internal_revenue_service number release date index number 468a ---------------------------- --------------------------------------- --------------------------- --------------------------------- 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 b6 plr-114503-09 date date re --------------------------------------- ---------------------------------------------- legend taxpayer plant parent location date commission a commission b commission c1 commission c2 method fund director dear ------------- ------------------------------------- ein ---------------- ---------------------------------------------- ----------------------------------- ein ---------------- ------------------------------ ------------------------- ------------------------------------------------ ------------------------------------------------------------------- ----------------------------------------------------- --------------------------------------------------------------- ----------- ------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- this letter responds to your request dated --------------------- for a schedule of deduction amounts for a subsequent special transfer pursuant to sec_468a of the internal_revenue_code and sec_1_468a-8t c of the temporary income_tax regulations and a mandatory review of a revised schedule of ruling amounts pursuant to sec_468a of the internal_revenue_code and sec_1_468a-3t f iii of the temporary income_tax regulations with regard to a qualified nuclear decommissioning reserve fund that the taxpayer has established for the plant and associated facilities taxpayer was previously granted schedules of ruling amounts and schedules of deduction amounts most recently on ------------------ taxpayer submitted supplemental plr-114503-09 information by letter on ----------------- and ------------------ information was submitted pursuant to sec_1_468a-3t e taxpayer represents the facts and information relating to its request for a schedule of deduction amounts and a schedule of ruling amounts as follows taxpayer is an investor-owned public_utility taxpayer is a subsidiary of parent and is included in a consolidated_return filed by parent taxpayer owns a --------- percent interest as a tenant in common in the plant the plant is situated at location plant’s amended operating license is scheduled to expire on date the estimated base cost for decommissioning plant is based on an independent study and the proposed method of decommissioning the plant is method taxpayer is subject_to the jurisdiction of commission a commission b and commission c1 and commission c2 the jurisdictional percentages for these commissions are ----------- ----------- --------- and --------- respectively based upon the assumptions used in taxpayer’s most recent schedule of ruling amounts as adopted by commission a commission b commission c1 and commission c2 it is estimated that fund assets will earn an after-tax rate of return of --- -----percent the total cost of taxpayer’s share of the cost of decommissioning the plant is estimated to be dollar_figure--------------- ------- dollars this base cost for decommissioning the taxpayer’s interest in the unit was escalated at ---- percent annually resulting in total a total future cost to taxpayer of approximately dollar_figure----------------- ------- dollars under ratemaking assumptions used during the first proceeding before commission a the plant would no longer be included in rate base in ------- in the prior schedule of ruling amounts issued under sec_468a of the code as in effect prior to the estimated_useful_life of the plant is --- years ------- -------- and the estimated period for which the fund is to be in effect is --- years --------------- thus the percentage of the total estimated costs qualifying for deduction in the schedule of ruling amounts under prior_law was -------- percent sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act plr-114503-09 amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate prior to the changes made by the act deductible contributions were limited to the amount necessary for an electing taxpayer to fund the plant’s post-1983 nuclear decommissioning costs determined as if decommissioning costs accrued ratably over the estimated_useful_life of the plant provided that the taxpayer elected to establish a fund in prior_law also did not allow a taxpayer electing to establish a fund later than to contribute to that fund any amount in excess of that amount necessary to fund the ratable portion of the plant’s nuclear decommissioning costs beginning in the year the fund is established sec_468a now allows a taxpayer to contribute to a nuclear decommissioning fund the entire cost of decommissioning the plant including both the pre-1984 amount that was denied under the law prior to the act as well as any amount attributable to any year after in which a taxpayer had not established a fund under sec_468a sec_468a provides that the deduction for the contribution of the previously-excluded amount is allowed ratably over the remaining useful_life of the nuclear plant sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1t a provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1t b of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest plr-114503-09 sec_1_468a-2t b provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1 468a- 2t b does not apply to any special transfer permitted under sec_1_468a-8t sec_1_468a-3t a provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3t a provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3t a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3t a provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the temporary regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3t a further provides that consistency with financial_accounting statements plr-114503-09 is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3t b provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3t c the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3t c provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3t c i a if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3t c i b provides that if the nuclear plant is not described in sec_1_468a-3t c i a the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3t c i c any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3t c i a sec_1_468a-3t d provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3t d provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3t e enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3t f provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3t e the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sec_1_468a-8t a provides that under the provisions of sec_468a as described above a taxpayer may make a special transfer of cash or property to the nuclear decommissioning fund this special transfer is not subject_to the sec_468a limitation the amount of the special transfer is the present_value of the pre-2005 plr-114503-09 nonqualifying percentage of the estimated future costs of decommissioning the nuclear plant that was disallowed under sec_468a prior to the act sec_1_468a-8t a defines the pre-2005 nonqualifying percentage as equal to percent reduced by the sum of the qualifying percentage used in determining the taxpayer’s last schedule of ruling amounts for the fund under sec_468a as it existed prior to the act and the percentage transferred in any previous special transfer sec_1_468a-8t a provides that the taxpayer is not required to transfer the entire amount eligible for the special transfer in one year but must take any prior special transfers into account in calculating the pre-2005 qualifying percentage further pursuant to sec_1_468a-8t c a taxpayer making a special transfer in more than one year must request a new schedule of deduction amounts in connection with each special transfer sec_1_468a-8t b provides that the deduction for the special transfer is allowed ratably over the remaining useful_life of the nuclear plant under sec_1 468a- 8t b iii the deduction for property contributed in a special transfer is limited to the lesser_of the fair_market_value of the property or the taxpayer’s basis in the property under sec_1_468a-8t b the taxpayer recognizes no gain_or_loss on the special transfer of property the taxpayer’s basis in the fund is not increased by reason of the special transfer of property and the fund’s basis in the property transferred in the special transfer is the same as the transferee’s basis in that property immediately prior to the special transfer sec_1_468a-8t c provides that taxpayer may not make a special transfer to a qualified nuclear decommissioning fund unless the taxpayer requests from the irs a schedule of deduction amounts in connection with such transfer a request for a schedule of deduction amounts may be made in connection with a request for a schedule of ruling amounts but in such case the calculations for both the schedule of ruling amounts and the schedule of deduction amounts must be separately_stated as stated above prior to the changes made by the act deductible contributions were limited to the lesser_of the amount necessary to fund the plant’s post-1983 nuclear decommissioning costs or the amount necessary to fund the plant’s decommissioning costs for that portion of the plant’s estimated_useful_life for which a fund had been established under that prior_law taxpayer was allowed to contribute --- -------- percent of the amounts necessary to fully decommission its share of the plant sec_468a allows a taxpayer to contribute to the nuclear decommissioning fund the pre-1984 amount that was denied under the law prior to the act thus taxpayer is able to contribute the additional --------percent of the amounts necessary to decommission its ownership share of plant the original special transfer occurred in ------- and related back to the ------- tax_year the value of this special plr-114503-09 transfer is dollar_figure-------------- ------- dollars this amount represents ------ percent of the amounts necessary for taxpayer to decommission its ownership share of the plant as a result the taxpayer is now able to contribute -------- percent of the amounts necessary to decommission its ownership of the plant taxpayer may ratably deduct the amount of the subsequent special transfer for the ------- though ------- tax years the value of the subsequent special transfer is dollar_figure------------- ------- the total future cost of decommissioning the plant as of the date of this request is dollar_figure----------------- ------- dollars we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we conclude that the taxpayer may make a subsequent special transfer of dollar_figure------------- and may ratably deduct the amount contributed for the ------- though ------- tax years as set forth below schedule of deduction amounts year each year ------------ original special transfer subsequent special transfer dollar_figure------------ dollar_figure--------------- total dollar_figure---------- the subsequent special transfer amount stated above is the maximum amount permitted to be transferred to the fund under sec_468a if taxpayer transfers a lesser amount to the fund the taxpayer may deduct that lesser amount ratably over the period of years described above further in the event that taxpayer transfers a lesser amount in tax_year ------- in order to make an additional special transfer in a later year taxpayer must request a new schedule of deduction amounts and in that request must take the tax years ------- through ------- transfers into account and recalculate the pre- qualifying percentage in such request we note that if taxpayer elects to make a special transfer of property for all or a portion of this special transfer the amount of the deduction is the lesser_of the fair_market_value of the property transferred or the basis of the property in the hands of the taxpayer immediately prior to the transfer in either event the deduction of the taxpayer with respect to the property is limited to the taxpayer’s basis in the property we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3t a taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions plr-114503-09 taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1t b of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3t d of the regulations pursuant to sec_1_468a-3t a taxpayer has demonstrated that by following the assumptions approved by the commissions the proposed schedule of ruling amounts is consistent with the principles of sec_468a and the regulations thereunder and that such schedule is based on reasonable assumptions the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2t b of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts approved schedule of ruling amounts year each year --------------- comm a dollar_figure-------------- --------- comm b dollar_figure------------ ------- comm c comm c-other dollar_figure---------- dollar_figure---------- total dollar_figure--------------- -------- if any of the events described in sec_1_468a-3t f occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above plr-114503-09 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office the original of this letter is being sent to the taxpayer’s authorized representative we are also sending a copy of this letter_ruling to the director and to the taxpayer pursuant to sec_1_468a-7t a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


id office uilc cca_2009101611111520 --------------------- number release date from ---------------------- sent tuesday date pm to --------------------- cc subject fw per our earlier conversation this e-mail is to memorialize the previous verbal advice we provided to you legend parent -------- group ---------------------------------------------------------- group ------------------------------------------------------------------------------------------------- sub ----------------------------------------------------------------------------- sub ------------- sub ------------------------------------ sub ------- litigants --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- period ------------------------- period --------------------------------------------------------- state x ------------- state y -------------- business a ---------------------------------------------- business b ------------------------------------------------------------------------------------------------ -------------- agreement ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- target ----------------------------------- year ------- year -------- year -------- year ------- year -------- month ------------- month ---------------- month ---------- date -------------- date --------------- date ------------------ letter_ruling ------------------- activity x of business b ----------------------------------------------- item b ------------------ m --------------- n ------------------ o --------------- p ---------------- q --- r -- s ------------------ facts parent is a publicly-traded company and the common parent of group sub sub and sub were subsidiaries of parent and all three had joined in the filing of the group consolidated_returns during period which commenced in year and ended in year parent is incorporated under the laws of state y sub sub and sub hereafter collectively referred to as the parent subsidiaries were incorporated under the laws of state x parent was engaged in several different businesses including business a and business b directly and through its subsidiaries sub sub and sub were engaged in business b parent in transactions qualifying as sec_368 reorganizations thereafter up until the spin off of target parent continued to conduct business b directly or through target that had been conducted by the parent subsidiaries in year all three parent subsidiaries were merged into in year parent formed target as a subsidiary under the laws of state x in contemplation of separating business a from business b in year parent target and sub entered into a plan_of_reorganization to effect the spin-off of both target and sub in transactions anticipated to qualify as tax free reorganizations under sec_355 under the plan parent transferred to target all assets related to business b and the stock of some wholly-owned subsidiaries to parent and assumed the liabilities associated with business b in exchange target issued its stock from month year through month year target conducted business b as a subsidiary of parent and was included in the group consolidated_group on date year parent spun-off target thereafter target became a publicly-traded common parent of the target and subsidiaries consolidated_group following the spin-off of target parent continued to conduct other lines of business including business a both directly and through its remaining subsidiaries target conducted business b the service issued parent a letter_ruling ruling that the formation of target and the subsequent transfer by parent of the business b assets to target and spin-off of target qualified as a tax-free reorganization under sec_368 and sec_355 in month year just before the spin-off was completed a class action lawsuit by litigants was filed against parent concerning the conduct of activity x of business b during period the lawsuit alleged that parent engaged in unlawful schemes and courses of conduct that induced persons to pay for activity x of business b in violation of state law and certain violations of common_law litigants sought money damages rescission of activity x of business b contracts and restitution for the money which litigants paid pursuant to the contracts during period period includes all of period and several years thereafter even years after parent spun off target in month year a court approved a class action settlement of litigants’ claims the settlement agreement settled all claims arising out of the litigants’ allegations against parent concerning activity x of business b in consideration for the settlement parent agreed to pay the litigants the sum of dollar_figurem parent and target agreed that the amount to be paid with respect to the settlement was an exclusive target contingent_liability relating to business b as such target was responsible for the liability but entitled to reimbursement of q percent of the amount in excess of dollar_figureo from parent and it was entitled to r percent of the amount in excess of dollar_figureo from sub target accrued and paid dollar_figuren of the dollar_figurem settlement parent paid dollar_figurep and donated item b to the class of litigants based on the payment of dollar_figuren to the litigants target desires to compute its tax_liability with the benefit of sec_1341 even though the amount previously included in group 1’s taxable_income was earned and reported by the parent subsidiaries in consolidated_return years occurring prior to the formation of target target argues that it is entitled to determine its tax_liability using the tax treatment afforded by sec_1341 with respect to these previously-included-in-income amounts because it is the successor to the parent subsidiaries based on parent 1’s transfer of the assets of business b to target and because target paid dollar_figuren of the settlement amount based on its liability under state law as a transferee in computing the amount of income included in the consolidated_taxable_income of group by the parent subsidiaries under a claim of right during period target relies solely on the amount of income from activity x of business b earned by the parent subsidiaries during period and reported by parent on the group consolidated_returns for those years issue sec_1341 law and analysis a taxpayer must satisfy the following three requirements to qualify for the tax benefits of sec_1341 a the taxpayer must have included an item in gross_income for a prior taxable_year or years because it appeared that the taxpayer had an unrestricted right to the item a a deduction must be allowable to the taxpayer for the current taxable_year because it was established after the close of the taxable_year or years of income inclusion that the taxpayer did not have an unrestricted right to the item or portion thereof and a the amount of the deduction must exceed dollar_figure sec_1341 when it applies imposes on the taxpayer a tax for the current taxable_year that is the lesser amount of the income_tax for the current tax_year as computed with a deduction for the amount restored sec_1341 or the decreases to the income_tax for those prior taxable years that result from making a tax redetermination for each of those prior tax years based on excluding such restored items or portion thereof from the gross_income of those prior tax years sec_1341 sec_381 sec_381 provides that in the case of certain acquisitions of assets of a corporation by another corporation the acquiring_corporation succeeds to certain tax_attributes of the transferor_corporation listed in sec_381 determined as of the close of the day of distribution or transfer subject_to the conditions and limitations specified in sec_381 and sec_381 sec_381 does not expressly list the ability to use sec_1341 with regard to the acquiring corporation’s restoration of an item previously taken into account by the transferor_corporation in determining its the transferor corporation’s gross_income in a prior taxable_year nevertheless the service has ruled that the acquiring_corporation can avail itself of the sec_1341 restoration treatment where the transferor_corporation had in a prior tax_year included the pertinent item in its gross_income pursuant to a claim of right the acquiring_corporation may claim pursuant to sec_381 that this tax treatment has been transferred to it in connection with its assumption of an obligation as described under sec_381 of the transferor or the distributor corporation see revrul_71_496 1971_2_cb_315 the acquiring_corporation in a sec_368 reorganization was entitled under sec_381 to deduct repayment of government subsidy payments previously received and reported by the acquired_corporation and compute its tax under sec_1341 for the year of repayment a carryover of tax_attributes from the transferor or distributor corporation to the acquiring or distributee corporation may occur in a corporate_liquidation under sec_332 sec_381 or in a transfer of corporate assets to which sec_361 applies but only if the transfer is in connection with a reorganization described in subparagraph a c d f or g of sec_368 however sec_381 provides this limitation in the case of a reorganization under sec_368 or g the transfer of tax_attributes occurs only if the requirements of subparagraphs a and b of sec_354 are satisfied the requirements of sec_354 and b are satisfied only if the corporation to which the assets are transferred acquires substantially_all of the assets of the transferor of such assets and the stock securities and other properties received by such transferor as well as the other properties of such transferor are distributed in pursuance of the plan_of_reorganization consequently an acquiring_corporation cannot invoke sec_381 to claim the benefit of the carryover of corporate tax_attributes from the transferor_corporation to the acquiring_corporation in either a d or g reorganization where the property transfer results from a corporate_division although the acquiring_corporation cannot base a claim to the benefit of the carryover of corporate tax_attributes on sec_381 that section does not prohibit it from claiming such benefit under another section of the code or general tax principles see sec_1_381_a_-1 which states sec_381 does not apply to partial liquidations divisive reorganizations or other transactions not described in subparagraph of this paragraph moreover sec_381 does not apply to the carryover of an item or tax attribute not specified in subsection c thereof in a case where sec_381 does not apply to a transaction item or tax attribute by reason of either of the preceding sentences no inference is to be drawn from the provisions of sec_381 as to whether any item or tax attribute shall be taken into account by the successor_corporation does taxpayer succeed to the sec_1341 treatment during period the former parent subsidiaries generated items of gross_income attributable to activity x of business b prior to their merger into parent and while these subsidiaries were members of group these items of gross_income were includible under sec_1_1502-12 in each subsidiary’s separate_taxable_income for purposes of computing group 1’s consolidated_taxable_income under sec_1_1502-11 when an item is included in gross_income the tax treatment under sec_1341 for each restored deduction is to be considered a tax attribute of each individual member rather than a tax attribute that attaches to the group as a whole the three parent subsidiaries had included these amounts in their separate gross incomes before parent 1’s formation and subsequent spin off of target subsequent to these inclusions the three parent subsidiaries merged into parent parent continued to conduct business b that had been conducted by the parent subsidiaries but later formed target by transferring to target among other things the business b assets in exchange target issued its stock to parent and assumed the liabilities associated with business b shortly thereafter parent spun-off of target in a transaction qualifying as a tax-free reorganization under sec_368 and sec_355 if the same corporation that had previously included the amount in gross_income under a claim of right is the same corporation that is obligated to restore the amount then that entity is entitled to the deduction afforded by the sec_1341 tax restoration treatment here however the three parent subsidiaries were the entities that had previously included the amounts in gross_income and they are no longer in existence the potential for sec_1341 tax restoration treatment that had attached to each of these subsidiaries will vanish unless sec_381 or some other provision allows a carryover of the treatment to parent and or target target has represented that the three parent subsidiaries merged into parent in transactions qualifying as sec_368 mergers assuming that the three tax free reorganizations did qualified as valid sec_368 reorganizations and provided that parent assumed the refund obligations of the three parent subsidiaries with respect to amounts that they included in their in gross incomes by reason of their claims of right the sec_1341 tax restoration treatment will have carried over to parent as a result of the sec_368 merger transactions that qualify as transactions described in sec_381 or sec_381 see revrul_71_496 target and not parent however is the entity required to restore amount n which amount represents the amount the three parent subsidiaries previously included in their separate gross incomes under claims of right since parent is not required to restore amount n then at least with regard to amount n parent may not avail itself of the deduction computed under the sec_1341 tax restoration treatment regime so although the sec_1341 tax restoration treatment carried over to parent the issue remains whether with regard to amount n the sec_1341 tax restoration treatment again carries over this time from parent to target target agreed to assume the liabilities associated with business b the business previously carried on by the parent subsidiaries in exchange for parent transferring to target among other things business b and the assets associated with business b additionally by court settlement parent and target were required to restore amount m amount n is included in this amount to the litigants moreover parent and target had entered into agreement which established that these court-settled liabilities at least to the extent of amount n are exclusive target contingent liabilities target was therefore legally bound to restore and did restore amount n to the litigants even assuming amount n represents the collective amounts attributable to activity x of business b that the parent subsidiaries included in their gross incomes and that these includable amounts satisfied sec_1341’s requirement that an item have been included in gross_income in a prior taxable_year or years on account of the fact that the three subsidiaries of parent had an unrestricted right to these amounts the question nonetheless is whether target may take advantage of the benefit of the deduction for amount n afforded by the sec_1341 tax restoration treatment did the sec_1341 tax restoration treatment carry over to target as a result of its assuming the liabilities associated with business b in a divisive sec_368 reorganization target answers this question in the affirmative arguing that it is the successor to the parent subsidiaries based on parent 1’s transfer of the assets of business b to target and because target paid amount n of the settlement amount based on its liability under state law as a transferee we agree that target is entitled to the benefit of a deduction for amount n but not for the reasons urged on us by target target acquired only the business b assets from parent and not substantially_all of parent 1’s assets in the sec_368 reorganization resulting in target’s formation this transaction however constituted a divisive not an acquisitive_d_reorganization for sec_381 to apply to the transfer of tax_attributes to a transferee corporation when as here the transferee corporation was formed as a result of a divisive d_reorganization the requirements of sec_354 and b must be satisfied sec_381 because parent did not transfer substantially_all of its property to target the requirements of sec_354 were not satisfied and therefore target may not claim the carryover of tax_attributes under sec_381 this latter conclusion does not end the analysis however the consolidated_return_regulations do not expressly address the application of sec_1341 sec_1_1502-80 provides that the code which of course includes sec_1341 or other law shall be applicable to the group to the extent the regulations do not exclude its application moreover sec_1_1502-80 provides that to the extent other rules are not excluded or modified by the consolidated_return provisions they will still operate as noted above sec_1_381_a_-1 leaves open the possibility that a corporation that acquires the assets of another corporation as a successor of the transferor may succeed to a tax attribute of the corporation whose assets are acquired notwithstanding that the acquisition satisfies neither sec_381 nor sec_381 here because parent continued to exist after the formation of target target is not a successor_corporation to parent under state law therefore target cannot avail itself of the language of reg sec_1_381_a_-1 moreover because it is not a successor to parent we conclude that target is not entitled to compute its tax_liability under the sec_1341 tax restoration treatment regime once again however this latest conclusion does not end the analysis we must still determine whether target may nonetheless deduct amount n that it paid to the litigants we conclude that it is entitled to deduct amount n if a transferee corporation's payments of assumed_liabilities could have been deducted by the transferor_corporation had they been made before a sec_351 exchange the transferee is entitled to a deduction for the amount of the payments revrul_80_198 this rule applies not only to fixed liabilities but also to contingent liabilities rev_rul this rule is subject_to two limitations there must be a valid business_purpose for the transfer of the liabilities and the liabilities must be transferred together with their related receivables and both must have arisen in the ordinary course of business and must not have been accelerated or prepaid for a tax-avoidance purpose although the transaction here is a sec_368 reorganization it also qualifies under sec_351 parent has received favorable rulings that the exchange of the business b assets for target’s stock and target’s assumption of the business b liabilities constituted a valid tax-free_exchange under sec_368 of the code moreover parent 1’s stated purpose in transferring the business b assets and liabilities to target was to separate business b from its other businesses this alone is a substantial business reason for the transaction itself furthermore there are no facts indicating that parent had any_tax avoidance motive for entering the transaction we conclude that target in assuming these liabilities associated with business b which were transferred together with the business b assets in a transaction that qualifies as tax free under both sec_368 and sec_351 is entitled under the holdings and rationales of rev ruls and to a deduction for amount n that it paid to the litigants pursuant to the court-approved settlement since parent did not deduct any amounts associated with the assumed_liabilities prior to the transfer to target the last remaining question therefore is whether target is entitled to deduct this amount as an ordinary and necessary business_expense under sec_162 sec_162 of the code provide a deduction to a taxpayer for business_expenses taxpayer incurs and pays in transactions qualifying as transfers under sec_351 and nonacquisitive sec_368 reorganizations where the contingent liabilities of a transferor_corporation are assumed by the acquiring_corporation the acquiring_corporation is allowed to deduct the liabilities when they mature or are paid the deduction is premised on the acquiring_corporation being treated as having stepped into the shoes of the transferor with respect to the liabilities accordingly to the extent that the liabilities target assumed were incurred in the ordinary course of business by the parent subsidiaries and were associated with the business b assets parent transferred to target in a sec_368 transaction target may deduct as ordinary and necessary business_expenses under sec_162 amount n it paid to extinguish these contingent liabilities to the extent such amounts would otherwise have been deductible by parent if not assumed by target please call -----------------------at ---------------------if you have any further questions -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- -------------------------------------------------


t c memo united_states tax_court stanley howard petitioner v commissioner of internal revenue respondent docket no 7913-o0l filed date joyce griggs for petitioner john a weeda and judith c winkler for respondent memorandum findings_of_fact and opinion laro judge petitioner seeks judicial review under sec_6330 of an adverse appeals_office collection action determination unless otherwise indicated section references are to the internal_revenue_code applicable to the years in issue rule references are to the tax_court rules_of_practice and procedure - - findings_of_fact some facts were stipulated we incorporate by this reference the parties’ stipulation of facts and the accompanying exhibits petitioner resided in orofino idaho when the petition in this case was filed petitioner failed to file income_tax returns for through respondent prepared substitute returns for each year at issue on date a statutory_notice_of_deficiency was issued to petitioner for and statutory notices of deficiency for and were issued to petitioner on date respondent assessed dollar_figure of income_tax penalties and interest against petitioner for the years at issue on date respondent issued a final notice_of_intent_to_levy and notice of your right to a hearing to petitioner petitioner timely requested a hearing in his request for a hearing petitioner raised a single argument i do not agree with the collection action of levy and notice_of_intent_to_levy notice date the basis of my complaint is what i believe to be the lack of a valid summary record of assessment pursuant to sec_301_6203-1 without a valid assessment there is no liability without a liability there can be no levy no notice_of_intent_to_levy nor any other collection actions - - on date respondent provided written notification to petitioner’s representative that a telephone hearing was scheduled for date and enclosed copies of respondent’s computer transcripts of account for each of the tax years at issue the appeals officer relied upon the computer transcripts of account a k a meftra or meftra-x that were contained in the administrative file as both proof that a valid assessment was made and verification of petitioner’s liability at the time scheduled for the hearing the appeals officer placed telephone calls to petitioner’s representative at two different telephone numbers provided by the representative petitioner’s representative was not available at either number the appeals officer left messages at both numbers requesting that petitioner’s representative contact the appeals officer to reschedule the hearing petitioner’s representative did not return either message on date respondent sent to petitioner a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination the notice_of_determination states in pertinent part you allege the assessments and the liabilities are invalid statutory_notice_of_deficiency snd were sent to you dated date for the tax_year and date for the and tax years there is no evidence that you responded to the snds either by filing _- _- amended returns or petitioning the tax_court you are precluded from raising liability as an issue under sec_6330 b you have not provided any relevant information or proposed any alternative collection resolutions you were offered an opportunity for a hearing to raise appropriate issues under the statute you did not respond to this opportunity without further cooperation it is appeals determination that the proposed collection action balances the need for efficient collection_of_taxes with the taxpayer’s legitimate concern that any collection action be no more intrusive than necessary petitioner timely filed a petition for judicial review of that determination after the time the petition was filed with this court but before trial respondent provided petitioner with copies of the form_4340 certificate of assessments and payments for each year at issue opinion in the judicial review of a sec_6330 determination where the validity of the underlying tax_liability is properly at issue the court will review the matter de novo where the underlying liability is not at issue the court will review the commissioner's administrative determination for abuse_of_discretion 114_tc_604 in this case the validity of the underlying tax is not at issue consequently we review respondent’s determination under the abuse_of_discretion standard - - petitioner’s sole allegation of error is that the appeals officer abused her discretion by failing to obtain proper verification of the liability from the secretary as required by sec_6330 the appeals officer relied on the computer transcript of account to verify petitioner’s tax_liability respondent argues that in the absence of any evidence of an irregularity in the assessment reliance upon the transcript of account as verification of the liability is sufficient to satisfy the requirements of sec_6330 we agree with respondent sec_6331 provides that if any person liable to pay any_tax neglects or refuses to pay the tax within days after notice_and_demand for payment the secretary may collect the tax by levy upon the taxpayer’s property sec_6331 provides that the secretary must provide the taxpayer with notice including notice of the administrative appeals available to the taxpayer before proceeding with collection by such a levy in congress enacted sec_6330 to provide additional procedural protections for taxpayers in tax collection matter sec_2 any other issues raised by petitioner at the administrative level are deemed conceded because petitioner did not pursue them at trial and did not file a posttrial brief as required by the court’s rules see rule a remuzzi v commissioner tcmemo_1988_8 issue not addressed by the taxpayers on brief deemed conceded affd without published opinion 867_f2d_609 4th cir - - involving the imposition of a levy on a taxpayer's property internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_685 sec_6330 generally provides that the secretary cannot proceed with the collection_of_taxes by way of a levy until the taxpayer has been given notice and an opportunity for administrative review of the matter in the form of a hearing judicial review of the administrative determination is available if the taxpayer timely petitions this court or the appropriate united_states district_court sec_6330 sec_6330 requires that the appeals officer shall at the hearing obtain verification from the secretary that the requirements of any applicable law or administrative procedure have been met petitioner relies upon sec_301_6330-1 proceed admin regs to demonstrate that respondent failed to comply with sec_6330 sec_301_6330-1 supra governs the matters to be considered at the hearing and provides in relevant part petitioner actually referenced the temporary regulations sec_301_6320-1t e temporary proced admin regs fed reg date we understand that petitioner intended to reference sec_301_6330-1t e temporary proced admin regs fed reg date additionally since this case was submitted final regulations were issued and are applicable to this case the final regulations effected no material_change to the section cited by petitioner - j- e matters considered at cdp hearing in general appeals has the authority to determine the validity sufficiency and timeliness of any cdp_notice given by the irs and of any request for a cdp hearing that is made by a taxpayer prior to issuance of a determination the hearing officer is required to obtain verification from the irs office collecting the tax that the requirements of any applicable law or administrative procedure have been met we have previously held that an appeals officer may rely on either a form_4340 or a computer printout of the transcript of account for the taxpayer to verify the taxpayer’s liability and that a valid assessment has been made see 115_tc_35 kuglin v commissioner tcmemo_2002_51 mann v commissioner tcmemo_2002_48 wyli v commissioner tcmemo_2001_65 the information contained in a form_4340 that is used to verify the validity of an assessment is also contained in a computer transcript of account accordingly the appeals officer’s reliance upon the computer transcript as verification of petitioner’s liability satisfied the requirements of sec_6330 moreover when the commissioner provides the taxpayer with the form_4340 ie proof of assessment after the hearing and before the trial and the taxpayer does not show at trial any irregularity in the assessment procedure that would raise a question about the validity of the assessments the taxpayer is --- - not prejudiced see 118_tc_162 in this case petitioner was provided with a copy of the form_4340 prior to trial however petitioner did not allege any irregularities in the assessment procedure petitioner also did not present any evidence at trial or otherwise show any irregularity in the assessment procedure accordingly we sustain respondent’s determination that the collection action should proceed additionally petitioner has not alleged that the proposed method of collection is inappropriate neither has petitioner offered any alternative means of collection nor has he raised any spousal defenses accordingly we hold for respondent see 117_tc_183 accordingly decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------------------------------ ------------------------- --------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ----------------- telephone number --------------------- refer reply to cc intl b06 plr-139002-15 date date in re ------------------------------------------------------ legend taxpayer law firm accounting firm company shareholder a shareholder b year date date ------------------------------------------------------ ------------------------------------------------- ---------------------------------------------- -------------------------------- --------------------- ---------------------- ------- ---------------------- -------------------------- dear ---------------- this responds to a letter dated date supplemented by a letter dated date submitted by accounting firm requesting that the internal_revenue_service service grant taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 to file form 4876-a election to be treated as an interest_charge_disc for taxpayer’s first taxable_year the rulings contained in this letter are based upon information and representations submitted by taxpayer and accounting firm and accompanied by affidavits and penalty of perjury statements executed by appropriate parties this office has not verified any of the materials submitted in support of the request for rulings it is subject_to verification on examination plr-139002-15 facts taxpayer is a domestic_corporation that assists company with the export of property shareholder a and shareholder b own taxpayer shareholder a owns a majority interest in company the remaining shareholders including shareholder b own minority interests in company and are not related to shareholder a in year law firm and accounting firm advised shareholder a and shareholder b of the benefits associated with operating an interest charge domestic_international_sales_corporation ic-disc shareholder a and shareholder b were not familiar with ic- disc matters after deciding to form taxpayer as an ic-disc shareholder a and shareholder b engaged law firm to form taxpayer and engaged accounting firm to file the election for ic-disc status taxpayer relied on accounting firm and law firm to organize and to prepare all documents and filings needed to establish taxpayer as an ic-disc as a result taxpayer was incorporated on date with the sole purpose of qualifying and operating as an ic-disc taxpayer began operating as an ic-disc on date accounting firm’s certified_public_accountant responsible for filing the form 4876-a failed to file it however shareholder a and shareholder b mistakenly believed that all requirements for taxpayer to operate as an ic-disc were satisfied on date after filing its form 1120-ic-disc for year taxpayer received a notice from the service informing taxpayer that it had failed to timely file form 4876-a until then taxpayer had not received any notice and was not otherwise aware that a form 4876-a had not been filed after discovering that a form 4876-a had not been filed taxpayer requested a ruling granting an extension of time to file form 4876-a for its first taxable_year law and analysis sec_992 of the internal_revenue_code the code provides that an election by a corporation to be treated as a disc1 shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 of the code provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election as used in this letter the terms ic-disc and disc have the same meaning plr-139002-15 temporary sec_1_921-1t provides in part that a corporation electing ic-disc status must file form 4876-a and that a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion may 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 under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that a regulatory election is 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 for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government based on the facts and representations submitted with taxpayer’s ruling_request we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a such filing will be treated as a timely election to be treated as an ic-disc for taxpayer’s first taxable_year the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim ic-disc status or benefits see sec_301_9100-1 a copy of this letter_ruling should be filed with taxpayer’s form 4876-a 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 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-139002-15 pursuant to a power_of_attorney on file in this office a copy of this letter is being furnished to your authorized representative sincerely _____________________________________ joseph dewald senior technical reviewer branch office of associate chief_counsel international enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si br - plr-114498-99 date date legend x state d1 this responds to your letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 the shareholders of x intended that x elect to be treated as an s_corporation for federal tax purposes effective d1 however the election to be treated as an s_corporation was not timely filed law and analysis sec_1362 provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 provides when an s election becomes effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made if an election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will generally not be treated as an s_corporation until the following taxable_year plr-114498-99 however sec_1362 provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determines reasonable_cause existed for the failure to timely make the election then the secretary can treat such an election as timely made for that taxable_year and effective as of the first day of that taxable_year in the present case x failed to timely elect s_corporation treatment effective d1 however x has established reasonable_cause for not making a timely election and is thus entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center 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 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely signed dianna k miosi dianna k miosi chief branch office of the assistant chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


significant index no - department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division aug se’ tlep rat - ka re this letter constitutes notice that with respect to the above-named defined benefit pension_plan your request for an extension of amortization periods under sec_412 of the internal_revenue_code code for the plan_year beginning january -_- has been denied you were informed of our tentative denial and were offered a conference of right by letter dated july concerning our tentative denial our tentative denial was based on the taxpayer having negotiated an estimated increase of the projections submitted by the plan’s actuary showed that the increase of in contributions for has addressed the plan’s current financial problems you were given days to schedule a conference in contributions for the plan_year the 21-day period stated in our july letter has passed and your authorized representative has communicated with us to that you do not want to schedule a conference therefore our tentative denial is now final _ a copy of this letter has been sent to the authorized representatives listed on the power_of_attorney form on file with this office this matter please contact ‘ if you have any questions concerning 5s sincerely vj james e holland jr manager employee_plans technical


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 ---------------------------------------- telephone number --------------------- refer reply to cc psi b02 plr-140979-08 date date legend x ---------------------------------------------- ------------------------ state ------------- d1 --------------------- dear ---------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated in state on d1 it was intended that x elect s_corporation treatment effective d1 however a form_2553 election by a small_business_corporation was not timely filed for x law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr-140979-08 sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply conclusion based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective d1 within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning d1 a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes 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-140979-08 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service sec_1a dollar_figure -0o0 washington d c tax exempt ano government entities seer date jun contact person oy identification_number telephone number t- 0-by- employer_identification_number legend e z o x x x n o w o n o t dear sir or madam this is in response to a ruling_request dated date submitted on behalf of m requesting a ruling on the proper treatment of the proceeds of a proposed sale of a portion of m’s property under sec_512 of the internal_revenue_code statement of facts m is a religious corporation that is an affiliated member of n m is an affiliated congregation of n and is included in n's group exemption as such m is exempt from federal_income_tax as an organization described in sec_501 of the code m acquired all of its property when it was founded more than time m has used the property solely in connection with its charitable purposes m maintains the church along with a related school located on m's property the property has never been developed or used to produce income the property has an existing mortgage which was incurred to make renovations to the school and begin excavation years ago since that --fora-gymnasium m has contracted to sell a portion of its property in order to raise the funds needed for the construction of a gymnasium for the students attending the school m has entered into a contract of sale and two riders with o under which m will sell to o a portion of its real_property m has owned the portion of the property that is the subject of the proposed sale since the time of its founding and since that time the land has been a part of the church and school grounds under the terms of the contract with o m will receive compensation as follows i ii iii 2x in cash at the closing 3x in the form of a non-interest bearing promissory note from o to be secured_by a mortgage on the property sold and of any net profits from the sale of any improvements made by o to the property m has obtained the required state government and court approval of the sale the court order requires that the proceeds of the transaction be used for the construction of the gymnasium and also mandates the satisfaction of the existing mortgage ruling requested m seeks a ruling that the transaction described above for the proposed sale of real_property will not result in the imposition of unrelated_business_income_tax under sec_512 of the code because the income derived at the time of closing and any subsequent income derived from profits are excluded from such tax under sec_512 law and analysis sec_511 of the code imposes a tax on the unrelated_business_taxable_income of exempt_organizations including those described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the deductions allowed which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code excludes from the computation of unrelated_business_taxable_income all gains or losses from the sale exchange or other_disposition of property other than property_held_primarily_for_sale to customers in the ordinary course _ of the trade_or_business sec_512 of the code provides in part that notwithstanding sec_512 in the case of debt-financed_property as defined in sec_514 there shall be included as an item_of_gross_income derived from an unrelated_trade_or_business the amount ascertained under sec_514 sec_514 of the code provides in part that in computing under sec_512 the unrelated_business_taxable_income there shall be included a certain percentage of income with respect to each debt-financed_property sec_514 of the code defines the term debt-financed_property as any property which is held to produce income and with respect to which there is an acquisition_indebtedness other than any property substantially_all the use of which is substantially related to the exercise or performance by such organization of its charitable educational or other exempt_purpose sec_514 of the code defines the term acquisition_indebtedness as the unpaid amount of the indebtedness incurred by the organization in acquiring or improving such property in 383_us_569 86_sct_1030 the supreme court defined the standard to be applied in determining whether property is held primarily_for_sale_to_customers in the ordinary course of business for purposes of sec_1221 of the code the court interpreted the word primarily to mean of first importance or principally by this standard ordinary_income would not result unless a sales purpose is of first importance in 143_f2d_468 cir the taxpayer owned acres of unimproved land used for grazing purposes he decided to sell the land and subdivided it into lots cut in streets installed storm sewers constructed gas and electric lines and other activities of the kind usually carried out by a real_estate development company each year to lots were sold the court held that the taxpayer was holding lots for sale to customers in the regular course of business the fact that he did not buy additional land did not prevent the sales activities from being a business as he had enough land for a business without buying more revrul_55_449 1955_2_cb_599 states that the construction and sale of houses by a foundation otherwise exempt under sec_501 of the code over a period of months for the sole purpose of raising funds for the support of a church constitutes unrelated_trade_or_business within the meaning of sec_513 notwithstanding the fact that the organization did not plan to engage in further similar activities _ factors that have been considered by the courts in determining whether the sale of property has been carried out in the regular course of the taxpayer's business are n w k a o the purpose for which the property was acquired the frequency continuity and size of sales the extent of improvements to the property the activities of the owner’in improving and disposing of the property the purposes for which the property is held and the proximity of purchase and sale as an organization described in sec_501 of the code m is subject_to sec_511 regarding the imposition of tax on its unrelated-business income m has contracted to sell a portion of its property for the purpose of raising funds needed for the construction of a gymnasium for the students attending the school the question presented by m is whether the amounts it derives at the time of the closing together with subsequent amounts derived from profits may be excluded from the computation of unrelated_business_taxable_income as gain from the sale of property under sec_512 in determining whether this modification is applicable in this case the factors listed above must be considered m proposes to sell property which it has held for many years and which has been used in connection with its exempt_purpose as set forth above m will receive 2x in cash at the closing 3x in the form of a non-interest bearing promissory note from o to be secured_by a mortgage on the property sold and of any net profits from the sale of any improvements made by o to the property m has represented that it will not engage in any activities normally associated with real_estate development m has not subdivided the property has not made any improvements and will not advertise or solicit bids in connection with the potential future development of the property under these circumstances with respect to the 2x in cash and the 3x in the form of a note secured_by a mortgage the proposed transaction will not result in unrelated_business_taxable_income under sec_512 of the code because these amounts will constitute gain from the sale of property under sec_512 at this time we are expressing no opinion as to any_tax consequences attendant to m’s receipt of a percentage of net profits from the sale of improvements made by o to the property with regard to the issue of debt-financed_property under sec_514 of the code m represents that the current mortgage was incurred in order to begin the preliminary work on the gymnasium ie to pay for the services of an architect etc which will be built on the remaining property near the school sec_514 defines debt-financed_property as any property which is held to produce income and with respect to which there is acquisition_indebtedness other than property substantially_all the use of which is substantially related to an organization’s exempt_purpose here the indebtedness in question was incurred by m to begin the process whereby a gymnasium for_the_use_of its school’s students would be built as the gymnasium would be substantially related to m's exempt_purpose the existing property on which the mortgage was placed does not constitute debt-financed_property accordingly the current mortgage does not affect the application of sec_512 to the proposed sale furthermore we note that the court order limits the use of the ‘proceeds to the construction of the gymnasium and also mandates the satisfaction of the existing mortgage ruling based on the facts and information submitted and the representations made we conclude that m's proposed sale of real_property to o will not result in the imposition of unrelated_business_income_tax under sec_512 of the code because the amount of 2x at the closing and 3x in the form of a non-interest bearing promissory note from o will be excluded from the computation of such tax under sec_512 the treatment of the of any net profits from any improvements made to the property by o will be the subject of future correspondence except as specifically ruled upon above no opinion is expressed concerning the federal tax treatment of the transaction described above under any other provision of the code _ pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative you should keep a copy of this letter in your permanent records this letter is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed gerais - gerald v sack manager exempt_organizations technical group


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 b04 plr-127990-17 date october internal_revenue_service number release date index number -------------------------- -------------- --------------------------------------- ------------------------------- -------------- -------------------------- tin ----------------- year ------- date ---------------------------- dear ------ -------- this letter_ruling is in reference to taxpayer’s request filed on date that its form_1128 application to adopt change or retain a tax_year be considered timely filed under revproc_2006_46 2006_2_cb_859 pursuant to the authority in sec_301_9100-3 of the regulations on procedure and administration taxpayer’s form_1128 is requesting to change taxpayer’s accounting_period for federal_income_tax purposes from a taxable_year ending december to a taxable_year ending march effective march year revproc_2006_46 provides the exclusive procedure by which taxpayers meeting the provisions outlined in sec_4 scope can make an accounting_period change automatically the application must be filed no later than the due including extensions for filing the return for the short_period required by such change the information furnished indicates that taxpayer did not file its form_1128 by the due_date of the return for the short_period required to effect the change however taxpayer requested an extension of time to file its form_1128 under sec_301_9100-3 shortly the after the required time sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to 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 the granting of relief will not prejudice the interests of the government plr-127990-17 based on the facts and information submitted and the representations made we conclude that taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly taxpayer has satisfied the requirements of the regulations for the granting of relief and taxpayer's late filed form_1128 requesting to change to march effective march year is considered timely filed to make the change automatically under revproc_2006_46 the taxpayer must file within days of the date of this letter the form_1128 with the appropriate service_center indicating at the top of page one of the application filed under rev_proc and complete section a of part ll of form_1128 indicating that the taxpayer does qualify under revproc_2006_46 by answering yes to question of section a of part ll taxpayer must attach a copy of this letter to the form_1128 that is filed with the appropriate service_center any further communication regarding this matter should be directed to the service_center this ruling is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling however as part of an examination process the service may verify the factual information representations and other data submitted this ruling addresses the granting of sec_301_9100-3 relief only we express no opinion regarding the tax treatment of the instant transaction under the provisions of any other sections of the code or regulations that may be applicable or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically we express no opinion as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the form_1128 or whether the change may be effected under revproc_2006_46 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling 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 enclosed is a copy of the letter_ruling showing the deletions proposed to be made when it is disclosed under sec_6110 the taxpayer’s application_for a change in accounting_period will be processed under revproc_2006_46 plr-127990-17 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely donna welsh senior technician reviewer office of associate chief_counsel income_tax and accounting enclosures