internal_revenue_service national_office technical_advice_memorandum july number release date index uil no case mis no dollar_figure tam-115870-02 cc corp b6 attention taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference legend corp corp corp corp new p aa nonaa person person tam-115870-02 person person person activity group ams nonams pm nps pvs llx lly xo month date date date date date year state a city tam-115870-02 country a b c d e f g h i j k l m n o p q r s t u tam-115870-02 issue whether corp a sold goodwill to corp thus realizing a capital_gain of a and if so whether corp then b distributed these sales proceeds to its aa shareholders as a constructive_dividend conclusion corp did not sell goodwill to corp and thus did not realize a capital_gain of a the aa shareholders of corp did not receive the sales proceeds as a dividend distribution pursuant to the terms of the management services agreement and the option agreement the aas effectively sold to corp beneficial interests in their corp stock in exchange for cash promissory notes and rights to corp stock the shareholders of corp thus realized a capital_gain on the sales of beneficial interests in their corp stock a share in the profits of corp hereinafter referred to as the profits interest as conveyed in the management services agreement was not only a means to compensate corp for providing services to manage the pm to corp but also served as a means to compensate corp for its investment in corp ie the right as an owner of corp to share in its profits facts in month of year corp an xo approached person person person and person aas about acquiring the aas’ activity in city state a corp is in the business of managing activity throughout country state a corporate law prohibits the practice of llx by a corporation unless all of its shareholders are licensed aas accordingly corp could not directly purchase the stock or assets of a state a group corp 2’s transaction with corp was accomplished through a variety of detailed agreements the transaction essentially consists of four key elements the first element included the direct purchase by corp of all the nonams of corp that can be legally purchased under state law by a nonaa including the building equipment accounts_receivable and supplies this was accompanied by the hiring by corp of the nps of corp in addition corp transferred its ams to corp in exchange for corp 1’s assumption_of_liabilities with respect to these ams the second element was entering into a long-term_agreement the management services agreement under which corp agreed to provide management services to corp in exchange for substantial consideration the management services agreement also gave corp the right to designate two of the four policy board members policy board members have responsibility for the management administrative policies and overall operation of corp the entity for which the aas practice llx to the extent not otherwise given directly to corp as manager this effectively allows corp veto power over the management of the pm capital expenditures new aa recruitment and other operational decisions to the extent not directly covered by the management services agreement itself the third tam-115870-02 element is an employment and noncompetition agreement between each of the aas and corp this element gives value to the management services agreement by ensuring that the pm of the aas will generate revenues to corp the fourth element is an option agreement between corp and the aas that purports to give corp through an employee of corp licensed to practice llx in state a an option to purchase each aa shareholder’s formal stock interest in corp at a price of b per aa corp 2’s rights to acquire the corp stock resulting from the option allows corp to consolidate for financial_accounting purposes the corp earnings with its own earnings the form of the transaction a immediately prior to closing on date the following events occurred in the order indicated below per section dollar_figure of the master transaction agreement the aas each granted person a power_of_attorney to sign closing agreements on their behalf the aas as officers and shareholders of corp an s_corporation through which the aas had conducted their pm for at least h years approved minutes on behalf of corp authorizing and approving the corp transaction including approval of the sale of substantially_all of the corporate assets to corp person and person terminated their employment agreements with corp corp a c_corporation was formed by the aas on date the aas and corp entered into buy-sell agreements providing for the purchase of aa stock by corp upon the death or disability of a aa and the aas formed new p a partnership and caused it to enter into the long-term management agreement management services agreement with corp partnership interests were determined on the basis of relative aa production and not on the basis of stock ownership in corp b at the date closing the following events occurred in the order indicated below per section dollar_figure of the master transaction agreement the aas sold their interests in new p to corp in exchange for a c cash b promissory notes having a face value of d and calling for payments over t years notes and c the promise of corp that it would deliver f shares of corp stock to the aas over the following t years stock_rights these stock_rights had a present_value of g as of tam-115870-02 the closing date from the sale each aa received consideration in proportion to their relative revenue production history rather than in proportion to their stock ownership also pursuant to the purchase agreement corp sold its nonams to corp and corp hired all of the administrative and np’s of corp in exchange for i of cash and the assumption of j of debt as a cash- method subchapter_s taxpayer corp reported the gain on this sale corp distributed the net_proceeds to the aas in their liquidation of corp corp transferred its ams which consisted of k worth of lly inventories to corp in exchange for corp 1’s assumption of k worth of corp 3’s liabilities with respect to these ams after this sale corp had no operating_assets and retained only de_minimis assets to satisfy contingent liabilities it formally liquidated on date the aas each signed o year employment agreements and covenant-not- to-compete agreements with corp the aa shareholders agreed not to compete with corp within the practice territory without corp 1’s permission during the o year term of the aa shareholders’ employment agreement and also for p year following the termination of the agreement the aas however could terminate for cause the covenant- not-to-compete agreement corp liquidated new p and then transferred the rights under the management_contract to its wholly owned subsidiary corp a aa employee of corp entered into an option agreement on date effective date with the aa shareholders of corp effective date the aas corp and corp reached an agreement to terminate the management agreement and the option agreement in exchange for a single payment by the aas to corp of l in addition corp repurchased from corp management for net_book_value the nonams used in its practice management services agreement-key provisions the management services agreement entered into on date between corp and new p for an initial m year term was made effective as of date under this agreement corp engaged new p as its agent for the management and administration of the business functions and business affairs of corp tam-115870-02 article v of the agreement requires corp to maintain and enforce for a period of o years the employment agreements entered into between corp and the aas sec_5 c d of the management services agreement provides that the employment agreements described in sec_5 shall contain covenants of the aa shareholders and the nonshareholder aas pursuant to which the aas agree not to compete with the corp for p year after termination of the employment agreement the financial terms are set fourth in article vi the monthly management fee payable to corp is equal to the sum of n plus e of the sum of the adjusted gross revenue defined in sec_1 of the management services agreement as the sum of a the professional service revenue and ancillary revenues and b the subcontractor capitation revenues as defined in sec_1 of the management agreement according to the management services agreement various management fees were paid to corp specifically corp was entitled to all the profit remaining after the payment of aa compensation including aa performance fees and all other expenses of the practice including the n paid to corp as a fixed monthly management fee and the e of the sum of adjusted gross revenue and subcontractor capitation revenues paid to corp as a variable management fee aa compensation overall was based on a formula s of corp gross net revenue plus r of any amount remaining referred to as the aa performance fees after corp paid all of the practice expenses aa compensation based on s of corp net revenue and paid itself the various fixed and variable monthly management fees corp was also to receive a performance fee the performance fee entitled corp to r of the remaining net profits after paying the aas’ compensation and all other practice expenses the management services agreement provides the following priority ordering for payments in sec_4 b office expenses ordinary business operation expenses - lease payments staff salary etc except the base management fee corp expenses including aa compensation based on s of corp gross net revenue base management fee performance fees and the remaining balance as directed by corp the management services agreement gives corp the right to designate two of the four practice policy board members policy board members have responsibility for the management administrative policies and overall operation of the practice to the extent not otherwise given to corp as manager sec_3 of the management services agreement this right effectively gives corp veto power over practice management capital expenditures new aa recruitment and other operational decisions to the extent tam-115870-02 not covered by the management services agreement itself section of the agreement provides that the management services agreement can be terminated by corp or corp for cause or by written_agreement of the parties section b iv provides that corp may terminate the management services agreement for cause if there is an event of default under the notes or if corp breaches its delivery obligation for the shares of corp common_stock and such event or default or failure to deliver the stock continues for ten days after notice has been given to corp the agreement provides for corp to succeed to all of the partnership’s rights and obligations under the management services agreement the management services agreement was originally entered into between new p the partnership and corp corp purchased the partnership interests from the aa partners and then liquidated the partnership option agreement-key provisions the option agreement effective on date was entered into between the aa shareholders and person an corp aa employee as the optionee on date each aa shareholder granted an irrevocable m year option to person to purchase all of the aas’ stock interests in corp the exercise price for each shareholder’s interest was b the option was immediately exercisable recital d iii of the option agreement sec_4 of the option agreement provides that the option shall be immediately exercisable as of the date of the management services agreement and any time thereafter except as limited by section of the option agreement which provides that an option cannot be exercised if corp has already given notice to corp of a default under the management services agreement however section of the management services agreement provides that corp cannot terminate the management services agreement after the exercise of the option unless optionee corp has made a good_faith determination that there is actual cause to terminate the management services agreement however corp 1’s right to terminate the management services agreement for cause discussed in section b thereof is limited to uncured material breaches of performance or nonpayment of the notes or stock_rights by corp itself corp however cannot unilaterally terminate the management services agreement without cause the option agreement is between the aas and corp while the management service agreement is between corp and corp if the management services agreement is terminated for cause after the option has been exercised the aa employees will have the option to purchase the shares of corp stock that optionee acquired by its exercise of the option the aa employee’s exercise price for that stock will be the same as the optionee’s exercise price for the tam-115870-02 stock recital d v of the option agreement during the notice period no aa shareholder can sell transfer exchange encumber and attempt to restrain or otherwise alienate his shareholder interest without the optionee’s written consent recital d xiv of the option agreement the option is transferable by the optionee to any person who lawfully may hold an ownership_interest in corp however corp has the exclusive right to designate who that assignee will be optionee is under no obligation to exercise the option recital d x of the option agreement the option agreement provides that the u aa shareholders are the only shareholders of corp and no other person will be permitted to become a shareholder in corp other than by exercise of the option without consent of the optionee and the agreement of the new_shareholder to grant to the optionee a similar option on such person’s shareholder interest recital d xii c of the option agreement neither corp nor the aa shareholders can amend or modify corp 1’s articles of incorporation by laws or buy-sell_agreement in any manner that would adversely affect the optionee’s rights without the optionee’s written consent no shareholder can transfer his shareholder interest without the consent of the optionee unless subordinate or subject_to the option recital d xiv of the option agreement aa shareholder agreement-key provisions the aa employment agreement is between corp and the aa shareholders each aa entered into a o-year employment agreement which included a restrictive covenant_not_to_compete for a period which extended p year beyond the employment termination_date sec_4 of the aa employment agreement section of the aa employment agreement provides that the aa shareholder may compete with corp within the practice territory after the termination of the employment agreement by purchasing the covenant for q the amount of liquidated_damages for terminating an aa’s employment agreement is determined by a formula in sec_4 b of the aa employment agreement and is either the greater of a percentage of the consideration the aa received from the sale of his partnership_interest and the sale of the nonams or q under sec_4 c of the aa employment agreement an aa shareholder can terminate his employment agreement without payment of liquidated_damages only if the termination is for cause which is defined to occur i if corp dissolves and the aa does not vote in favor of the dissolution ii corp materially breaches the employment agreement iii there is an event of default under the notes or corp breaches its tam-115870-02 delivery obligations for the shares of the corp stock iv corp becomes unable to operate as a state a professional_corporation or v the death or permanent disability of the aa shareholder in all other circumstances the aas can terminate the employment agreements only by paying liquidated_damages law and analysis issue-was goodwill sold by corp to corp area_counsel contends that corp sold goodwill to corp and thus realized a capital_gain of a both the taxpayer and area_counsel agree that the goodwill consists of the earnings power generated from the aas’ professional services such goodwill became an asset to corp as a result of the aas’ employment contracts the aas by entering into these employment and covenant_not_to_compete agreements with corp effectively contributed this goodwill value to corp no goodwill was transferred by corp to corp rather any goodwill acquired by corp remained an asset of corp any goodwill related to corp is associated with the aas and their pm which remained inside of corp and was not transferred the management services agreement required corp to perform services ie to manage the aas’ pm of corp all the ams were held by corp and the aas’ salaries were paid_by corp further per the facts of the case the employment and noncompetition agreements were between the aas and corp the corporation in which the aas conducted their pm these agreements did not serve to retransfer the aas and their pm from corp to corp but rather to ensure that such aas and their pm remained inside of corp for its benefit in addition the goodwill associated with the aas and their pm can not be a corporate asset in the absence of an employment noncompete agreement between the corporation and the shareholder see 110_tc_189 therefore such goodwill remained an asset of corp because corp rather than corp entered into the employment and covenant-not-to-compete agreements with the aas substance of what was sold was a beneficial_ownership interest in stock the substance of the above transaction was that corp liquidated with any goodwill of corp associated with the aas’ pm reverting back to the aa shareholders the former shareholders of corp contributed the distributed property cash from the sale of nonams received in liquidation along with their own goodwill their pm which reverted back to them from corp to corp in exchange for stock of corp pursuant to the terms of the management services agreement and the option agreement the aas effectively sold beneficial interests in their corp stock to corp tam-115870-02 in exchange for cash promissory notes and rights to corp stock the shareholders of corp thus realized a capital_gain on the sale of these beneficial interests beneficial_ownership_of_stock instead of mere legal_title is normally determinative of who is the true shareholder for tax purposes see eg cepeda v commissioner 67_tcm_2181 for purposes of federal income_taxation a sale of stock depends upon transferring sufficient incidents of beneficial_ownership rather than upon technical requirements for the passage of title under state law 55_tc_441 supplemented by 56_tc_763 affd in part and remanded in part 469_f2d_225 8th cir specifically the court in cepeda stated as to inclusion of dividends in income courts have consistently held that record ownership of stock standing alone is not determinative in answering the question as to who is required to include any dividends attributable to such stock in gross_income rather beneficial_ownership is the controlling factor 544_f2d_419 9th cir rev’g tcmemo_1972_223 for the purpose of determining ownership of stock the court in 338_f2d_815 stated that ownership of stock can involve three important rights to vote and thereby exercise control to participate in current earnings and accumulated surplus and to share in net assets on liquidation ownership of common_stock generally involves all of these ownership of preferred_stock however generally involves the last two but only to a limited extent other cases have similarly stated that with some modification the ownership of stock involves the ability to vote and therefore maintain a voice in the management of the affairs of the corporation to participate in current earnings to share proportionately in liquidating distributions by the corporation see 203_fsupp_270 d mont as discussed below corp acquired these ownership rights through the management services agreement and the option agreement a the right to vote and exercise control or maintain a meaningful voice in management article iii sec_3_1 of the management services agreement provides that corp shall have the power to designate of the members on the corp policy board created by this same section the policy board is responsible for developing and implementing management and administrative policies for the overall operation of corp tam-115870-02 sec_3_2 of the management services agreement sets out the duties and obligations of the policy board which taken together are the typical functions of a corporation’s board_of directors specifically the policy board is responsible for authorizing capital improvement and expansion plans marketing and advertising determining fee schedules for aa and ancillary services establishing and maintaining pvs developing strategic plans assessing hiring needs including aa hires and determining grievance procedures for disputes under the management services agreement as the policy board has the ability to implement and develop management policies for corp corp 2’s ability to designate of the members on the policy board is the equivalent of voting rights in corp in order for a proposal to be enacted a majority approval of the members is required these voting rights allow corp to maintain a meaningful voice in the management and the affairs of corp these voting rights gave corp the ability to block proposals advanced by the other two policy board members through the ability to block proposals by other policy board members corp has an interest in the control of corp and therefore can exercise control_over management affairs of corp in addition the option agreement gives corp the right to exercise an option which would allow them to purchase all the stock of corp from the aas and therefore own of the vote and value of the stock in corp this option indirectly affords corp a mechanism to exercise complete control of corp b the right to share in current earnings section vi of the management services agreement sets out the financial terms section provides that corp is to receive a fixed amount of n per month plus an amount equal to e of the sum of adjusted gross revenues and the subcontractor capitation revenues corp is also entitled to receive a performance fee the performance fee is equal to r of the remaining profits after paying all expenses again sec_4 b sets forth the following priority order for payments office expenses ordinary business operation expenses such as lease payments staff salary etc except the base management fee corp expenses including aa compensation based on s of corp gross net revenue base management fee performance fees and the remaining balance as directed by corp the corp expenses involving aa compensation were allocated based on productivity the management services agreement states that all fees received under article vi are for services rendered corp could not have received all of its share of corp current tam-115870-02 income as consideration for performing services ie services of managing corp rather corp acquired a portion of its profits interest in corp in exchange for its substantial purchase_price investment ie the consideration it has paid out to the aas including the cash promissory note and the right to corp stock thus the profits interest conveyed by the management services agreement was not only the means to compensate corp for providing services to manage the pm to corp but also served along with the option agreement as the means to compensate corp for its investment in corp ie the right as the owner of corp to share in its profits through the management services agreement corp obtained a profits interest in corp however the fact that corp obtained a profits interest in corp does not mean that goodwill of corp was transferred to corp through the management services agreement as mentioned above any goodwill of corp remained with corp c right to liquidation proceeds the option agreement provides that corp at any time during the m year term can exercise its right to acquire one or all of the aas’ stock interests in corp the option terminates if corp terminates the management services agreement for cause as described in section b however corp 1’s right to terminate the management services agreement for cause as described in section b thereof is limited to uncured material breaches of performance or nonpayment of the notes or stock_rights by corp itself this type of restriction is not a substantial restriction upon exercise of the option since only corp can cause the restriction to apply since corp has the right to purchase some or all of the corp stock from the aas corp thus has the ability to receive the liquidation proceeds in corp the fact that the options were not exercised is irrelevant the right to exercise the options at any time for what is a nominal price of b per aa shareholder except if there is a breach of the management services agreement is sufficient to demonstrate that corp has ultimate rights to the liquidation proceeds in addition the aas cannot transfer their corp stock without the prior written consent of the option holder corp this is further evidence that no other party could defeat corp 2’s right to exercise the option with respect to corp stock therefore no other party could defeat corp 2’s right to receive the liquidation proceeds of corp in addition the option permits corp for financial statement purposes to consolidate corp 1’s earnings with its own earnings this further demonstrates that corp is recognized as the owner of the corp stock because it has the ability to liquidate corp tam-115870-02 corp through its option agreement has the power and the right to receive the liquidation proceeds simply by exercising its option for what is a nominal exercise price of b per aa shareholder therefore corp has the ultimate power to preclude the aas from obtaining any of the liquidation proceeds corp possesses a voting interest in corp and thus an interest in the control of corp in addition corp has a right to the current earnings_of corp along with a right to share in any liquidation proceeds of corp although the aas are technically the shareholders of record of corp corp through its rights under the management services agreement and its right through the option agreement to exercise an option to purchase all of the corp stock has acquired a beneficial_ownership in the corp stock therefore in substance the aas sold beneficial interests in their corp stock to corp in exchange for cash notes and stock_rights in corp aas received no dividend distribution since the aas as the shareholders of corp received the consideration the cash promissory notes and rights to corp stock directly from corp such consideration was not received from corp as a dividend distribution the partnership was born_to_die since new p was born_to_die it can be ignored therefore in substance the aas entered into the management services agreement with corp caveat we express no opinion on whether or not the aa shareholders of corp sold all of their beneficial_ownership interests in corp stock to corp in exchange for cash promissory notes and rights to corp stock a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service number release date index number ------------------------------------------------------------ ------ ---------------------------------------------- ---------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------------- id no ---------- ------------------ telephone number ---------------------- refer reply to cc ita b07 plr-124256-17 date february re request for extension of time to make the election not to deduct the additional first year depreciation legend taxpayer ---------------------- p1 -------------------------------------------------------------------------- p2 ----------------------------------------------------- p3 ------------------------------------------------- p4 --------------------------------------------------- p5 -------------------------------------------------------------- date ---------------------------- date ------------------------ date ---------------------------- a ------- b --------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------- c -------------- plr-124256-17 d ------------------------------------------ e ---------------------- f ----------------------- dear --------------- this letter responds to a letter dated date and subsequent correspondence submitted by taxpayer on behalf of his wholly owned pass-through entities p1 p2 p3 p4 and p5 hereinafter collectively referred to as the affiliated entities requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election not to deduct the additional first year depreciation under sec_168 of the internal_revenue_code for all classes of qualified_property placed_in_service by the affiliated entities during the taxable_year ended date the a taxable_year all references in this letter_ruling to sec_168 are treated as a reference to sec_168 as in effect prior to amendment by sec_143 of the protecting americans from tax hikes act of path act enacted as part of the consolidated appropriations act division q publaw_114_113 129_stat_2242 date for qualified_property acquired by the affiliated entities after and placed_in_service by the affiliated entities before facts taxpayer represents that the facts are as follows taxpayer is an individual who files form_1040 u s individual_income_tax_return on a calendar_year basis taxpayer wholly owns the affiliated entities the affiliated entities each file either a form_1065 u s income_tax return for a partnership or form_1120s u s income_tax return for an s_corporation as applicable on a calendar_year basis and use an accrual_method of accounting the affiliated entities are in the trade_or_business of b the period of limitation on assessment under sec_6501 for the a taxable_year has not expired as of the date of this letter the affiliated entities depreciated all property placed_in_service in a using macrs depreciation methods recovery periods and conventions in accordance with sec_168 and revproc_87_56 1987_2_cb_674 the affiliated entities claimed additional first year depreciation on all classes of qualified_property placed_in_service in a in accordance with sec_168 the affiliated entities reported income to their shareholder partner taxpayer on schedule_k-1 form_1120s shareholder’s partner’s share of plr-124256-17 income deductions credits etc taking into account the aforementioned depreciation_deductions taxpayer claimed the depreciation_deductions on his a form_1040 taxpayer paid dollar_figurec of alimony during a and deducted the alimony payments on his a form_1040 taxpayer reported a net_loss on the return and was precluded from carrying back or carrying over the net_loss as a net_operating_loss nol to the extent the net_loss was attributable to the alimony deduction under sec_172 and sec_1 a of the income_tax regulations allowing nonbusiness deductions in the computation of nols only to the extent of nonbusiness income for taxpayers other than corporations taxpayer could have preserved the benefit of the deduction for alimony on his a return if the affiliated entities had minimized the depreciation_deductions flowing through to taxpayer and eliminated his net_loss specifically the affiliated entities could have elected not to claim additional first year depreciation on all classes of eligible_property placed_in_service in a under sec_168 the forms and forms 1120s of the affiliated entities are prepared in-house by employees of the affiliated entities the cfo of the affiliated entities is responsible for the preparation of the returns and the affiliated entities employ a full time staff including one or more certified public accountants cpas to prepare the federal_income_tax returns and ensure compliance with all tax rules taxpayer generally engages a third party tax professional to prepare his form_1040 taxpayer engaged d to prepare his a form_1040 taxpayer was not advised by the affiliated entities’ in-house tax preparers or d and taxpayer did not know independently that taxpayer could preserve the benefit of the deduction for alimony on the a return by having the affiliated entities make the election not to deduct the additional first year depreciation for all classes of qualified_property placed_in_service by the affiliated entities during the a taxable_year taxpayer’s a form_1040 was timely filed on date and the affiliated entities’ forms and form_1120s were timely filed prior to date taxpayer discovered the failure to make the election out of additional first year depreciation in e after consulting with d about his a form_1040 taxpayer consulted with f regarding potential remedies for the failure to make the election out of additional first year depreciation and f advised taxpayer to file this request for relief under sec_301_9100-3 ruling requested taxpayer requests an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 to make the election under sec_168 not to deduct the additional plr-124256-17 first year depreciation under sec_168 for all classes of qualified_property placed_in_service in the taxable_year ended date law and analysis sec_168 allowed in the taxable_year that qualified_property is placed_in_service a 50-percent additional first year depreciation deduction for qualified_property i acquired by a taxpayer after date and before date or after date or date for qualified_property described in sec_168 or sec_168 and before date and ii placed_in_service by the taxpayer before date or after date or date for qualified_property described in sec_168 or sec_168 and before date or date for qualified_property described in sec_168 or sec_168 sec_168 provided that a taxpayer may elect not to deduct additional first year depreciation for any class of property placed_in_service by the taxpayer during the taxable_year the term class of property is defined in sec_1 k - e i to mean in general each class of property described in sec_168 for example 5-year_property see section dollar_figure of revproc_2008_54 2008_2_cb_722 and section dollar_figure of revproc_2011_26 2011_16_irb_664 rules similar to the rules in sec_1_168_k_-1 for qualified_property or for 30-percent additional first year depreciation deduction apply for purposes of sec_168 as currently in effect sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made by the due_date including extensions of the federal tax_return for the taxable_year in which the property is placed_in_service by the taxpayer sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made in the manner prescribed on form_4562 depreciation and amortization and its instructions the instructions to form_4562 for the a taxable_year provided that the election not to deduct the additional first year depreciation is made by attaching a statement to the taxpayer's timely filed tax_return including extensions indicating that the taxpayer is electing not to deduct the additional first year depreciation and the class of property for which the taxpayer is making the election under sec_301_9100-1 the commissioner of internal revenue 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 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 plr-124256-17 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_9100-3 provides that requests for relief 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 the grant of relief will not prejudice the interests of the government conclusion based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly the affiliated entities are granted calendar days from the date of this letter to make the election not to deduct the additional first year depreciation under sec_168 for all classes of property placed_in_service by the affiliated entities during the a taxable_year that qualify for the additional first year depreciation deduction this election must be made by the affiliated entities filing either an amended form_1065 u s income_tax return for a partnership or form_1120s u s income_tax return for an s_corporation as applicable for the a taxable_year with a statement indicating that the affiliated entities are electing not to deduct the additional first year depreciation for all classes of qualified_property placed_in_service during that taxable_year except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code including other subsections of sec_168 specifically no opinion is expressed or implied on whether any item of depreciable_property placed_in_service by the affiliated entities during the a taxable_year is eligible for the additional first year depreciation deduction the rulings contained in this letter are based upon information and representations submitted by the affiliated entities 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 plr-124256-17 this letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney we are sending a copy of this letter_ruling to the affiliated entities' authorized representative we also are sending a copy of this letter_ruling to the appropriate operating division director sincerely yours deena devereux deena devereux senior technician reviewer branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01-plr-144910-02 date sept p a date this letter responds to a request submitted on behalf of p dated date seeking a written_determination allowing an extension of time for p to make an election under sec_754 of the internal_revenue_code facts the taxpayer represents that in date a the majority partner in p began to purchase outstanding interests in p at that time p was qualified to make a sec_754 election and it was resolved that p would make the sec_754 election for that year the taxpayer’s accountant who was responsible for filing the sec_754 election inadvertently failed to file the election p represents that it has acted reasonably and in good_faith that granting relief will not prejudice the interests of the government and that it is not using hindsight in making the election law and analysis under sec_754 a partnership may elect to adjust the basis of partnership property where there is a distribution_of_property or a transfer of a partnership_interest plr-144910-02 the election applies to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year that the election applies and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 is made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed no later than the time for filing for the taxable_year under sec_301_9100-1 of the procedure and administration regulations 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 an election whose deadline is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 and sec_301_9100-3 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 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 interest of the government conclusion based on the information submitted and the representations made therein we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result p is granted an extension of time of sixty days following the date of this letter to make a sec_754 election the election should be made in a written_statement filed with the applicable service_center a copy of this letter should be attached to the statement filed a copy of this letter is enclosed for that purpose except as specially set forth above we express no opinion concerning the federal_income_tax consequences of the transactions described above under any other provision of the code specifically we express no opinion as to whether or not p is a partnership for tax purposes plr-144910-02 this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this written_determination will be sent to the taxpayer sincerely s heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for purposes


internal_revenue_service number release date index number -------------------------------------------------------- ------------------------ ------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc ita b05 plr-113373-08 date date tys ---------------- legend taxpayer -------------------------------------------------------- ----------------------- property ------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------- dollar_figurex dollar_figurey dollar_figurez date date year year ------------- ------------- ------------- ------------------------ --------------------- ------- ------- dear ------------------------------------------------- this is in reply to your request pursuant to sec_453 of the internal_revenue_code and sec_15a_453-1 of the temporary income_tax regulations for consent to revoke an election out of the installment_method plr-113373-08 facts taxpayer is an s_corporation taxpayer uses a calendar_year accounting_period and a cash_basis method_of_accounting on date taxpayer and another entity sold property taxpayer’s portion of the sales_price attributable to taxpayer’ sec_50 interest in property was dollar_figurex the sales contract for property required the purchaser to pay the purchase_price in installments the note has a tern of x years and requires the purchaser to make monthly payments consisting of principal and interest during year taxpayer received sale price payments totaling dollar_figurey a return preparer filed taxpayer's original federal_income_tax return for year on approximately date taxpayer intended to use the installment_method under sec_453 but due to a miscommunication between taxpayer and the return preparer the return preparer mistakenly elected out of reporting gain on the installment_method in addition the return preparer reported the sales_price of the taxpayer’s interest in the property as only dollar_figurez taxpayer discovered the return preparer’s mistake when taxpayer engaged a different return preparer to prepare taxpayer’s year income_tax return as soon as taxpayer realized the error taxpayer submitted this request for a ruling law and analysis sec_453 provides that generally a taxpayer shall report income from an installment_sale under the installment_method sec_453 defines an installment_sale as a disposition of property for which at least one payment is to be received after the close of the taxable_year of the disposition sec_453 provides that for the purposes of this section the term installment_method means a method under which the income recognized for any taxable_year from a disposition is that proportion of the payment received in that year which the gross_profit realized or to be realized when the payment is completed bears to the total_contract_price sec_453 provides that a taxpayer may elect out of the installment_method except as otherwise provided in the regulations sec_453 requires a taxpayer who desires to elect out of the installment_method to do so on or before the due_date including extensions of the taxpayer's federal_income_tax return for the taxable_year of the sale sec_453 provides that an election made pursuant to sec_453 may be revoked only with the consent of the secretary sec_15a_453-1 provides that a taxpayer who reports an amount_realized equal plr-113373-08 to the selling_price including the full face_amount of an installment_obligation on a timely filed tax_return for the taxable_year in which the installment_sale occurs is considered to have elected out of the installment_method sec_15aa453-1 d provides that an election under sec_453 generally is irrevocable an election may be revoked only with the consent of the internal_revenue_service sec_15a_453-1 provides that revocation of an election out of the installment_method is retroactive and will not be permitted when one of its purposes is the avoidance of federal income taxes or when the taxable_year in which any payment was received has closed in the instant case taxpayer represents that its return preparer did not prepare taxpayer's year tax_return in accordance with taxpayer's intention to report the sale of its asset under the installment_method as soon as taxpayer realized the error it promptly submitted this request for a ruling seeking the consent of the service for the revocation of the taxpayer's election out of the installment_method conclusion based on careful consideration of all of the information submitted and the representations made we conclude that taxpayer will be allowed to revoke its election out of the installment_sale_method with respect to the sale of property permission to revoke the election out of the installment_method of reporting for the sale of property is granted for the period that end sec_75 days after the date of this letter if the ruling granted in this letter would have any effect on any amounts reported on taxpayer's previously filed amended_return for year taxpayer must file an amended_return for year to reflect the effect of this ruling if any amended returns are required a copy of this letter_ruling must be attached to each of the amended returns except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter including the computation of gain to be reported under the installment_method this ruling is directed only to taxpayer sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by plr-113373-08 attaching a statement to their returns that provide the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this ruling is conditioned upon the accuracy of that information and those representations 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 s william a jackson william a jackson branch chief branch income_tax accounting enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp 2-plr-114903-99 date date legend old parent new parent transferor parent sub fsub transferee transferor fsub fsub fsub fsub plr-114903-99 old parent subs a b c d state m country n business x business y plr-114903-99 date this responds to your authorized representative’s letter dated date requesting rulings as to the federal_income_tax consequences of a proposed transaction additional information was received in letters dated february and date the information submitted for consideration is summarized below new parent sometimes also referred to hereinafter as taxpayer is a state m corporation and the common parent of a consolidated_group the p group new parent is a holding corporation formed on date to hold all of the stock of old parent old parent a state m corporation is a wholly-owned subsidiary of new parent and a member of the p group old parent is engaged in business x transferor parent is a state m corporation and the common parent of a consolidated_group the t group transferor a state m corporation is an a -owned subsidiary of transferor parent and a member of the t group transferor’s lines of business include business y which is complementary to that of old parent’s business x it is represented that for valid business reasons the following transaction was consummated on date the prior transaction i old parent formed new parent as a wholly-owned subsidiary which in turn formed merger sub as a wholly-owned subsidiary solely for the purpose of effecting the transaction ii merger sub was merged with and into old parent with old parent surviving old parent’s shareholders exchanged their stock in old parent for b of new parent’s common_stock iii concurrent with step ii above transferor transferred to new parent the stock of five wholly-owned subsidiaries transferee sub fsub fsub and fsub together sometimes referred to hereinafter as the y group subsidiaries and other assets including those business and operating_assets comprising business y that were not already held directly by such five subsidiaries the y group assets receiving in exchange therefor c of new parent’s common_stock for valid business reasons the following transaction is now proposed the proposed transaction plr-114903-99 iv new parent will transfer the stock of the y group subsidiaries the y group assets liabilities and all its other assets excluding the stock of old parent to old parent v old parent will transfer the following to transferee the stock of the y group subsidiaries the y group assets liabilities and other assets received in step iv above the stock of all its other subsidiaries old parent subs excluding the stock of transferee and the stock of fsub liabilities and all its other assets sec_3 of revproc_2000_3 2000_1_irb_103 provides that the internal_revenue_service will not rule on the qualification of a transaction as a reorganization under sec_368 by reason of sec_368 although revproc_2000_3 provides a general no-rule policy concerning sec_368 the service will rule on collateral issues where the consequences of qualification are not adequately addressed by a statute regulation decision of the supreme court tax_treaty revenue_ruling revenue_procedure notice or other authority published in the internal_revenue_bulletin sec_3 of revproc_2000_3 2001_1_irb_103 provides that the internal_revenue_service will not rule on whether sec_351 applies to an exchange of stock for stock in the formation of a holding_company although revproc_2000_3 provides a general no-rule policy concerning the formation of a holding_company under sec_351 the service will rule on collateral issues where the consequences of qualification are not adequately addressed by a statute regulation decision of the supreme court tax_treaty revenue_ruling revenue_procedure notice or other authority published in the internal_revenue_bulletin taxpayer represents that to the best of its knowledge and belief and but for resolution of the requested rulings below the state law merger of merger sub with and into old parent in exchange for stock of new parent described in step ii above constitutes a reorganization within the meaning of sec_368 and a e taxpayer further represents that the transfer by transferor of the y group subsidiaries and the y group assets to new parent described in step iii above when combined with the reorganization under sec_368 and a e qualifies as a tax-free_exchange under sec_351 the following additional representations have been made in connection with the proposed transaction a old parent and transferee have no plan or intention to sell or otherwise dispose_of other than in the ordinary course of business the stock of any controlled subsidiary within the meaning of sec_368 to which assets may be transferred pursuant to the proposed transaction plr-114903-99 b following the transaction old parent and transferee will either directly or through controlled_subsidiaries within the meaning of sec_368 continue the historic_business of all corporations whose stock is transferred in the transfers c no stock_or_securities will be issued for services rendered to or for the benefit of either transferee in connection with the proposed transaction and no stock_or_securities will be issued for indebtedness or for interest on any indebtedness of any transferee d the income items being transferred from new parent to old parent and from old parent to transferee include accounts_receivable comprising most of the y group assets e no patents or patent applications will be transferred to old parent or to transferee f no copyrights will be transferred g no franchises trademarks or trade names are being transferred h the proposed transaction does not involve an agreement that purports to furnish technical know-how in exchange for stock i stock of transferee and stock of sub fsub fsub and fsub are part of the property being transferred to old parent one hundred percent of the stock of transferee and percent of the stock of sub fsub fsub and fsub are being transferred from new parent to old parent one hundred percent of old parent’s stock is owned by new parent such stock is not being transferred subject_to liabilities and liabilities of new parent in the approximate amount of dollar_figured are being assumed in connection with the transfer of such stock all stock being transferred to old parent is common_stock j stock of sub fsub fsub and fsub are part of the property being transferred to transferee one hundred percent of such stock is being transferred from old parent to transferee one hundred percent of transferee’s stock will at the end of step v of the proposed transaction be owned by old parent such stock is not being transferred subject_to liabilities and liabilities of old parent in the approximate amount of dollar_figured described in representation i above are being assumed in connection with the transfer of such stock all stock being transferred to transferee is common_stock with the exception of the stock in fsub included among the old parent subs whose sole class of stock outstanding is preferred k neither the transfer from new parent to old parent nor the transfer from old parent to transferee is the result of the solicitation by a promoter broker or plr-114903-99 investment house l neither parent nor old parent will retain any rights in the property transferred to old parent and to transferee respectively m no licenses or leases are to be granted in exchange for stock_or_securities n no property to be transferred to old parent or to transferee will be leased back to new parent or to old parent respectively to any of their shareholders or to a related_party o with respect to the larger transaction the shareholders of old parent immediately prior to the prior transaction have received in deemed exchange for their stock of old parent stock of new parent equal in the aggregate to a number of shares having a value as of the date of the exchange of at least percent of the value of all of the formerly outstanding_stock of old parent as of the same date p there is no acquisition_indebtedness beyond the liabilities assumed described in representations i and j above q the adjusted_basis and the fair_market_value of the assets to be transferred by the transferors to the transferees will in each instance be equal to or exceed the sum of the liabilities to be assumed by the transferees plus any liabilities to which te transferred assets are subject r the liabilities of the transferors to be assumed by the transferees were incurred as described in representations i and j above s there is no indebtedness between the transferees and the transferors and there will be no indebtedness created in favor of the transferors as a result of the transaction t no services will be transferred in exchange for stock u no indebtedness will be created in favor of any transferor by any transferee v both immediately before and immediately_after_the_transfer from new parent to old parent there was only a single class of old parent stock outstanding this was common_stock of which new parent owned both immediately before and immediately_after_the_transfer from new parent to old parent percent of the outstanding shares there are no shareholders owning any other common shares of old parent and no other classes of old parent stock outstanding w both immediately before and immediately_after_the_transfer from old parent plr-114903-99 to transferee there was only a single class of transferee stock outstanding this was common_stock of which old parent owned both immediately before and immediately_after_the_transfer from old parent to transferee percent of the outstanding shares there are no shareholders owning any other common shares of transferee and no other classes of transferee stock outstanding x the transfers will occur under a plan agreed upon before the transaction in which the rights of the parties are defined y no stock will be placed in escrow issued later under a contingent stock arrangement or issued by the transferees in the near future including by public offering z no rights warrants or subscriptions of the transferees are outstanding or will be issued or offered aa new parent has only customary employee stock_options outstanding old parent has no options or warrants outstanding bb there is no plan or intention on the part of either old parent or transferee to redeem or reacquire any stock or indebtedness cc taking into account any issuance of additional shares of transferee stock any issuance of stock for services the exercise of any transferee stock_rights warrants or subscriptions a public offering of transferee stock and the sale exchange transfer by gift or other_disposition of any of the stock of the transferees to be received in the exchange the transferors will be in control of their respective transferees within the meaning of sec_368 dd the business reasons for the transfers to old parent and to transferee are to simplify corporate operations and structure ee transferee will remain in existence and retain and use the property transferred to it in a trade_or_business old parent will remain in existence and retain and use the property transferred to it in a trade_or_business except for the property transferred to transferee described in step v above ff there is no plan or intention by either old parent or transferee to dispose_of other than in the ordinary course of business the transferred property other than to transfer the property to a wholly-owned subsidiary as set forth above property transferred to the wholly-owned subsidiary will be held by the subsidiary and there is no plan or intention for that subsidiary to dispose_of the property other than in the ordinary course of business plr-114903-99 gg there are no loans sales exchanges or other transactions between transferors and transferees other than recurring arm’s length sales purchases etc in the normal course of business that will occur or are contemplated whether or not considered as related to or in connection with the exchange in the proposed transaction hh each of the parties to the transaction will pay its own expenses if any incurred in connection with the proposed transaction ii neither old parent nor transferee will be an investment_company within the meaning of sec_351 and sec_1_351-1 of the income_tax regulations jj neither transferee intends to make the election under sec_1362 to be taxed as a small_business_corporation as defined in sec_1361 kk neither transferor is under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock_or_securities received in the exchange will not be used to satisfy the indebtedness of such debtor ll neither transferee will be a personal_service_corporation within the meaning of sec_269a mm fsub an llc organized under the laws of country n included as one of the y group subsidiaries is treated as a corporation for u s federal_income_tax purposes based solely on the information and representations submitted we rule as follows no gain_or_loss will be recognized by new parent upon the transfer of property to old parent in constructive exchange for old parent stock as described above sec_351 rev_rul 1977_2_cb_110 the basis of the old parent stock in the hands of new parent will be increased by an amount equal to the basis of the property transferred by new parent to old parent sec_358 no gain_or_loss will be recognized by old parent upon the receipt of property in constructive exchange for old parent stock sec_1032 old parent’s basis in the property received will be the same as the basis of such property in the hands of new parent immediately prior to the transaction sec_362 plr-114903-99 the holding_period of the new parent property received by old parent will include the period during which such property was held by new parent sec_1223 no gain_or_loss will be recognized by old parent upon the transfer of property to transferee in constructive exchange for transferee stock as described above sec_351 rev_rul 1977_2_cb_110 the basis of the transferee stock in the hands of old parent will be increased by an amount equal to the basis of the property transferred by old parent to transferee sec_358 no gain_or_loss will be recognized by transferee upon the receipt of property in constructive exchange for transferee stock sec_1032 transferee’s basis in the property received will be the same as the basis of such property in the hands of old parent immediately prior to the transaction sec_362 the holding_period of the old parent property received by transferee will include the period during which such property was held by old parent sec_1223 provided that the statutory merger of merger sub with and into old parent otherwise qualifies as a reorganization under sec_368 and sec_368 the subsequent transfers of the acquired stock and the acquired assets by new parent to old parent and by old parent to transferee as described above will not prevent the statutory merger from qualifying as a reorganization under sec_368 and a e provided that the transfer by transferor to new parent described above when combined with the reorganization under sec_368 and a e qualified as a tax-free_exchange under sec_351 then the subsequent transfers of the acquired stock and the acquired assets by new parent to old parent and by old parent to transferee as described above will not prevent the earlier transfers from qualifying under sec_351 a determination of whether the merger of merger sub with and into old parent otherwise qualifies as a reorganization under sec_368 and a e will be made by the district director’s office upon audit of the federal_income_tax returns of the taxpayers no opinion is expressed about the tax treatment of the above transactions under 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 transactions that are not specifically covered by the above rulings in particular no opinion is expressed under sec_368 or a e in addition no opinion is expressed as to the qualification plr-114903-99 of the prior transaction under sec_351 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 a copy of this ruling letter should be attached to the taxpayer’s federal_income_tax return for all years affected in accordance with a power_of_attorney currently on file with this office a copy of this ruling is being sent to the taxpayer’s authorized representative sincerely assistant chief_counsel corporate by lewis k brickates assistant to chief branch


department of the treasury internal_revenue_service washington d c office_of_chief_counsel date number info release date uil genin-168885-02 cc tege eoeg et2 dear i apologize for the delay in responding to your inquiry to our office dated date concerning questions relating to leave donation programs under revrul_90_29 1990_1_cb_11 and notice_2001_69 2001_2_cb_491 unfortunately we are not able to provide a formal opinion on these issues due to the fact that your submission does not comport with the requirements for requesting a private_letter_ruling revproc_2003_1 2003_1_irb_1 sets forth procedures for requesting letter rulings if you wish to request formal guidance such as a private_letter_ruling you should follow the procedures set forth in revproc_2003_1 in the absence of a request for formal guidance we are only able to provide general information accordingly in response to your request we have reviewed the facts provided to us and set forth below general information which we hope is helpful to you notice_2001_69 2001_2_cb_491 which provided interim guidance on the tax treatment of employers’ payments to charitable organizations under leave-based donation programs is no longer in effect it has been modified and superseded by notice_2003_1 2003_2_irb_1 which provides that notice_2001_69 will not be extended to payments made after date in addition revrul_90_29 1990_1_cb_11 is the only published guidance specifically involving amounts paid_by an employer pursuant to an employer established leave- sharing plan the ruling addresses a situation in which employees who suffer medical emergencies may qualify as recipients of leave surrendered to the employer in an employer-sponsored leave bank the plan defines a medical emergency as a medical_condition of the employee or family_member that will require the prolonged absence of the employee from duty and will result in a substantial loss of income to the employee because the employee will exhaust all available leave under the plan apart from the leave-sharing plan genin-168885-02 under the heading issue two of your letter you ask about the proper tax treatment of employee donated leave credits established in three situations your first situation involves programs permitting employees to donate leave credits other than sick leave credits to family members who are employees so that the employee who receives the leave may i care for a family_member including a newborn child who is a member of the leave recipient-employee’s household ii recover from a serious health condition and iii adopt a child first we note that revrul_90_29 refers to donations of leave not to donations of sick leave in addition some of the circumstances described in situation of issue two could qualify as medical emergencies under revrul_90_29 the irs has not issued published guidance addressing the questions you raised in situation that are not medical emergencies or in your situation sec_2 and therefore in the context of a request for general information we cannot address whether the programs described in those situations would qualify for the tax treatment in revrul_90_29 i’ve enclosed a copy of the letter you forwarded to our office if we can be of further assistance please contact at sincerely lynne camillo chief employment_tax branch division counsel associate chief_counsel tax exempt and government entities enclosure


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-126058-03 date date llc trust a b state d1 d2 dear this letter responds to your letter dated date and subsequent correspondence submitted on behalf of llc requesting rulings under sec_301_7701-3 of the procedure and administration regulations and sec_1361 of the internal_revenue_code llc is a limited_liability_company that was formed on d1 llc is currently a disregarded_entity for federal_income_tax purposes llc owns interests in numerous s_corporations a is the sole member of llc a is married to b and both are residents of state which is a community_property_state trust was created on d2 a and b are the settlors and trustees of trust trust is plr-126058-03 revocable by a or b a and b plan to transfer all of their ownership_interest in llc to trust sec_1361 provides that a small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_301_7701-3 provides 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 sec_301_7701-3 provides that unless a domestic eligible_entity elects otherwise the entity is disregarded as an entity separate from its owner if it has a single owner based solely on the facts and the representations submitted we conclude that following the transfer of a and b’s ownership_interest in llc to trust trust will be the sole owner of llc and therefore llc will be an eligible_entity disregarded as an entity separate from its owner unless it elects otherwise we further conclude that trust is an eligible s_corporation shareholder under sec_1361 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code 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 plr-126058-03 in accordance with the power_of_attorney on file with this office copies of this letter are being sent to llc and llc’s second authorized representative sincerely yours carolyn hinchman gray senior counsel branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------------- ---------------------------------- ------------------------------- ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b01 plr-136391-16 date date legend company --------------------------------------------- ----------------------------------------------------------------------------------------------- state -------------- a ----------------------------------------------- -------------------------------- b ----------------------------------------------- ------------------------------ c ----------------------------------------------- --------------------------------------- d ----------------------------------------------- -------------------------------- e ----------------------------------------------- ------------------------------------- f ----------------------------------------------- --------------------------- plr-136391-16 g ----------------------------------------------- ----------------------------------- h ----------------------------------------------- ---------------------------- j ----------------------------------------------- ----------------------------- k ----------------------------------------------- -------------------------------------- trust --------------------------------------------- ----------------------------------------------------------------------------------------------- trust --------------------------------------------- ----------------------------------------------------------------------------------------------- beneficiary ---------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------- date date date date date date date -------------------- ---------------------- ----------------- ----------------- ----------------- ---------------------- --------------------------- a --------------------------------------------- ----------------------------------------------------------------------------------------------- b c -------- ----- plr-136391-16 d --------------------------------------------- ----------------------------------------------------------------------------------------------- e f -------- -------- h ---------------------------------------------- ----------------------------------------------------------------------------------------------- i k -------- ----- m --------------------------------------------- ----------------------------------------------------------------------------------------------- n o p -------- -------- -------- r -------------------------------------------- ----------------------------------------------------------------------------------------------- s t ------ ------ ----------------------------------------------------------------------------------------------- u --------------------------------------------- v ----- w x ------ ---------- plr-136391-16 dear ------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of company by company’s authorized representative requesting relief under sec_1362 of the internal_revenue_code the code facts according to the information submitted company was incorporated under the laws of state on date company attempted to elect to be treated as an s_corporation effective date prior to date shares of company were transferred to trust company represents that trust complies with the requirements for a qualified_subchapter_s_trust qsst under sec_1361 however trust 1’s qsst election was inadvertently signed by the trustee of trust rather than by beneficiary the beneficiary of trust additionally the trustee of trust not beneficiary signed the consent for form_2553 election by a small_business_corporation as a result of the failure of beneficiary to sign trust 1’s qsst election and company’s s_corporation_election company’s s_corporation_election was ineffective between date and date a shares of company’s stock may have been owned by an ineligible s_corporation shareholder between date and date income and other items attributable to the a shares were reported by a an eligible s_corporation shareholder beginning date until date all income and other items from the a shares were allocated as though h owned b shares and trust owned c shares on date the a shares were transferred b shares to h and c shares to trust h and trust were both eligible s_corporation shareholders also between date and date d shares of company’s stock may have been owned by an ineligible s_corporation shareholder between date and date income and other items attributable to the d shares were reported by a beginning date until date all income and other items from the d shares were allocated as though b c d e f g h j k and trust each owned e shares and trust owned f shares on date the d shares were transferred e shares to b c d e f g h j k and trust and f shares to trust b c d e f g h j k trust and trust were all eligible s_corporation shareholders other than trust 1’s failure to properly make a qsst election between date and date h shares of company’s stock may have been owned by an ineligible s_corporation shareholder between date and date income and other items attributable to the h shares were reported by a beginning date until date all income and other items from the h shares were allocated as though h owned plr-136391-16 i shares and trust owned k shares on date the h shares were transferred i shares to h and k shares to trust also between date and date m shares of company’s stock may have been owned by an ineligible s_corporation shareholder between date and date income and other items attributable to the m shares were reported by a beginning date until date all income and other items from the m shares were allocated as though b c d e j k and trust each owned n shares f g and h each owned o shares and trust owned p shares on date the m shares were transferred n shares to b c d e j k and trust o shares to f g and h and p shares to trust between date and date r shares of company’s stock may have been owned by an ineligible s_corporation shareholder between date and date income and other items attributable to the r shares were reported by a beginning date until date all income and other items from the r shares were allocated as though h owned s shares and trust owned t shares on date the r shares were transferred s shares to h and t shares to trust also between date and date u shares of company’s stock may have been owned by an ineligible s_corporation shareholder between date and date income and other items attributable to the u shares were reported by a beginning date until date all income and other items from the u shares were allocated as though b c d e f g h j and k each owned v shares trust owned w shares and trust owned x shares on date the u shares were transferred v shares to b c d e f g h j and k w shares to trust and x shares to trust company represents that there was reasonable_cause for the failure of the beneficiary of trust to sign the consent form for company’s s election and trust 1’s qsst election company further represents that these failures were inadvertent oversights and were not motivated by tax_avoidance or retroactive tax planning company further represents that company has treated itself consistently with being an s_corporation since date and that the beneficiary of trust has consistently included his distributive_share of company's income on his federal_income_tax returns for the year of the invalid election and for all subsequent years as if trust had timely filed a qsst election company further represents that it did not intend for its s_corporation_election to terminate in connection with the transfers to the potentially ineligible shareholders and any termination was not motivated by tax_avoidance finally company and its shareholders agree to make any adjustments required by the secretary consistent with the treatment of company as an s_corporation law and analysis sec_1361 provides that the term s_corporation means with respect to plr-136391-16 any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be an s_corporation shareholder sec_1361 provides that in the case of a_trust described in sec_1361 the deemed owner shall be treated as the shareholder for purposes of sec_1361 sec_1361 provides that a qsst whose beneficiary makes an election under sec_1361 will be treated as a_trust described in sec_1361 and the qsst's beneficiary will be treated as the owner for purposes of sec_678 of that portion of the qsst’s s_corporation stock to which the election under sec_1362 applies sec_1361 defines a qsst as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current beneficiary in the trust shall terminate on the earlier of the beneficiary’s death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary and b all of the income with the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1362 provides that an election under sec_1362 shall be valid only if all persons who are shareholders in such corporation on the day on which such election is made consent to such election sec_1_1362-6 provides in relevant part that in the case of a_trust described in sec_1361 including a_trust treated under sec_1361 as a_trust described in sec_1361 only the person treated as the shareholder for purposes of sec_1361 must consent to the election sec_1362 provides that an election under sec_1362 shall be terminated whenever the corporation ceases to be a small_business_corporation plr-136391-16 sec_1362 provides in relevant part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is once more a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make any adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to the period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as continuing to be an s_corporation during the period specified by the secretary conclusion based solely on the information submitted and the representations made we conclude that company’s s election was ineffective because trust was an ineligible shareholder due to the failure of trust 1’s beneficiary to make a qsst election and to consent on behalf of trust to company’s s_corporation_election in addition we conclude that the ineffectiveness was inadvertent within the meaning of sec_1362 if the election had been valid company’s s_corporation status may have terminated on date date and date when company stock may have been transferred to ineligible shareholders however we conclude that if company’s s_corporation_election was terminated such a termination was inadvertent within the meaning of sec_1362 consequently we rule that company will be treated as continuing to be an s_corporation from date and thereafter provided that company’s s_corporation_election is not otherwise terminated under sec_1362 a will be treated as the shareholder of the a shares from date until date at which point h will be treated as the shareholder of b shares and trust will be treated as the shareholder of c shares a will be treated as the shareholder of the d shares from date until date at which point b c d e f g h j k and trust each will be treated as the shareholder of e shares and trust will be treated as the shareholder of f shares a will be treated as the shareholder of the h shares from date until date at which point h will be treated as the shareholder of i shares and trust will be treated as the shareholder of k shares a will be treated as the shareholder of the m shares from date until date at which point b c d e j k and trust each will be treated as the shareholder of n shares f g and h each will be treated as the shareholder of o shares and trust will be treated as the shareholder of p shares a will be treated as the shareholder of the r shares from date until date at which point h will be treated as the shareholder of s shares and trust will be treated as the plr-136391-16 shareholder of t shares a will be treated as the shareholder of the u shares from date until date at which point b c d e f g h j and k each will be treated as the shareholder of v shares trust will be treated as the shareholder of w shares and trust will be treated as the shareholder of x shares this ruling is conditioned on trust 1’s consent to company’s s_corporation_election signed by beneficiary being filed with the appropriate service_center indicating that the consent is to be associated with the originally filed form_2553 within days of this letter this ruling is further conditioned on beneficiary of trust filing a qsst election for trust with the appropriate service_center effective date within days of the date of this letter a copy of this letter should be attached to the consent and to the qsst election this letter_ruling will be null and void if these conditions are not satisfied except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed concerning whether company is otherwise eligible to be treated as an s_corporation or whether trust is eligible to be treated as a qsst this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent pursuant to the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely laura c fields ________________________________ laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------------------------------------- ---------------------------------------- ------------------------- ----------------------------- ------------------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number ---------------------- refer reply to cc ita b01 plr-103850-13 date date legend taxpayer taxable_year target firm firm firm advisor year date a b dear -------------- --------------------------------------------------------------------------------- ----------------------- ------- --------------------------------------------------------------------------------- ----------------------- --------------------------- --------------------- ---------------------------------- ----------------------------------------- ------- -------------------- ----- -------------- plr-103850-13 this letter responds to a letter_ruling request dated date submitted on behalf of taxpayer taxpayer requests an extension of time under sec_301_9100-1 and -3 of the procedure and administration regulations to make the election described in sec_4 of revproc_2011_29 2011_18_irb_746 which includes attaching a statement to taxpayer’s original federal_income_tax return for taxable_year taxpayer is a publicly traded company formed in year and is the common parent of a consolidated_group on date taxpayer acquired a percent of target in a taxable stock acquisition described in sec_1_263_a_-5 of the income_tax regulations the acquisition at the time of the acquisition target was a privately-held corporation in connection with the acquisition taxpayer and target incurred success-based fees payable to three investment banking advisors firm firm and firm pursuant to formal engagement letters each investment banking advisor earned a success-based_fee based on the value of the acquisition and due only when and if the acquisition closed successfully in total the three investment banking advisors earned success-based fees of dollar_figureb upon the successful closing of the acquisition on taxpayer’s original federal_income_tax return prepared by advisor for taxable_year taxpayer capitalized under sec_263 of the sec_30 percent of dollar_figureb and deducted the remaining percent consistent with taxpayer’s intent to make the election provided in revproc_2011_29 however in reliance on advisor taxpayer failed to attach the mandatory statement identifying the transaction and setting forth this allocation as required by sec_4 of revproc_2011_29 taxpayer requests that an extension of time be granted solely for the purpose of allowing taxpayer to attach to its return for taxable_year the mandatory statement sec_263 provides generally that no deduction is allowed for any amount_paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate or any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made sec_1_263_a_-1t c provides that no deduction is allowed for an amount_paid to acquire or create an intangible which under sec_1_263_a_-4 and d i a includes an ownership_interest in a corporation or other entity see also sec_1_263_a_-4 in the case of an acquisition or reorganization of a business_entity costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized 503_us_79 397_us_572 under sec_1_263_a_-5 a taxpayer must capitalize an amount_paid to facilitate the business acquisition or reorganization transactions described in sec_1_263_a_-5 in general an amount is paid to facilitate a transaction described in sec_1_263_a_-5 if the amount is paid in the process of investigating or otherwise pursuing the transaction whether an amount is paid in the process of investigating or otherwise pursuing the transaction is determined based on all of the facts and circumstances see sec_1_263_a_-5 plr-103850-13 sec_1_263_a_-5 provides that an amount that is contingent on the successful closing of a transaction described in sec_1_263_a_-5 ie a success-based_fee is presumed to facilitate the transaction a taxpayer may rebut the presumption by maintaining sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction section dollar_figure of revproc_2011_29 provides a safe_harbor election for taxpayers that pay or incur success-based fees for services performed in the process of investigating or otherwise pursuing a covered transaction described in sec_1_263_a_-5 in lieu of maintaining the documentation required by sec_1_263_a_-5 a taxpayer may elect to allocate a success-based_fee between activities that facilitate the transaction and activities that do not facilitate the transaction by treating percent of the amount of the success-based_fee as an amount that does not facilitate the transaction and by capitalizing the remaining percent as an amount that does facilitate the transaction in addition the taxpayer must attach a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor indentifying the transaction and stating the success-based_fee amounts that are deducted and capitalized taxpayer is requesting permission with this ruling_request to attach the statement required by sec_4 of revproc_2011_29 to its return by amending its original filed return and superseding it with a return with the proper election statement completed and attached 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 federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin 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_9100-3 provides that requests for relief 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 see also sec_301_9100-3 and c plr-103850-13 conclusion based solely on the facts and representations submitted we conclude that taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government accordingly the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file the statement required by sec_4 of revproc_2011_29 stating that it is electing the safe_harbor for success-based fees identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized the rulings contained in this letter are based upon information and representations submitted by 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 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter including whether taxpayer properly included the correct costs as success-based fees subject_to the retroactive election or whether taxpayer’s transaction was within the scope of revproc_2011_29 moreover this ruling does not express or imply any opinion concerning whether target appropriately reported on taxpayer’s consolidated_return for taxable_year the success-based fees that target incurred as opposed to target reporting those success-based fees on its return for the short taxable_year ending at the close of date 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 a copy of this ruling should be attached to taxpayer’s federal tax returns for the tax years affected alternatively taxpayers filing returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely lewis k brickates branch chief branch office of associate chief_counsel income_tax accounting