_united_states is the position taken by the commissioner a in the judicial proceeding and b in the administrative_proceeding as of the earlier of i the date the taxpayer receives the notice of the decision of the internal_revenue_service office of appeals or ii the date of the notice_of_deficiency sec_7430 respondent's position in the notice_of_deficiency and in the answer was that the decedent and mrs spear had no cash hoard and were liable for the addition_to_tax for fraud thus in this case respondent's position in both the judicial and the administrative_proceeding was the position taken in the notice_of_deficiency substantially justified standard the substantially justified standard requires that the government's position be justified to a degree that would satisfy a reasonable person 487_us_552 900_f2d_655 3d cir affg in part and revg in part on other grounds 92_tc_510 that standard applies to motions for litigation costs under sec_7430 60_f3d_1020 3d cir revg and remanding tcmemo_1994_280 to be substantially justified the commissioner's position must have a reasonable basis in both law and fact pierce v underwood supra nicholson v commissioner supra pincite for a position to be substantially justified there must be substantial evidence to support it pierce v underwood supra pincite 100_tc_457 affd on this issue and revd in part and remanded on other issues 43_f3d_172 5th cir remanded 51_f3d_34 5th cir the fact that the commissioner eventually loses or concedes the case does not in itself establish that a position is unreasonable 991_f2d_359 7th cir however it is a factor to be considered 931_f2d_1044 5th cir powers v commissioner supra pincite the taxpayer need not show bad faith to establish that the commissioner's position was not substantially justified for purposes of a motion for litigation costs under sec_7430 estate of perry v commissioner supra powers v commissioner supra c whether respondent had a basis in fact for the position in the notice_of_deficiency respondent's investigation before the notice_of_deficiency respondent investigated this case before issuing the notice_of_deficiency respondent's agents interviewed the decedent and mrs spear and sent document requests to them respondent summoned third parties reviewed public records and examined the decedent and mrs spear's bank accounts and financial statements as a result respondent obtained information which provided a basis in fact for respondent's position in the notice_of_deficiency respondent's basis in fact for the determination petitioners contend that respondent had no basis in fact for the position that the decedent and mrs spear had no cash on hand on date and that petitioners were liable for the addition_to_tax for fraud we disagree respondent's basis in fact for determining that the decedent and mrs spear had no cash on hand on date was a mrs spear told respondent's agents that they did not have cash at home at their business or on their persons b petitioners borrowed money to buy real_estate and c petitioners signed a financial statement attached to a mortgage application in which they stated that they had dollar_figure in cash which they used as a downpayment on the property and listed no other assets or cash balances respondent's basis in fact for concluding that abe spear did not give petitioners a cash gift was information indicating that he did not have the means to do so for example before issuing the notice_of_deficiency respondent learned that abe spear pawned family jewelry and borrowed money including dollar_figure from his daughter sadie respondent's basis in fact for determining that the decedent and mrs spear were liable for the addition_to_tax for fraud for and when the notice_of_deficiency was issued was a during the years in issue the decedent and mrs spear had unexplained increases in net_worth and inadequate records of their cash transactions b the decedent and mrs spear failed to supply complete information to their return preparer c the decedent and mrs spear deducted the rent for their son's apartment as a corporate expense d the decedent and mrs spear used corporate funds for their personal benefit and did not report them as income e the decedent and mrs spear dealt in cash and had the opportunity to skim it without reporting it f the decedent and mrs spear had an unlikely explanation about the source of a claimed cash hoard and g the decedent and mrs spear destroyed records of their cash receipts petitioners’ contentions petitioners contend that respondent's investigation was deficient for example petitioners contend that respondent's agents should have asked the decedent and mrs spear about the contents of the safe deposit boxes but only asked about cash in their home petitioners also contend that the decedent and mrs spear kept cash in their safe deposit boxes and that the position that they had no cash on hand on date was not warranted petitioners’ arguments miss the mark the issue is not whether respondent's investigation of the case was flawless although we have concluded that it was legally sufficient in all respects estate of spear v commissioner tcmemo_1996_137 slip op pincite or whether petitioners had evidence supporting their position instead the issue is whether respondent had a basis in fact for the position in the notice_of_deficiency as stated above we find that respondent did petitioners contend that 232_f2d_520 1st cir commissioner may not determine that there is no cash on hand at the beginning of a specified period merely because the taxpayer makes no affirmative showing to the contrary revg and remanding tcmemo_1955_46 governs this case we disagree sec_7430 was not an issue in thomas as stated above respondent had a basis in fact for determining that the decedent and mrs spear had no cash on hand at the beginning of the net_worth period petitioners contend that respondent had no basis in fact for the determination because trepple testified that the decedent and mrs spear had a very good paper trail we disagree they did not have adequate_records of their cash transactions trepple's testimony related to money the decedent and mrs spear withdrew from their corporations and is not in context here petitioners contend that the source of the decedent and mrs spear's cash hoard is irrelevant to whether respondent had a basis in fact to determine that the decedent and mrs spear had no cash on hand even if the decedent and mrs spear's contentions were true it does not change our conclusion that respondent had a basis in fact for the determination about the amount of cash on hand conclusion we conclude that respondent's position in the notice_of_deficiency that the decedent and mrs spear had no cash on hand at the beginning of the net_worth period and that they were liable for the addition_to_tax for fraud for the years in issue had a basis in fact d whether respondent had a basis in law for the position in the notice_of_deficiency basis in law petitioners do not dispute that the legal authorities cited by respondent govern the issues in dispute both parties cite 355_us_595 348_us_121 and their progeny as establishing the legal standard for the net_worth_method and both parties make the same legal analysis of fraud and the badges_of_fraud under sec_6653 and the decided cases the parties dispute how those standards apply to the facts in this case whether respondent had a basis in law for determining that the decedent and mrs spear had no cash on hand on date petitioners contend that respondent had no basis in law for determining that the decedent and mrs spear had no cash on hand on date because respondent improperly used the net_worth_method we disagree respondent's basis in law is clear the commissioner may use the net_worth_method to compute a taxpayer's income if the taxpayer has inadequate records paschal v commissioner aftr 2d pincite7 ustc par big_number at big_number 3d cir affg without published opinion tcmemo_1994_380 sec_1_446-1 income_tax regs eg holland v united_states supra pincite petitioners do not dispute that this is the applicable legal standard under the net_worth_method a taxpayer's income is equal to the increase in net_worth during the taxable_year plus nondeductible disbursements minus nontaxable receipts holland v united_states supra pincite 451_f2d_197 3d cir affg mazzoni v commissioner tcmemo_1970_37 supplemented by estate of mazzoni v commissioner tcmemo_1970_144 to use the net_worth_method the commissioner must meet three requirements first the commissioner must reliably establish a net_worth for taxpayer as of the beginning of the period under review second investigation is required of the taxpayer's explanation for his net_worth increases if such leads are reasonably susceptible of being checked finally the government must suggest a likely source of the unreported income estate of mazzoni v commissioner supra pincite citation and fn ref omitted petitioners do not dispute that this is the applicable legal standard whether respondent had a basis in law for determining that petitioners are liable for the addition_to_tax for fraud respondent's basis in law for determining that petitioners were liable for the addition_to_tax for fraud is sec_6653 and the many cases which apply it the parties do not dispute what legal standards apply under sec_6653 we conclude that respondent had a basis in law to determine that petitioners were liable for the addition_to_tax for fraud e conclusion we conclude that respondent's position in the notice_of_deficiency had a reasonable basis in both law and fact thus we hold that respondent's position was substantially justified and that petitioners are not entitled to an award for administrative and litigation costs under sec_7430 petitioners' motion for administrative and litigation costs will be denied to reflect the foregoing an appropriate order will be issued denying petitioners' motion for an award of administrative and litigation costs


internal_revenue_service department of the treasury index number u i l no washington dc person to contact telephone number refer reply to cc dom p si plr-118742-99 date date number release date legend company state shareholder a dear this letter responds to a letter dated date requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has one shareholder shareholder it is represented that company has intended to be an s_corporation since its incorporation believing itself to be an s_corporation company has operated accordingly since a after the end of its taxable_year beginning on a however company discovered that its s election had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for its taxable_year that begins on a sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 explains when an s election will be effective generally if an s election is made within the first two and one half months of a corporation's taxable_year then that corporation will be treated as an s_corporation for the year in which the election plr-118742-99 is made sec_1362 provides that 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 following the year in which the s election is made sec_1362 provides that if 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 such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply applying the relevant law to the facts submitted and representations made we rule that company's sec_1362 election will be treated as timely made for its taxable_year that begins on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours william p o’shea chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b04-plr-100129-02 date july in re legend son mother father stepmother trust trust trust trust spouse spouse trustee date date date date a b c d e f state state law state law state law rev_rul citation county court plr-100129-02 dear this is in response to your date letter and other correspondence requesting rulings concerning the generation-skipping_transfer gst status of trusts the rulings requested are as follows trust trust trust and trust are wholly exempt from the gst tax under section b a of the tax_reform_act_of_1986 because the trusts became irrevocable before date and no additions actual or constructive have been made to the trusts since that date the exercise by son of his testamentary_power_of_appointment over trusts will not be considered to be an addition actual or constructive to the trust in question the trustee’s proposed investment of substantially_all of the assets of trusts in the llc will not cause the four trusts to lose their gst tax exempt status because the change_of investment is within the powers of the trustee the trustee’s proposed investment of substantially_all of the assets of trusts in the llc will not cause any portion of any of the four trusts to be treated as if it had been added to any of the four trusts after date the modification of the provision of trust regarding the payment of the trustee’s fees will not cause trust to lose its gst exempt status the facts submitted are as follows mother died testate on date prior to date item of mother’s will provided for the establishment of trust for the benefit of son under the terms of trust after son attains the age of all trust income is to be distributed to son for life on son’s death the corpus is to be distributed to such persons as son may appoint by will in default of appointment the corpus is to be distributed to son’s descendants per stirpes item of mother’s will provides that the trustee shall have full power to invest the trust estate and reinvest and change investments of the trust estate from time to time in its discretion item of mother’s will provides that the trustee shall be allowed for its services a commission of not over a per cent of the trust income plr-100129-02 in a series of written agreements all executed prior to date son partially released his general_power_of_appointment over trust son retained the testamentary power to appoint trust corpus outright or in trust to specified beneficiaries son is currently living and is the sole current income_beneficiary of trust trust was created by father on date prior to date for the benefit of his wife stepmother and his children trust was created by stepmother on date trust was created by father on date for the benefit of his mother and son son is the sole current income_beneficiary of trust trust and trust under the terms of each trust all trust income is required to be distributed to son under the terms of each trust son is granted a power to dispose_of the principal of each trust at the time of his death by will to and among such person or persons as son shall designate specifically each trust instrument grants son the power to dispose_of the principal of any property held in trust for him at the time of his death by last will and testament to and among such person or persons or for such objects and purposes and in such manner and proportions in trust or otherwise as he or she shall designate to take the same none of the trusts specifically authorized son to appoint the property to his creditors or his estate each trust provided the trustee with full power to invest reinvest and change investments son and spouse signed a separation agreement as part of divorce proceedings on date after date and before september in the separation agreement son partially released his special_power_of_appointment over trust retaining a testamentary power to appoint half of the trust property to the children of his marriage to spouse and the other half to a specified list of donees son also partially released his power_of_appointment with respect to trust trust and trust retaining a special testamentary power to appoint property of the respective trusts to the children of his marriage to spouse the separation agreement also mandated that son pay as alimony to spouse a sum of dollar_figureb dollar_figurec if spouse remarried annually if the net_income that son receives from the four trusts should increase or decrease by more than d each year then the alimony payment to spouse is to be adjusted accordingly it is represented that no actual or constructive additions to trusts have been made since date currently trustee serves as the trustee for all four trusts the trustee proposes to form a new limited_liability_company llc in order to provide greater income for son while preserving the principal for the remainder beneficiaries trusts would be the sole members of llc and the trustee will serve as general manager each trust would contribute substantially_all of its assets to llc as its capital_contribution and each trust would receive an interest in the llc that plr-100129-02 corresponds to the size of its capital_contribution when compared to the other llc members the llc operating_agreement would provide that the llc be required to make cash distributions to trusts each year in an amount equal to the greater of a e percent of the average fair_market_value of the llc assets valued as of the close of business on the last business_day of each of the three preceding calendar years and b the net_income of the llc determined under state law and determined as if the llc were a_trust the trusts would then distribute the cash to son the llc operating_agreement would prohibit the llc from making cash distributions in any one year in excess of the greater of a f percent of the average fair_market_value of the llc assets valued as of the close of business on the last business_day of each of the three preceding calendar years and b the net_income of the llc determined under state law and determined as if the llc were a_trust trustee petitioned county court requesting authorization to invest trust assets in the llc as outlined above in addition trustee requested that item of mother’s will be modified to adjust the compensation payable to the trustee on date county court issued an order authorizing the investment of trust assets in the llc subject_to irs approval the court also ordered that item of mother’s will is to be modified to provide that a corporate trustee shall be entitled to receive reasonable_compensation for its services in accordance with its published rates and schedules regardless of the value of trust law and analysis ruling sec_1 and sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip under section a of the tax_reform_act_of_1986 act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax is generally applicable to generation-skipping transfers made after date however under section b a of the act and sec_26_2601-1 the tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added however this rule does not apply to a transfer of property pursuant to the exercise release or lapse of a general_power_of_appointment that is treated as a taxable transfer for estate or gift_tax purposes plr-100129-02 sec_26_2601-1 provides that except as provided under sec_26_2601-1 where any portion of a_trust remains in the trust after the post-date release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse is treated to any extent as a taxable transfer for estate or gift_tax purposes the value of the entire portion of the trust subject_to the power that was released exercised or lapsed is treated as if that portion had been withdrawn and immediately retransferred to the trust at the time of the release exercise or lapse sec_26_2601-1 provides a special rule for certain powers of appointment this section provides that the release exercise or lapse of a power_of_appointment other than a general_power_of_appointment as defined in sec_2041 will not be treated as an addition to a_trust if -- such power_of_appointment was created in an irrevocable_trust that is not subject_to chapter under sec_26_2601-1 and in the case of an exercise such power_of_appointment is not exercised in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date of creation of the trust extending beyond any life in being at the date of creation of the trust plus a period of years sec_2041 provides that the gross_estate includes the value of any property with respect to which a general_power_of_appointment created on or before date is exercised by the decedent by will however under sec_2041 if a general_power_of_appointment created on or before date is partially released so that it is not thereafter a general_power_of_appointment a subsequent exercise of the partially released power is not an exercise of a general_power_of_appointment if the partial_release occurs before date sec_2041 defines a general_power_of_appointment as a power exercisable in favor of the decedent his estate his creditors or the creditors of his estate under state law a power_of_appointment is not a general_power_of_appointment unless the donor employs language specifically authorizing the donee to appoint property to his estate or creditors see citation rev_rul in this case trust sec_1 and were created prior to date and were all irrevocable prior to that date further it is represented that there have been no additions either actual or constructive to trust sec_1 or after date son partially released his power_of_appointment over trust prior to date retaining a testamentary special power to appoint the trust in accordance with sec_2041 the trust corpus subject_to this power will not be included in son’s gross_estate for estate_tax purposes whether or not son exercises the power furthermore as noted above with respect to son’s testamentary powers of appointment over trust sec_2 and because there is no language in the trust instruments specifically plr-100129-02 authorizing son to appoint the property to his estate or his creditors under applicable state law son can not exercise the powers in favor of his estate or his creditors therefore the powers are not general powers as defined in sec_2041 and the property subject_to these powers will not be included in son’s gross_estate rev_rul accordingly we conclude that trust sec_1 and were irrevocable prior to date and are currently exempt from gst tax further under sec_26_2601-1 and v whether or not son exercises the powers over trust sec_1 or the property passing pursuant to a lapse or exercise of these powers will not be considered generation-skipping transfers occurring after date or post-date additions to the trusts ruling sec_3 and sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer a modification that is administrative in nature that only indirectly increases the amount transferred will not be considered to shift a beneficial_interest in the trust sec_26_2601-1 example considers a situation where a_trust that is otherwise exempt from the gst tax provides that trust income is payable to a for life and upon a's death the remainder is to pass to a's issue per stirpes in the appropriate local court approves a modification to the trust that converts a's income_interest into the right to receive the greater of the entire income of the trust or a fixed percentage of the trust assets valued annually unitrust_interest to be paid each year to a for life the example concludes that the modification does not result in a shift in beneficial_interest to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification rather the modification can only operate to increase the amount distributable to a and decrease the amount distributable to a's issue in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the modification will not plr-100129-02 subject the trust to the provisions of chapter sec_26_2601-1 example considers a situation where a_trust is modified by decreasing the number of trustees the modification pertains to the administration of the trust and does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation than the person or persons who held the beneficial_interest prior to the modification in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the modification will not subject the trust to the provisions of chapter state law specifies a number of investments that may be made by a trustee state law specifies that the list is not to be construed to make unlawful any investment not listed state law provides generally that a trustee shall allocate to income money received from an entity the term entity includes a limited_liability_company in this case the trustee is given broad investment powers over trust sec_1 and under the terms of the trusts and under state law accordingly based on the facts submitted and representations made we conclude that the proposed investment of substantially_all of the assets of the trusts in the llc as proposed will not cause the trusts to lose gst tax exempt status furthermore the proposed transaction will not cause any portion of any of the trusts to be treated as an addition to the trusts after date in addition the modification of trust regarding payment of a corporate trustee’s fees in accordance with the trustee’s published rate schedule is a modification that is administrative in nature this modification does not shift any beneficial_interest in trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests further the proposed modification will not extend the time for vesting of any beneficial_interest in the trusts beyond the period provided for in trust accordingly based on the facts submitted and representations made we conclude that the change to trust regarding the corporate trustee’s fees will not cause trust to lose its exempt status for gst tax purposes in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 plr-100129-02 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 s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely yours _________________________ george masnik chief branch office of the associate chief_counsel passthroughs and special industries


id office uilc cca_2008072509184471 ----------- number release date from --------------------- sent friday date am to ---------------------------------------- cc ---------------- subject sams submitter reporting hsa contributions on form_w-2 i have reviewed the material you have submitted on june regarding the sams submitter who questioned the reporting of certain hsa contributions on the form_w-2 i conclude that the w-2 need not be modified our conclusion accords with the many others who have determined that the form_w-2 requires no changes to respond to the submitter's concerns please contact me if you have any further questions thank you -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------- ---------------------------------------------------------------------------------------------------------------------