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-150491-09 date march 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 the information submitted states that x was formed in state on d1 it was intended for x to be an s_corporation effective d1 x represents that the form_2553 election by a small_business_corporation was prepared and timely filed for x effective d1 however its form_2553 was not received by the internal_revenue_service accordingly x requests a ruling that it will be treated as an s_corporation effective d1 sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective 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 plr-150491-09 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 a 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 b 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 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 concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely melissa c liquerman chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court lisa webb leyshon petitioner v commissioner of internal revenue respondent docket no filed date lisa webb leyshon pro_se kimberly b tyson and elizabeth m bux for respondent memorandum findings_of_fact and opinion goeke judge this case is before the court on a petition for redetermination of a deficiency and additions to tax that respondent determined for petitioner’s tax_year after concessions the issues for decision are as follows whether petitioner failed to report wages of dollar_figure whether petitioner failed to report a retirement distribution of dollar_figure and whether petitioner is liable for an addition_to_tax pursuant to sec_6651 for failure to timely file a tax_return we hold that petitioner failed to report both the wages and the retirement distribution at issue we further hold that petitioner is liable for the sec_6651 addition_to_tax respondent has also moved that the court impose a penalty pursuant to sec_6673 for petitioner’s purported frivolous or groundless litigation position we will deny respondent’s motion findings_of_fact at the time the petition was filed petitioner was a resident of north carolina 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure 2before trial on date respondent filed a motion to show cause pursuant to rule f to explain why the facts and evidence set forth in respondent’s proposed stipulation of facts should not be accepted as established in an order to show cause dated date we directed petitioner to respond continued during petitioner’s taxable_year she received aggregate wages of dollar_figure from country gourmet ltd petitioner also received a retirement_plan distribution of dollar_figure from merrill lynch as custodian petitioner did not file a tax_return for her taxable_year respondent prepared a substitute for return sfr on petitioner’s behalf for using continued to respondent’s motion on or before date on date petitioner filed the following lengthy and generally irrelevant documents with the court motion for court to take judicial_notice of the congressional record motion for court to take judicial_notice of all holdings of the supreme court of the united_states and other courts motion for court to take judicial_notice of all of the federal_register and opposition as to the court’s order to show cause dated date we denied petitioner’s first three aforementioned motions and set a hearing on our order to show cause for date at the hearing petitioner failed to adduce any relevant evidence or facts and refused to give any testimony under oath we admonished petitioner that if she had no additional facts to add the record would be closed respondent further moved for imposition of a penalty under sec_6673 at the conclusion of the hearing the court took the order to show cause and respondent’s motion for imposition of a penalty under sec_6673 under advisement following the hearing we directed respondent in an order dated date to serve on petitioner and to provide to this court on or before date the exhibits listed in the proposed stipulation of facts on date respondent provided to the court the exhibits listed in his proposed stipulation of facts and indicated that petitioner had received service of those documents as well on date the court’s order to show cause was deemed absolute petitioner was also ordered to submit any legal or factual arguments in support of her position by date on date petitioner filed a response thereto submitting another document that referenced no relevant facts or law information reported by the aforementioned third-party payers see sec_6020 on the basis of that sfr respondent issued to petitioner a notice_of_deficiency attached to the notice_of_deficiency was form_4549 income_tax examination changes on which respondent indicated that petitioner had received income and had had federal_income_tax withheld as follows type of income amount income_tax withheld wages dollar_figure dollar_figure retirement distribution big_number total big_number respondent also determined additions to tax pursuant to sec_6651 and of dollar_figure and dollar_figure respectively respondent later conceded the sec_6651 addition_to_tax i burden_of_proof opinion as a general_rule the commissioner’s determination of a taxpayer’s liability in the notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is improper see rule a 290_us_111 on rare occasions this court has recognized an exception to these rules in cases involving unreported income where the commissioner introduces no substantive evidence but relies solely on the presumption of correctness 73_tc_394 in such cases if the taxpayers challenge the notice_of_deficiency on the ground that it is arbitrary then the determination is treated as a naked assessment and the presumption of correctness does not attach id however this is a limited exception and it does not apply when the commissioner has provided a minimal evidentiary foundation 92_tc_661 fankhanel v commissioner tcmemo_1998_403 tax ct memo lexi sec_424 aff’d without published opinion 205_f3d_1333 4th cir 3additionally if a taxpayer asserts a reasonable dispute with respect to any item_of_income reported on an information_return filed with the secretary by a third party and the taxpayer has fully cooperated with the secretary the secretary shall have the burden of producing reasonable and probative information concerning the deficiency in addition to that information_return sec_6201 as discussed further infra petitioner has not asserted a reasonable dispute in this case rendering the aforementioned section inapplicable see eg parker v commissioner tcmemo_2012_66 tax ct memo lexi sec_62 at cook v commissioner tcmemo_2010_137 tax ct memo lexi sec_173 at 4this exception to the presumption of correctness afforded to the commissioner’s determinations has been widely accepted among the courts of appeals see eg 994_f2d_1542 11th cir aff’g tcmemo_1991_636 981_f2d_350 8th cir aff’g in part rev’g in part 96_tc_72 909_f2d_915 6th cir 823_f2d_1091 7th cir continued once the commissioner produces evidence linking the taxpayer with an income-producing activity the burden shifts to the taxpayer to rebut the presumption of correctness of respondent’s deficiency determination by establishing by a preponderance_of_the_evidence that the deficiency determination is arbitrary or erroneous petzoldt v commissioner t c pincite see also 181_f3d_1002 9th cir aff’g tcmemo_1997_97 respondent has introduced several relevant documents including an irs certificate_of_official_record and tax_return transcript indicating that petitioner did not file a tax_return for a copy of petitioner’s statutory_notice_of_deficiency and corresponding form_4549 an irs certificate continued 649_f2d_152 2d cir aff’g in part rev’g in part 74_tc_260 596_f2d_358 9th cir rev’g 67_tc_672 however the court_of_appeals for the fourth circuit the court to which an appeal in this case would lie while recognizing the prerequisite evidentiary foundation requirement for the commissioner espoused in other circuits in unreported income cases has not had the occasion to expressly adopt or reject it see 999_f2d_760 4th cir aff’g tcmemo_1992_153 accordingly we will apply the rule we stated in 73_tc_394 which has been approved by the majority of the courts of appeals see 54_tc_742 aff’d 445_f2d_985 10th cir of official record and wage and income transcript for petitioner’s taxable_year a form_w-2 wage and tax statement issued to petitioner by country gourmet ltd as well as authenticated pay stub records of country gourmet ltd for wages paid to petitioner in and a form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc issued to petitioner by merrill lynch as custodian we find that the submitted evidence clearly suffices to establish the requisite minimal evidentiary foundation linking petitioner with the income-producing activities for accordingly petitioner bears the burden_of_proof see eg banister v commissioner tcmemo_2008_201 tax ct memo lexi sec_197 at holding that a notice_of_deficiency indicating that third-party payers paid the taxpayer specific amounts in question satisfied the minimal evidentiary burden even though direct evi418_fedappx_637 9th cir ii gross_income sec_61 defines gross_income as all income from whatever source derived including compensation_for services such as wages salaries and bonuses see also sec_1_61-2 income_tax regs gross_income also includes income from pensions sec_61 respondent has established that petitioner was paid dollar_figure in wages by country gourmet ltd in and received a retirement_plan distribution of dollar_figure from merrill lynch as custodian in the same year petitioner does not substantively refute these points but rather contends that she was not given sufficient information concerning the procedures by which her deficiency was determined further she asserts that respondent is not authorized to determine her tax_liability these tax_protester arguments are without merit and lack factual and legal foundation w e are not obligated to exhaustively review and rebut petitioner’s misguided contentions see sanders v commissioner tcmemo_1997_452 tax ct memo lexi sec_536 at see also 136_tc_498 l itigants who present frivolous arguments should not expect to see them answered in opinions of this court we need not refute these arguments with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit 737_f2d_1417 5th cir accordingly we sustain respondent’s deficiency determination 5persons who make frivolous antitax arguments are often referred to as tax protesters 136_tc_498 n iii additions to tax a burden_of_proof pursuant to sec_7491 the commissioner bears the initial burden of producing sufficient evidence that it is appropriate to impose the additions to tax under sec_6651 see also 116_tc_438 where the commissioner meets this evidentiary burden the burden_of_proof shifts to the taxpayer to show that the additions are improper see id pincite b sec_6651 as a general_rule any person made liable for any_tax shall make a return or statement according to the forms and regulations prescribed by the secretary sec_6011 sec_6651 in the case of a failure_to_file a return on time imposes an addition_to_tax of of the tax required to be shown on the return for each month or fraction thereof for which there is a failure_to_file not to exceed in the aggregate the penalty will not apply if it is shown that such failure is due to reasonable_cause and not due to willful neglect sec_6651 petitioner did not timely file a tax_return for respondent has thus met his burden of production see 127_tc_200 aff’d 521_f3d_1289 10th cir petitioner has not presented any evidence that her failure_to_file was due to reasonable_cause and not willful neglect accordingly we sustain the addition_to_tax under sec_6651 iv sanctions respondent has moved that the court impose a penalty against petitioner pursuant to sec_6673 sec_6673 authorizes the tax_court to require a taxpayer to pay to the united_states a penalty not in excess of dollar_figure when it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer’s position in the proceeding is frivolous or groundless see also 124_tc_189 petitioner’s arguments are manifestly frivolous indeed petitioner submitted several voluminous irrelevant documents to the court notwithstanding respondent’s repeated efforts to apprise her of the legal futility of her assertions therein at trial this court called to petitioner’s attention one such motion where a different person was named as petitioner when given the opportunity to reconcile this discrepancy in court petitioner equivocated indicating that her husband had drafted the document in question it appears that petitioner copied the substance of her documents from the internet and failed to change the offending names to her own we have previously indicated that this cut-and-paste approach is of nugatory value and that taxpayers should be forewarned of the consequences of pursuing such action see wnuck v commissioner t c pincite frivolous anti-tax arguments are often obviously downloaded from the internet and by cut-and-paste word processing functions these arguments are easily plunked into a party’s filing for all a court can tell the litigant may not even have carefully read the arguments he submits nonetheless it appears that this is petitioner’s first time in federal court in the exercise of our discretion we shall not impose a sec_6673 penalty at this time but we sternly warn petitioner that we will likely impose this penalty if she returns to this court and makes similar arguments in the future v conclusion in accord with the aforementioned discussion we will sustain respondent’s determination_of_a_deficiency and an addition_to_tax under sec_6651 we will however deny respondent’s motion for penalty pursuant to sec_6673 to reflect the foregoing decision will be entered an appropriate order and


u i l internal_revenue_service revision of national_office technical_advice_memorandum previously released for disclosure as plr dec oo taxpayer’s name taxpayer’s address taxpayer’s e 1i n conferences held issues whether the income from revenue account sec_5271 carrier billing and collection - interstate carrier and carrier billing and collection - intrastate should be categorized as member nonmember or excluded for purposes of calculating the percent income test of sec_501 of the internal_revenue_code interstate collection billing and - whether the percent of income test is an absolute rule or is there a de_minimis_rule that may be applied under certain circumstances whether ic revenues as an inter-exchange carrier x should be treated as member source income or whether amounts collected by x as agent for an be should treated as member source income for purposes of the percent test an agent for collected by ic should the revenues of both the parent x and the subsidiary be combined for purposes of computing the percent member income requirement for x’s continued exemption under sec_501 of the code le f if the total and subsidiary should not be combined can the investment_income attributable to the additional investment of x in y percent test be considered income of for purposes of revenues parent the the x of x if the revenues of the parent x and the subsidiary should be combined should all of y’s revenues be considered nonmember income because y did not deal with its customers on a mutual or cooperative basis what should be the effective date of any required treatment of b treatment of inter-carrier revenues discussed in issue and and y’s gross_receipts as discussed in issue sec_4 a revenues discussed in issue c aggregation of and above x’s acts x is a corporation which was created for the purpose of providing telephone services to its members on a cooperative basis x applied for and was recognized as an organization exempt from federal x’s income founders intended that x be a cooperative formed for the benefit of the rural community it would serve the services provided by x to local exchange carriers lecs its members are those commonly performed by c section under code tax the of are subject x's operations to regulation by federal communications commission at the federal level and by the state’s public_utilities commission puc at the state level regulations at the federal level dictate x’s charges for inter-connect services and access puc regulates the monthly basic service rate x charges its members for telephone service and the rate of return it can earn based on its investment in telephone plant the earnings subject_to puc regulation include charges and services provided for intra-state billing and collection the the x's representative contended and collection revenues should be treated as member-sourced for purposes of the percent member income test of sec_501 because they are derived is attributable to members’ toll calls x adopted this approach in its form_990 for its tax_year ended date a communication service which billing that from in x created a wholly owned subsidiary y y was formed to own and operate a non-broadcast facility to abeeeseute o television or radio signals and other programming by wire cable microwave satellite or other means to subscribers y files form_1120 and lists its business activity as sales service rental cable vision lease yy’s service is offered to persons in x s service area and some adjacent territory x operates as a cooperative allocating all its net_earnings to its members annually via capital credits allocated pro_rata based upon income from members x includes the earnings_of its subsidiary in the capital credits allocated annually to members on a cooperative basis x reflects the net_earnings of y as other changes amounts reflected on its books for the years in question were undistributed_earnings and thus not yet realized on an income_tax basis balance since fund form the its on in tax_year during the the aggregate of dollar_figure percent of gross_income attributable to gross_receipts and other nonmember income received by x amounted to dollar_figure percent of the aggregate of x’s the corresponding percentages were dollar_figure and these calculations exclude interest received by x from y in account receipts were and y’s gross_receipts receipts during gross gross year y ’s x’s y ’s and tax y’s the y does not operate on a cooperative basis and makes no allocation of its net_earnings to its customers law of sec_501 from federal_income_tax for benevolent_life_insurance_associations of a purely local character mutual_ditch_or_irrigation_companies mutual_or_cooperative_telephone_companies or like organizations but only if percent or more of the income consists of amounts collected from members for the sole purpose of meeting losses_and_expenses exemption provides code the section the income_tax regulations provides that an organization described in sec_501 must receive at least percent of its income from amounts collected from members for the sole purpose of meeting losses_and_expenses c -1 a of years taxable mutual beginning after december test described in paragraph a taking sec_1_501_c_12_-1 of the regulations provides that for company percent member income of this section is applied without another cooperative or telephone received account accrued income into from the or of a a in to if from one its dollar_figurex income long distance calls telephone company for the performance of communication services involving the completion of or between members of the mutual or cooperative telephone company a cooperative telephone company for example receives as dollar_figurex interest distance interconnection agreements with other telephone_companies for the performance of communication services involving the completion of long distance calls to from or between the cooperative’s members whether or not the credits may be offset in whole or in part by interconnection amounts due agreements calculated without taking into account either in the numerator or denominator the dollar_figurex credits received from the other telephone_companies for telephone calls credits long the the member-income year members as companies fraction under other under from dollar_figurex the and is n golde elephone v commissioner the court held that income received from t c no c billing and collection services long-distance carriers for b is income for the performance of communication services within sec is therefore not taken into account excluded to comply with the percent or more requirement of sec_501 c b i and ociati inc the regulations t d 1979_2_cb_229 notes that concern was expressed that the notice of proposed rulemaking sec_1_501_c_12_-1 of in discussing amounts earned by telephone_companies in connection with completing calls involving members of the cooperative impliedly made distinctions between incoming and outgoing long distance calls between revenues collected by the cooperative and revenues collected by another telephone company for long distance between members of the same telephone cooperative and long distance calls involving a nonmember since it was not the intent of the proposed_regulations to make these distinctions the notice is revised to make clear that revenues from all the above types of long distance calls do not enter into the member-income computation long distance calls between calls and revrul_69_575 1969_2_cb_134 in pertinent part provides that a farmers’ cooperative exempt under sec_521 of the code may establish and control a subsidiary_corporation so long as the activities of the subsidiary are activities that the cooperative its operations itself might engage without affecting its exempt status an exempt cooperative may not utilize a subsidiary for the conduct of operations on an ordinary profit-making basis the ruling held that the parent cooperative lost its exemption because it failed to meet the ruling notes integral part that as an of in o the percent nonmember purchase limitation of sec_521 when the gross_receipts of the subsidiary were taken into account c b acq v commissioner in puget sound plywoed inc three principles are described as fundamental to cooperative operation subordination of capital democratic control and operation at cost subordination of capital requires that control of the cooperative and ownership of the pecuniary benefits arising from the cooperative’s business remain in the hands of patrons of the cooperative rather than in non-patron equity investors in the cooperative to be operating_on_a_cooperative_basis a cooperative must limit the financial return made a cooperative may not be operated for the purpose of paying a return on equity investments capital respect equity words other with t c its to in rationale to classify x’s revenues for purposes of sec_501 of the code the first inquiry is whether any revenues are excluded from the member income test pursuant to sec_501 revenues excluded under this section must satisfy two tests source and function from another telephone company for the performance of communication services involving the completion of long distance calls to from or between members any non-excluded revenues can then be ie classified as whether such revenues are collected from members for sole purpose of meeting losses_and_expenses excluded revenues are received or accrued either member or nonmember-source income the telephone nonmember in this case x’s billing and collection income is derived from of communication services which involve x’s members see golden belt cited above accordingly such income would not be characterized as either member income or nonmember income it would be excluded sec_501 of the code instead test member-income performance companies percent from the the for by of to act the prior revenue and cooperative_telephone_companies were required to their income solely from members as assessments dues and fees for the sole purpose of meeting their expenses the amendments enacted the allowing telephone cooperatives and other named mutual companies to derive up to percent of their income from nonmember sources no subsequent statutory or administrative precedent establishing a de_minimis_rule for this test percent test know of exempt derive mutual we ml companies with respect to issue income collected from nonmember telephone services involving the completion of long distance telephone calls to from or between members is excluded from the percent member-income test under sec_501 of the code this position is also clearly set forth in the underlying regulations and comments from t d cited above performing communication for of exempt the congressional purpose in enacting the percent test prior to the requires combining the gross_receipts of revenue act and cooperative_telephone_companies were required to derive their income solely from members as assessments dues and fees for the sole purpose of meeting their expenses the amendments enacted the percent test allowing telephone cooperatives and other named mutual companies to derive up to l no floor debate discloses the reasons for allowing a minimal amount of nonmember income percent of their income from nonmember sources pub x and y mutual stat the a in are once some these every mutual now of dickinson while mr insurance there companies which have a few thousand dollars which they want to put on time deposit and they will put it in a bank for a short time on time deposit if you do not provide that the principal sources of income shall consist of amounts collected from members you bar them from having those little incidental revenues which they make out of the small matters cong rec vol pincite7 expand mr purnell t hese companies were not able to set_aside any surplus they were not able to any buildings thrift was not only discouraged but penalized accept interest on daily balances in banks they were were they able able not buy not to to cong rec vol pincite0 although the congressional debate centered on mutual insurance_companies and cooperative_telephone_companies congress intended that telephone_companies also be allowed a minimal amount of nonmember income necessary buildings interest applied percent expand mutual test earn new buy the to to on or rank y f telephone cooperatives accounts the and acts refer to conditional exemption for sec_501 should be read together with the legislative_history we do not believe that congress intended that a telephone cooperative can shelter nonmember income from the percent test by placing a controlled_corporation were it otherwise nonmember income in the purpose of the exemption conditioned on substantial income from providing cooperative telephone service to members would be nullified percent percent test test the in in the this case order percent test in determining whether the gross_receipts of x and y should be combined for purposes of we believe that cooperative principles espoused in revrul_69_575 are applicable and controlling in the subsidiary y and maintain its exemption under sec_501 of the code y must have been created to perform a function that x itself might engage x’s operations without affecting x’s exempt status was created and utilized for the conduct of operations on an ordinary profit-making basis y was created for the purpose of providing cable television service to the customers of y in contrast to x whose basis for exemption is the provision of telephone service to its members on a cooperative basis y does not operate on a cooperative basis all profits of are treated as taxable_income with the net profit turned over to x as non-patronage income an integral create part for to of in as x the operations of conducted on as a non-cooperative basis could clearly not be conducted by x an integral part of that cooperative without affecting its exemption because such operations would cause x to violate the fifteen percent nonmember income requirement consistent with the example noted in revrul_69_575 cited above the gross_receipts of y must be aggregated with those of x for purposes of calculating the percent member income test moreover because these receipts are derived from an activity which is not the basis of x’s exemption they must be classified as non- member income conclusions and billing collection accounts from nonmember sources for communications_services which involve when calculating the percent member income test revenues are from revenues excluded members should x’s and and be there is no statutory or administrative precedent for applying a de_minimis_rule in the computation of the percent member income test for organizations exempt under sec_501 revenues collected by an inter-exchange carrier ic as an agent for x and revenues collected by x as an agent for an ic must be excluded for purposes of the percent member income test pursuant to the holding of revrul_69_575 the percent test gross_receipts year beginning january as indicated in conclusion below the combined with to effective applied must the and tax be of y x the income_interest investment dividends received by x from y will be considered nonmember income of x for purposes of the percent test in those tax years when x not required to aggregate its gross_receipts those years beginning before date for and subsequent years this income will not be subject_to the an intercompany_transaction beginning january percent member income since year test and tax the is it i sec_1 y ’s income by required total revenues will years in those x be treated as nonmember in which aggregation is the assistant_commissioner her discretion and granted the specific relief requested under sec_7805 of the code with respect to the position taken in conclusion conclusion will be effective for the tax_year beginning date and all subsequent years exercised has a copy of this technical_advice_memorandum is to be given to the organization sec_6110 of the code provides that it may not be used or cited as precedent -end


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 plr-111917-05 date november - grantors ------------------------------------------------ -------------------------- ------- ------- ------- legend -------------------------------------------------------------------------------------------- trust year year s dear ------------------------- --------------------------------------------------------------- - - - - ------- ------- - - - ----------- - - - - date year year year - - year year year - t u v ------------- ----------- ------------- ------- ------- ------- this letter is in response to a letter dated date from your authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make an allocation of taxpayer’s and spouse’s generation-skipping_transfer gst_exemption plr-111917-05 the facts and representations submitted are summarized as follows in year grantors transferred cash in the amount of dollar_figuret to trust grantors in year year and year through year grantors again transferred cash on date grantors established an irrevocable_trust trust for the benefit of their children and descendants of their children in year grantors transferred cash in the amount of dollar_figures to trust grantors hired attorneys and certified public accountants for advice regarding the creation and funding of trust the certified public accountants advised grantors that gift_tax returns were not required to be filed and thus no returns were filed and grantors available gst exemptions were not allocated to the transfers in year consented to split the gifts in year and timely filed united_states gift and generation- skipping transfer_tax returns form sec_709 gift_tax returns to report those transfers to trust and to split the gifts pursuant to sec_2513 for year however the certified_public_accountant who prepared the returns and on whose expertise grantors relied inadvertently failed to allocate grantor’s available gst tax exemptions to the transfers in the amount of dollar_figures to trust again pursuant to the advice of the certified_public_accountant did not file gift_tax returns for any of those years and thus grantors available gst exemptions were not allocated to the transfers in year sec_3 and through pursuant to the advice of the certified public accountants no returns were filed and grantors available gst exemptions were not allocated to the transfers in year preparing the gift_tax_return for year the certified public accountants sought advice from the attorneys concerning the preparation of the gift_tax_return the attorneys determined that trust was a gst_trust and advised grantors that to they should have allocated their gst tax exemptions for the prior gifts to trust on their year gift_tax returns for trust to be exempt from gst tax in addition attorneys advised grantors that they should have filed gift_tax returns for year and year sec_3 and through in order to allocate their available gst exemptions to the transfers made in year and year sec_3 and through the attorney also advised grantors that they had to allocate any available gst_exemption to the transfers to trust in year and file a gift_tax_return reporting the transfer and allocating their gst exemptions in year grantors transferred cash in the amount of dollar_figureu to trust again in year grantors transferred cash in the amount of dollar_figurev to trust while plr-111917-05 sec_2501 of the internal_revenue_code imposes a tax on the transfer of property by gift during each calendar_year by any individual sec_2513 provides that a gift made by one spouse to any person other than the donor s spouse is considered for purposes of the gift_tax as made one-half by the donor and one-half by the donor s spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states sec_2513 provides that in order to qualify for this asplit gift treatment both spouses must signify their consent to the application of ' a in the case of all gifts made during the calendar_year by either while married to each other sec_2513 provides that the consent under ' a may be signified at any time after the close of the calendar_year in which the gift was made the consent may not be signified after the 15th of april following the close of such year unless before the 15th day no return has been filed for such year by either spouse in which case the consent may not be signified after a return for such year is filed by either spouse thus if a late return is filed the consent must be made on the first return filed for such year sec_2601 imposes a tax on every generation-skipping_transfer a generation- sec_2631 provides that for purposes of determining the gst tax every sec_2632 provides that any allocation by an individual of his or her gst skipping transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for sec_2642 provides generally that the secretary shall by regulation plr-111917-05 requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute sec_2642 provides that in determining whether to grant relief under sec_2652 provides that if under ' one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the individual s spouse then such gift shall be so treated for gst tax purposes notice_2001_50 2001_2_cb_189 provides that under sec_2642 the sec_301_9100-3 provides that in general requests for extensions of time time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except in subtitles e g h and i for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an election described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted under sec_301_9100-1 a regulatory election includes an election whose due requests for relief under sec_301_9100-3 will be granted when the taxpayer plr-111917-05 reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or to advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore grantors are each granted an extension of time of days from the date of this letter to make allocations of their available gst_exemption to the transfers to trust for year through year and year through year for which each grantor is treated as a transferor for purposes of sec_2652 an individual or supplemental form_709 should be filed for each taxpayer for year through year and year through year each form_709 should include a notice of allocation properly allocating the taxpayer's gst_exemption to the transfers to trust the allocations will be effective as of the respective dates of the transfers to trust and the inclusion_ratio of trust will be determined based on the value of the transfers to trust as determined for federal gift_tax purposes and the amount of exemption allocated to trust a copy of this letter should be attached to each individual or supplemental form_709 and filed with the internal_revenue_service center cincinnati ohio copies are included for this purpose concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied pursuant to the power_of_attorney on file with this office this letter is being sent to the taxpayer's representative plr-111917-05 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs special industries cc enclosures copy for sec_6110 purposes copy of this letter ----------------------------------------------- ---------------------------------- ----------------- -------------------------- ------------------ -----------------------------------


id office uilc cca_2009012108300837 ------------- number release date from -------------------- sent wednesday date am to --------------------- cc ------------ subject re closing aar w nbaps issued sec_6231 any partner who has a fully executed form 870-pt would not be the form 870-pt's converted the settling partners partnership items and removed them from the tefra proceedings subject_to an fpaa so there is no point in sending one to any settled partner the settled partner would have two years from the date we cosigned his settlement to file a refund claim under section c b and and c b i if we don't issue him a refund within this two year time period if they timely file refund claims the period for issuing refunds would be further extended under section d for the period under sec_6532 during which they can file suit


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-132799-06 date november -------------------------- ------------------------------ -------------------------------------------- -------------------------------------------- legend x -------------------------------------------------- y -------------------------------------------------- z -------------------------------------------------- trust state dear -------------- this responds to a letter dated date submitted on behalf of x y and z by their authorized representatives requesting entity classification rulings under sec_7701 and sec_7704 of the internal_revenue_code the information submitted states that x is a life_insurance_company licensed in states and the district of columbia to provide various life_insurance products annuities mutual funds and other investment products y a wholly owned subsidiary of x is a life_insurance and annuity company that provides a variety of life_insurance products annuities and other investment products to individuals and businesses in all states and the district of columbia -------------------- plr-132799-06 trust is an open-end management investment_company organized under the laws of state the beneficial interests in trust’s property consist of transferable shares shares in multiple segregated portfolios of assets including portfolio z each with separate investments the portfolios support x’s and y’s variable_contracts shares of the portfolios may only be purchased by domestic life_insurance_companies either directly or through separate_accounts of such companies x has nine separate_accounts and y has four separate_accounts premiums received by x and y are allocated to their respective separate_accounts collectively the accounts of x and y own all of the shares of the portfolios and have the right to purchase additional shares or have shares redeemed at any time contract holders may specify in which separate_account the premium is to be invested the benefits x and y pay to the contract holder are determined by reference to the investment return associated with and the market_value of the relevant portfolio supporting the variable_contract however the benefits under the variable_contracts can vary significantly from the value of the shares in the portfolios especially where a contract holder dies before his or her life expectancy the contract holder is typically entitled to a minimum payment regardless of the portfolio’s performance typically a variable_contract cannot be redeemed within a specified period without a penalty nor sold at face value furthermore the shares in the portfolios are owned by the insurance_company issuing the variable_contract for federal_income_tax purposes the contract holder only has claims against the insurance_company issuing the variable_contract and not against the income gains losses or distributions of the portfolios each portfolio is currently a regulated_investment_company ric within the meaning of sec_851 z proposes to elect to be treated as a partnership z requests a ruling that it will be classified as a partnership and not a publicly_traded_partnership x and y make the following representations trust is a business_trust that has never held itself out to be a state law corporation each portfolio is currently a separate ric as defined in sec_851 z will have at least two members x and y investing through their separate_accounts and will elect to be treated as a partnership for federal tax purposes if shares are sold to other insurance_companies the shares will not be held by more than domestic life_insurance_companies if shares are sold to other insurance_companies the shares will only be issued to separate_accounts of domestic life_insurance_companies x and y are and will be treated as the owners of the shares in the portfolios for federal_income_tax purposes the assets of the separate_accounts will be adequately diversified within the meaning of sec_817 and sec_1_817-5 of the income_tax regulations allocations of taxable_income gain loss deductions and credits of the portfolios will be made in accordance with sec_704 and c and except as required by sec_704 plr-132799-06 each holder of a share will be allocated its share of each portfolio’s income or loss which will be composed of a proportionate share of each item of the portfolio’s income or loss public access to z is only available through the purchase of a variable_contract the shares are not and will not be traded on an established_securities_market the shares are not and will not be regularly quoted by any person such as a broker or dealer making a market in the shares no person regularly makes available and will not make available to the public including customers or subscribers bid or offer quotes with respect to the shares or stands ready or will stand ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others no holder of shares has or will have a readily available regular and ongoing opportunity to sell or exchange the shares through a public means of obtaining or providing information of offers to buy sell or exchange shares there is no plan or intention for the redemption of shares by z to be combined with the issuance of shares in z to a new partner partnership ruling 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 it elects otherwise a domestic eligible_entity is classified as a partnership if it has two or more members x and y represent that z will have at least two members and will elect pursuant to sec_301_7701-3 to be classified as a partnership provided z ha sec_2 or more members and makes the entity classification election to be classified as a partnership z will be properly classified as a partnership for federal tax purposes publicly_traded_partnership ruling sec_7704 provides that except as provided in sec_7704 a publicly_traded_partnership will be treated as a corporation sec_7704 provides that the term publicly_traded_partnership means any partnership if interests in such partnership are traded on an established_securities_market and interests in such partnership are readily_tradable on a secondary market or the substantial equivalent thereof sec_1_7704-1 provides that for purposes of sec_7704 and sec_1_7704-1 an interest in a partnership includes a any interest in the capital or profits of the partnership including the right to partnership_distributions and b any financial plr-132799-06 instrument or contract the value of which is determined in whole or in part by reference to the partnership including the amount of partnership_distributions the value of partnership assets or the results of partnership operations sec_1_7704-1 provides that for purposes of sec_7704 and sec_1_7704-1 a transfer of an interest in a partnership means a transfer in any form including a redemption by the partnership or the entering into of a financial_instrument or contract described in sec_1_7704-1 sec_1_7704-1 provides that for purposes of sec_7704 and sec_1_7704-1 interests in a partnership that are not traded on an established_securities_market within the meaning of sec_7704 and sec_1_7704-1 are readily_tradable on a secondary market or the substantial equivalent thereof if taking into account all of the facts and circumstances the partners are readily able to buy sell or exchange their partnership interests in a manner that is comparable economically to trading on an established_securities_market sec_1_7704-1 provides that for purposes of sec_1_7704-1 interests in a partnership are readily_tradable on a secondary market or the substantial equivalent thereof if i interests in the partnership are regularly quoted by any person such as a broker or dealer making a market in the interests ii any person regularly makes available to the public including customers or subscribers bid or offer quotes with respect to interests in the partnership and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others iii the holder of an interest in the partnership has a readily available regular and ongoing opportunity to sell or exchange the interest through a public means of obtaining or providing information of offers to buy sell or exchange interests in the partnership or iv prospective buyers and sellers otherwise have the opportunity to buy sell or exchange interests in the partnership in a time frame and with the regularity and continuity that is comparable to that described in the other provisions of sec_1_7704-1 sec_1_7704-1 provides that for purposes of sec_7704 and sec_1_7704-1 interests in a partnership are not traded on an established_securities_market within the meaning of sec_1_7704-1 and are not readily_tradable on a secondary market or the substantial equivalent thereof within the meaning of sec_1_7704-1 even if interests in the partnership are traded or readily_tradable in a manner described in sec_1_7704-1 or c unless the partnership participates in the establishment of the market or the inclusion of its interests thereon or the partnership recognizes any transfers made on the market by i redeeming the transferor partner in the case of a redemption or repurchase by the partnership or ii admitting the transferee as a partner or otherwise recognizing any rights of the transferee such as a right of the transferee to receive partnership_distributions directly or indirectly or to acquire an interest in the capital or profits of the partnership plr-132799-06 the shares sold by x to the segregated_asset accounts of other insurance_companies are interests in the capital or profits of the portfolios therefore the shares are partnership interests for purposes of sec_7704 see sec_1_7704-1 the sale of shares to the segregated_asset accounts of other insurance_companies does not fall within the definition of trading on an established_securities_market as defined in sec_7704 and sec_1_7704-1 additionally shares may only be sold to the segregated_asset accounts of other insurance_companies and i are not regularly quoted by any person such as a broker or dealer making a market in the interests ii no person regularly makes available to the public including customers or subscribers bid or offer quotes with respect to the shares and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others iii the unit holder does not have a readily available regular and ongoing opportunity to sell or exchange the interest through a public means of obtaining or providing information of offers to buy sell or exchange interests in the partnership or iv prospective buyers and sellers do not otherwise have the opportunity to buy sell or exchange shares in a time frame and with the regularity and continuity that is comparable to that described in the other provisions of sec_1_7704-1 the shares are not traded on an established_securities_market and the shares are not readily_tradable on a secondary market or substantial equivalent thereof therefore based solely on the information submitted and the representations made we conclude that after z elects to be classified as a partnership z will not be a publicly_traded_partnership except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-132799-06 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to z’s authorized representatives sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes