internal_revenue_service department of the treasury number release date index number 468a 468a washington dc person to contact telephone number refer reply to cc psi plr-113167-01 date date re request for a revised schedule of ruling amounts taxpayer parent plant location act state commission a commission b director fund dear this letter responds to the request of taxpayer dated date for a revised schedule of ruling amounts in accordance with sec_1_468a-3 of the income_tax regulations taxpayer was previously granted a revised schedule of ruling amounts on date information for the schedule of ruling amounts was submitted on behalf of the taxpayer pursuant to sec_1_468a-3 taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer is under the audit jurisdiction of the director taxpayer is percent owned by parent and files a consolidated federal_income_tax return with parent taxpayer has an ownership_interest of percent and a leasehold interest of percent for a total interest of percent in plant which is situated at location plant’s operating license expires in taxpayer is subject_to the jurisdiction of commission a which covers percent of the taxpayer’s total electric sales and commission b which covers percent for a total of percent these percentages may vary slightly from year to year the estimated base cost for decommissioning the plant is based on an plr-113167-01 independent study and is premised on the decon method on act became effective in state act provides for a transition to competition in state with respect to the generation and sale of electricity act allows electric utilities including taxpayer to recover their stranded costs through a competitive transition charge ctc imposed upon consumers of electricity in the utility’s service area for a period of the ctc provides for the recovery_of stranded costs including nuclear decommissioning costs for plant commission a in case no effective authorized nuclear decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes for the plant in the amount of and estimated an after- tax_rate of return on assets of percent through and percent thereafter commission also determined the total estimated cost of decommissioning to be this base cost escalated using an estimated inflation rate of percent results in an estimated future decommissioning cost of the tax and investment changes made to sec_468a of the internal_revenue_code by section of the energy policy act of were not taken into consideration when estimating these costs ruling amounts for commission b were not requested and are not specifically reviewed herein there are no proceedings pending before commission a or commission b that may result in an increase or decrease in the amount of decommissioning costs for the plant to be included in taxpayer’s cost of service for ratemaking purposes the funding_period for the plant extends from and the level_funding limitation period for the plant extends from the estimated period for which the fund will be in effect is the estimated_useful_life of the plant is thus the taxpayer has calculated its qualifying percentage to be percent sec_468a of the internal_revenue_code provides that a taxpayer may elect to deduct the amount of payments made to a qualified nuclear decommissioning fund however sec_468a limits the amount_paid into the fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to the fund that is included in the taxpayer’s cost of service for ratemaking purposes for the taxable_year or the ruling_amount applicable to that year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any taxable_year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the plant this term is further defined to plr-113167-01 include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the taxable_year if the payment is made on account of the taxable_year within 2½ months after the close of the taxable_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 is a taxpayer that has a qualifying interest in a nuclear power plant as defined under sec_1_468a-1 a qualifying interest is a direct ownership_interest including an interest held as a tenant in common or joint tenant or under certain conditions a leasehold interest in any portion of a nuclear power plant sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any taxable_year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such taxable_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the taxable years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission s in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes taking into account amounts that are otherwise required to be included in the taxpayer's income under sec_88 of the code and the regulations thereunder each schedule of ruling amounts shall be based on the public_utility commission's reasonable assumptions concerning i the after-tax rate of return to be earned by the amounts collected for decommissioning ii the total estimated cost of decommissioning the nuclear power plant and iii the frequency of contributions to the nuclear decommissioning fund for a taxable_year sec_1_468a-3 of the regulations requires the internal_revenue_service to provide a schedule of ruling amounts that is identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of this plr-113167-01 section sec_1_468a-3 of the regulations provides that the ruling_amount specified in a schedule of ruling amounts for any taxable_year in the level_funding limitation period shall not be less than the ruling_amount specified in such schedule for any earlier taxable_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the funding_period for a nuclear decommissioning fund is the period that begins on the first day of the first taxable_year for which a deductible payment is made or deemed to be made to such nuclear decommissioning fund and ends the later of i the last day of the taxable_year that includes the estimated date on which decommissioning costs of the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer’s cost of service for ratemaking purposes or ii the last day of the taxable_year that includes the estimated date on which the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer’s rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer’s share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning the plant multiplied by the taxpayer’s qualifying interest in the plant sec_1_468a-3 of the regulations provides that the qualifying percentage for any nuclear decommissioning fund is equal to the fraction the numerator of which is the number of taxable years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of taxable years in the estimated_useful_life of the applicable nuclear power plant sec_1_468a-3 of the regulations provides that the estimated period plr-113167-01 for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer’s rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer’s rate base sec_1_468a-3 of the regulations provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer’s rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer’s rate base sec_1_468a-3 of the regulations provides that if two or more public_utility commissions establish or approve rates for electric energy generated by a single nuclear power plant then the schedule of ruling amounts shall be separately determined pursuant to the rules of sec_1_468a-3 through e for each public_utility commission that has determined the amount of decommissioning costs to be included in the cost of service for ratemaking purposes for this plant under sec_1_468a-3 this separate determination shall be based on the reasonable assumptions and determinations used by the relevant public_utility commission and shall take into account only that portion of the total estimated cost of decommissioning that is properly allocable to the ratepayer whose rates are established or approved by the public_utility commission according to sec_1_468a-3 the ruling amounts for any taxable_year is the sum of the ruling amounts for such taxable_year determined under the separate schedules of ruling amounts sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant to which the nuclear decommissioning fund relates has determined the amount of decommissioning costs to plr-113167-01 be included in the taxpayer’s cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 of the regulations enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 of the regulations provides that a taxpayer is required to request a revised schedule of ruling amounts for a nuclear decommissioning fund if a any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by a nuclear power plant to which the nuclear decommissioning fund relates increases the proposed period over which decommissioning costs of the nuclear power plant will be included in cost of service for ratemaking purposes adjusts the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes or reduces the amount of decommissioning costs to be included in cost of service for any taxable_year and b the taxpayer’s most recent request for a schedule of ruling amounts did not provide notice to the service of such action by the public_utility commission sec_1_468a-3 of the regulations provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sections a and c of the energy act eliminated for taxable years beginning after date the investment restrictions contained in sec_468a of the code sections b and c of the energy act revised sec_468a by lowering the tax_rate applicable to a nuclear decommissioning fund for taxable years beginning after date we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in the sec_468a of the code and the regulations thereunder based solely on these representations of the facts we reach the following conclusions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commission a has determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations plr-113167-01 taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations taxpayer has determined that pursuant to sec_1_468a-3 of the regulations the qualifying percentage is percent taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commission a and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund the maximum amount of cash payments made or deemed made to the fund during any taxable_year is restricted to the lesser amount of the decommissioning costs applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations taxpayer subject_to the jurisdiction of two public_utility commissions for ratemaking purposes has calculated its share of the total decommissioning costs allocable to commission a as required by sec_1_468a-3 of the regulations based on the above determinations we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code approved schedule of ruling amounts taxable years commission a year commission a approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time this ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or plr-113167-01 before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code as stated above payments made to the fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to the fund or the ruling amounts applicable to the fund in the taxable_year this letter_ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that this ruling may not be used or cited as precedent pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer’s federal_income_tax return for each taxable_year in which the taxpayer claims a deduction for payments made to the fund in accordance with the power_of_attorney a copy of this letter_ruling is being sent to the taxpayer a copy of this letter_ruling also is being sent to the director sincerely yours peter c friedman senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosure copy


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 intl b02 plr-115127-09 date date legend taxpayer qsub1 qsub2 qsub3 qsub4 qsub5 qsub6 fc1 fc2 fc3 fc4 fc5 fc6 fc7 fc8 fc9 fc10 fc11 fc12 ----------------------------- ---------------------- -------------------------------------- ----------------------- -------------------------------- ----------------------- ----------------------------- ---------------------- ----------------------------- ----------------------- ------------------------ ----------------------- --------------------------- ----------------------- --------------------------------------------- --------------------------------------------- ------------------------------------------- ------------------- ---------------------- -------------------- ------------------------------------------ ----------------------------- --------------------------------------------------------- ----------------------------- ----------------------------------- ---------------------------------- plr-115127-09 fc13 fc14 fc15 fp state v ----------------- ---------------------------- ------------------- ---------------------------- ----------------- country w country x country y country z -------------------------- ---------------- --------- --------------------- b c d e date1 date2 year1 year2 year3 year4 ------ ------ ------- ------- ------------------ ------------------- ------- ------- ------- ------- service provider1 service provider2 accounting firm --------------------------------------------- ----------------------------------------------------- ---------------------------------------- dear ------------------- this is in response to a letter dated date submitted by your authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for taxpayer to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to taxpayer’s investment in fc5 the ruling contained in this letter is based upon information and representations submitted on behalf of taxpayer by its authorized representatives and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request_for_ruling such plr-115127-09 material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts taxpayer is a corporation organized under the laws of state v that is a subchapter_s_corporation within the meaning of code sec_1361 taxpayer owns directly and indirectly six corporations that are each a qualified_subchapter_s_subsidiary within the meaning of code sec_1361 and that are disregarded as separate from taxpayer for u s tax purposes specifically taxpayer wholly owns qsub1 which in turn wholly owns qsub2 qsub2 wholly owns each of qsub3 and qsub4 in turn qsub3 wholly owns qsub5 and qsub4 wholly owns qsub6 during year1 through qsub5 taxpayer acquired a b percent interest in fp a partnership formed under the laws of country w also during year1 fp and other investors including taxpayer through qsub6 formed fc1 a company formed under the laws of country x taxpayer’s total ownership_interest in fc1 taking into account its interest through both fp and qsub6 was approximately c percent fc1 owned d percent of fc2 a company formed under the laws of country x fc2 wholly owned fc3 a company formed under the laws of country x which in turn wholly owned fc4 a company formed under the laws of country y on date1 fc3 fully liquidated into fc2 subsequently fc2 was the sole owner of fc4 fc4 directly and indirectly wholly owned the following subsidiaries i fc5 a company formed under the laws of country y ii fc6 a company formed under the laws of country y iii fc7 a company formed under the laws of country y iv fc8 a company formed under the laws of country y v fc9 a company formed under the laws of country y vi fc10 a company formed under the laws of country y vii fc11 a company formed under the laws of country y viii fc12 a company formed under the laws of country z ix fc13 a company formed under the laws of country y x fc14 a company formed under the laws of country y and xi fc15 a company formed under the laws of country y collectively subsidiaries each of the subsidiaries owned real_property which it leased to unrelated persons and upon which it collected rental income the majority of leases entered into by the subsidiaries were so-called triple-net leases whereby the lessee generally was responsible for the maintenance and operation of the property no subsidiary held any assets other than real_property nor earned any income other than rental income in year1 fc2’s ownership of fc4 was diluted by e percent as part of an initial_public_offering on date2 fp and qsub6 sold the remaining portion of their interests in fc4 and indirectly the subsidiaries to an unrelated party plr-115127-09 in accordance with its partnership_agreement fp was required to provide sufficient detail to its u s investors to enable such investors to prepare their u s tax returns including any information required with respect to a foreign_corporation that was a passive_foreign_investment_company within the meaning of code sec_1297 pfic to do this fp retained service provider1 to provide tax and administrative services including the preparation of u s tax-related documents service provider1 was known to be a leader in providing such services to the private equity industry following the takeover of service provider1 by service provider2 in year2 fp retained service provider2 as a tax and administrative service provider fp retained service provider2 on the basis that service provider2 employed experienced tax specialists who were qualified_tax professionals such qualified_tax professionals were responsible for preparing and distributing information regarding the u s tax consequences of an investment in fp and indirectly in fc1 fc2 fc3 fc4 and the subsidiaries collectively fcs service provider2 prepared k-1 equivalents for fp’s investors for the year1 and year2 tax years during the time that service provider2 prepared fp’s k-1 equivalents service provider2 had access to both income statement and balance_sheet information relating to the fcs however service provider2 failed to identify fc5 as a pfic and failed to advise fp or consequently taxpayer of the pfic status of fc5 and the possibility of making a qef election with respect to fc5 it was not until year4 when fp retained accounting firm to prepare its k-1 equivalents and provide relevant u s tax information to its u s investors with respect to its year3 tax_year that it was discovered that fc5 was a pfic taxpayer has submitted an affidavit under penalties of perjury describing the events that led to the failure to make the qef election with respect to fc5 by the election due_date including the role of service provider2 taxpayer represents that service provider2 prepared and distributed fp’s k-1 equivalents which contained the u s tax consequences of an investment in fp and indirectly fc5 taxpayer also submitted an affidavit from an advisor to fp that was responsible for engaging service provider2 corroborating the representations made by taxpayer taxpayer represents that the pfic status of fc5 has not been raised by the irs on audit for any of the taxable years ruling requested taxpayer requests the consent of the commissioner to make a retroactive qef election with respect to fc5 for year1 under sec_1_1295-3 law plr-115127-09 code sec_1295 provides that a pfic will be treated as a qef with respect to a taxpayer if an election by the taxpayer under code sec_1295 applies to such pfic for the taxable_year and the pfic complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under code sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with taxpayer’s ruling_request we conclude that taxpayer has satisfied sec_1_1295-3 accordingly consent is granted to taxpayer to make a retroactive qef election with respect to fc5 for year1 provided that taxpayer complies with the rules under treas plr-115127-09 reg sec_1_1295-3 regarding the time and manner for making the retroactive qef election except as specifically set forth above no opinion is expressed or implied concerning the u s tax consequences of the facts described above under any other provision of the code this private_letter_ruling is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited as precedent a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely jeffery g mitchell special counsel international


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-148949-11 date date legend company -------------------------------------------------- -------------------------- subsidiary -------------------------------------------------- --------------------------------- state d1 d2 d3 ------------- -------------------------- -------------------------- ---------------------- dear ------------ this letter responds to a letter dated date submitted on behalf of company requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations for company to elect to treat subsidiary as a qualified_subchapter_s_subsidiary qsub under sec_1361 of the internal_revenue_code code facts according to the information submitted company is a state corporation which elected to be an s_corporation effective d2 subsidiary is also a state corporation which elected to be an s_corporation effective d1 on d3 company acquired all of the plr-148949-11 outstanding_stock of subsidiary and intended to treat subsidiary as a qsub effective d3 however company failed to timely file form_8869 qualified_subchapter_s_subsidiary election law and analysis sec_1361 provides that except as provided in regulations prescribed by the secretary for purposes of title i a corporation which is a qsub shall not be treated as a separate corporation and ii all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and such items as the case may be of the s_corporation sec_1361 defines the term qualified_subchapter_s_subsidiary as a domestic_corporation which is not an ineligible_corporation as defined in sec_1362 if percent of the stock of the corporation is held by an s_corporation and the s_corporation elects to treat the corporation as a qsub sec_1_1361-3 of the income_tax regulations provides the time and manner of making a qsub election a taxpayer makes a qsub election for a subsidiary by filing form_8869 with the appropriate service_center sec_1_1361-3 provides that a qsub election cannot be effective more than two months and days prior to the date of filing sec_1_1361-3 provides that an extension of time to make a qsub election may be available under sec_301_9100-1 and sec_301_9100-3 sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the 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 provides 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 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-148949-11 conclusion based on the facts submitted and representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently company is granted an extension of time of one hundred twenty days from the date of this letter to elect to treat subsidiary as a qsub effective d3 the election should be made by filing form_8869 with the appropriate service_center a copy of this letter should be attached to the election except as expressly provided herein we express or imply no opinion concerning the tax consequences of the facts described above under any other provision of the code specially we express or imply no opinion concerning whether company is a valid s_corporation or whether subsidiary is eligible to be a qsub under a power_of_attorney on file with this office we are sending a copy of this letter to company's authorized representative 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 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely stacy l short senior technician reviewer office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court estate of charles k russell deceased lavada s russell executrix and lavada s russell petitioners v commissioner of internal revenue respondent docket no filed date farley p katz and charles j muller iii for petitioners lewis j hubbard jr for respondent memorandum opinion goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 this case is before the court on petitioners’ motion for reasonable_litigation_costs under sec_7430 because of all section references are to the internal_revenue_code a sec_1 amended and all rule references are to the tax_court rules_of_practice and procedure concessions by respondent the sole issue now before us is the allowable_amount of recovery by petitioners for litigation costs under sec_7430 some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioners resided in san antonio texas background in the internal_revenue_service irs levied upon an individual_retirement_account ira owned by petitioner charles russell mr russell at the time of the levy mr russell's ira contained funds in the amount of dollar_figure though the statutory period of limitations had run under sec_6502 the irs still levied upon mr russell's ira account and applied the dollar_figure amount to a civil penalty assessed against mr russell on date following the levy mr russell continued to make payments to the irs with respect to the civil penalty on date mr russell filed form_843 claim_for_refund requesting a refund of all payments made to the irs on the grounds that collection of the civil penalty was barred by the expiration of the statutory period of limitations the irs refunded part of mr russell's payments but contended that sec_6511 limited any allowable refund to payments made within years before the filing of such claim the irs refund did not include the dollar_figure amount from mr russell's ira account respondent sent a notice_of_deficiency for the and tax years to petitioners respondent determined that the levy on mr russell's ira account resulted in a constructive distribution to petitioners of taxable_income in the amount of dollar_figure for the tax_year respondent further determined that petitioners earned interest_income for the and tax years in the amounts of dollar_figure and dollar_figure respectively which they failed to report and that petitioners had earned unreported wage income in the amount of dollar_figure for the tax_year respondent also determined an addition_to_tax under sec_6651 for the and tax years in their petition petitioners contested only the inclusion of dollar_figure in income for and the addition_to_tax under sec_6651 on that amount they contended that the levy did not constitute a constructive distribution to petitioners of taxable_income petitioners did not seek a redetermination of the deficiency and addition_to_tax for the tax_year mr russell died on date petitioner lavada s russell qualified as executrix of mr russell's estate on date because of petitioner lavada s russell's financial condition petitioners' counsel agreed that they would limit their fees to dollar_figure for the period beginning on date and ending on the resolution of petitioners' case in the tax_court prior to this agreement petitioners had been billed at an hourly rate for attorney’s fees incurred this case was called from the calendar for trial on date in san antonio texas counsel for the parties appeared and were heard at that time the parties filed a statement of stipulated settled issues in which respondent conceded the sole issue before this court petitioners then filed a motion for reasonable_litigation_costs on date and a supplemental declaration on date requesting an award of attorney’s fees in the amount of dollar_figure paralegal time in the amount of dollar_figure and expenses in the amount of dollar_figure petitioners claimed total litigation costs in the amount of dollar_figure discussion sec_7430 provides that in any court_proceeding brought by or against the united_states the prevailing_party may be awarded reasonable litigation and administrative costs to be a prevailing_party a taxpayer must establish that the taxpayer substantially prevailed with respect to the amount in controversy or with respect to the most significant issue present and that the taxpayer met the net_worth requirements of u s c section d b as in effect on date on the date the petition was filed sec_7430 a taxpayer will not be treated as a prevailing_party if the commissioner establishes that the commissioner's position was substantially justified sec_7430 in addition to obtain a judgment for reasonable litigation and administrative costs a taxpayer also must establish that he did not unreasonably protract the proceedings and with respect to litigation costs only that he exhausted the administrative remedies available to him within the internal_revenue_service sec_7430 and respondent concedes that petitioners have met the requirements of sec_7430 but contends that petitioners' claimed litigation costs are not reasonable and are in excess of the statutory rate sec_7430 defines reasonable_litigation_costs to include in part reasonable court costs and reasonable fees paid_or_incurred for the services of attorneys in connection with the court_proceeding except that such fees shall not be in excess of dollar_figure per hour unless the court determines that a special factor such as the limited availability of qualified attorneys for such proceeding justifies a higher rate sec_7430 includes reasonable attorney’s fees in its definition of reasonable_administrative_costs an award of attorney’s fees should not be in excess of the fees agreed to by the taxpayer and his attorney and actually paid_or_incurred by the taxpayer see marre v united_states 38_f3d_823 5th cir prior to date petitioners were billed for hours of attorney time beginning date petitioners were billed a flat fee of dollar_figure which represented attorney’s fees through the period ending with the resolution of petitioners' case in the tax_court respondent contends that the statutory rate limit of dollar_figure should only be applied to the hours of attorney time billed for the period before date it is respondent's contention that petitioners should not recover attorney’s fees in excess of dollar_figure for the time period from date to the present because petitioners entered into an agreement with counsel to limit attorney’s fees charged for this time period to a flat fee of dollar_figure thus respondent contends that petitioners are entitled to total litigation costs in the amount of dollar_figure and that any additional_amount would be in excess of the amount of litigation costs allowed by sec_7430 we do not agree with respondent's contentions sec_7430 defines reasonable_litigation_costs to include reasonable fees paid_or_incurred for the services of attorneys in connection with the court_proceeding except that such fees shall not be in some of this time was charged at dollar_figure per hour hours and some of the time was charged at dollar_figure per hour hours this amount reflects the statutory rate of dollar_figure multiplied by the hours which were billed for the period prior to date and the dollar_figure flat fee for the period beginning date excess of dollar_figure per hour sec_7430 emphasis added respondent would bifurcate petitioners' attorney’s fees into two time periods and limit petitioners to the statutory rate for the period in which petitioner was specifically billed at an hourly rate in effect respondent would avail himself of the benefit of petitioners' fee agreement while assuming none of petitioners' burdens under the same agreement respondent's reliance on marre v united_states supra is misplaced in marre the taxpayer attempted to recover attorney’s fees greater than those incurred under a contingency agreement the present case is factually distinct from marre petitioners are seeking to recover litigation costs actually incurred and in an amount which is less than the statutory rate on average in reviewing the record we find that petitioners have shown that all of the costs incurred were related to this case we find that petitioners' claimed attorney expenses are not in excess of dollar_figure an hour and do not exceed costs actually incurred by petitioners we hold that petitioners are entitled to recover litigation costs in the amount of dollar_figure to reflect the concessions by the parties petitioners' counsel expended hours of attorney time in this case and charged dollar_figure this is equivalent to a charge of dollar_figure per hour an appropriate order and decision will be entered


department of the treasury internal_revenue_service washington d c date number release date wta-n-109918-00 cc dom fs uilc internal_revenue_service national_office field_service_advice memorandum for compliance director industry specialization program from deborah a butler assistant chief_counsel field service cc dom fs subject losses upon closure of restaurant units this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent issue a taxpayer closes restaurants that are no longer economically viable and offers them for sale may the taxpayer deduct losses upon a restaurant’s closure if the taxpayer has not sold the restaurant by year-end conclusion because there has been no retirement of the property under sec_1_167_a_-8 the taxpayer may not deduct losses upon closure of a restaurant that it has not sold by year-end facts a taxpayer who operates multiple restaurant units closes those that are no longer economically viable once the taxpayer determines a restaurant is performing poorly it considers all feasible options for making the restaurant profitable before making the decision to close it wta-n-109918-00 when the taxpayer decides to close a restaurant it fires the workforce and notifies employees the closure is permanent the taxpayer then disconnects all utilities returns or transfers to other facilities the food liquor and smallwares cleans up the site posts a closed sign and boards up the windows heavier equipment and other building contents generally remain on the premises intact so that the site can be marketed as a restaurant business generally upon closure the taxpayer moves the restaurant from an active depreciation account to one that shows the property as inactive in addition the taxpayer immediately either makes plans to sell the restaurant to convert it to another concept or where the restaurant was leased to sublease it before the end of the taxable_year for those restaurants for sale that were not sold by year-end the subject of the discussion below the taxpayer deducts losses_incurred at the time it closes the restaurant and permanently withdraws it from operations typically the taxpayer claims losses for the excess of basis over the estimated realizable value of each restaurant law and analysis sec_165 provides that there shall be allowed as a deduction any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise sec_1_165-2 cross-references sec_1_167_a_-8 for determining the allowance of sec_165 losses arising from the permanent withdrawal of depreciable_property from use in the trade_or_business or in the production_of_income sec_1_167_a_-8 addresses gains and losses on retirement it provides that the term retirement means the permanent withdrawal of depreciable_property from use in the trade_or_business the withdrawal may be made in several ways for example the withdrawal may be made by selling or exchanging the asset or by actual abandonment in addition the asset may be withdrawn from productive use without disposition as for example by being placed in a supplies or scrap account sec_1_167_a_-8 provides that a taxpayer may take a loss for an abnormal_retirement sec_1_167_a_-8 defines normal and abnormal retirements and provides that the determination of such shall be made on a facts and circumstances basis generally a retirement shall be considered normal unless the taxpayer can show that the withdrawal of the asset was due to a cause not contemplated in setting the applicable depreciation_rate a retirement is considered abnormal if the asset is withdrawn earlier than the taxpayer customarily retires similar assets or under other circumstances for example the abnormal_retirement may occur when the asset has been damaged by casualty or has lost its usefulness suddenly as the result of an extraordinary_obsolescence wta-n-109918-00 although a retirement deduction must be claimed under sec_165 the regulation that applies to determine whether the taxpayer may actually take the deduction is sec_1_167_a_-8 sec_1_165-2 52_tc_682 aff’d 429_f2d_1 10th cir sec_1_167_a_-8 provides examples of permanent withdrawals that are retirements they are a sale_or_exchange an actual abandonment or placement in a supplies or scrap account the taxpayer of course did not sell or exchange the restaurant neither did it abandon the restaurant upon closure rather the taxpayer prepared the restaurant for future sale thus for there to be a retirement under sec_1 a - a the taxpayer must have placed it in a supplies or scrap account upon closure of the restaurant the taxpayer moved it from an active depreciation account to one that shows the property as inactive nevertheless this transfer to an inactive account does not satisfy the regulation's requirement that the account be a supplies or scrap account a restaurant held_for_sale is not the type of property placed in these accounts that is the taxpayer's restaurant is not a supply item and the taxpayer does not intend to scrap the building but rather intends to sell it accordingly the taxpayer does not have a retirement under sec_1_167_a_-8 sec_1_167_a_-8 however provides for loss recognition where there is an abnormal_retirement thus for there to be any possibility here of a retirement---permanent withdrawal from use in the trade_or_business the taxpayer’s retirement would have to be an abnormal one as defined under sec_1_167_a_-8 dell v commissioner tcmemo_1985_246 to claim an abnormal_retirement the taxpayer must show that the loss arose from the sudden unexpected termination of the usefulness of the property as through a casualty or extraordinary_obsolescence 103_tc_80 an example of an obsolescence can be found in 313_fsupp_796 n d calif aff’d 462_f2d_605 9th cir there the taxpayer’s race track became obsolete because of several factors including legislation affecting the race track industry the necessity of making expensive repairs and improvements and the condemnation of a prime area of the taxpayer’s already-inadequate parking lot tanforan however is distinguishable from the present situation because any efforts by that taxpayer to continue to use its property would have been fruitless in addition the primary events leading to that taxpayer’s terminating the use of its property all occurred during the same brief time period those events could not have been reasonably anticipated tanforan pincite wta-n-109918-00 in the present situation there always was the possibility the taxpayer would continue its restaurant’s operation yet there was nothing sudden or unexpected about the taxpayer’s decision to close the restaurant because of the restaurant’s poor performance the taxpayer studied the restaurant’s economic viability and made considerable efforts to improve its performance furthermore the possibility of the restaurant’s closure existed for some time because of the taxpayer’s knowledge of the restaurant’s poor performance it was only after the taxpayer’s considerable efforts to improve the restaurant’s viability that it finally determined the restaurant did not meet its operating standards had to be closed and offered for sale simple nonuse of a restaurant does not meet the requirements of an abnormal_retirement dell v commissioner there was no casualty here nor was there an extraordinary_obsolescence under sec_1_167_a_-8 accordingly the taxpayer cannot take a loss deduction upon closure of a restaurant case development hazards and other considerations there are some litigation hazards of which you should be aware first sec_1_167_a_-8 several times uses the phrase for example when defining retirement generally the regulation has been interpreted as applying only to the specific examples enumerated therein it is conceivable however that a taxpayer could argue and convince a court that the list of examples is merely illustrative that another situation may also satisfy the definition it also is conceivable a taxpayer may convince a court that its discontinued use of an underperforming restaurant is abnormal because sec_1_167_a_-8 likewise uses the for example phrase that regulation’s mention of an asset’s being withdrawn earlier than customary or under other circumstances could be equally problematic furthermore the regulation provides that the deermination shall be made on a facts and circumstances basis these factors coupled with the de cou opinion’s statement that the regulation is clear that damages caused by a casualty is just one example of an abnormal_retirement pincite also could pose a hazard please call if you have any further questions