department of the treasury internal_revenue_service washington d c date number release date cc intl br3 tl-n-550-00 uilc internal_revenue_service national_office field_service_advice memorandum for from anne o’connell devereaux assistant to the branch chief cc intl br3 subject this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent legend taxpayer ussub business a issue whether for tax_year foreign_oil_and_gas_extraction_income fogei for purposes of the limitation of sec_907 of the internal_revenue_code includes income from extraction of oil_and_gas from wells located within the united_states conclusion tl-n-550-00 under the export_terminal_rule of sec_1_863-1 taxpayer’s income relating to extraction activities is u s source accordingly since a prerequisite of fogei under sec_907 of the code is that the relevant income must be foreign source none of the u s income can be fogei in addition because sec_1_907_c_-1 b requires that fogei relate to extraction from foreign rather than domestic wells the extraction income is not properly classified as fogei under sec_907 facts in taxpayer conducted through ussub business a which involved in part extraction of oil_and_gas from wells within the united_states taxpayer asserted in part in a disclosure statement attached to its federal_income_tax return that p ursuant to sec_1_863-1 b a portion of ussub’s oil_and_gas was sourced as derived from sources outside the united_states a portion of the income derived from sources outside the united_states was characterized as foreign_oil_and_gas_extraction_income in addition taxpayer asserted in that disclosure statement that t he regulation is contrary to the statute insofar as sec_907 defines fogei as ‘taxable income derived from sources without the united states’ and makes no reference as to the location of the oil_and_gas well sec_1_907_c_-1 has also had its validity questioned in 97_tc_30 wherein the regulation was found to have had a dubious statutory basis exam has challenged taxpayer’s characterization of extraction income as fogei law and analysis sec_907 of the code imposes an annual_limit on the amount of foreign taxes paid on fogei that can be credited under sec_901 against the u s tax_liability of u s taxpayers the limitation is a certain percentage of fogei the percentage limitation for corporate taxpayers for was the highest u s corporate tax_rate for the year foreign taxes paid on fogei in excess of the sec_907 limitation are not deductible as taxes or as royalties but may be carried back for two years or forward for five years subject_to the sec_907 limitation in the year to which the taxes are carried for fogei is defined in sec_907 of the code as taxable_income derived from sources without the united_states and its possessions from- a the extraction by the taxpayer or any other person of minerals from oil_and_gas wells or tl-n-550-00 b the sale_or_exchange of assets used by the taxpayer in the trade_or_business described in subparagraph a taxpayer’s assertion on its return that a portion of its income relating to the oil_and_gas extracted from the u s well was fogei is contrary to the export_terminal_rule of sec_1_863-1 which determines the source of gross_receipts relating to natural_resources under that rule applicable to taxpayer’s income equal to the fair_market_value at the export terminal is sourced in the u s the location of the natural_resources accordingly even assuming contrary to the regulatory requirement that fogei may include income from u s wells none of taxpayer’s extraction income would be fogei since it would not be foreign_source_income this analysis is consistent with the definition of gross_income at sec_1_907_c_-1 that provides that the gross_income from extraction is determined by reference to the fair_market_value of the minerals in the immediate_vicinity_of_the_well the export_terminal_rule splits income from sales of natural_resources at the export terminal and allocates gross_receipts from cross-border natural resource sales between sources within and without the united_states based on the fair_market_value of the goods at the export terminal sec_1_863-1 thus income attributable to the value of u s -produced natural_resources or income attributable to functions performed prior to goods leaving the u s export terminal will produce u s source income under this rule even income attributable to sales activity occurring before goods leave the export terminal would be sourced under the export_terminal_rule to the location of the natural_resources not under the title passage rule gross_receipts in excess of the fair_market_value at the export terminal excess gross_receipts are sourced to the country of sale sec_1_863-1 although not applicable based on the facts of this case special sourcing_rules apply when there is either prior production before the goods leave sec_1_863-1 provides in part as follows b natural resources- in general notwithstanding any other provision except to the extent provided in paragraph b of the section gross_receipts from the sale outside the united_states of products derived from the ownership or operation of any farm mine oil or gas well other natural_deposit or timber within the united_states must be allocated between sources within and without the united_states based on the fair_market_value of the product at the export terminal as defined in paragraph b iii of this section the source of gross_receipts equal to the fair_market_value of the product at the export terminal will be from sources where the farm mine well deposit or uncut timber is located tl-n-550-00 the export terminal or further production when goods reach a third country outside the country of sale sec_1_863-1 and accordingly none of the extraction income is foreign source and therefore none is fogei furthermore even if the operation of the sourcing_rules treated some portion of taxpayer’s income as foreign source such income would nonetheless not be included in fogei under the policies underlying sec_907 of the code as reflected in the regulations under that section prior to the enactment of sec_907 as part of the tax reduction act of 89_stat_26 u s oil companies operating in foreign countries were accumulating large amounts of unused_foreign_tax credits attributable to foreign oil_and_gas extraction activities in the treasury_department estimated that the excess_credits generated in that year might exceed dollar_figure billion h_r rept no 93d cong 2d sess these excess_credits were attributable to at least three factors first some of the oil producing countries had stated tax_rates in excess of the u s tax_rates second some foreign countries increased effective tax_rates by limiting deductions and by overstating gross_income by basing the tax on artificially high posted prices rather than on market prices h_r rept no 93d cong 2d sess finally foreign countries imposing the taxes generally retained the rights to the oil in the ground foreign countries could generate revenue from their oil_and_gas resources by demanding a royalty payment imposing an income_tax or collecting a combination of royalties and taxes in many instances when a u s_corporation began its oil_and_gas operations in a foreign_country it paid the foreign_country only a royalty because the country did not have a generally imposed income_tax when the foreign_country later sought to increase its revenue it often instituted an income_tax system rather than increased royalties over time the foreign_income_taxes grew while the royalty payments remained relatively constant this change to income taxes from royalties benefitted u s oil companies’ after-tax positions since income taxes are creditable against u s taxes while the royalties are only deductible in arriving at the u s tax_base since foreign governments acted as sovereigns in imposing taxes and as proprietors in collecting royalties what producers claimed as creditable income taxes may have been in fact deductible royalties congress bypassed the difficult issue of determining what is a deductible royalty and what is a creditable tax by imposing the sec_907 limitation on 2that report is the basic source of legislative intent since it marks the first time the house ways_and_means_committee proposed the sec_907 limitation in the sec_907 limitation was not added to the code until the subsequent year at which time it was accompanied by only a brief conference_report tl-n-550-00 creditability of fogei_taxes h_r rept no 93d cong 2d sess and in furtherance of this congressional intent sec_1_907_c_-1 defines fogei to include taxable_income or loss from sources outside of the united_states and possessions but only with regard to income from the extraction of oil_and_gas from wells located outside the united_states it is clear from the legislative_history that congress did not intend to include income related to extraction activities within the u s in the fogei limitation calculation to do so would in fact undermine that limitation since it would include income that would not be subject_to tax by a foreign_country and thereby improperly inflate the fogei limitation further the regulations provide at sec_1_907_c_-1 that the gross_income from extraction is determined by reference to the fair_market_value of the minerals in the immediate_vicinity_of_the_well for gross_income from transportation of the oil or gas from the immediate_vicinity_of_the_well and processing is foreign_oil_related_income fori and not fogei see sec_907 and b of the code fori includes downstream oil_and_gas trades_or_businesses such as the processing of minerals from oil or gas wells into primary products marketing and transporting the minerals or primary products or the sale_or_exchange of assets used in these trades_or_businesses where a market exists at the load port or at any other point but not in the immediate_vicinity_of_the_well sec_1_907_c_-1 provides that the facts and circumstances are to be used to make an allocation of the purchase_price between fogei and fori in the u s tax_court issued its decision in 97_tc_30 which involved two issues that are related to the issue presented here in part the tax_court invalidated prior sec_1_863-1 b that regulation provided that income derived from the ownership or operation of any oil or gas well located within the united_states and from the sale by the producer of the products from those wells without the united_states would ordinarily be considered u s source income however the regulations provided also that an apportionment of the income between u s and foreign sources may be made under sec_863 of the code if the district_director is shown that there are peculiar conditions of production and sale or other reasons that support such an allocation the tax_court invalidated sec_1_863-1 to the extent it conflicted with the court’s reading of the last sentence of sec_863 of the code which in the court’s view requires mixed-source income in all cross- border inventory sales under the allocation rule_of the invalidated for the taxable years at issue in the phillips petroleum sec_863 of the code provided that tl-n-550-00 regulation irrespective of the regulatory language limiting fogei to extraction from foreign wells taxpayer’s income would not have been fogei since the extraction income was from u s gas wells and therefore it would have been u s source effective for tax years beginning after the regulation invalidated by the tax_court in phillips petroleum was replaced by the export_terminal_rule regulation which is intended to produce results consistent with the tax court’s decision in phillips petroleum which requires mixed-source income in all cross-border sales the tax_court in phillips petroleum also rejected the service’s argument that foreign_oil_related_income fori as defined in sec_907 of the code as applicable for included covered activities only if the oil or gas was extracted from wells located outside the u s for the years at issue in that case sec_907 defined fori to include taxable_income derived from sources outside the united_states from fogei as well as from the downstream trades_or_businesses during those years those downstream activities were referred to as other fori to distinguish them from fogei although the issue involved in the case was with regard to phillips petroleum’s income from downstream activities the service in its argument to the court did not differentiate between fogei and other fori likewise the court in its opinion did not differentiate between the two types of income the tax_court rejected the service’s position since in its view sec_907 of the code on its face did not require that the oil_and_gas be extracted from foreign wells the court held that it was clear that the phrase derived from sources outside the united_states in sec_907 refers to the source of the taxable_income not the location of the oil or gas wells the service argued that congress was concerned with fori as it related to foreign extracted oil_and_gas however gains profits and income from the sale of personal_property produced in whole or in part by the taxpayer within and sold without the united_states shall be treated as derived partly from sources within and partly from sources without the united_states 4the issue of whether phillips petroleum’s income was fori was important for the years in issue because during those years sec_907 created a separate limitation under sec_904 for fori 5the court did not rule on the validity of sec_1_907_c_-1 tl-n-550-00 the court stated that congressional intent was not persuasive in light of the clear and unambiguous statutory language the court cited 93_tc_181 for the position that a bsent a compelling reason to disregard the plain language of the statute we must assume that congress meant what it said and that the statutory language should be taken at face value as stated above taxpayer asserted in a disclosure statement on its federal_income_tax return that the regulatory requirement in sec_1_907_c_-1 that in order for the income to be fogei that it must relate to extraction from foreign wells is invalid since that requirement is not in the code the regulatory requirement correctly reflects congressional intent as discussed above in enacting the fogei limitation of sec_907 of the code it is clear from the legislative_history to which we refer to above that congress did not intend to include income related to extraction activities within the u s in the fogei limitation calculation as stated above for the years at issue in phillips petroleum fogei was one component of fori the other component was the downstream income the other fori however in congress redefined fori to limit its scope to only downstream income by defining fogei in a separate paragraph congress did not revise the substance of the definition of fogei the decision focused on downstream activities of phillips petroleum as opposed to its extraction activities the house report on which the service relied and to which the tax_court referred in phillips petroleum indicates that congress was concerned with only extraction activities in foreign countries and the difficulty in distinguishing between royalty and tax_payments to foreign governments with regard to those extraction activities6 the regulatory definition of fogei at sec_1_907_c_-1 6h rept no discusses extraction activities of u s oil companies in foreign countries but makes no reference to similar activities in the u s among those references the report states that these companies conducting oil_and_gas drilling and development operations within a foreign_country have substantial excess_credits from oil production activities in part at least because of the difficulty under present law of distinguishing royalty payments from creditable taxes the difficulty in distinguishing between deductions and credits arises from the fact that in foreign countries the sovereign usually retains the rights to natural_resources in the ground therefore if a u s_corporation drills an oil well in a foreign_country the sovereign can demand a royalty payment from the u s_corporation or alternatively can impose a foreign tax tl-n-550-00 limiting it to oil_and_gas extracted from foreign wells is based on that congressional intent despite the factual distinction between extraction and downstream activities taxpayer is apparently asserting that phillips petroleum should apply here since the phrase derived from sources outside the united_states which that court held to refer to the source of the taxable_income and not the location of the well is found in both the definition of pre-1983 fori which included both fogei and other fori and in the definition of post-1982 fogei on a stand alone basis however to allow a taxpayer to increase its fogei limitation with extraction income on u s wells so undermines the integrity of that limitation so as to present the compelling reason as required by cal-maine foods to look beyond the clear language of the statute however as discussed above we do not reach the issue of the validity of the regulation because under the export_terminal_rule all of taxpayer’s extraction income is u s source case development hazards and other considerations it is possible that if faced with the issue the tax_court could invalidate the regulation definition in sec_1_907_c_-1 limiting fogei to extraction activities with regard to foreign wells since the phrase derived from sources outside the united_states which the court in phillips petroleum held to refer to the source of the taxable_income and not the location of the well is found in both the definition of pre-1983 fori which included both fogei and other fori and in the the report provides further that income from the extraction by the taxpayer or any other person includes the purchase and sale of crude petroleum products by the taxpayer in cases where the taxpayer is not performing the extraction operations in certain cases foreign countries do not impose a full tax on the person who extracts oil because the tax is paid_by another person to whom oil is sold within the country of production in such situations the tax_liability of the producer has been shifted to the purchaser accordingly for purposes of this provision sec_907 the purchaser is treated as having foreign_oil_and_gas_extraction_income also where the taxpayer is performing extraction operations within a country and in addition purchases crude_oil from the government of that country or a corporation owned by the government the income from that purchase and sale is to be treated as extraction income there are various forms or arrangements used today whereby u s petroleum companies which operate overseas extract their own_production of oil_and_gas and also purchase from the foreign government the foreign government’s share of the oil_and_gas production tl-n-550-00 definition of post-1982 fogei on a stand alone basis the court could say the statute is clear on its face and not refer to legislative_history which as we state above is overwhelmingly persuasive in support of the regulation therefore it is very important to properly limit taxpayer’s foreign_source_income from its extraction activities on the u s wells pursuant to the export_terminal_rule of sec_1_863-1 please call if you have any further questions anne o’connell devereaux assistant to the branch chief cc intl br3


internal_revenue_service number release date index number ---------------------------- ------------------------------------------------ ------------------------------------------------- -------------------------- ---------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-149172-04 date january legend x ------------------------------------------------------------------------------------------------------ ----------------------- ----------------------- y ------------------------------------------------------------------------------------------------------ entity --------------------------------------- ---------------------- d1 dear ------------ this letter responds to a letter dated date and subsequent correspondence from your authorized representative on behalf of x requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations for y to be classified as an association_taxable_as_a_corporation for federal tax purposes facts membership interests in y a limited_liability_company effective d1 prior to d1 y was classified as a partnership for federal tax purposes x intended to elect to treat y as an association_taxable_as_a_corporation effective d1 however due to inadvertence form_8832 entity classification election was not filed timely according to the information submitted x is an entity x purchased all of the plr-149172-04 law and analysis sec_301_7701-3 provides guidance on the classification of a domestic eligible_entity for federal tax purposes under sec_301_7701-3 unless it elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclusions requirements of sec_301_9100-3 have been satisfied as a result y is granted an extension of time of days from the date of this letter to file form_8832 and elect to be classified as an association_taxable_as_a_corporation for federal tax purposes effective based on the facts submitted and representations made we conclude that the this ruling is directed only to the taxpayer on whose behalf it was requested except as specifically set forth above no opinion is expressed or implied as to plr-149172-04 d1 a copy of this letter should be attached to the form_8832 a copy is attached for that purpose the federal tax consequences of the transaction described above under any other provision of the code sec_6110 provides that it may not be used or cited as precedent letter to x’s authorized representative under a power_of_attorney on file with this office we are sending a copy of this heather c maloy associate chief_counsel passthroughs and special industries sincerely s enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc psi b01-plr-109334-00 date date legend portfolio trust fund company manager state state declaration date dollar_figurea dollar_figureb this letter responds to your submission of date together with subsequent correspondence in which you requested certain rulings under sec_704 sec_721 and sec_7704 of the internal_revenue_code facts portfolio is a sub-trust of trust which was organized as a business_trust under the laws of state pursuant to declaration trust is registered as an investment_company under the investment_company act of act portfolio is a separate business_trust under the laws of state which recognize that separate trusts established under a single instrument with common trustees are independent legal entities portfolio is registered as an investment_company under the act portfolio and fund represent that portfolio is classified as a partnership under sec_301_7701-3 of the procedure and administration regulations portfolio serves as an investment vehicle for fund fund is a separate series of company a state corporation that is an open-end management investment_company under the act fund invests substantially_all of its assets available for investment in portfolio and has the same investment objective as portfolio fund is treated as a corporation for federal_income_tax purposes and has elected or will elect to be taxed as a regulated_investment_company ric under part i of subchapter_m of chapter of subtitle a of the code fund intends to be operated in a manner which would permit it plr-109334-00 to continue to qualify as a ric portfolio was formed on date when manager became a partner in portfolio in exchange for cash of dollar_figurea and fund became a partner in portfolio in exchange for securities and other assets with a fair_market_value of dollar_figureb manager is the investment_advisor for fund beneficial interests in portfolio are issued solely in private_placement transactions that do not involve any public offering within the meaning of sec_4 of the securities act of as amended act portfolio will not register its shares under the act because shares in portfolio may be issued solely in private_placement transactions that do not involve any public offering within the meaning of sec_4 of the act investments in portfolio only may be made by investment companies or certain other entities that are accredited investors within the meaning of regulation d under the act the interest of each partner in portfolio is limited to the net assets of portfolio and does not extend to the assets of any other investment vehicles of trust portfolio has not invested in any of trust’s other investment vehicles nor are any of trust’s other investment vehicles invested in portfolio except as required by sec_704 and sec_1_704-1 each partner will be allocated a pro_rata share of partnership income gain loss deduction and credit in accordance with the regulations under sec_704 each partner’s initial capital_account balance will be the amount of money and the fair_market_value of the property contributed to portfolio by the partner under sec_1_704-1 portfolio will revalue its investment portfolio to fair_market_value as of the close of each day portfolio will adjust each partner’s capital_account to reflect the partner’s share of the net change in the value of its portfolio of securities from the close of the prior day to the close of the current day portfolio intends to qualify as a securities_partnership under sec_1_704-3 the number of partners in portfolio will be limited to or fewer calculated pursuant to sec_1_7704-1 portfolio has made the following additional representations fund has contributed either cash and or a portfolio of assets that meets the diversification requirements of sec_1_351-1 as further defined in sec_368 for purposes of this test government securities are not included within the meaning of securities under sec_368 but are included within the meaning of total assets in sec_368 the assets contributed by fund other than cash will consist of readily marketable_stock and securities as defined in sec_1_351-1 prior to the taxpayer_relief_act_of_1997 all cash received by portfolio will be invested in readily marketable_stock and plr-109334-00 securities as defined in sec_1_351-1 prior to the taxpayer_relief_act_of_1997 the burden of making sec_704 allocations separate from reverse sec_704 allocations is substantial law and analysis ruling portfolio and fund have requested a ruling that portfolio will not be a publicly_traded_partnership within the meaning of sec_7704 sec_7704 provides that a publicly_traded_partnership is treated as a corporation sec_7704 and sec_1_7704-1 provide that for purposes of sec_7704 the term publicly_traded_partnership means any partnership if interests in the partnership are traded on an established_securities_market or readily_tradable on a secondary market or the substantial equivalent thereof sec_1_7704-1 provides that interests in a partnership are readily_tradable on a secondary market or the substantial equivalent thereof if taking into account all of the facts and circumstances the partners are readily able to buy sell or exchange their partnership interests in a manner that is comparable economically to trading on an established_securities_market sec_1_7704-1 provides that interests in a partnership are not readily_tradable on a secondary market or the substantial equivalent thereof for purposes of sec_7704 if i all interests in the partnership were issued in a transaction or transactions that was not required to be registered under the act and ii the partnership does not have more than partners at any time during the taxable_year sec_1_7704-1 provides that for purposes of sec_1_7704-1 a person owning an interest in a partnership grantor_trust or s_corporation flow-through_entity that owns directly or through other flow-through entities an interest in the partnership is treated as a partner in the partnership only if i substantially_all of the value of the beneficial owner’s interest in the flow-through_entity is attributable to the flow-through entity’s interest direct or indirect in the partnership and ii a principal purpose of the use of the tiered arrangement is to permit the partnership to satisfy the 100-partner limitation of sec_1_7704-1 portfolio has represented that the number of partners in portfolio will be limited to or fewer calculated pursuant to sec_1_7704-1 no interest in portfolio has been or will be issued in a transaction or transactions required to be registered under the act accordingly portfolio will not be a publicly_traded_partnership within the meaning of sec_7704 plr-109334-00 ruling portfolio and fund have requested a ruling that portfolio and fund will not recognize gain_or_loss under sec_721 and sec_351 as a result of the contribution of assets by fund to portfolio sec_721 states generally that no gain_or_loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership sec_721 states that sec_721 shall not apply to gain realized on a transfer of property to a partnership that would be treated as an investment_company within the meaning of sec_351 if the partnership were incorporated treas reg c provides that a transfer of property will be considered to be a transfer to an investment_company if i the transfer results directly or indirectly in diversification of the transferor’s interests and ii the transferee is among other possibilities a corporation more than percent of the value of whose assets are held for investment a transfer will not result in diversification and therefore not constitute a transfer to an investment_company if a transferor transfers a diversified portfolio of stocks and securities as determined under sec_368 applying the relevant provisions of sec_368 but treating government securities as part of total assets but not as securities of an issuer sec_1_351-1 after applying the law to the facts submitted and the representations made we conclude that portfolio and fund will not recognize gain_or_loss under sec_721 and sec_351 as a result of the contributions of assets by fund to portfolio we express no opinion about whether subsequent transfers of stock and securities to portfolio by any transferor will affect the tax consequences of the original transfers ruling portfolio and fund have requested permission to aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for the purpose of making sec_704 and reverse sec_704 allocations sec_704 provides that income gain loss and deduction with respect to property contributed to the partnership by a partner is shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair_market_value at the time of contribution sec_1_704-3 states that the purpose of sec_704 is to prevent the shifting of tax consequences among partners with respect to precontribution gain_or_loss under sec_704 a partnership must allocate income gain loss and deductions with respect to property contributed by a partner to the partnership so as to take into account any variation between the adjusted tax basis of the property and its fair market plr-109334-00 value at the time of the contribution this allocation must be made using a reasonable method that is consistent with the purpose of sec_704 sec_1_704-3 provides that the principles of sec_1_704-3 apply to allocations with respect to property for which differences between book_value and adjusted tax basis are created when a partnership revalues partnership property under sec_1_704-1 reverse sec_704 allocations a partnership that makes allocations with respect to revalued property must use a reasonable method that is consistent with the purposes of sec_704 and c sec_1_704-3 indicates that sec_704 generally applies on a property-by- property basis therefore in determining whether there is a disparity between adjusted tax basis and fair_market_value the built-in gains and built-in losses on items of contributed or revalued property generally cannot be aggregated sec_1_704-3 sets forth a special rule allowing certain securities partnerships to make reverse sec_704 allocations on an aggregate basis specifically sec_1_704-3 provides that for purposes of making reverse sec_704 allocations a securities_partnership may aggregate gains and losses from qualified_financial_assets using any reasonable approach that is consistent with the purposes of sec_704 once a partnership adopts an aggregate approach the partnership must apply the same aggregate approach to all of its qualified_financial_assets for all taxable years in which the partnership qualifies as a securities_partnership sec_1_704-3 defines a securities_partnership as a partnership that is either a management company or an investment_partnership and that makes all of its book allocations in proportion to the partners’ relative book capital accounts except for reasonable special allocations to a partner that provides management services or investment advisory services to the partnership under sec_1_704-3 a partnership is a management company if it is registered as a management company under the act sec_1_704-3 defines qualified_financial_assets as any personal_property including stock that is actively_traded as defined in sec_1_1092_d_-1 defining actively_traded property for purposes of the straddle rules for a management company qualified_financial_assets also include the following even if not actively_traded shares of stock in a corporation notes bonds debentures or other evidences of indebtedness interest rate currency or equity notional_principal_contracts evidences of an interest in or derivative financial instruments in any security currency or commodity including any option forward or futures_contract or short position or any similar financial_instrument sec_1_704-3 and e v describe two approaches to making aggregate reverse sec_704 allocations that are generally reasonable -- the partial netting approach and the full netting approach however sec_1_704-3 provides that other approaches may be reasonable in appropriate circumstances plr-109334-00 sec_1_704-3 provides that an allocation method or combination of methods is not reasonable if the contribution of property or event that results in reverse sec_704 allocations and the corresponding allocation of tax items with respect to the property are made with a view to shifting the tax consequence of built-in_gain or loss among the partners in a manner that substantially reduces the present_value of the partners' aggregate tax_liability furthermore sec_1_704-3 provides that the character and other tax_attributes of gain_or_loss allocated to the partners under an aggregate approach must a preserve the tax_attributes of each item of gain_or_loss realized by the partnership b be determined under an approach that is consistently applied and c not be determined with a view to reducing substantially the present_value of the partners' aggregate tax_liability portfolio has represented that its allocations have complied and will comply with sec_1_704-3 the aggregation rule_of sec_1_704-3 applies only to reverse sec_704 allocations therefore a securities_partnership using an aggregate approach must generally account for any built-in_gain or loss from contributed_property separately the preamble to sec_1_704-3 explains that the final regulations do not authorize aggregation of built-in gains and losses from contributed_property with built-in gains and losses from revaluations because this type of aggregation can lead to substantial distortions in the character and timing of income and loss recognized by contributing partners t d 1995_1_cb_120 however the preamble also recognizes that there may be instances in which the likelihood of character and timing distortions is minimal and the burden of making sec_704 allocations separate from reverse sec_704 allocations is great consequently sec_1 e iii authorizes the commissioner to permit by published guidance or letter_ruling aggregation of qualified_financial_assets for purposes of making sec_704 allocations in the same manner as that described in sec_1_704-3 in this case portfolio will use the partial netting approach described in sec_1_704-3 portfolio’s burden of making sec_704 allocations separate from reverse sec_704 allocations is represented to be substantial in addition the likelihood that this type of aggregation could be abused by portfolio and its partners is minimal it is represented that fund is a publicly_offered_regulated_investment_company as defined in sec_67 and sec_1_67-2t after applying the relevant law to the facts presented and the representations made we conclude that portfolio may aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio by fund with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for purposes of making sec_704 and reverse sec_704 allocations provided that a contribution or revaluation of property and the corresponding allocation of tax items with respect to the property are not made with a view to shifting the tax consequences of built-in_gain or plr-109334-00 loss among the partners in a manner that substantially reduces the present_value of the partners’ aggregate tax_liability except as specifically ruled upon above we express no opinion on the federal tax consequences of the transactions described above under any other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction s that are not specifically covered by the above rulings ruling three is limited to allocations of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets made under sec_704 sec_704 and sec_1_704-3 specifically no opinion is expressed concerning i whether fund qualifies as a ric that is taxable under subchapter_m part i of the code ii allocations of items other than items of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets or iii the aggregation of built-in gains and losses from qualified_financial_assets contributed to portfolio other than those described above in addition portfolio must maintain sufficient records to enable it and its partners to comply with sec_704 and sec_737 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to portfolio and portfolio’s second authorized representative sincerely david r haglund senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court ed m fisher petitioner v commissioner of internal revenue respondent docket no filed date ed m fisher pro_se william r davis jr for respondent memorandum opinion fay judge respondent determined deficiencies in and additions to petitioner's federal_income_tax as follows year deficiency dollar_figure big_number big_number big_number additions to tax sec_6654 a sec dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated the issues for decision after concessions by the parties are whether petitioner is liable for tax on income arising from nonemployee compensation_for the and tax years we hold that he is whether petitioner is liable for self-employment_tax on his nonemployee compensation during the and tax years we hold that he is whether petitioner is liable for additions to tax under sec_6651 for failure_to_file for the and tax years we hold that he is whether petitioner is liable for additions to tax under sec_6654 for failure to pay estimated_tax for the and tax years we hold that he is whether petitioner is liable for a penalty under sec_6673 we hold that he is some of the facts have been stipulated the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time he filed his petition petitioner resided in branson missouri petitioner was married at all times during the years in issue petitioner did not file federal_income_tax returns for any of the years in issue on date petitioner filed a petition with this court respondent filed her answer on date on date petitioner filed petitioner's motion to amend petition on date petitioner filed petitioner's amended petition the amended petition concedes the receipt of the dividend and interest_income attributed to petitioner in the notice_of_deficiency petitioner indicates that he received in dollar_figure in dividend income in dollar_figure in dividend income and dollar_figure in interest_income in dollar_figure in interest_income and in dollar_figure in interest_income the parties agree that petitioner received the following amounts of nonemployee compensation_for the years indicated petitioner received dollar_figure in nonemployee compensation from at t technologies in petitioner received dollar_figure in nonemployee compensation from at t technologies in peti- tioner received dollar_figure in nonemployee compensation from integral technologies in petitioner received dollar_figure in nonemployee compensation from southern california gas in petitioner received dollar_figure in nonemployee compensation from landbase corp 1petitioner claims that portions of all the amounts received as nonemployee compensation were reimbursement of travel_expenses however petitioner presented no evidence to support such a claim in petitioner received dollar_figure in nonemployee compensation from geographic general in petitioner received dollar_figure in nonemployee compensation from the university of wisconsin in petitioner received dollar_figure in nonemployee compensation from xerox corp in the parties agree that petitioner incurred deductible travel_expenses as follows which were not taken into account in the notice_of_deficiency in date petitioner incurred deductible travel_expenses of dollar_figure further during in connection with his relationship with xerox corp petitioner incurred dollar_figure in deductible travel_expenses on date this case was called for trial in denver colorado at trial petitioner failed to offer any evidence to support his case documentary or testimonial instead he attempted to pursue tax_protester arguments that have been long rejected by this court on brief petitioner argues that the tax respondent is attempting to impose on his nonemployee compensation earned as a computer systems analyst is an excise_tax for which he is not responsible petitioner claims that the internal_revenue_service by collecting this excise_tax and treating him as a taxpayer exceeds its statutory authority petitioner' sec_2this amount of dollar_figure reflects a concession by respondent who originally asserted that petitioner received dollar_figure in nonemployee compensation_for the tax_year arguments based on these theories have no merit 80_tc_1111 petitioner's argument that he does not hold the status of taxpayer is frivolous 783_f2d_934 9th cir gross_income under sec_61 means all income from whatever source derived and includes income realized in any form whether in money property or services under sec_1_61-1 income_tax regs gross_income means all income from whatever source derived unless excluded by law since petitioner was a citizen and resident_of_the_united_states and earned his income in the united_states his income comes within the general defini- tion of gross_income under sec_61 there is no exclusion from taxation for such income moreover under sec_7701 petitioner was a person and was required under sec_6012 to file federal_income_tax returns and pay the income_tax due thereon the authority of congress to impose and collect federal income taxes from individuals has long been upheld as constitu- tional 366_us_213 o'malley v woodr307_us_277 247_us_339 petitioner contends that he was a citizen of the republic of colorado during the years in issue and not a citizen_of_the_united_states this argument is no more than a stale tax_protester contention that has long been dismissed summarily by this court and all other courts that have heard such contentions rowlee v commissioner supra petitioner is a taxpayer and is subject_to the income_tax laws of the united_states 939_f2d_499 7th cir 755_f2d_517 7th cir the court rejects this and other tax_protester types of arguments raised by petitioner as being frivolous and without merit petitioner has the burden_of_proof with respect to the underlying deficiencies and each of the additions to tax rule a 38_tc_192 peti- tioner has not presented any evidence rebutting his liability for the deficiencies and additions to tax determined by respondent we therefore sustain all of respondent's determinations at the trial respondent made a motion under sec_6673 asking that we order petitioner to pay the united_states a penalty in an appropriate amount under sec_6673 this court is permitted to impose a penalty in an amount up to dollar_figure where the proceedings have been instituted or maintained by the taxpayer primarily for delay where the taxpayer's position in the proceeding is frivolous or groundless or where the taxpayer unreasonably failed to pursue available administrative remedies 82_tc_235 the record plainly demonstrates that petitioner well knew that his income was taxable his arguments have been rejected in many decisions by this court in the recent past we conclude that petitioner is maintaining his action in this court primarily for delay and that his position in this proceeding is frivolous and groundless accordingly a penalty is awarded to the united_states in the amount of dollar_figure to reflect concessions an appropriate order will be issued and decision will be entered under rule


t c memo united_states tax_court michael a conviser and barbara l conviser petitioners v commissioner of internal revenue respondent docket no filed date robert a wherry jr for petitioners robert a varra for respondent memorandum opinion colvin judge respondent determined that petitioners are liable for deficiencies in federal_income_tax of dollar_figure for dollar_figure for and dollar_figure for after concessions the sole issue for decision is whether discharge_of_indebtedness income from an s_corporation increases petitioners' basis in that corporation we hold that it does -2 - not see 110_tc_114 on appeal 10th cir date section references are to the internal_revenue_code rule references are to the tax_court rules_of_practice and procedure background the parties submitted this case fully stipulated under rule a petitioners petitioners lived in aspen colorado when they filed the petition in this case b mikama inc petitioners were shareholders in mikama inc mikama from to mikama was an s_corporation during the years in issue petitioners owned a one-third interest in mikama during the years at issue dove canyon from to mikama was a general_partner with a percent interest ina limited_partnership known as dove canyon co dove canyon dove canyon was formed in to develop acres of real_property in orange county california after it bought the land dove canyon built the major improvements on the property including roads a sewage system a golf course a clubhouse and a swim and tennis club and sold parcels of the development to builders to build homes on lots for sale to individuals dove canyon sold the last parcel in -3- discharge_of_indebtedness income dove canyon made a profit from its activities in its first years later a downturn in the california real_estate market inflation and increased interest costs resulted in significant losses on the project in and banks forgave a substantial amount of debt owed by dove canyon thus dove canyon realized dollar_figure in discharge_of_indebtedness income in and dollar_figure in cost overruns and a decline in real_estate values caused dove canyon's debts to exceed the value of its assets the income_from_discharge_of_indebtedness was included in dove canyon's taxable_income since in the case of partnerships the insolvency_exception applies at the partner level see sec_108 b d mikama's allocable share of discharge_of_indebtedness income from dove canyon was dollar_figure for and dollar_figure for in mikama excluded dollar_figure from gross_income under sec_108 b in mikama excluded dollar_figure from gross_income because sec_108 limits the sec_108 a b exclusion to the amount by which the taxpayer is insolvent mikama's assets in and were its partnership_interest in dove canyon and a small amount of cash mikama had cash before the discharge_of_indebtedness of dollar_figure in and dollar_figure in -4-- petitioners' share of the discharge_of_indebtedness income petitioners’ pro_rata share as one-third shareholders in mikama of dove canyon's discharge_of_indebtedness income was dollar_figure for and dollar_figure for petitioners' allocable share of the mikama loss was dollar_figure for dollar_figure for and dollar_figure for petitioners' basis in mikama petitioners increased their basis in mikama by the amount of their discharge_of_indebtedness income and claimed losses from mikama of dollar_figure in dollar_figure in and dollar_figure in petitioners also carried over losses of dollar_figure to and dollar_figure to petitioners' basis in mikama without taking into account the discharge_of_indebtedness income was dollar_figure on date dollar_figure on date and dollar_figure on date the parties agree that if petitioners may not increase their basis in mikama by their share of the dove canyon discharge_of_indebtedness income petitioners' deficiencies in income_tax are dollar_figure for dollar_figure for and dollar_figure for the parties also agree that if petitioners prevail and as a result may increase their basis in mikama by the discharge_of_indebtedness income no deficiencies in income_tax are due from petitioners for and discussion in nelson v commissioner supra we held that a shareholder of an insolvent s_corporation may not increase his or her basis -5- to reflect discharge_of_indebtedness income to the s_corporation the parties agree that nelson controls here accordingly petitioners may not increase their basis in mikama by their share of the dove canyon discharge_of_indebtedness income to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number -------------------------------- -------------------------------- -------------------------- ------------------------------ - department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b01 - plr-119641-04 date june legend x --------------------------------------------------- date dear --------------- ----------------------- -------------------------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting relief under ' b of the internal_revenue_code according to the information submitted x was incorporated on date the facts shareholders of x intended for x to be an s_corporation effective date but the election to be treated as an s_corporation was not timely filed x requests a ruling under sec_1362 that it will be treated as an s_corporation effective date 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 sec_1362 provides in relevant part 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 under ' b however if an s election is made after the first two and one-half months of plr-119641-04 a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no ' a 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 ' b shall not apply x did not file an election to be treated as an s_corporation under ' a x has however established reasonable_cause for not making a timely s election and is entitled to relief under ' b conclusion except as expressly provided herein no opinion is expressed or implied in accordance with the power_of_attorney on file with this office a copy of this this ruling is directed only to the taxpayer s requesting it sec_6110 of based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 effective date with a copy of this letter attached to the relevant service_center concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the code provides that it may not be used or cited as precedent letter is being sent to your authorized representative the rulings contained in this letter are based upon information and plr-119641-04 representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely dianna k miosi chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------------------------- -------------------------------------- --------------------------------- ----------------------------------------- in re ----------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc ita b02 plr-106588-19 date august ty taxable_year ending --------------------------- legend taxpayer a date1 ------ ----------------------------------------------- -------------------------------------------------- ---------------------------- dear -------------------- this is in response to a letter dated date in which taxpayer is requesting consent to revoke its election under sec_163 of the internal_revenue_code to treat a certain amount of qualified_dividend_income as investment_income for ty in addition taxpayer is requesting an extension of time to make a late election to treat a lesser amount of qualified dividends as investment_income under sec_163 for ty this request is made in accordance with sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations facts and representations taxpayer represents the following taxpayer is a_trust that files form_1041 u s income_tax return for estates and trusts taxpayer uses the calendar_year as its taxable_year taxpayer filed form_1041 for ty on form_4952 attached to form_1041 taxpayer elected to treat a certain amount of qualified_dividend_income as investment plr-106588-19 income for purposes of the investment_interest expense deduction taxpayer made the decision to elect to include that certain amount of qualified_dividend_income as investment_income based upon information received on a schedule_k-1 from a on date1 a issued an amended schedule_k-1 to taxpayer for ty showing a decrease in the amount of ordinary and qualified dividends the revisions in the schedule_k-1 have a substantial impact on taxpayer’s tax calculations therefore taxpayer is requesting consent to revoke its election under sec_163 to treat a certain amount of qualified_dividend_income as investment_income for ty in addition taxpayer is requesting an extension of time to make a late election to treat a lesser amount of qualified dividends as investment_income under sec_163 for ty law and analysis sec_163 of the internal_revenue_code provides that in the case of a taxpayer other than a corporation the amount allowed as a deduction for investment_interest for any taxable_year shall not exceed the net_investment_income of the taxpayer for the taxable_year sec_163 provides that net_investment_income means the excess of investment_income over investment_expenses sec_163 defines investment_income sec_163 states that investment_income shall include qualified_dividend_income only to the extent the taxpayer elects to treat such income as investment_income for purposes of this subsection sec_1_163_d_-1 provides that as a consequence the qualified_dividend_income taken into account as investment_income is not eligible to be taxed at the favorable capital_gain rate sec_1_163_d_-1 provides that the election to treat qualified_dividend_income as investment_income must be made on or before the due_date including extensions of the income_tax return for the taxable_year in which the income is recognized sec_1_163_d_-1 provides that the election to treat qualified_dividend_income as investment_income is revocable with the consent of the commissioner sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the plr-106588-19 federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides that requests for extensions of time for regulatory elections under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that in general a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer i requests relief before the failure to make the regulatory election is discovered by the service ii failed to make the election because of intervening events beyond the taxpayer’s control iii failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer is deemed to have not acted reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section sec_301_9100-3 provides special rules for accounting_method regulatory elections sec_301_9100-3 provides that the interests of the government are deemed prejudiced except in unusual or compelling circumstances if the accounting_method regulatory election for which relief is requested is subject_to the advance consent procedures for method changes requires a sec_481 adjustment would permit a change from an impermissible method_of_accounting that is an issue under consideration by examination or any other setting or provides a more favorable method_of_accounting if the election is made by a certain date or taxable_year plr-106588-19 taxpayer’s election is a regulatory election as defined in sec_301_9100-1 because the due_date of the election is prescribed in sec_1_163_d_-1 of the income_tax regulations the commissioner has the authority under sec_301_9100-1 and sec_301 to permit taxpayer to revoke a regulatory election and to grant an extension of time to file a late regulatory election conclusion based upon our analysis of the facts and representations provided taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government therefore the requirements of sec_301_9100-1 and sec_301_9100-3 have been met pursuant to sec_1_163_d_-1 taxpayer is granted consent to revoke its election under sec_163 to treat a certain amount of qualified_dividend_income as investment_income for ty taxpayer is granted an extension of days from the date of this letter to make a late election to treat a lesser amount of qualified dividends as investment_income for ty caveats the rulings contained in this letter are based on information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by appropriate parties 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 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively a taxpayer filing its return electronically may satisfy this requirement by attaching a statement to its return that provides the date and control number of the letter_ruling in accordance with the provisions of the power_of_attorney currently 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 to the appropriate operating division director enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 plr-106588-19 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 sincerely yours _______________________________ david b silber acting senior technician reviewer branch office of associate chief_counsel income_tax accounting enclosure copy for sec_6110 purposes 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-137427-01 date date legend x d1 country dear this letter responds to your letter dated date and subsequent correspondence on behalf of x requesting an extension of time for x to elect to be treated as an association_taxable_as_a_corporation under sec_301_7701-3 of the procedure and administration regulations facts according to the information submitted x was formed on d1 in country the founders of x intended for x to elect to be classified for federal tax purposes as an association_taxable_as_a_corporation under sec_301_7701-3 however due to inadvertence x's form_8832 entity classification election was not filed correctly law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with more than one owner can elect to be classified as an association or as a partnership sec_301_7701-3 provides that unless the entity elects otherwise a plr-137427-01 foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 entity classification election with the applicable service_center sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic_extension s of time for making certain elections but does not apply to elections under sec_301_9100-3 sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusions based solely on the facts submitted and the representations made we find that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of sixty days from the date of this letter to make an election to be treated as association_taxable_as_a_corporation for federal tax purposes effective d1 x should make the election by filing a properly executed form_8832 and attaching a copy of this letter to the election a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code plr-137427-01 this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely yours s paul f kugler associate chief_counsel passthroughs and special industries enclosures cc