cca-02190159-16 id uilc number release date from -------------------------------------------------------------------------------- sent friday date pm to cc ----------------------------------------------------------------------------- bcc -------------------------------------------------------------------------------- subject re correct name on to extend period of limitations --------- we agree with your suggestion that the form be executed for --------------------------------- successor_in_interest to ------------------------------------------------------------------------------------- -------------------------------------------------- -----------------is the taxpayer that you are assessing and the tax_liability originated with --------and passed to ---------------before settling on ------------------we do not believe that there is a need to list ----------- because - -----------------has its own ein and is the taxpayer the service will assess that said i do not believe that there is harm in including it we also caution that exam should ensure that they include all the relevant eins as some large companies have multiple eins please let me know if you have any further questions or concerns with this and i will be happy to assist you thank you ----


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc intl br3-plr-101557-98 date date ty corp x fco corp y corp z state a business b state c country d e percent date f amount g h percent date i amount j amount k amount l amount m dear this ruling replies to a letter dated date submitted on your behalf by your authorized representative requesting rulings that i corp x is eligible to make an election under sec_865 of the internal_revenue_code code to treat gain realized from the sale of the stock of fco as foreign_source_income and ii any taxes imposed by country d on the sale would be related to that foreign source gain for plr-101557-98 purposes of determining corp x’s allowable foreign_tax_credit additional information was submitted in letters dated date date date and date the information submitted for consideration is substantially as set forth below corp x has requested this private_letter_ruling based on its return position that the gain from the sale of the stock of fco is taxable in country d pursuant to article of the income_tax treaty between the united_states and country d treaty corp x is in the process however of preparing a claim for the business profits exemption under article of the treaty on the basis that this gain constitutes business profits that are not attributable to a permanent_establishment if country d determines that the gain from the sale of the stock of fco is exempt from country d tax under article of the treaty sec_865 would not apply because the gain would not be treated as from sources within country d under the treaty if country d makes such a determination corp x represents that it shall notify the secretary as required by sec_905 and the regulations thereunder the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by an appropriate party while this office has not verified any of the material submitted in support of the request for a ruling it is subject_to verification on examination corp x a state a corporation is engaged in business b both directly and indirectly through subsidiaries corp x is a publicly traded corporation with worldwide operations corp x owns percent of the stock of corp y a state a corporation corp y owns percent of the stock of corp z a state c_corporation corp x corp y and corp z are all members of an affiliated_group_of_corporations that files consolidated federal_income_tax returns corp x is the common parent of the affiliated_group corp y and corp z are both united_states residents within the meaning of sec_865 of the code prior to the sale transaction described below corp z owned e percent of the single class of stock of fco a country d corporation the remainder of the stock of fco was owned by unrelated foreign persons fco was not a controlled_foreign_corporation within the meaning of sec_957 of the code on the date of the transaction or at any time during the 5-year period ending on that date on date f corp y contracted to sell all the shares of fco owned by the affiliated_group to an unrelated purchaser the consideration agreed upon was amount g plus a call option to receive approximately h percent of the outstanding_stock of a foreign plr-101557-98 corporation owned by the unrelated purchaser this sale transaction was completed on date i immediately prior to the sale corp z transferred to corp y all of its shares of fco for a total consideration of amount j an amount significantly less than the fair_market_value of the fco shares this transfer which allowed corp y to be the transferor of the fco shares for purposes of the sale to the unrelated purchaser took place for two reasons first the corp x affiliated_group wished to have corp y a significant holding_company within the group receive the call option from the unrelated purchaser second the corp x group believed that the transfer of the shares from corp z to corp y provided a basis for arguing for country d purposes that the gain from the sale of those shares to the unrelated purchaser should be exempt from country d tax pursuant to article of the treaty the transfer of the fco shares from corp z to corp y triggered taxable gain of amount k under sec_1001 of the code in addition the transfer of these shares for less than their fair_market_value constituted a deemed_distribution of appreciated_property to corp y thereby triggering further gain of amount l under sec_311 of the code amount l represents the difference between the fair_market_value of the shares and the consideration received by corp z for those shares amount j corp y took the shares of fco at a basis of amount j plus amount l and sold the shares to the unrelated purchaser for the same amount because corp y incurred transaction costs associated with the sale corp y realized a loss on the sale not exceeding amount m corp x represents that for u s purposes the transfer of the fco shares from corp z to corp y is an intercompany_transaction within the meaning of sec_1_1502-13 corp x further represents that corp z’s gain thereon is an intercompany_item within the meaning of sec_1_1502-13 and corp y’s loss upon the sale to the unrelated purchaser is a corresponding_item within the meaning of sec_1_1502-13 corp x represents that as an intercompany_item corp z’s gain was deferred and taken into account pursuant to sec_1_1502-13 upon the sale of fco by corp y to the unrelated purchaser for country d purposes the transfer of the fco shares from corp z to corp y is not taxed because corp y and corp z elected to apply a country d rollover provision that protects such related-party transfers from tax absent the election this transfer would have required corp z to recognize the full appreciation in the fco shares under the laws of country d pursuant to the election corp y takes a carryover_basis in the fco stock from corp z under the laws of country d corp y then realized all the gain upon its sale of the fco stock to the unrelated purchaser this gain is fully subject_to plr-101557-98 tax in country d unless it is exempt from taxation under article of the treaty if for any reason country d determines that the rollover provision does not apply to the transfer of the fco shares from corp z to corp y corp z will be required to recognize the gain thereon sec_865 of the code generally provides that income from the sale of personal_property by a united_states_resident shall be sourced in the united_states sec_865 provides that a taxpayer may elect to treat the gain from the sale of stock of a foreign_corporation as foreign source gain if the gain would apart from the application of sec_865 be sourced in the united_states under sec_865 but would be sourced outside the united_states under a treaty obligation of the united_states if a taxpayer makes this election the foreign_tax_credit provisions of sec_904 b and c and sec_902 sec_907 and sec_960 are applied separately with respect to such gain thus for purposes of computing the foreign_tax_credit_limitation under sec_904 this gain is placed in its own separate limitation category sec_1_904-6 provides that the amount of foreign taxes paid_or_accrued with respect to a separate category of income shall include only those taxes that are related to income in that separate category taxes are related to income if the income is included in the base upon which the tax is imposed sec_1_1502-77 generally provides that the common parent of an affiliated_group_of_corporations filing consolidated_returns shall for all purposes with exceptions not relevant here be the sole agent for each subsidiary of the group duly authorized to act in its own name in all matters relating to the tax_liability for the consolidated_return_year under sec_1_1502-77 a common parent of an affiliated_group_of_corporations filing consolidated_returns must make the election to apply sec_865 on behalf of its subsidiary article of the treaty generally provides that the business profits of an enterprise_of_one_of_the_contracting_states shall be taxable only in that state unless the enterprise carries on business in the other contracting state through a permanent_establishment situated therein article of the treaty provides that items of income of a resident of a contracting state not expressly mentioned in article sec_1 though of the treaty are taxable only in that state however article provides that if the income is derived by a resident of one of the contracting states from sources in the other contracting state the income may also be taxed in the state in which it has its source plr-101557-98 article a of the treaty provides that income derived by a resident_of_the_united_states which under the treaty may be taxed by country d shall for the purposes of the income_tax law of country d and of the treaty be deemed to be income from sources within country d to determine the source of an item_of_income for purposes of article it is necessary to look to the internal law of the state whose income is being determined see the technical explanation to article under country d law a nonresident of country d is subject_to the country d capital_gains_tax upon the disposition of an asset that is considered to have a sufficient nexus to country d among the assets considered sufficiently connected to country d is stock of a country d corporation thus country d’s taxation of the gain derived from the sale of the fco stock constitutes sourced-based taxation as a result the gain would be taxable by country d as income from sources within country d under article of the treaty accordingly the income would be sourced within country d for purposes of the treaty pursuant to article a if country d determines that corp y’s gain from the sale of the fco stock is exempt from tax under article of the treaty article will not apply if however corp x’s claim is denied by country d and as a result article of the treaty applies to the gain from the sale of the fco stock it is held that corp x is entitled to make an election under sec_865 to treat corp z’s gain realized from the sale of the stock of fco as foreign_source_income because the gain would be considered u s source income under sec_865 but would be foreign_source_income under a treaty obligation of the united_states in addition because the gain from the sale of the stock of fco is included in the base upon which country d taxes are imposed it is further held that the country d tax imposed on that gain is related to the gain derived by corp z and is therefore allocable to the separate sec_865 income_category for purposes of computing the foreign_tax_credit_limitation no ruling has been requested and no opinion is being offered as to whether the gain from the sale of the stock of fco constitutes business profits within the meaning of article of the treaty in addition no ruling has been requested and no opinion is being offered as to the application of sec_1_1502-13 with respect to the transactions described in this letter a copy of this letter must be attached to corp x’s u s income_tax return for the year in which corp x obtained the 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 plr-101557-98 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _____________________________ irwin halpern senior technical reviewer branch office of associate chief_counsel international cc


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi 3-plr-109968-01 date date number release date index number legend company a b date date dear this responds to your letter dated date and subsequent submissions requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted company was incorporated on date it is represented that company intended to be an s_corporation effective date the date company first had shareholders the shareholders of company are a and b it was discovered that company’s form_2553 election by a small_business_corporation had not been timely filed company requests a ruling under sec_1362 that its sec_1362 election will be treated as timely made for its taxable_year that begins on date law and analysis sec_1362 generally provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides 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 plr-109968-01 then that corporation will be treated as an s_corporation beginning 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 that 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 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 conclusions after applying the law to the facts submitted and the representations made we conclude that company has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 this ruling is contingent on company filing form_2553 with an effective date of date with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 filed with the service_center 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 specifically no opinion is expressed concerning whether company is 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 under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely mary beth collins assistant to the branch chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-119233-99 date re sec_29 request for a ruling credit for producing fuel from a nonconventional source company plan dear this letter responds to a letter from company dated date requesting a ruling that company will produce a qualified_fuel within the meaning of sec_29 of the internal_revenue_code we understand the facts as represented by company and company’s authorized representatives to be as follows company is a limited_liability_company formed for the purpose of producing solid synthetic_fuel from coal company has a license authorizing it to use a variant of x’s patented process the process for converting coal feedstock into synthetic_fuel the process uses a unique substrate derived from acrylonitrile polyvinyl alcohol and injection pressure to chemically change coal into a synthetic solid fuel the process consists of two sequential steps in the first step the coal is collected sized cleaned and combined during this step an emulsion surfactant is used to remove undesirable tramp compounds such as clay and silicates carried with raw coal fines concentrated acid is then combined with the coal to produce fixed carbon receptor sites which allow for attachment of an epi- oxygen structure to carbon matrices the second step of the process uses a two-step chemical reaction to capture the carbon matrices into a cross linked epi-oxygen structure which is capable of withstanding the temperatures and handling associated with solid fuel uses two plr-119233-99 monomers freely attach to the receptor sites prepared in the first step as the catalysts used to derive the monomers evaporate during this reaction the monomers are co-polymerized and attached to the carbon component receptor sites coal is changed by covalently attaching a polymer at the modified carbon matrices of the coal and restructuring the resulting synthetic_fuel into a cross linked epi-oxygen type structure company had experts conduct numerous tests on fuel produced from coal fines of an eastern low-volatile bituminous coal a medium-volatile bituminous coal and two western high-volatile bituminous coals by the preponderance of these tests’ results company and company’s representatives represent that there was a significant chemical change in the coal making up the fuel sec_29 of the code allows a credit for qualified_fuels sold by the taxpayer to an unrelated_person during the tax_year the production of which is attributable to the taxpayer the credit for the tax_year is an amount equal to dollar_figure adjusted for inflation multiplied by the barrel-of-oil_equivalent of qualified_fuels sold sec_29 of the code defines qualified_fuels to include liquid gaseous or solid synthetic fuels produced from coal including lignite including such fuels when used as feedstocks in revrul_86_100 1986_2_cb_3 the internal_revenue_service ruled that the definition of the term synthetic_fuel under sec_48 of the code and its regulations are relevant to the interpretation of the term under sec_29 former sec_48 provided a credit for the cost of equipment used for converting an alternate_substance into a synthetic liquid gaseous or solid fuel the ruling notes that both sec_29 and former sec_48 contain almost identical language and have the same overall congressional intent namely to encourage energy conservation and aid development of domestic energy production under sec_1_48-9 of the income_tax regulations a synthetic_fuel differs significantly in chemical composition as opposed to physical composition from the alternate_substance used to produce it coal is an alternate_substance under sec_1_48-9 based on the representations of company including the preponderance of proffered data on the significant difference in the chemical composition of the fuel to be produced from that of the coal the fuel to be produced using the process will be a solid synthetic_fuel from coal within the meaning of revrul_86_100 and sec_1_48-9 of the regulations accordingly we conclude that the process produces a qualified_fuel as defined in sec_29 of the code plr-119233-99 except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusions in the ruling see section dollar_figure of revproc_99_1 1999_1_irb_6 however when the criteria in section dollar_figure of revproc_99_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office the original of this letter is being sent to company and copies are being sent to company’s authorized representatives sincerely yours charles b ramsey branch chief branch office of assistant chief_counsel passthroughs and special industries


t c memo united_states tax_court clarence d kightlinger petitioner v commissioner of internal revenue respondent docket no filed date r wyatt mick jr for petitioner timothy s sinnott for respondent memorandum findings_of_fact and opinion armen special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 briefs amicus curiae were filed by robert w mysliwiec on behalf of wayne e and judith a ellis and by mary a bridwell continued respondent determined a deficiency in petitioner's federal_income_tax for the taxable_year in the amount of dollar_figure as well as an accuracy-related_penalty under sec_6662 for negligence or intentional disregard of rules or regulations in the amount of dollar_figure after a concession by respondent the only issue for decision is whether petitioner may exclude from gross_income under sec_104 the settlement proceeds that he received during the year in issue we hold that petitioner may not exclude such proceeds under sec_104 findings_of_fact some of the facts have been stipulated and they are so found petitioner resided in mishawaka indiana at the time that his petition was filed with the court petitioner was employed by whitehall laboratories inc whitehall in elkhart indiana from date through some time in or whitehall was a subsidiary of american home products corp ahp wyeth-ayerst laboratories was a division of ahp continued unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent concedes that petitioner is not liable for the accuracy-related_penalty under sec_6662 while employed at whitehall petitioner was a member of a labor_union named the oil chemical and atomic workers international union the union during the 1980's ahp initiated a plan to relocate part of its operations to guayama puerto rico as a result of this plan ahp closed various plants operated by whitehall and wyeth- ayerst including the plant operated by whitehall in elkhart by the end of or early the plant closings caused approximately big_number whitehall and wyeth-ayerst employees to be laid off and eventually lose their jobs petitioner was one such individual in date the union filed suit against ahp and various other entities and individuals in the united_states district_court for the district of puerto rico the district_court during that same year the union determined that a class action should be brought against ahp and other defendants on behalf of the employees that were laid off consequently in date the union sent a notice entitled keep whitehall open to the affected whitehall employees the notice stated that it had become appropriate to seek individual damages for the laid off members of the union under the rico racketeer influenced and corrupt organization complaint the notice provided further as follows the remedy that we would be asking for is compensation_for losses in wages and benefits for some appropriate period of time but not less than the duration of the current contract in date the union its local chapter and several individuals the plaintiffs filed a class action against ahp and various other individuals and entities the defendants in the district_court the class action complaint the complaint stated in its preliminary statement that the defendants did unlawfully and without justification violate federal racketeering laws and intentionally interfere with the protected right of plaintiffs including the prospective economic advantages enjoyed by the herein described class of former elkhart employees the complaint identified several individual plaintiffs as typical class representatives an example of a paragraph identifying an individual class member is as follows defendants' decision to relocate and transfer jobs to puerto rico has caused individual class representative a great personal_loss consisting of his being terminated in december individual class representative has since found no steady work and is forced to maintain temporary employment with no medical benefits defendants' actions which provoked his unemployment caused him great emotional distress feelings of low self esteem and self worth individual class representative now earns much less and lost fringe_benefits due to his being terminated by defendants other individual class representatives were similarly identified the complaint alleged factually in great detail that the defendants in the course of a scheme reasonably calculated to defraud the plaintiffs to evade state and federal taxes and to avoid compliance with various other federal and puerto rican laws violated federal racketeering laws and interfered with the plaintiffs' economic advantage all of the factual allegations revolved around the defendants' wrongdoing in violations of the above-mentioned laws there were no factual allegations regarding any personal injury the plaintiffs based their claims on four counts consisting of two separate counts for rico act violations one count for unlawful interference with prospective economic advantage and one count for punitive_damages as required by the rico act the two counts for rico act violations alleged injury to the plaintiffs' business and property under the count for unlawful interference with prospective economic advantage the plaintiffs alleged that the defendants' actions interfered with the rights of the plaintiffs to enjoy the fruits and advantages of their industries and efforts as employees emphasis added finally by their count for punitive_damages the plaintiffs claimed that the defendants' negligent conduct caused severe economic and financial harm as well as other damages to the plaintiffs no mention was made of any physical or emotional injury under any of the four counts pursuant to the class action all ahp employees affected by ahp's relocation to guayama puerto rico received a legal notice of class action petitioner was a member of this class action not relevant here the class action also alleged interference with the union's right to receive dues income from its members and received the above-mentioned notice the notice of class action summarized the underlying class action as follows plaintiffs allege in their complaint that private defendants who in the course of a scheme reasonably calculated to deceive plaintiffs and to evade state and federal taxes to avoid compliance with various other federal and commonwealth laws and regulations and to relocate jobs from a state of the united_states to guayama puerto rico and who acting in concert with its corporate officers and agents of the commonwealth of puerto rico did unlawfully and without justification violate federal racketeering laws and intentionally interfere with the protected rights of plaintiffs including the prospective economic advantages enjoyed by the herein described class of former employees plaintiffs further allege that as a direct result of ahp's scheme to relocate its production facilities to guayama puerto rico to take advantage of tremendous tax savings ahp caused workers to lose jobs to be downgraded in their employment and or to take early retirement all of which caused substantial economic damages to members of the plaintiff class plaintiffs in this class action lawsuit seek to recover on behalf of themselves and all other similarly situated workers for the economic harm losses resulting from ahp's relocation to puerto rico and the related events occurring thereafter emphasis added the notice of class action further stated if you want to participate in this class action lawsuit and thereby made a claim for economic loss resulting from ahp's alleged wrongful relocation of pharmaceutical production jobs to guayama puerto rico you need do nothing emphasis added if you have any claims for damages arising out of ahp's relocation of production to guayama puerto rico that are not employment-related economic harms these claims are not included in this class action examples of economic harm included in this class action are lost wages or lost salary lost health care and or retirement benefits in date the parties reached a settlement without trial thereupon the parties filed a joint stipulation of settlement with the district_court pursuant to this joint stipulation of settlement ahp agreed to pay dollar_figure million in full satisfaction of all of the claims brought against it in the class action the joint stipulation of settlement did not allocate the settlement proceeds for any particular claim however the proceeds were allocated among court-approved expenses class counsel the union and class members the joint stipulation of settlement provided guidelines pursuant to which an independent_trustee would determine the appropriate amount to compensate individual class members for their demonstrated employment- related economic harm pursuant to this stipulation economic harm was to be measured based upon factors such as age duration of employment with the company salary history and subsequent employment history including the date of new employment and salary history noneconomic injury was not a factor to be considered in the independent trustee's allocation of the recovery to the class members subsequently class members including petitioner received a notice of proposed settlement and settlement hearing the notice of proposed settlement reiterated that the lawsuit sought to recover for harm resulting from the defendants' violation of the rico act and interference with the class members' prospective economic advantages as employees the notice of proposed settlement then informed the class members regarding the method selected to compensate individual class members for their demonstrated economic harm arising from the loss of their employment individual class members were given the option to exclude themselves from the proposed settlement for any reason including the possibility that their claim was more expansive than one for employment-related economic loss individual class members were required to submit a proof_of_claim and release to the independent_trustee to claim a portion of the recovery the proof_of_claim and release form was designed to measure each individual class member's degree of employment-related economic harm the form inquired as to the individual class member's age years_of_service with ahp job classification at the time of separation whether the individual was bumped down before separation whether the individual received severance_pay at the time of separation how the individual's current benefits differed from those received at ahp and the individual's current sources of income no inquiry was made as to whether an individual class member had suffered any physical or emotional injury petitioner claimed entitlement to a portion of the class action recovery and stated in his proof_of_claim as follows the economic damages that i have suffered since my termination from whitehall lab in elkhart has had a devastating hardship on my financial future and security since losing my job i have had to withdraw all my savings and cash in securities that i had put aside for my retirement years when i was hired at whitehall lab in elkhart in august of i felt as though i had secured my future with the good wages i would be able to make during my years until retirement also i felt as though i would have good retirement benefits secured for my golden years i knew if i were given a chance to work at this facility for the future to years i would be in a good position with full pension and medical benefits currently i am working at a job that pays less than of the wages i made at elkhart's whitehall lab in moving the facility to puerto rico the results were that i was one of over plus workers whose life has changed leaving me with an insecure future and with the possibility that i will never have the financial security that i had while employed at whitehall petitioner may have suffered some depression as a result of being laid off however petitioner did not consult with a doctor for any such condition petitioner did not claim any emotional or physical injury and did not opt_out of the settlement agreement to pursue a claim for personal injury or otherwise a final order and judgment in the class action was entered in date in that document the district_court approved the joint stipulation of settlement filed by the parties the district_court retained jurisdiction solely for the purpose of ensuring proper administration of the settlement proceeds subsequently a motion for distribution of notice and release form was filed by the plaintiffs the motion outlined the independent trustee's determination of the method for the allocation of the funds among the individual class members pursuant to the guidelines in the joint stipulation of settlement the independent_trustee considered factors such as age years of seniority and the amount of severance_pay received some of the independent trustee's findings as pertaining to petitioner are as follows since some terminated employees received up to two weeks severance and others received less the first priority will be to distribute the settlement funds to bring each qualified claimant up to two weeks of severance_pay for each full year of seniority any remaining funds will be distributed mainly to terminated employees who did not transfer or receive erip early retirement incentive program on the basis of the following point system the point system allocated points based on age increasing from age to age and decreasing from age and up and years_of_service increasing per year_of_service the rationale for basing this point system on seniority and age is that workers who were near retirement age when they were terminated were not damaged as much as younger workers say who probably will have more years of lower-paying work or unemployment than a 58-year-old worker who was closer to retirement similarly young worker sec_4 pursuant to the joint stipulation of settlement claimants were divided into different priority groups the group with the top priority included ex-employees who were terminated without transfer of benefits under an early retirement incentive program erip petitioner was a member of this group inasmuch as erip was not available to any of the union members say at age are assumed to suffer less damage than older workers who have greater difficulty finding comparable jobs the distribution formula therefore reflects pension eligibility as well as age and seniority thereafter in date the district_court ordered the disposition of the settlement proceeds to individual class members pursuant to the independent trustee's allocations except for some minor changes not relevant here in the same order the district_court noted finally the court has received some correspondence from class members expressing concern regarding the taxability of their settlement awards one particular class member suggests that twenty percent of the payment amount be withheld for the purpose of satisfying federal income taxes at this time the court makes clear that there will be no withholding of funds from the settlement award to class members for tax purposes this was not a lawsuit about lost wages therefore each member shall be responsible for taxes based on their particular situation emphasis added petitioner received his portion of the recovery from the class action dollar_figure in date on his return petitioner did not include this amount in gross_income claiming exemption under sec_104 in date respondent informally notified class members such as petitioner that the settlement proceeds were not excludable from gross_income under sec_104 in date pursuant to a request by the plaintiffs the district_court issued another order in that order the district_court found that the class action involved tort-like claims arising from allegations of wrongful conduct and was not about lost wages and involved personal injury-like claims for emotional distress as evidenced from the pleadings the court stated that it was closely involved with the settlement and would allocate the total settlement to such tort-like claims and remedies in date respondent issued the notice_of_deficiency involved herein in the notice_of_deficiency respondent determined that petitioner was not entitled to an exemption under sec_104 and included petitioner's recovery in gross_income for the year of its receipt general discussion of sec_104 opinion5 except as otherwise provided gross_income includes income from all sources sec_61 348_us_426 although sec_61 is to be broadly construed statutory exclusions from income are narrowly construed 515_us_323 504_us_229 100_tc_124 affd per curiam without published opinion 25_f3d_1048 6th cir as previously noted briefs amicus curiae were filed by or on behalf of taxpayers similarly situated to petitioner in addressing petitioner's contentions we have also considered the contentions made by the amici curiae as an exception to the general_rule under sec_61 sec_104 provides that gross_income does not include the amount of any damages received whether by suit or agreement on account of personal injuries or sickness sec_1_104-1 income_tax regs provides in pertinent part c damages received on account of personal injuries or sickness the term damages received whether by suit or agreement means an amount received through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution an amount may be excluded from gross_income only if it is received both through prosecution or settlement of an action based upon tort or tort-type rights and on account ofpersonal injuries or sickness commissioner v schleier supra 48_f3d_894 5th cir 105_tc_396 affd 121_f3d_393 8th cir personal injury personal injury need not be purely physical in nature and may include nonphysical emotional injury united_states v burke supra 87_tc_1294 affd 848_f2d_81 6th cir in united_states v burke supra pincite the supreme court described the traditional harms associated with personal injury as pain and suffering emotional distress harm to reputation or other consequential damages eg a ruined credit rating the supreme court distinguished such personal injuries from legal injuries of an economic character such as those arising out of the unlawful deprivation of the opportunity to earn wages through wrongful termination id consequently damages received for lost wages in connection with the settlement of economic rights such as those arising out of a breach of contract are not excludable from income under sec_104 id 102_tc_116 affd in part revd in part on another issue 70_f3d_34 5th cir and cases cited therein similarly recovery for business or property is separate and distinct from recovery for personal injury 937_f2d_899 3d cir 915_f2d_460 9th cir 888_f2d_1175 7th cir see reuter v sonotone corp 442_us_330 holding that the phrase business or property in the context of the clayton act ch sec_4 38_stat_731 u s c sec_15 does not denote physical or emotional harm to a person in 834_f2d_1163 3d cir the court_of_appeals held in this regard as follows a plaintiff seeking recovery under rico must allege injury in his business or property caused by violation of the act in reuter v sonotone 442_us_330 99_sct_2326 60_led_931 the supreme court construed identical language from the clayton act on which the rico statute was patterned the court concluded that congress intended the phrase business or property to exclude personal injuries id pincite s ct pincite a the settlement agreement in the case before us petitioner received a portion of the recovery in a class action pursuant to a settlement agreement when damages are received pursuant to a settlement agreement the nature of the claim that was the actual basis for settlement controls whether such damages are excludable under sec_104 united_states v burke supra 866_f2d_709 4th cir affg 89_tc_632 robinson v commissioner supra determination of the nature of the claim is factual bagley v commissioner supra 98_tc_1 t he critical question is in lieu of what was the settlement amount_paid bagley v commissioner supra pincite therefore the intent of the payor is the most important factor 349_f2d_610 10th cir affg tcmemo_1964_33 robinson v commissioner supra stocks v commissioner supra pincite we first consider the settlement agreement in deciding the intent of the payor in paying the settlement proceeds see robinson v commissioner supra the joint stipulation of settlement involved herein did not specifically allocate the settlement proceeds for any particular claim however the joint stipulation of settlement provided that an independent_trustee would determine appropriate amounts to compensate individual class members for their demonstrated economic harm guidelines outlined in the joint stipulation of settlement based economic harm on the loss or reduction of wages resulting from the loss of employment personal injury was not considered therefore the settlement agreement indicates that the defendants paid the settlement proceeds on account of economic harm arising from the deprivation of a class member's opportunity to earn wages such recovery is clearly not on account of personal injury we shall not however limit our inquiry to the joint stipulation of settlement we shall consider other factors to ascertain the intent of the defendants in paying the settlement proceeds see knuckles v commissioner supra robinson v commissioner supra stocks v commissioner supra b the complaint when payments are received pursuant to a settlement agreement from which we cannot clearly discern why the payments were made the underlying complaint is normally examined as an indicator of the payor's intent see robinson v commissioner supra logic dictates that defendants will ordinarily determine their liability by taking into account the allegations made in the complaint see threlkeld v commissioner supra 80_tc_1104 accordingly the payor's intent can be discerned from the allegations made in the complaint we must therefore consider the allegations made by class members such as petitioner in the complaint we observe at this point that the mere mention of emotional harm in a complaint does not by itself serve to exclude the recovery from gross_income under sec_104 clearly such a rule would improperly expand the scope of sec_104 because the emotional harm language could easily be included in every complaint even if such claim were only a throwaway claim what is more the mere fact that a taxpayer suffers personal injury from a defendant's conduct is insufficient to satisfy the on account of personal_injury_or_sickness test 515_us_323 only recovery that is attributable to such personal injury is excludable from gross_income id the supreme court clarified the law in this regard in commissioner v schleier supra in that case the supreme court distinguished the recovery that a taxpayer receives as a result of an automobile accident from the recovery that a taxpayer receives as a result of age discrimination under the age discrimination in employment act adea whereas both individuals may suffer emotional harm as a result of a defendant's wrongdoing only the accident victim's recovery can be considered as received on account of personal injury the adea does not provide recovery for personal injury therefore although the adea claimant may have suffered some emotional harm the recovery he or she received is not on account of his or her personal injury rather the adea claimant's recovery is on account of the wrongful discrimination leading to his or her discharge similarly the rico act does not provide a remedy for personal injuries see genty v resolution trust corp supra pincite berg v first state ins co supra pincite rylewicz v beaton servs ltd supra pincite 835_f2d_844 11th cir zimmerman v hbo affiliate group supra rather entitlement to recovery under the rico act is predicated on harm to the claimant's business or property rylewicz v beaton servs ltd supra recovery for business or property is separate and distinct from recovery for personal injury see rylewicz v beaton servs ltd supra the complaint in the class action was based on several claims first and predominantly the plaintiffs alleged injury to their business and property under the rico act the factual allegations were clearly aimed at establishing such wrongful conduct in this regard and as is the case with an adea claimant petitioner did not receive his recovery on account of personal injury rather he received his recovery on account of the defendants' alleged violation of the rico act leading to his discharge recovery based on such allegations could only be for injury to petitioner's business and property the amount of the recovery is independent of the existence or extent of any personal injury that petitioner may have suffered see commissioner v schleier supra petitioner argues that the rico act was meant to expand the remedies available to claimants and does not limit an individual's cause of action although this assertion may be true the plaintiffs in the class action did not in fact seek to establish any personal injury but limited their remedy to that provided by the rico act cf 504_us_229 holding that the taxpayer's recovery under title vii of the civil rights act of publaw_88_352 78_stat_253 was not excludable--the underlying action not constituting a tort-type claim--even though taxpayer had other tort-type remedies available for the wrongful discrimination against him secondarily the complaint alleged interference with the class members' prospective economic advantage as employees as we have already noted we do not think that the plaintiffs actually sought to establish personal injury the complaint merely mentions emotional distress without any supporting factual allegations within the context of a lengthy 90-page and carefully drafted complaint recovery for the defendants' interference with the class members' economic advantage as employees is similarly not on account of personal injury see commissioner v schleier supra united_states v burke supra robinson v commissioner t c pincite petitioner asserts that individual class members did not have a direct contractual relationship with the defendants even if such assertion is true class members based their claim for interference with prospective economic advantage on an employer employee relationship their complaint sought remedy for the defendants' alleged wrongful interference with their rights to enjoy the fruits and advantages of their industries and efforts as employees this is further evidenced by the date notice to the class members which stated the remedy that we would be asking for is compensation_for losses in wages and benefits for some appropriate period of time but not less than the duration of the current contract emphasis added clearly recovery for economic injury based on such a contractual type claim is excluded from the scope of sec_104 see robinson v commissioner supra and cases cited therein the plaintiffs also sought punitive_damages for the harm suffered as a result of the defendants' alleged wrongful conduct contrary to petitioner's suggestion the exclusion provided by sec_104 as in effect for the year in issue does not apply to a recovery for punitive_damages not attributable to physical injury specifically sec_104 provides that the exclusion_from_gross_income for damages received on account of personal injuries shall not apply to any punitive_damages in connection with a case not involving physical injury or physical sickness the complaint did not even mention any physical injury nor does petitioner claim any physical injury therefore any portion of the settlement proceeds that may be allocated to recovery for punitive_damages is outside the scope of sec_104 as a final note in this regard we refer to the manner in which counsel for the plaintiffs summarized the class action complaint in two notices sent to the class members specifically we refer to the following excerpt contained in both notices plaintiffs in this class action lawsuit seek to recover on behalf of themselves and all other similarly situated workers for the economic harm losses resulting from ahp's relocation to puerto rico and the related events occurring thereafter having considered the allegations made in the complaint and the plaintiffs' counsels' interpretation of the class action we cannot find that the defendants intended to pay class members such as petitioner on account of personal injury although mention of emotional harm was made we do not think that an action that revolved around rico violations and interference with the prospective economic advantages of employees sought or obtained redress for any of the traditional harms associated with personal injury such as pain and suffering or emotional distress see united_states v burke supra c other factors other factors support respondent's contention that petitioner's recovery was not on account of personal injury as mentioned the two notices received by petitioner clearly describe the class action as one for the recovery_of lost wages and employment-related economic harm in fact class members were informed that claims for any harm other than employment- related economic harm should be pursued by the class member independently of the class action petitioner did not otherwise pursue a claim for any personal harm rather he claimed his portion of the recovery by describing how the defendants' actions had economically affected him further the independent_trustee in charge of allocation of the funds was expected to and did devise an arrangement designed to compensate the class members for employment-related economic harm the independent_trustee allocated funds to ensure that qualified claimants received up to weeks of severance_pay for each full year of seniority the remaining funds were distributed to terminated employees such as petitioner who did not transfer or receive the benefit of the early retirement incentive program the funds were distributed on the basis of a point system that reflected pension eligibility as well as age and seniority the entire distribution arrangement revolved around lost wages and retirement benefits and sought to make class members economically whole petitioner contends that economic loss can be used to measure the extent of personal injury as is the case in many automobile accident injury cases in this regard petitioner relies on 883_f2d_211 3d cir revg 90_tc_1000 for the proposition that nonpersonal consequences of a personal injury such as loss of future income are often the most persuasive means of proving the extent of the personal injury that was suffered we agree that using economic loss factors as a yardstick to measure the extent of personal injury does not necessarily bar a recovery from the scope of sec_104 see 87_tc_236 affd 835_f2d_67 3d cir 48_tc_465 modified on other grounds 49_tc_13 however petitioner's reliance on byrne v commissioner supra and the accident injury cases is misplaced the operative factor in these cases is that there is in fact a personal injury and that recovery is made on account of such injury by contrast petitioner's loss of employment by the defendants' alleged wrongful conduct the basis on which petitioner received his recovery is not a personal injury cf 515_us_323 further the focus of the settlement in the class action was to make class members such as petitioner economically whole from the effects of their loss of employment therefore economic factors were not merely used as a yardstick to measure the extent of the injury rather they were the harm for which petitioner received his compensation this is evidenced by the joint stipulation of settlement by the independent trustee's findings as reflected in the motion for distribution of notice and release form by the inquiries made in the proof_of_claim form and finally by the proof_of_claim as completed and submitted by petitioner d the district court's orders finally we consider the orders issued by the district_court in date and date as a preliminary matter we observe that because res_judicata and collateral_estoppel are affirmative defenses and neither was pleaded by petitioner they are deemed waived see rule monahan v commissioner we note however that even if petitioner had pleaded these affirmative defenses res_judicata and collateral_estoppel would not apply if for no other reason than the characterization of the settlement's tax consequences was not essential to the prior proceeding see 90_tc_162 affd 904_f2d_525 9th cir setting forth the following five conditions that must be satisfied prior to application of issue preclusion in the context of a factual continued t c green v commissioner tcmemo_1998_274 collateral_estoppel see also gustafson v commissioner 97_tc_85 if an affirmative defense is not pleaded it is deemed waived we do however consider the contents of these orders in our factual inquiry first the date order states that the district_court would not decide what amount should be withheld as income_tax from the recovery rather the district_court left it up to the class members based on their particular situation to determine the amount of tax due contrary to petitioner's assertion this order does not on its face establish that petitioner's recovery is excludable under sec_104 the district court's date order does however state that the facts and circumstances of the class action involved tort-like and personal injury-like claims for emotional distress this order also states that the district_court was closely continued dispute the issue in the second suit must be identical in all respects with the one decided in the first suit there must be a final judgment rendered by a court of competent jurisdiction collateral_estoppel may be invoked against parties and their privies to the prior judgment the parties must actually have litigated the issues and the resolution of these issues must have been essential to the prior decision the controlling facts and applicable legal rules must remain unchanged from those in the prior litigation involved with the settlement and would allocate the total settlement to such tort-like claims and remedies we do not understand why in light of all the contrary evidence the district_court issued such an order however because this order did not result from an adversary proceeding we find that it does not accurately reflect the realities of the parties' settlement cf 102_tc_116 the allocation in the settlement agreement approved by the court is not controlling when the allocation itself did not result from an adversary proceeding 105_tc_396 same hess v commissioner tcmemo_1998_240 same although the proceedings prior to the settlement agreement were certainly adversarial the parties were no longer adversaries after they reached a settlement more than a year after the settlement the plaintiffs desired to have the settlement payment linked to tort-type injuries received on account of personal injuries and met with no opposition from the defendants once the defendants paid the settlement proceeds they did not have any interest in how such funds were allocated the plaintiffs requested the district_court to issue such an order and with the defendants not objecting the district_court did so we find therefore that in light of all the other facts and circumstances the date order does not establish that petitioner received his recovery on account of personal injury tort-type claim petitioner contends that under the law for the taxable_year in issue if recovery is received on account of a tort-type claim then there is no requirement that recovery be on account of personal injury in this regard petitioner relies on 504_us_229 we disagree with petitioner's contention which is squarely refuted by 515_us_323 in commissioner v schleier supra the supreme court held that even if the underlying lawsuit is tort-type the recovery itself must be on account of personal injury id further the supreme court noted that its holding in united_states v burke supra did not imply a contrary rule the following excerpt from commissioner v schleier supra pincite clearly establishes the law in this regard appellee also suggests that our decision in 504_us_229 compels the conclusion that his settlement award is excludable in burke we rejected the taxpayer's argument that the payment received in settlement of her backpay claim under the pre- version of title vii of the civil rights act of was excludable from her gross_income our decision rested on the conclusion that such a claim was not based upon tort or tort type rights within the meaning of the regulation quoted above sec_1_104-1 income_tax regs for two independent reasons we think burke provides no foundation for appellee's argument second and more importantly the holding of burke is narrower than appellee suggests in burke following the framework established in the internal_revenue_service regulations we noted that sec_104 requires a determination whether the underlying action is based upon tort or tort type rights in so doing however we did not hold that the inquiry into tort or tort type rights constituted the beginning and end of the analysis in particular though burke relied on title vii's failure to qualify as an action based upon tort type rights we did not intend to eliminate the basic requirement found in both the statute and the regulation that only amounts received on account of personal injuries or sickness come within sec_104's exclusion thus though satisfaction of burke's tort or tort type inquiry is a necessary condition for excludability under sec_104 it is not a sufficient condition fn ref omitted because the record does not establish that the settlement recovery was attributable to any personal injury we need not decide whether the underlying class action was tort-type conclusion consistent with the requirement that exclusions from income are to be narrowly construed we hold that the settlement proceeds received by petitioner are not excludable from gross_income under sec_104 petitioner has raised other arguments that we have considered in reaching our decision to the extent that we have not discussed these arguments we find them to be without merit to reflect our disposition of the disputed issue as well as respondent's concession decision will be entered for respondent as to the deficiency in tax and for petitioner as to the accuracy- related penalty


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-132787-06 date november -------------------- -------------------------- ------------------------------------------ ------------------------------------------ -------------------------------------------- legend 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 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 plr-132787-06 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 each holder of a share will be allocated its share of each portfolio’s income or loss plr-132787-06 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_instrument or contract the value of which is determined in whole or in part by reference plr-132787-06 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 the shares sold by x to the segregated_asset accounts of other insurance_companies plr-132787-06 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-132787-06 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


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-135440-01 date date estate decedent a b c d country court d1 x y z treaty dear this letter responds to a letter dated date submitted by you as the co- executor of estate requesting certain rulings under sec_691 and sec_894 of the internal_revenue_code plr-135440-01 the information submitted states that decedent died on d1 decedent’s estate included non-probate assets consisting of a tax-deferred annuity account tda the beneficiaries of which are a b and c and an individual_retirement_account ira the beneficiary of which is d a b c and d are all non-resident aliens nras who are citizens of country decedent’s will provides that all transfer estate or inheritance taxes in connection with my estate shall be apportioned among the beneficiaries the executors of estate were concerned that they would not be able to recover any portion of the federal and state estate_taxes that was to be apportioned among the nra beneficiaries of the tda and ira accounts a b c and d which the executors of estate calculated as x of the respective values of the accounts therefore estate petitioned court to order the custodians of the tda and ira to set_aside x of the account values and direct payments of such amounts to estate for the purpose of paying estate_taxes court granted these petitions the custodians of the tda and ira paid over to estate x of the account values which estate used to pay federal and state estate_taxes the amount distributed from the tda was dollar_figurey the amount distributed from the ira was dollar_figurez the custodians issued forms 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc to estate estate requests a ruling that the distributions paid to estate reported on the forms 1099-r are not income to the estate but to the nra beneficiaries of the accounts however if the distributions paid to estate are income to estate estate requests rulings that the estate_tax payments made by estate will be treated as distributions to a b c and d under sec_661 and that such distributions are not subject_to united_states income_tax or withholding because of the provisions of treaty ruling sec_691 provides that the amount of all items of gross_income in respect of a decedent which are not properly includable in respect of the taxable_period in which falls the date of the decedent’s death or a prior period including the amount of all items of gross_income in respect of a prior decedent if the right to receive such amount was acquired by reason of the death of the prior decedent or by bequest devise or inheritance from the prior decedent shall be included in the gross_income for the taxable_year when received of a the estate of the decedent if the right to receive the amount is acquired by the decedent’s estate from the decedent b the person who by reason of the death of the decedent acquires the right to receive the amount if the right to receive the amount is not acquired by the decedent’s estate from the decedent or c the person who acquires from the decedent the right to receive the plr-135440-01 amount by bequest devise or inheritance if the amount is received after a distribution by the decedent’s estate of such right sec_1_691_a_-1 of the income_tax regulations provides that the term income_in_respect_of_a_decedent refers to those amounts to which a decedent was entitled as gross_income but which were not properly includable in computing the decedent’s taxable_income for the taxable_year ending with the date of the decedent’s death or for a previous taxable_year under the method_of_accounting employed by the decedent revrul_92_47 1992_1_cb_198 holds that a distribution to the beneficiary of a decedent’s ira that equals the amount of the balance in the ira at the decedent’s death less any nondeductible_contributions is income_in_respect_of_a_decedent under sec_691 that is includable in the gross_income of the beneficiary for the tax_year the distribution is received sec_691 provides that the right to receive an amount of income_in_respect_of_a_decedent shall be treated in the hands of the estate of the decedent or any person who acquired such right by reason of the death of the decedent or by bequest devise or inheritance from the decedent as if it had been acquired by the estate or such person in the transaction in which the right to receive the income was originally derived and the amount includable in gross_income shall be considered in the hands of the estate or such person to have the character which it would have had in the hands of the decedent if the decedent had lived and received such income sec_661 provides that in any taxable_year there shall be allowed as a deduction in computing the taxable_income of an estate_or_trust other than a_trust to which subpart b applies the sum of any amount of income for such taxable_year required to be distributed currently including any amount required to be distributed which may be paid out of income or corpus to the extent such amount is paid out of income for such taxable_year and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed for such taxable_year but such deduction shall not exceed the distributable_net_income dni of the estate_or_trust sec_1_661_a_-2 provides that the terms income required to be distributed currently and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed also include any amount used to discharge or satisfy any person’s legal_obligation as that term is used in sec_1_662_a_-4 based solely on the facts and representations submitted we conclude that the distributions from the tda and ira to the estate made pursuant to the order of the court are ird to the estate and will be included in the dni of the estate furthermore the payments of estate’s federal_estate_taxes by estate that a b c and d are obligated to pay will be treated as distributions of dni to a b c and d to the extent the payments are made from the ird amounts plr-135440-01 ruling in general where a nonresident_alien who is not engaged in a united_states trade_or_business receives certain income from the united_states percent u s income_tax_withholding is levied on the gross amount received under sec_871 income subject_to_withholding includes interest dividends rents salaries wages emoluments and other fixed_or_determinable_annual_or_periodical_gains_profits_and_income fdap sec_871 a single lump-sum payment may be considered fdap and is subject_to_withholding sec_1_1441-2 other fixed_or_determinable_annual_or_periodical_gains_profits_and_income is defined in relevant part as all income included in gross_income under sec_61 with the exception of certain items specified in the regulations and items of income that are excluded from income without regard to the u s or foreign status of the owner of the income b i under domestic law the payments made by the custodians of the tda and ira accounts would be subject_to withholding under sec_871 and sec_1441 however the provisions of the code shall be applied to any taxpayer with due regard to any treaty obligation of the united_states which applies to such taxpayer sec_894 under sec_1_1441-6 the tax may be reduced or eliminated to the extent provided under an income_tax treaty in effect between the united_states and a foreign_country in this case the potentially applicable treaty is treaty because the tda and ira beneficiaries are citizens and residents of country article private pensions and annuities of the treaty provides in relevant part as follows except as provided in article government functions pensions and other similar remuneration paid to an individual shall be taxable only in the contracting state of which he is a resident alimony and annuities paid to an individual who is a resident of one of the contracting states shall be taxable only in that contracting state the term pensions and other similar remuneration as used in this article means periodic_payments other than social_security payments covered in article social_security payments made a by reason of retirement or death and in consideration for services rendered plr-135440-01 the term annuities as used in this article means a stated sum paid periodically at stated times during life or during a specified number of years under an obligation to make the payments in return for adequate_and_full_consideration other than services rendered the technical explanation of treaty prepared by the department of the treasury paraphrases treaty p rivate pensions and similar remuneration derived from sources within one contracting state by an individual resident of the other contracting state are exempt from tax in the first-mentioned contracting state the term pensions and similar remuneration is defined in paragraph as periodic_payments other than social_security payments covered in article social_security payments made by reason of retirement or death and in consideration for services rendered the distributions in this case cannot constitute annuities within the meaning of paragraph of article because they are not in return for adequate_and_full_consideration other than services rendered they are in fact in return for services rendered by decedent in order to constitute pensions and other similar remuneration within the meaning of paragraph the payments must be made by reason of retirement or death and in consideration for services rendered in this case we conclude that it would be appropriate to treat distributions from the tda and the ira as pension distributions for purposes of the treaty the payments in this case are being made in lump sums rather than a series of periodic_payments however although the definition of pensions and other similar remuneration in paragraph refers to periodic_payments the fact that a pension distribution may be in the form of a lump sum will not by itself disqualify the distribution for treaty benefits unless the treaty partner interprets the term periodic to exclude lump-sum_distributions therefore based solely on the facts and representations submitted we conclude that the distributions from decedent’s tda and ira accounts to the estate which are then treated as distributed to beneficiaries a b c and d who are residents of country are not subject_to u s withholding and are taxable only in country pursuant to article of treaty plr-135440-01 except as set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transactions described above under any other provision of the code this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes sincerely yours j thomas hines chief branch office of the associate chief_counsel passthroughs special industries


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl 1-plr-114256-00 date date do ty a country b date c date d year e dear this is in response to a letter dated date as supplemented by a letter dated date submitted by a’s authorized representative requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of long-term_resident status did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by the taxpayer while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination a a former long-term_resident of the united_states within the meaning of sec_877 relinquished his u s lawful permanent resident status expatriated on date c a is a citizen of country b by reason of his birth on date d in country b a's father was also born in country b a became a lawful permanent resident_of_the_united_states in year e on the date of a’s expatriation his net_worth exceeded the applicable_threshold in sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long- term resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed under sec_877 and the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long term-resident will be presumed to have expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceeds certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_30 modifying notice_97_19 1997_1_cb_394 an eligible former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will also not be presumed to have a principal purpose of tax_avoidance if that former long-term_resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because he is described in three categories of individuals eligible to submit ruling requests first on the date of a’s expatriation a was and continues to be a resident fully liable to income_tax in country b the country where a was born second on the date of a’s expatriation a was and continues to be a resident fully liable to income_tax in country b the country where a’s spouse was born third a is eligible to submit a request because on the date of a’s expatriation a was and continues to be a resident fully liable to tax in country b the country where his father was born a submitted all the information required by notice_98_34 including any additional information requested by the service after review of the submission accordingly based solely on the information submitted and the representations made it is held that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 and therefore a will not be presumed to have expatriated with a principal purpose of tax_avoidance it is further concluded that a will not be treated under sec_877 as having as one of his principal purposes of expatriating the avoidance of u s taxes because the information submitted clearly established the lack of a principal purpose to avoid taxes under subtitle a or b of the code a copy of this letter must be attached to a's u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a’s authorized representative sincerely w edward williams senior technical reviewer cc intl br1


internal_revenue_service number release date index number ---------------------------------------- -------------------------------------- --------------------------------- --------------------------------------- in re ----------------------------------- 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 b04 plr-135343-09 date date legend legend grantor spouse daughter daughter trust trust date accountant attorney date year year year year year year year ------------------------------------------------------- ------------------------------------------------ --------------------------------------------------------- ------------------------------------------------ --------------------------------------------------------------------------------------- ------------------------------------------------------------------------ --------------------------- ---------------------- -------------------- ------------------------- ------- ------- ------- ------- ------- ------- ------- dear ------------------ this responds to your authorized representative’s letter of date requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301 of the procedure and administration regulations to make an allocation of generation-skipping_transfer gst_exemption facts the facts and representations submitted are summarized as follows grantor and spouse created two irrevocable trusts trust for the benefit of daughter and trust plr-135343-09 for the benefit of daughter trust was funded in year and an addition was made in year accountant prepared the form sec_709 united_states gift and generation- skipping transfer_tax return but did not request trust or trust documents no allocation of gst_exemption was made on the form sec_709 additional transfers were made to trust and trust in year sec_3 and6 grantor and spouse erroneously believed that all of the gifts made in year sec_3 through qualified for the annual exclusion however daughter and daughter the beneficiaries of trust and trust had no present_interest in trust and trust consequently no returns were filed and no gst_exemption was allocated to any of those gifts grantor became terminally ill in year in reviewing the circumstances surrounding trust and trust attorney discovered that grantor and spouse had not allocated their available gst_exemption to the trusts grantor indicated that he thought accountant had taken the proper steps regarding allocation of the gst_exemption grantor died on date law and analysis sec_2601 of the internal_revenue_code imposes a tax on every generation- skipping transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 as in effect for the tax years at issue provided that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 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 sec_2642 provides that the secretary shall by regulation 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 requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph plr-135343-09 sec_2642 provides that in determining whether to grant relief under 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 notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers is to be treated as if not expressly prescribed by statute and taxpayers may seek an extension of time to make an allocation described in sec_2642 or b under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer 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 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 advise the taxpayer to make the election sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 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 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore grantor’s estate and spouse are granted an extension of time of days from the date of this letter to make an allocation of grantor and spouse’s available gst_exemption with respect to their transfers to trust in year sec_1 through the allocation will be effective as of the respective dates of the transfers to trust and the value of the transfers to trust as determined for federal gift_tax purposes will be used in determining the amount of grantor’s exemption to be allocated to trust this allocation should be made on a supplemental form_709 and filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to the supplemental form_709 plr-135343-09 the rulings contained in this letter are 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 rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code the conclusions in this ruling with respect to the estate and generation-skipping_transfer_tax pertain any time those sections are applicable this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely curt g wilson associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter