office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eb hw bpie gl-125239-04 uilc date to associate area_counsel cc sb_se sf attention anthony kim from branch chief cc tege eb hw subject health insurance deduction for self-employed individuals under sec_162 l this chief_counsel_advice responds to your request for assistance dated date regarding i r c ' l in accordance with i r c ' k this advice may not be used or cited as precedent issue sec_1 whether a self-employed_individual who is a sole_proprietor may deduct pursuant to sec_162 insurance costs for the medical_care of the sole_proprietor and his or her spouse and dependents from the earned_income derived from his or her trade_or_business when the health insurance_policy purchased by the sole_proprietor is issued in his or her individual name and not in the name of the sole proprietor’s trade_or_business whether a self-employed_individual may aggregate the profits and losses of two or more businesses to establish the net_income ceiling up to which he or she may claim insurance costs deductions under sec_162 conclusion sec_1 sec_162 was originally enacted as sec_162 it was redesignated as sec_162 by sec_301 of the miscellaneous revenue act of this document refers to the section as sec_162 both before and after the redesignation yes a self-employed_individual who is a sole_proprietor may deduct the medical_care insurance costs of the sole_proprietor and his or her family from the earned_income of his or her trade_or_business when the health insurance_policy purchased by the sole_proprietor is issued in his or her individual name and not in the name of the sole proprietor’s trade_or_business no under sec_162 the health insurance costs deductions must be claimed for a specific plan providing medical_care coverage that is established under a specific trade_or_business and the deductions are limited to the earned_income of that specific trade_or_business discussion sec_162 allows an individual who is an employee within the meaning one of the reasons for enacting the ' l deduction was that the existing rules of i r c ' c to deduct amounts paid during the taxable_year for insurance which constitute medical_care for the taxpayer and the taxpayer’s spouse and dependents i r c ' l a provides that no deduction is allowed to the extent that the amount of the deduction exceeds the taxpayer’s earned_income within the meaning of i r c ' c derived by the taxpayer from the trade_or_business with respect to which the plan providing the medical_care coverage is established the deductible amount has been limited in the past to certain percentages of the amount_paid but for the taxable_year and thereafter of the amount_paid is allowed up to the earned_income limit sec_162 the deduction is further limited in that no deduction is allowed for costs during a month in which the taxpayer is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or of the spouse of the taxpayer i r c ' l b relating to the exclusion_from_gross_income for benefits under employer accident or health_plans created unfair distinctions between self-employed individuals and the owners of corporations owners of corporations could exclude from gross_income health benefits provided by the corporation whereas no similar exclusion was available to self-employed individuals see s rep no 99th cong 2d sess vol c b the legislative_history contrasts the tax benefits available to owners who are corporate employees with the lack of similar benefits for self-employed individuals similarly the deduction was increased in for taxable years beginning after date in order to reduce the disparity of treatment between insurance expenses of self-employed individuals and employer-provided health insurance and to help make health insurance more affordable for self-employed individuals h_r rep no 105th cong 2d sess 1998_4_cb_307 taxpayer's earned_income to one trade_or_business the language derived by the taxpayer from the trade_or_business with respect to which the plan providing the medical when i r c ' l was enacted in ' l a did not limit the therefore taking into consideration the limitations under section i r c ' l thus the statute has always required that a plan be established under a trade or care coverage is established was added by sec_1011b b of the technical_and_miscellaneous_revenue_act_of_1988 retroactive to the enactment of ' l i r c ' l also included a provision under which the ' l deduction was not available to any taxpayer for any taxable_year unless coverage was provided under one or more plans meeting the requirements of sec_89 nondiscrimination requirements treating such coverage as an employer-provided benefit this provision was deleted in by section a of pub_l_no 1990_1_cb_207 retroactive to the enactment of ' l the reason for the retroactive deletion was that sec_89 was retroactively repealed by the same act and never took effect business generally the earned_income from only that trade_or_business can be considered however if the self-employed_individual establishes for instance a medical plan under business a and a dental plan under business b the earned_income from each business is considered discussed above has established a plan providing medical_care coverage with respect to his or her trade_or_business and therefore may deduct the medical_care insurance costs for himself his spouse and dependents under i r c ' l but only to the extent that the cost of the insurance does not exceed the earned_income as defined in i r c ' c derived by the sole_proprietor from the specific trade_or_business with respect to which the insurance was purchased the self-employed_individual and his or her spouse and dependents under a health insurance plan established for his trade_or_business up to the net_earnings of the specific trade_or_business with respect to which the plan is established but a self- employed individual may not add the net profits from all his or her trades and businesses for purposes of determining the deduction limit under i r c ' l a however if a self-employed_individual has more than one trade_or_business he or she may deduct the medical_care insurance costs of the self-employed_individual and his or her spouse and dependents under each specific health insurance plan established under each specific business up to the net_earnings of that specific trade_or_business a self-employed_individual may deduct the medical_care insurance costs for a sole_proprietor who purchases health insurance in his or her individual name case development hazards and other considerations none this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions __________________ harry beker


tcmemo_1998_381 united_states tax_court u s bancorp successor_in_interest to west one bancorp and subsidiaries formerly known as moore financial group inc petitioner v commissioner of internal revenue respondent docket no filed date david w brown and richard a edwards for petitioner william p boulet jr and james r robb for respondent on date the court granted petitioner's motion to consolidate this case with the case at docket no because the issue herein is not related to the issues in docket no and does not involve the tax years at issue in docket no the order pursuant to this opinion will be issued only in docket no also for this reason the court by order dated date has denied petitioner’s motion for partial summary_judgment as supplemented and respondent’s cross-motion for partial summary_judgment on the interest on short-term receivables issue in the case at docket no memorandum opinion beghe judge this matter is before the court on petitioner’s motion for partial summary_judgment as supplemented petitioner’s motion and respondent’s cross-motion for partial summary_judgment under rule petitioner's principal_place_of_business was at portland oregon when it filed its petition relying on 98_tc_33 affd 994_f2d_432 8th cir petitioner has moved for an order that idaho first national bank ifnb a commercial bank using the cash_method_of_accounting during the first taxable_year in issue is not required by sec_1281 to include in its gross_income interest on short-term obligations maturing in year or less that had accrued in but was not received until petitioner concedes that if and to the extent we grant petitioner's motion the interest_income in question is properly included in full in petitioner' sec_2 all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the years in issue unless otherwise specified for the purposes of the motion petitioner has conceded that 12-month commercial and agricultural loans that are regularly renewed or rolled over are short-term obligations although petitioner's motion states that it does not concede the point for all purposes our disposition of the question on such loans has mooted the point gross_income respondent's cross-motion asks for an order denying petitioner's motion in full and granting partial summary_judgment for respondent subsequent to the submissions of the parties we followed and applied security bank minn v commissioner supra in 111_tc_210 with respect to ifnb's consumer commercial and agricultural short-term loans made to its customers we follow our decisions in security bank minn v commissioner supra and security state bank v commissioner supra hold for petitioner grant petitioner's motion and deny respondent's motion by reason of petitioner's concession the interest that accrued on such loans in is included in petitioner's income in full in with respect to the certificates of deposit cd's and time deposits owned by ifnb in we deny petitioner's motion and respondent's cross-motion respondent's arguments with respect to the cd's and time deposits raise questions of fact regarding banking and commercial practices these questions must be petitioner has conceded that it is not entitled to its reporting position that the interest in issue that was received in should be spread ratably over the years as a sec_481 change in accounting_method adjustment under sec_448 as enacted by the tax_reform_act_of_1986 publaw_99_514 100_stat_2347 tra sec_448 requires c corporations having average annual gross_receipts of more than dollar_figure million to switch to the accrual_method of accounting for and later years resolved by a trial or obviated by agreement of the parties before we can decide whether the rule_of law we first expressed in security bank minn v commissioner supra and recently applied in security state bank v commissioner supra applies to the cd's and time deposits the background facts set forth below are derived from the pleadings in this case petitioner's request for admission respondent's responses to petitioner's request the affidavit and exhibits attached to petitioner's motion for partial summary_judgment and the supplement to petitioner's motion respondent's cross-motion for partial summary_judgment the declaration and exhibits attached to respondent's response to petitioner's motion the exhibits attached to petitioner's reply to respondent's response and petitioner's supplemental reply and affidavit attached thereto the background facts are set forth solely for the purpose of deciding the motions and are not findings_of_fact for this case fed r civ p a 98_tc_518 affd 17_f3d_965 7th cir factual background petitioner is a successor_in_interest by merger to west one bancorp formerly known as moore financial group inc moore financial a national bank_holding_company incorporated in idaho in during the years in issue through moore financial was the parent_corporation of ifnb in ifnb was a bank as defined in sec_581 that was entitled to and did use the cash_method_of_accounting for federal_income_tax purposes also during ifnb was the largest commercial and agricultural lender in idaho as a large commercial bank ifnb made numerous loans of different maturities in the ordinary course of its business including loans of less than year year loans and loans of more than year the short-term obligations in issue here all had periods to maturity of year or less and consisted of the following principal accrued interest description balances as of time deposits with bank sec_1dollar_figure 1dollar_figure cd's with banks big_number big_number consumer loans big_number big_number commercial and agricultural loan sec_3big_number big_number total 4big_number big_number after the years at issue in moore financial changed its name to west one bancorp west one in west one merged into u s bancorp old bancorp in old bancorp merged into first bank system inc a bank_holding_company which changed its name to u s bancorp the petitioner in this case ifnb switched to the accrual_method of accounting for as required by sec_448 enacted by tra see supra note the time deposits with banks had stated maturities of less than days and often less than days all the time deposits were in exact multiples of dollar_figure million and the majority of the obligors were foreign banks petitioner's records showed the cd's as having originated from the following foreign centers the cayman islands nassau toronto zurich london and frankfurt the cd's with banks had stated maturities of months to year all the cd's were in exact multiples of dollar_figure million and the majority of the obligors were foreign banks each cd was denominated either yankee or euro the amounts agreed upon by the parties with respect to loans have been adjusted to remove all amounts in respect of obligations of local governments the total_amounts of interest included in the accruals include loans due and payable in on which principal and interest remained unpaid at yearend none of the short-term obligations held by ifnb at yearend had been previously issued and then acquired by ifnb from third parties ie from parties other than the borrower debtor or obligor the only obligations acquired by ifnb from third parties were long-term corporate bonds and u s government securities none of which are in issue in this matter petitioner supports its assertion that ifnb originated the short-term obligations at issue here in the ordinary course of its banking business by stating that ifnb relied upon the borrower's good_faith and credit--along with any collateral used to secure the loan--to repay the resulting obligation although as discussed below respondent asserts that the time deposits and cd's owned by ifnb are different from ordinary bank loans respondent does not contest petitioner's assertion that the time deposits and impliedly the cd's arise in the ordinary course of business as a customary method used by banks to earn interest on surplus funds discussion i whether summary_judgment is appropriate summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials 90_tc_678 summary_judgment is appropriate where there is no genuine issue of material fact and decision may be rendered as a matter of law rule b sundstrand corp v commissioner 98_tc_7 there are factual differences between petitioner's consumer commercial and agricultural loans and its time deposits and cd's with banks the consumer commercial and agricultural loans provided for periodic_payments of interest monthly in most cases quarterly in a few as a result the accrued but unpaid interest with respect to such loans held at date amounted on the average to approximately month's worth of interest on each loan the cd's with banks provided for the payment of interest only at maturity as a result the amount of the accrual with respect to each such instrument was relatively larger as evidenced by the schedule supra p pincite yearend the remaining accrual_period on the cd's which bore interest at rates ranging from dollar_figure percent to dollar_figure percent per year was on the average closer to months than to month although the time deposits with banks also provided for one payment of interest at maturity the remaining average accrual_period on the time deposits was relatively much shorter than for the cd's because of the shorter average period to maturity of the time deposits pincite 79_tc_340 in deciding whether to grant summary_judgment the court must consider the factual materials and inferences drawn from them in the light most favorable to the nonmoving party 100_tc_32 85_tc_527 if the conditions of summary_judgment are otherwise satisfied with respect to a single issue or fewer than all the issues in a case then partial summary_judgment may be granted even though all the issues in the case are not disposed of rule b naftel v commissioner supra however summary_judgment is not a short cut to avoid trial or a substitute for trial 410_f2d_572 2d cir as stated in 249_f2d_616 9th cir when confronted with a motion for summary_judgment the trial judge must determine if there are any material factual issues that should be resolved before the trier of fact it is not the trial judge's function to resolve those issues or to weigh evidence finally summary_judgment should be used sparingly and with caution 543_fsupp_1255 w d la affd 725_f2d_300 5th cir ii the legal background and the parties' arguments the parties agree that the controlling statutory provisions are sec_1281 and sec_1283 which require the accrual of discount on certain short-term obligations the short-term_obligation rules briefly if the short-term_obligation rules apply to a nongovernmental short-term_obligation the following results obtain for any taxable_year first under sec_1281 these provisions were added to the code in by the deficit_reduction_act_of_1984 defra publaw_98_369 98_stat_548 the provisions were amended in by sec a of tra 100_stat_2794 sec_1281 provides as follows sec_1281 current inclusion in income of discount on certain short-term obligations a general_rule --in the case of any short-term_obligation to which this section applies for purposes of this title-- there shall be included in the gross_income of the holder an amount equal to the sum of the daily portions of the acquisition_discount for each day during the taxable_year on which such holder held such obligation and any interest payable on the obligation other than interest taken into account in determining the amount of the acquisition_discount shall be included in gross_income as it accrues sec_1283 provides in part sec_1283 special rules for nongovernmental obligations -- in general --in the case of any short- term obligation which is not a short-term_government_obligation -- continued and c the holder of the obligation is required to include any original_issue_discount oid that accrues while it holds the obligation during the taxable_year in its interest_income for that year second under sec_1281 the holder is required to include any interest payable on that obligation in income as it accrues in security bank minn v commissioner supra we considered the application of the short-term_obligation rules to certain loans made by a bank after a thorough consideration of the statutory language the relevant legislative_history and the arguments of the parties we concluded that the short-term_obligation rules did not require the petitioning bank to accrue interest on the short-term loans made to customers in the ordinary course of its business security bank minn v commissioner t c pincite petitioner asserts that the short-term obligations at issue in this case are indistinguishable from the obligations we considered in security bank minn v commissioner supra as a result argues petitioner under the principle of stare_decisis we must hold that the short-term_obligation rules do not require continued a sec_1281 and sec_1282 shall be applied by taking into account original_issue_discount in lieu of acquisition_discount the accrual of interest--or the accrual of any interest substitute such as oid--on the loans and other assets at issue in this case respondent on the other hand advances three arguments to support the determination that the short-term_obligation rules do apply first respondent asserts that our decision in security bank minn v commissioner supra was wrong and that we should overrule it in this case second respondent asserts that the obligations in this case were issued with oid--an assertion respondent expressly declined to make with respect to the loans at issue in security bank minn v commissioner supra respondent argues that because the court in security bank minn therefore assumed that the loans at issue were not discount loans this distinction compels or at least permits a different tax result in this case from the result we decided on in security bank minn with respect to the assertedly nondiscount loans there at issue third and finally respondent asserts that the time deposits and cd's at issue in this case are different in legally significant respects other than their discount status from the bank loans at issue in security bank minn v commissioner supra--and that this difference compels a different tax result with respect to the time deposits and cd's we consider respondent's arguments seriatim in so doing we explain why summary_judgment is appropriate with respect to ifnb's consumer commercial and agricultural loans but is not appropriate with respect to its time deposits and cd's iii respondent's first argument security bank minn v commissioner should be overruled respondent first asks the court to reconsider its holding in security bank minn v commissioner supra that sec_1281 of the short-term_obligation rules does not require a bank to accrue interest on the short-term loans made to customers in the ordinary course of its business security bank minn v commissioner t c pincite in short respondent here argues as in security bank minn that sec_1281 requires the accrual of interest on all short-term obligations held by a bank--without regard to the type of obligations involved or the manner in which the bank came to hold them although respondent advances this argument with force and cogency--and also tries to identify certain factual differences between the loans at issue in this case and the loans considered in security bank minn v commissioner supra--we believe that all respondent has done in advancing this argument is to ask us to overrule security bank minn which we decline to dodollar_figure for example we note that most of ifnb's consumer commercial and agricultural loans provided for payments of interest at monthly intervals as well as at maturity while the continued respondent has not brought to our attention any prudential and pragmatic considerations see 505_us_833 that would lead us to conclude that the principle of stare_decisis should not hold swaydollar_figure see also 309_us_106 as we stated in security state bank v commissioner t c pincite security bank minn v commissioner citation omitted was a court-reviewed opinion the majority opinion contains an extensive analysis of the statute its evolution the context in which it appears and its legislative_history there was a dissenting opinion which was joined by five judges in affirming our continued agricultural loans at issue in 98_tc_33 affd 994_f2d_432 8th cir and in 111_tc_210 provided for payments of interest as well as principal only at maturity even though respondent’s arguments in security bank minn arguably are more directly applicable to the loans to customers in the case at hand than they were to the loans in security bank minn and security state bank--after all the reference to any interest payable on the obligation would seem to apply directly to the interest payable monthly and quarterly in the case at hand as opposed to the interest payable at maturity in security bank minn and security state bank which seems more like oid--this does not change our conclusion that all respondent has done in mounting his primary argument is to ask us to overrule security bank minn as stated in the text indeed those considerations point in the other direction the issues in this case have limited significance in subsequent years because of the enactment of sec_448 requiring c corporations including large banks such as ifnb with average annual gross_receipts of more than dollar_figure million to switch to the accrual_method of accounting effective for and subsequent years petitioner observes that our ruling in this matter will not apply to petitioner for any other tax_year and is not likely to apply to any other large commercial bank opinion the court_of_appeals for the eighth circuit also made an extensive analysis of the same factors one of the judges on the court_of_appeals panel dissented no purpose would be served by repeating the statutory analysis that lead this court and the court_of_appeals to decide that sec_1281 does not apply to loans made by banks in the ordinary course of business suffice it to say that this matter has been thoroughly considered and decided the doctrine_of stare_decisis generally requires that we follow the holding of a previously decided case absent special justification this doctrine is of particular importance when the antecedent case involves statutory construction 97_tc_94 while respondent has skillfully rearticulated his arguments in support of a different interpretation of the statute we find nothing therein that would cause us to refrain from applying the doctrine_of stare_decisis with respect to the sec_1281 issue fn ref omitted we agree and decline to overrule security bank minn v commissioner supra with respect to this issue accordingly we hold that sec_1281 as interpreted by security bank minn and applied in security state bank v commissioner supra does not require the accrual of interest with respect to the short-term consumer commercial and agricultural loans made by ifnb to its customers iv respondent's second argument sec_1281 and oid respondent argues in the alternative that even if we follow security bank minn v commissioner supra the short-term_obligation rules should still be applied to ifnb's loans cd's and time deposits for the following reason respondent asserts in this case that ifnb's loans and deposits were issued by the obligors with oid by contrast in security bank minn the commissioner deliberately decided not to assert that the relevant bank loans had oid security bank minn v commissioner t c pincite respondent argues that this distinction is important because the court in security bank minn assumed in reaching its decision that the bank loans there in question were not discount obligations as a result argues respondent our decision in security bank minn v commissioner supra does not determine the outcome of this case although security bank minn may prevent the accrual of interest under sec_1281 of the short-term_obligation rules it does not in respondent's view prevent the accrual of discount under sec_1281 of those rulesdollar_figure therefore concludes respondent accrual is appropriate with respect to the loans and deposits held by ifnb in this case in response to this argument we note that there is language in security bank minn v commissioner supra that could be read to suggest that the court believed the bank loans there at issue had no discount and that this belief was important to the resultdollar_figure notwithstanding this language however we believe the these code provisions are discussed supra pp as we stated in security bank minn v commissioner supra as we have noted citation omitted the common continued court in security bank minn was aware that the loans might in respondent's view have been issued with oid for the following reasons first although it is true that respondent in security bank minn v commissioner supra did not take the position that the bank loans there at issue had oid this is not the whole truth in the very next breath respondent then told the court that those bank loans arguably did have oid--notwithstanding the previous disclaimer security bank minn v commissioner t c pincite second under respondent's proposed_regulations interpreting the oid rules all short-term obligations would be continued thread of the sections included in part v of subchapter_p of chapter of the code which part contains the original_issue_discount oid market_discount and discount on short-term_obligation rules is that amounts defined as discount are to be taken into account as ordinary_income in some appropriate manner thus the obligations or instruments to which part v applies are obligations or instruments that involve some sort of discount--in the case of sec_1281 acquisition_discount or by operation of sec_1283 original_issue_discount there is no indication that any of the loans here in dispute involve discount security bank minn v commissioner t c pincite emphasis added sec_1_1271-1 through proposed income_tax regs fed reg date the proposed regs considered to be issued with oiddollar_figure we note that final regulations were not published until and are generally not applicable to debt instruments issued before april dollar_figure in addition this court usually regards proposed_regulations as having no more weight than a position asserted in a brief by the commissionerdollar_figure however the portion of respondent's brief cited by the majority in security bank minn v commissioner supra did refer to the proposed_regulations security bank minn v commissioner t c pincite for this reason we believe that sec_1273 defines the amount of oid an obligation contains to be equal to the excess of the obligation's stated_redemption_price_at_maturity srpm over the obligation's issue_price under sec_1_1273-1 proposed income_tax regs fed reg date the srpm of an obligation was in turn defined to be equal to the sum of all payments to be made under the terms of that obligation other than qualified periodic interest payments in addition sec_1 b ii d proposed income_tax regs fed reg date provided that in the case of short-term obligations no interest payments were considered to constitute qualified periodic interest payments what all this means is that under the proposed regs all interest payments on a short-term_obligation would be included in the obligation's srpm and would therefore constitute oid sec_1_1271-0 income_tax regs it does not appear that the final regulations made any substantive changes to the proposed regs ' definition of oid as discussed in the text see sec_1_1273-1 sec_1_1273-1 income_tax regs for examples of opinions so characterizing proposed_regulations see 88_tc_894 54_tc_1233 the court in security bank minn was aware of respondent's view that short-term obligations were generally issued with oid as a result we were inclined to disregard respondent's argument that the asserted presence of oid in this case requires a result different from that decided in security bank minn even before we had considered the effect of our recently released decision in security state bank v commissioner supradollar_figure subsequent to the parties' submissions in this case in our decision in security state bank v commissioner supra we explained certain aspects of our decision in security bank minn v commissioner supra in security state bank respondent made essentially the same alternative argument ie that notwithstanding our decision with respect to the accrual of interest in security bank minn under sec_1281 sec_1281 requires accrual of oid on short-term bank loans in response to this argument in security state bank v commissioner supra we stated that because it had not been necessary for us to make a specific holding regarding the application of sec_1281 in security bank minn v commissioner supra it could be said in a technical sense that for a contemporaneous critical view of respondent's alternative argument based upon the proposed regs see lokken the time_value_of_money rules tax l rev n respondent's proposed application of sec_1281 presented an issue of first impression in security state bank v commissioner t c pincite however after examining our approach in security bank minn we concluded in security state bank v commissioner supra that our analysis in security bank minn v commissioner supra makes clear that we have interpreted sec_1281 as having no application to loans made by banks in the ordinary course of business regardless of whether the loans are characterized as generating interest or original_issue_discount we therefore hold that sec_1281 does not apply to the loans in issue id pincite fn ref omitted in the case at hand we follow security bank minn v commissioner supra as explained by security state bank v commissioner supra to hold that no accrual is required under sec_1281 with respect to ifnb's consumer commercial and agricultural short-term loans to its customers v respondent's third argument ifnb's time deposits and cd's are not bank loans made to customers as an alternative to the foregoing arguments which relate to all the short-term obligations held by ifnb during the years at issue respondent makes a third argument which applies only to ifnb's time deposits and cd's the obligors of which were other banks in essence respondent asserts that even if security bank minn v commissioner supra and security state bank v commissioner supra were properly decided the legal standard we announced in those cases does not apply to the time deposits and cd's in this case according to respondent our precise holding in security bank minn v commissioner supra was that sec_1281 does not apply with respect to short-term loans made by a bank to its customers in the ordinary course of its business respondent asserts that ifnb's time deposits and cd's do not constitute loans made to customers as that term was employed by security bank minn and security state bank v commissioner supra therefore argues respondent our holdings in those cases do not apply to ifnb's short-term time deposits and cd's even if we decide that the holdings do apply to ifnb's loans as we have done as a result concludes respondent the short-term_obligation rules can be applied to ifnb's short-term time deposits and cd's without violating either the spirit or the letter of security bank minn or security state bank in support of this argument respondent notes that the court in security bank minn v commissioner supra considered in some detail the meanings of the words acquire and issue including variants thereof this consideration of course was quite appropriate because the short-term_obligation rules apply to acquisition_discount or original_issue_discount depending on the type of obligation involved in examining the plain language of the statute the court in security bank minn v commissioner supra stated in the code and in normal bank parlance terms such as acquisition and issue commonly refer to third- party debt instruments loans are made by a bank to its customers the terms loan and made are noticeably absent from the definition of short-term obligations in sec_1283 security bank minn v commissioner t c pincite similarly in evaluating the legislative record the court in security bank minn noted that all of the available material in the legislative_history is expressed in terms relating to purchased or acquired instruments not expressly to loans made id pincite against this background respondent asserts that time deposits and cd's are purchased or acquired from other banks within the common meaning of those words and within the meaning developed by the court in security bank minn v commissioner supra respondent additionally asserts that the obligor banks on such deposits and cd's are not customers of the bank that owns the deposits and cd's once again within both the common meaning of the term and the meaning developed in security bank minn v commissioner supra we believe that whether as a matter of law respondent's argument is correct depends at least in part on the answers to a number of factual questions concerning the nature of time deposits and cd's for example before we could rule on respondent's motion with respect to this issue we believe we would need to know how time deposits and cd’s are regarded in banking and commercial practice--and how in that practice they are considered to differ if at all from bank loans made to customers or to put it another way we would need to know whether bankers consider time deposits and cd’s to be acquired or issued in a sense in which bank loans are not in addition we would need to know whether time deposits and cd’s are considered to be investments similar to third-party commercial paper while loans are considered to be noninvestment business done with customers in this regard it would be helpful to know how the documentation evidencing--or perhaps constituting--time deposits and cd's differs from the standard bank loan agreement or promissory notedollar_figure in short we believe that a number of factual questions should be answered before we could properly answer the legal question raised by respondent's third argument whether our holdings in security bank minn v commissioner supra and security state bank v commissioner supra--that congress did not intend sec_1281 and sec_1283 to apply to loans made by banks to other possible questions concern the importance of the facts that the time deposits and cd's held by ifnb were in exact multiples of dollar_figure million and that the majority of the obligors were large foreign banks both of which are factors that would tend to make the time deposits and cd's much more liquid than a typical bank loan their customers--apply to the time deposits and cd's that are also at issue in this case the materials submitted by the parties with respect to their motions for summary_judgment do not permit us to answer those factual questions as a result there are genuine issues of material fact that must be resolved by a trial or be obviated by agreement of the parties before we can decide whether the rule_of law we first expressed in security bank minn v commissioner supra and recently applied in security state bank v commissioner supra applies to the cd's and time deposits held by the petitioner therefore we hold that summary_judgment is not appropriate with respect to the treatment of the cd's and time deposits held by ifnbdollar_figure the fact that both parties have moved for summary_judgment does not require the court to decide that there are no genuine issues of material fact or that summary_judgment is appropriate under rule b summary_judgment shall be rendered if the pleadings and any other acceptable materials show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law the burden of proving that there is no issue of material fact is on the moving party and in deciding whether to grant summary_judgment the court must view the factual materials and inferences drawn from them in the light most favorable to the nonmoving party 100_tc_32 85_tc_527 in addition where both parties have moved for summary_judgment each party's motion must be considered independently to determine whether that party has met its burden_of_proof 82_tc_630 affd 804_f2d_553 9th cir 78_tc_154 this court has often found that issues of material fact continued vi holdings for all the reasons set forth above we reject respondent's arguments apply stare_decisis follow security bank minn v commissioner supra and security state bank v commissioner supra and hold that sec_1281 does not apply to ifnb's short-term consumer commercial and agricultural loans made to its customers however we hold that genuine issues of material fact exist--which issues must be resolved by a trial or obviated by agreement of the parties--before the proper tax treatment of continued exist--and has declined to grant summary_judgment for either party--where cross-motions have been made see 94_tc_306 92_tc_1003 take v commissioner supra burford v commissioner tcmemo_1984_466 the same approach has been used by courts deciding cross- motions for summary_judgment under the analogous federal rule fed r civ p as has been stated by one of the leading treatises on federal civil procedure when litigants concurrently pursue summary_judgment the first impression of the uninitiated is often that at least one party inevitably will be victorious and obtain summary_judgment however this seemingly intuitive impression is incorrect each individual summary_judgment motion must be evaluated independently to determine whether there exists a genuine dispute of material fact and whether movant is entitled to judgment as a matter of law moore's federal practice sec_56 3d ed pincite fn ref omitted see also 10a wright et al federal practice procedure civil sec 3d ed and the cases cited therein the cd’s and time deposits held by ifnb can be decided accordingly we hold that the portions of both parties' motions relating to the time deposits and cd's cannot be decided as a matter of law and are therefore not ripe for summary_judgment see rule to reflect the foregoing an order will be issued granting in part and denying in part petitioner's motion for partial summary_judgment as supplemented and denying respondent's cross-motion for partial summary_judgment


cca_2018102507104743 id uilc number release date from sent friday february am to cc bcc subject re sec_6112 list request question oops there was a typo in my earlier email it should read as follows based on the information that the advisor provided it does not meet the fee threshold to be considered a material_advisor under sec_6111 therefore it does not need to provide information pursuant to sec_6112 with regard to this transaction ------------------- ------------------- ----------------------------------


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 tege eb ec plr-129256-05 date date ------------------------------------------------------------------------ legend distributing ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- controlled ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------- plan x ------------------------------------------------------------------------------------------------------------------ date a date b date c dear ------------------- this letter responds to your representative’s letter dated date requesting rulings as to certain federal_income_tax consequences of a proposed transaction additional information was submitted in letters dated august august august and date 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 -------------------------- ------------------- ----------------- plr-129256-05 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 distributing is the parent_corporation of its wholly-owned subsidiary controlled distributing’s operations consist of several different businesses conducted through its wholly owned subsidiaries one of which is conducted by controlled distributing has determined that the best way to resolve systemic issues related to the allocation of capital and management resources between a business conducted by one of its subsidiaries and the business conducted by controlled is to spin off controlled to distributing’s shareholders accordingly all of the common_stock of controlled will be distributed to the holders of distributing stock in a pro_rata spin-off distribution in a private_letter_ruling issued on date a the office of associate chief_counsel corporate ruled subject_to certain caveats that the distribution will qualify for nonrecognition_of_gain_or_loss to the shareholders of distributing under sec_355 of the internal_revenue_code in that same letter the office of associate chief_counsel corporate also ruled subject_to certain caveats that the aggregate basis of the distributing common_stock and the controlled common_stock including any fractional interest in the controlled common_stock in the hands of shareholders of distributing common_stock immediately after the distribution will be the same as the aggregate basis of the distributing common_stock held by such shareholders immediately before the distribution allocated in proportion to the fair_market_value of each in accordance with sec_1_358-2 of the income_tax regulations regulations following the distribution distributing and controlled will no longer be part of the same controlled_group_of_corporations within the meaning of sec_414 c m or o before the distribution distributing issued to certain employees and directors of distributing and its subsidiaries nonqualified options to purchase distributing stock with an exercise price equal to the fair_market_value of distributing stock on the date of grant the options did not have a readily_ascertainable_fair_market_value under sec_83 they vest ratably at one-fourth or one-third per year beginning with the first or second anniversary of the grant_date also before the distribution distributing issued to certain employees and directors of distributing and its subsidiaries shares of restricted_stock in distributing that are non-transferable and subject_to a substantial_risk_of_forfeiture before vesting distributing restricted_stock distributing restricted_stock generally vests ratably pincite percent per year beginning with the first anniversary of the grant_date or in some cases percent four years from the grant_date the vesting of certain distributing restricted_stock is conditioned on certain performance objectives in addition holders of distributing restricted_stock are afforded certain rights of ordinary shareholders of distributing stock including the right to vote the shares of distributing restricted_stock and the right to receive quarterly dividend-equivalent payments with respect to such shares options in distributing stock held by employees who will be controlled employees after the distribution controlled employees will be treated differently depending on whether plr-129256-05 the options are vested on the distribution date vested distributing options held by controlled employees will remain options on distributing shares their exercise price and number of shares subject_to each option will be adjusted so that a the excess of the aggregate fair_market_value of the distributing shares subject_to the options immediately after the distribution over the aggregate option prices of those shares will be equal to the corresponding excess immediately before the distribution and b on a share-by-share comparison the ratio of the option_price to the fair_market_value of the distributing shares subject_to the options immediately after the distribution will equal the corresponding ratio immediately before the distribution these options so adjusted are the adjusted distributing options for purposes of determining whether an option is an adjusted distributing option options that would have vested before date b if the employee had retired assuming the distribution had not occurred will be counted as vested unvested distributing options held by controlled employees will be converted to controlled options which will be adjusted to preserve their appreciation element similar to the way distributing options will be adjusted controlled employees will not receive options on both distributing and controlled stock in lieu of the distribution of shares of controlled stock that all other distributing shareholders will receive pursuant to the distribution the shares of distributing restricted_stock held by persons who following the distribution will be employees or directors of distributing remaining individuals will be adjusted the adjusted distributing restricted_stock to reflect the distribution in a manner so that the fair_market_value of the distributing restricted_stock immediately before the distribution is equal to the fair_market_value of the adjusted distributing restricted_stock immediately after the distribution adjusted distributing restricted_stock will be subject_to the same restrictions as distributing restricted_stock in lieu of the distribution of shares of controlled stock that all other distributing shareholders will receive pursuant to the distribution the shares of distributing restricted_stock held by controlled employees will be adjusted by increasing the number of shares of distributing restricting stock to reflect the distribution adjusted distributing restricted_stock in the manner discussed with respect to adjusted distributing restricted_stock held by remaining individuals shares of adjusted distributing restricted_stock held by controlled employees that would vest assuming the distribution did not occur before date b will remain shares of adjusted distributing stock all other shares of adjusted distributing restricted_stock held by controlled employees will then be substituted with restricted shares of controlled stock controlled restricted_stock of equal fair_market_value controlled restricted_stock will be subject_to the same terms conditions and restrictions as the original distributing restricted_stock provided that in the case of any controlled restricted_stock that vests based on performance the underlying performance criteria may be adjusted to reflect the distribution plr-129256-05 distributing maintains plan x for the benefit of its employees plan x is a defined_contribution_plan intended to qualify under code sec_401 plan x offers its participants various investment alternatives one of which is the plan x stock fund effective as of date c the plan x stock fund was structured to qualify as an employee_stock_ownership_plan esop as described in code sec_4975 pursuant to the distribution described above the plan x stock fund will receive a proportionate share of controlled stock based on its ownership of distributing stock effective as of the distribution controlled expects to adopt a plan controlled plan that is intended to be qualified under code sec_401 and that will generally mirror plan x controlled plan will offer similar investment options except that the controlled plan stock fund will invest primarily in shares of controlled stock the controlled plan stock fund is intended to qualify as an esop as described in code sec_4975 the plan x account balances of all controlled employees will be transferred to controlled plan a new fund will be established in plan x to hold controlled shares received by the plan x stock fund in connection with the distribution a new fund will also be established in controlled plan to hold shares of distributing stock that will be received in the transfer of the existing account balances of controlled employees plan x may at the direction of the applicable_plan x fiduciary or plan x participants exchange controlled shares held by plan x for distributing shares or may dispose_of such controlled shares and reinvest the proceeds of such disposition in distributing shares similarly controlled plan may at the direction of the applicable controlled plan fiduciary or controlled plan participants exchange distributing shares held by controlled plan for controlled shares or may dispose_of such distributing shares and reinvest the proceeds of such disposition in controlled shares restricted_stock and options under sec_1_83-1 of the regulations if substantially nonvested property is subsequently sold or otherwise_disposed_of in an arm’s length transaction while still substantially nonvested the person who performed the services in connection with which such nonvested property was transferred shall realize compensation in an amount specified in the regulations under sec_1_83-1 sec_1_83-1 shall not apply to and no gain shall be recognized on any such sale_or_other_disposition to the extent that any property received in exchange therefor is substantially nonvested instead sec_83 and sec_1_83-1 shall apply with respect to such property received as if it were substituted for the property disposed of sec_1032 provides in part that no gain_or_loss is recognized to a corporation on the receipt of money or other_property in exchange for stock including treasury_stock of such corporation under sec_1_1032-1 a transfer by a corporation of its own stock as compensation_for services is considered a disposition for money or other_property plr-129256-05 therefore when a corporation compensates its employees with its own stock the corporation does not recognize gain_or_loss under sec_1032 under sec_1_1032-3 in certain transactions where an acquiring_corporation acquires money or other_property in exchange for stock of a corporation the issuing_corporation the acquiring_corporation is treated as purchasing the stock of the issuing_corporation from the issuing_corporation for fair_market_value with cash contributed to the acquiring_corporation by the issuing_corporation sec_1_1032-3 generally enables a corporate subsidiary to obtain a fair_market_value basis in parent stock contributed to the subsidiary’s capital if the subsidiary disposes of the parent stock in a taxable transaction immediately after it is received from the parent as a result of the operation of sec_1 a subsidiary generally does not recognize gain_or_loss on the immediate transfer of parent stock to the subsidiary’s employee in revrul_2002_1 2002_1_cb_268 d corporation in year issued to b an employee of d’s subsidiary c options to buy d stock in year d distributed the stock of c to its shareholders in a spin-off transaction qualifying under sec_355 at the time of the spin-off the d options held by b were replaced with options to buy stock in d from d and stock in c from c the post-division options in year b exercises the post-division options the total exercise price of the post-division options was equal to the exercise price of the pre-division options revrul_2002_1 holds that the characterization of b’s exercise of the post-division options of d should reflect the parent-subsidiary relationship of d and c that existed in year when the options were granted to b the ruling in essence applies sec_1_1032-3 as if c is still a subsidiary of d holding that c recognizes no gain_or_loss when stock_options for d stock held by b that are received in connection with the spin-off are exercised therefore under the rationale of revrul_2002_1 it is appropriate to apply sec_1_1032-3 so that controlled will not have gain_or_loss recognition based solely on the information submitted we rule as follows assuming that no election under sec_83 has been made the adjustment of distributing restricted_stock into adjusted distributing restricted_stock with respect to remaining individuals will not result in income gain_or_loss to the remaining individuals assuming that no election under sec_83 has been made the substitution of distributing restricted_stock with controlled restricted_stock with respect to controlled employees will not result in income gain_or_loss to the controlled employees controlled will recognize no income gain_or_loss when the adjusted distributing options held by controlled employees that are received in connection with the distribution are exercised after the distribution plr-129256-05 plan x and controlled plan based on the foregoing facts and representations your authorized representatives have requested the following rulings a the shares of controlled acquired by plan x as a result of the distribution will be treated as securities_of_the_employer_corporation for purposes of excluding net_unrealized_appreciation from income under code sec_402 b distributing shares held by controlled plan will be treated as securities_of_the_employer_corporation for purposes of excluding net_unrealized_appreciation from income under code sec_402 c for purposes of determining net_unrealized_appreciation under code sec_402 the basis of distributing shares and controlled shares held by plan x immediately after the distribution will be determined by allocating the basis of the distributing shares held by plan x for the benefit of plan x participants immediately before the distribution between the distributing shares and the controlled shares in proportion to their relative fair market values in accordance with the rules of code sec_358 d for purposes of determining net_unrealized_appreciation under code sec_402 the basis of the distributing shares and controlled shares held by controlled plan for the benefit of controlled plan participants immediately after the distribution will be determined by allocating the basis of the distributing shares held by plan x immediately before the distribution between the distributing shares and the controlled shares in proportion to their relative fair market values in accordance with the rules of code sec_358 e in the event that plan x i exchanges controlled shares received pursuant to the distribution for distributing shares or ii disposes of such controlled shares and reinvests the proceeds in distributing shares within days or such longer period as the secretary may prescribe such exchange or disposition will constitute an exchange of securities_of_the_employer_corporation for purposes of code sec_402 so that the determination of net_unrealized_appreciation shall be made without regard to such exchange or disposition f to the extent that plan x exchanges controlled shares for distributing shares or disposes of controlled shares and reinvests the proceeds in distributing shares as described in e above the basis of the replacement distributing shares for purposes of determining net_unrealized_appreciation under code sec_402 will be equal to the basis of the controlled shares g in the event that controlled plan i exchanges distributing shares held by controlled plan for controlled shares or ii disposes of such distributing shares and reinvests the proceeds in controlled shares within days or such longer period as the plr-129256-05 secretary may prescribe such exchange or disposition will constitute an exchange of securities_of_the_employer_corporation for purposes of code sec_402 so that the determination of net_unrealized_appreciation shall be made without regard to such exchange or disposition and h to the extent that controlled plan exchanges distributing shares for controlled shares or disposes of distributing shares and reinvests the proceeds in controlled shares as described in g above the basis of the replacement controlled shares for purposes of determining net_unrealized_appreciation under code sec_402 will be equal to the basis of the distributing shares with respect to requested rulings a b c and d sec_402 of the code provides that in the case of a lump sum distribution that includes securities_of_the_employer_corporation unless a taxpayer elects otherwise there shall not be included in gross_income the net_unrealized_appreciation attributable to that part of the distribution that consists of securities_of_the_employer_corporation sec_402 of the code provides generally that the term securities_of_the_employer_corporation includes securities of a parent or subsidiary_corporation as defined in subsections e and f of sec_424 of the employer_corporation sec_1_402_a_-1 of the regulations provides that the amount of net_unrealized_appreciation in securities_of_the_employer_corporation that are distributed by the trust is the excess of the market_value of such securities at the time of distribution over the cost or other basis of such securities to the trust sec_1_402_a_-1 of the regulations sets forth the manner in which the cost or other basis to the trust of a distributed security of the employer_corporation is calculated for the purpose of determining the net_unrealized_appreciation on such security in revrul_73_29 1973_1_cb_198 securities of an employer_corporation held by its qualified_plan were transferred to the qualified_trust of an unrelated corporation when the first employer sold part of its business and transferred some of its employees to an unrelated corporation it was held that shares of stock of the seller corporation distributed from the buyer's qualified_trust to employees of the buyer corporation who are former employees of the seller corporation are securities_of_the_employer_corporation and will always be securities_of_the_employer_corporation even after those shares and the employees in whose accounts they were held were transferred to an unrelated corporation in the present case controlled is a wholly-owned subsidiary of distributing before the distribution therefore before the distribution controlled stock constitutes securities_of_the_employer_corporation within the meaning of sec_402 of the code pursuant to and simultaneously with the distribution controlled will cease to be a subsidiary of distributing in addition the controlled stock distributed to plan x and to controlled plan pursuant to the distribution will represent part of the pre-distribution value of the distributing stock plr-129256-05 accordingly with respect to requested ruling a we conclude that the shares of controlled acquired by plan x as a result of the distribution will be treated as securities_of_the_employer_corporation for purposes of excluding net_unrealized_appreciation from income under sec_402 of the code with respect to requested ruling b controlled plan will hold distributing stock after the distribution and will acquire controlled shares as a result of the distribution these distributing and controlled shares will represent the value of the distributing shares held by controlled plan immediately before the distribution although distributing and controlled will no longer be members of the same controlled_group_of_corporations as a result of the distribution in accordance with revrul_73_29 the distributing shares will continue to be considered securities_of_the_employer_corporation for purposes of code sec_402 accordingly with respect to requested ruling b we conclude that distributing shares held by controlled plan will be treated as securities_of_the_employer_corporation for purposes of excluding net_unrealized_appreciation from income under code sec_402 with respect to requested rulings c and d distributing has received a private_letter_ruling subject_to certain caveats that the distribution will qualify for nonrecognition_of_gain_or_loss to the shareholders of distributing under sec_355 and that the aggregate basis of the distributing common_stock and the controlled common_stock including any fractional interest in the controlled common_stock in the hands of shareholders of distributing common_stock immediately after the distribution will be the same as the aggregate basis of the distributing common_stock held by such shareholders immediately before the distribution allocated in proportion to the fair_market_value of each in accordance with sec_1_358-2 of the regulations sec_1_358-2 of the regulations provides that if as a result of a transaction under sec_355 a shareholder who owned stock of only one class before the transaction owns stock of two or more classes after the transaction then the basis of all the stock held before the transaction is allocated among the stock of all classes held immediately after the transaction in proportion to the fair market values of the stock of each class accordingly with respect to requested ruling c we conclude that for purposes of determining net_unrealized_appreciation under code sec_402 the basis of distributing shares and controlled shares held by plan x immediately after the distribution will be determined by allocating the basis of the distributing shares held by plan x for the benefit of plan x participants immediately before the distribution between the distributing shares and the controlled shares in proportion to their relative fair market values in accordance with the rules of code sec_358 we further conclude with respect to requested ruling d that for purposes of determining net_unrealized_appreciation under code sec_402 the basis of the plr-129256-05 distributing shares and controlled shares held by controlled plan for the benefit of controlled plan participants immediately after the distribution will be determined by allocating the basis of the distributing shares held by plan x immediately before the distribution between the distributing shares and the controlled shares in proportion to their relative fair market values in accordance with the rules of code sec_358 with respect to requested rulings e f g and h code sec_402 provides in pertinent part that for purposes of sec_402 in the case of any transaction in which either a the plan trustee exchanges the plan's securities_of_the_employer_corporation for other such securities or b the plan trustee disposes of securities_of_the_employer_corporation and uses the proceeds of such disposition to acquire securities_of_the_employer_corporation within days or such longer period as the secretary may prescribe the determination of net_unrealized_appreciation shall be made without regard to such transaction in the present case we have already indicated that controlled shares received by plan x and distributing shares received by controlled plan as a result of the distribution are securities_of_the_employer_corporation as defined in code sec_402 for purposes of sec_402 thus plan x’s exchange of its controlled shares for distributing shares and controlled plan’s exchange of its distributing shares for controlled shares would be an exchange of securities_of_the_employer_corporation additionally the disposition by plan x of controlled shares and the disposition by controlled plan of distributing shares followed by the reinvestment of the proceeds in distributing stock for plan x and in controlled stock for controlled plan would be a disposition of securities_of_the_employer_corporation followed by a reinvestment of the proceeds in securities_of_the_employer_corporation accordingly with respect to requested ruling e we conclude that in the event that plan x i exchanges controlled shares received pursuant to the distribution for distributing shares or ii disposes of such controlled shares and reinvests the proceeds in distributing shares within days or such longer period as the secretary may prescribe such exchange or disposition will constitute an exchange of securities_of_the_employer_corporation for purposes of code sec_402 so that the determination of net_unrealized_appreciation shall be made without regard to such exchange or disposition with respect to requested ruling f we conclude that to the extent that plan x exchanges controlled shares for distributing shares or disposes of controlled shares and reinvests the proceeds in distributing shares as described in e above the basis of the replacement distributing shares for purposes of determining net_unrealized_appreciation under code sec_402 will be equal to the basis of the controlled shares with respect to requested ruling g we conclude that in the event that controlled plan i exchanges distributing shares held by controlled plan for controlled shares or ii plr-129256-05 disposes of such distributing shares and reinvests the proceeds in controlled shares within days or such longer period as the secretary may prescribe such exchange or disposition will constitute an exchange of securities_of_the_employer_corporation for purposes of code sec_402 so that the determination of net_unrealized_appreciation shall be made without regard to such exchange or disposition with respect to requested ruling h we conclude that to the extent that controlled plan exchanges distributing shares for controlled shares or disposes of distributing shares and reinvests the proceeds in controlled shares as described in g above the basis of the replacement controlled shares for purposes of determining net_unrealized_appreciation under code sec_402 will be equal to the basis of the distributing shares this ruling letter is based on the assumption that plan x is and controlled plan will be qualified under code sec_401 and that their related trusts are tax exempt under sec_501 at all relevant times this ruling letter is also based on the assumption that the plan x stock fund and the controlled plan stock fund meet the requirements of code sec_4975 at all relevant times no opinion is expressed or implied concerning the tax consequences of the proposed transactions under any other provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular no opinion is expressed concerning the application of sec_409a of the code to the proposed transactions 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 plr-129256-05 a copy of this letter must be attached to any income_tax return to which it is relevant sincerely robert b misner senior technician reviewer executive compensation branch office of division counsel associate chief_counsel tax exempt government entities enclosure copy of 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 psi b01 plr-149867-06 date date ------------ ------------------------- -------------------------- --------------------------- legend x ------------------------------------------ a d state dear ---------------- this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on d under the laws of state a the president of x represents that the shareholders of x intended that x elect to be an s_corporation effective d however x inadvertently failed to timely file a form_2553 election by small_business_corporation accordingly x requests a ruling that it will be an s_corporation effective d 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 plr-149867-06 sec_1362 provides that 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 the 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 sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such election as timely made for such taxable_year and effective as of the first day of that year conclusion based solely on the facts and representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 effective d along with a copy of this letter with the appropriate service_center within days from the date of this letter then such election will be treated as timely made for d 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 including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s authorized representative sincerely audrey w ellis senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes