internal_revenue_service number release date index number ------------------------------ --------------------------------------------------------- -------------------------- ----------------------------- ---------------------------------------- department of the treasury washington dc person to contact ----------------- id no ------------------ telephone number ---------------------- refer reply to cc fip plr-140392-13 date date legend company a company b company c_corporation landlord landlord sub state a city entity type x assets business a business b business c ------------------------------------------------------------------------------------------------------------- ------ --------------------------------------- -------------------------------------------------------------------------- ------------------------------------------ ------------------------------- ---------------------- -------------- ------------------------- ----------------- --------------- -------------------- ---------------------------- ------------------------------ -------------------------------------------- plr-140392-13 business d date date date date date date date date date date date a b c d e f g h i j ------------------------------------ -------------------- -------------------------- -------------------- ------------------ -------------------- ---------------------- ---------------------- ------------------- -------------- ------------------- ------------------ ----- ----- -------- ---- ----- ----- ---- ---- ---- ---- plr-140392-13 k l m n o p q r s t u v w x y z aa bb cc dd ee ---- -- ---- - ------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ------ ---- ------ ---- ---- ---- ---- plr-140392-13 ff ----- dear ------------------- this is in response to your letter dated date regarding whether payments received or to be received by taxpayer company a and together with entities disregarded from company a from corporation’s bankruptcy_estate corporation estate including amounts related to the settlement with company b the company b settlement will be treated either as qualifying_income under sec_856 and c of the internal_revenue_code code or excluded from gross_income for purposes of the gross_income tests of sec_856 and c pursuant to sec_856 facts company a is a publicly-traded real_estate_investment_trust reit specializing in ownership and leasing of business a business b and business c company a is a state a entity that is headquartered in city taxpayer’s business model is to lease its properties on a triple-net basis primarily to type x distributors and to a lessor extent individual operators its tenants operate the properties directly or sublet the properties to operators who operate business a business b and business d or other businesses at the properties as of date taxpayer owned a properties and leased b properties from third parties taxpayer’s c properties are located in d states as of date approximately e of taxpayer’s owned or leased properties were previously leased to corporation pursuant to a master lease master lease and taxpayer derived a majority of its revenue from the leasing of these properties under the master lease landlord in the master lease is a qualified_reit_subsidiary of company a on date corporation filed for chapter bankruptcy protection in the bankruptcy court taxpayer submitted claims of i ii iii iv over dollar_figuref million in unpaid rent over dollar_figureg million in real_estate_taxes over dollar_figureh million to repair properties that were not returned in accordance with the standards provided for in the master lease over dollar_figurei million to pay for the registration and removal of assets on the properties that were the responsibility of the tenant pursuant to the master lease plr-140392-13 v vi vii viii ix over dollar_figurej million in environmental remediation costs that were the responsibility of the tenant pursuant to the master lease over dollar_figurek million in expenses that were incurred to enter into new arrangements with tenants over dollar_figurel million in legal costs over dollar_figurem million in litigation settlements that involve items such as insurance claims received by corporation attributable to damages to taxpayer’s property that were required to be remitted to taxpayer or used for repairs on taxpayer’s property that were not undertaken other items that total less than dollar_figuren million taxpayer expects the above amounts to increase as damages accrue in addition the bankruptcy court has not yet determined which claims submitted by taxpayer and other creditors of corporation will be accepted in determining taxpayer’s proportionate interest in the liquidation of the corporation estate therefore taxpayer believes that it is not possible at this time to determine the total amount taxpayer will receive or to calculate the taxable_income that will result from claims received from the corporation estate taxpayer represents that some damages attributable to unpaid rent and real_estate_taxes may be payments attributable to rental income that have otherwise been included in taxpayer’s gross_income some of that rental income has been offset as a bad_debt expense and will be included in income when it is recovered some of the damages are attributable to payments that cover expenses that are capital expenditures reimbursements of expenses that are deducted and damages for which there may not have been any amount expended by taxpayer as of this time on date taxpayer entered into a stipulation with corporation and with the official committee of unsecured creditors in the bankruptcy proceedings the stipulation was approved and made an order by the bankruptcy court on date stipulation pursuant to the stipulation and taxpayer’s other pre-petition and post- petition claims taxpayer is entitled to recover an administrative claim capped at dollar_figureo million for the partial payment of fixed rent and performance of other obligations due from corporation under the master lease from date until possession of the properties subject_to the master lease was returned to taxpayer effective date administrative claim taxpayer’s administrative claim has priority over the claims of other creditors and certain of its other claims the bankruptcy court appointed a liquidating trustee liquidating trustee to oversee the liquidation of the corporation estate the liquidating trustee continues to oversee the corporation estate and pursue claims for the benefit of its creditors including those related to the recovery_of various deposits including surety bonds insurance_policy claims and claims made to state funded reimbursement programs plr-140392-13 during date the corporation estate filed a lawsuit against corporation’s former parent company b and certain of its affiliates collectively company c as well as the former directors and officers of corporation the company c claim the company c claim asserted among other claims that corporation’s sale of assets to company c during date constituted a fraudulent conveyance and that the assets or their value can be recovered from company c in addition the company c claim asserted that the former directors and officers violated their fiduciary duties to corporation in approving and effectuating the challenged sale and are liable for money damages the corporation estate lacked sufficient funds to pursue the company c claim taxpayer decided to pursue the company c claim in order to realize a meaningful recovery from the corporation estate as a result during date taxpayer entered into an agreement with the corporation estate to fund up to an aggregate amount of dollar_figurep million to fund the prosecution of the company c claim and certain liquidating trustee expenses_incurred in connection with the wind-down of the corporation estate litigation funding agreement the litigation funding agreement effectively provided taxpayer with the opportunity to share in more of the recovered proceeds than otherwise would have been the case and to recover more of taxpayer’s losses the litigation funding agreement provided taxpayer with the following more control_over the proceedings which would allow taxpayer to protect its interests during the course of the litigation and the right to receive a portion of the recovered proceeds shortly after receipt of such proceeds by the corporation estate and significantly before any remaining proceeds are allocated and distributed to the unsecured creditors in the liquidation of the corporation estate the litigation funding agreement was agreed to by the trustee of the corporation estate and approved by the bankruptcy court the litigation funding agreement provides that taxpayer is entitled to receive proceeds if any from the successful prosecution of the company c claim in an amount equal to the sum of i all funds advanced for wind-down costs and expert witness and consultant fees plus interest accruing at q per annum on such advances made by it plus ii the greater of a all funds advanced for legal fees and expenses relating to the prosecution of the company c claim plus interest accruing at q per annum on such advances made by it or b r of the gross_proceeds from any settlement or favorable judgment obtained by the liquidating trustee due to the company c claim taxpayer advanced dollar_figures million in the aggregate to the corporation estate pursuant to the litigation funding agreement of the dollar_figures million dollar_figuret million was advanced for wind-down costs and expert witness fees and dollar_figureu was advanced for litigation costs the litigation funding agreement also provides that taxpayer is entitled to be reimbursed for up to dollar_figurev million of its legal fees in connection with the litigation funding agreement taxpayer has recorded on its financial statements a receivable of dollar_figurew million as of date which includes amounts advanced accrued interest and amounts due for reimbursable legal fees it incurred in connection with the litigation funding agreement taxpayer’s counsel has indicated to taxpayer that the terms in the litigation funding agreement plr-140392-13 are terms similar to those in other situations where an insolvent bankrupt estate required funds to pursue a legal claim did not have the funds to pursue the claim itself and only one creditor of the estate in this case taxpayer provided the funds needed to pursue the claim during date landlord assigned its rights in the litigation funding agreement to landlord sub an entity wholly owned by landlord on date the bankruptcy court issued an order approving the company b settlement corporation estate company c and certain directors and officers of corporation agreed to settle the company c claim the terms of the settlement include a release of the defendants from the claims alleged by the corporation estate in the company c claim and a collective payment by or on behalf of the defendants to the corporation estate of approximately dollar_figurex million the company b settlement above during date taxpayer received from the corporation estate dollar_figurey million from the proceeds of the company c claim this was comprised of approximately dollar_figuret million related to advances for wind-down costs and expert witness and consultant fees dollar_figurez million of accrued interest on those advances dollar_figureaa million as a share of the proceeds received such amount being greater than amounts advanced for legal fees and expenses plus interest accruing on such advance dollar_figurev million for reimbursable legal fees dollar_figurebb million for the remainder of its administrative claim and dollar_figurecc million of interest that had accrued on its administrative claim over time taxpayer had previously received approximately dollar_figuredd million from the corporation estate in connection with its administrative claim in addition to the amounts already received taxpayer expects to receive up to an additional dollar_figureee million withheld from the proceeds of the company c claim by the liquidating trustee in connection with the alleged failure of taxpayer to fund an advance for legal fees and expenses when properly made by the liquidating trustee taxpayer also expects to receive its allocable share of the liquidated assets of the corporation estate remaining after deductions for administrative expenses_incurred or to be incurred by the corporation estate remainder share and collectively with all other_amounts received or to be received from the corporation estate the taxpayer recovery in summary taxpayer suffered damage resulting from lost rents unpaid real_estate_taxes and environmental liabilities and other expenses relating to the properties previously leased to corporation as a result of corporation’s default under the master lease and its filing of bankruptcy taxpayer indicated in bankruptcy filings that its damages exceeded dollar_figureff million taxpayer entered into the litigation funding agreement which allowed the corporation estate to pursue legal action and enhanced taxpayer’s claims against the limited assets of the corporation estate in order to substantially increase taxpayer’s recovery_of its damages resulting from the tenant’s default of its obligations under the master lease plr-140392-13 at best it is estimated that the total of all amounts ultimately recovered by taxpayer from the corporation estate would still be only a fraction of the damages incurred by taxpayer due to corporation’s default under the master lease law sec_856 provides that at least percent of a reit’s gross_income must be derived from dividends interest rents_from_real_property gain from the sale_or_other_disposition of stock securities and real_property other than property in which the corporation is a dealer abatement and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees and gain from certain_sales or other dispositions of real_estate_assets sec_856 provides that at least percent of a reit’s gross_income must be derived from rents_from_real_property interest on obligations secured_by real_property gain from the sale_or_other_disposition of real_property other than property in which the corporation is a dealer dividends from reit stock and gain from the sale of reit stock abatements and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees gain from certain_sales or other_disposition of real_estate_assets and qualified_temporary_investment_income sec_856 provides in relevant part that to the extent necessary to carry out the purposes of part ii of subchapter_m of the code the secretary is authorized to determine solely for purposes of such part whether any item_of_income or gain which - i does not otherwise qualify under sec_856 or c may be considered as not constituting gross_income for purposes of sec_856 or c or ii otherwise constitutes gross_income not qualifying under sec_856 or c may be considered as gross_income which qualifies under sec_856 or c sec_856 provides that for purposes of sec_856 and c the term rents_from_real_property includes rents from interests_in_real_property charges for services customarily furnished or rendered in connection with the rental of real_property whether or not such charges are separately_stated and rent attributable to personal_property under certain circumstances specified in sec_856 sec_61 provides that except as otherwise provided gross_income includes all income from whatever source derived the legislative_history underlying the tax treatment of reits indicates that the central concern behind the gross_income restrictions is that a reit’s gross_income should largely be composed of passive_income for example h_r rep no 86th cong 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive plr-140392-13 income sources and not from the active_conduct_of_a_trade_or_business the legislative_history also indicates that congress intended to equate the tax treatment of reits with the treatment accorded regulated_investment_companies rics the staff of the joint_committee on taxation in its general explanation of the tax legislation enacted in the 110th congress describes sec_856 as follows the provision authorizes the treasury_department to issue guidance that would allow other items of income to be excluded for purposes of the computation of qualifying gross_income under either the percent or the percent test respectively or to be included as qualifying_income for either of such tests respectively in appropriate cases consistent with the purposes of the reit provisions footnote of the general explanation provides that income that is statutorily excluded from gross_income computations under the provision is not intended to be within the authority to include as qualifying_income joint_committee on taxation staff general explanation of the tax legislation enacted in the 110th congress cong 2d sess analysis under the facts of this case any amounts that taxpayer will receive from corporation estate including amounts related to the company b settlement remainder share and taxpayer recovery are not specifically described in sec_856 or the regulations thereunder the dispute that resulted in the remainder share was attributable to corporation’s unpaid amounts under the master lease such amounts if paid to taxpayer would have produced qualifying_income under sec_856 and c corporation’s bankruptcy and the intervening company b settlement should not cause any portions of the remainder share attributable to such unpaid amounts under the master lease to be treated as nonqualifying income pursuant to sec_856 income may be either considered as not constituting gross_income under sec_856 and c or as qualifying gross_income under those provisions accordingly we conclude that the amount of taxpayer’s allocable share of the remainder share that would have qualified as rents_from_real_property as defined in sec_856 will be treated as rents_from_real_property under sec_856 and c pursuant to sec_856 to the extent such amounts have not been included in the gross_income of the reit in a prior year furthermore any amounts taxpayer receives from the taxpayer recovery to the extent that such amounts are treated as interest for federal_income_tax purposes will be qualifying_income for purposes of sec_856 pursuant to sec_856 lastly we rule that except as otherwise provided for here the remainder of the taxpayer recovery is excluded from gross_income for purposes of sec_856 and c as provided for in sec_856 under the facts of the instant case excluding the remainder of the taxpayer recovery from gross_income for purposes of sec_856 and c does not interfere with congressional policy objectives in enacting the income tests under those provisions plr-140392-13 conclusion based on the facts and representations submitted by taxpayer we rule that the portion of the remainder share received or to be received by taxpayer in proportion to the claims accepted by the bankruptcy court that are attributed to the unpaid amounts of corporation under the master lease that if received would have qualified as rents_from_real_property as defined in sec_856 will be treated as rents_from_real_property under sec_856 and c to the extent such amounts have not been included in the gross_income of the reit in a prior year pursuant to sec_856 the portion of the taxpayer recovery to the extent it would otherwise be included in the gross_income of taxpayer will be qualifying_income for purposes of c to the extent it is treated as interest for federal_income_tax purposes pursuant to sec_856 the remainder of the taxpayer recovery to the extent it would otherwise be included in the gross_income of taxpayer will be excluded from gross_income for purposes of the gross_income tests of sec_856 and c pursuant to sec_856 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely jonathan d silver jonathan d silver assistant to the branch chief branch office of associate chief_counsel financial institutions products


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-130797-09 date date legend x -------------------------------------------------- ------------------------- y -------------------------------------------------- -------------------------------- d1 d2 d3 country ----------------- ------------------------ --------------------- -------------- dear ------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d1 under the laws of country on d2 y purchased percent of stock of x x intended to be treated as a disregarded_entity for federal tax purposes effective d3 however x inadvertently failed plr-130797-09 to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes law and analysis sec_301_7701-3 provides in part 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 an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single member having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an plr-130797-09 extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective d3 x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely curt g wilson curt g wilson associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------------------------------- ---------------------------- ----------------------------------- re --------------------------------- ------------------------------------- --------------------------------- legend 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-139374-13 date date --------------------- ----------------------------------------------------------------------------------------- ------------------------ --------------------------- ------------------------------ ------------------------------ ------------------------------------------------------------------------------------------ settlor beneficiary child child trust -------------------------------------------------------------------------------------------------------------- ---- state state court ---------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ date date date trustee charity -------------------------------------------------------------------------- citation citation -------------------------- -------------------- ------------------------ -------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- dear --------------------- this letter responds to a letter dated date submitted by your authorized representative requesting a ruling under sec_2041 of the internal_revenue_code facts on date settlor established trust for the benefit of beneficiary on date settlor died trust is governed by the laws of state settlor had two children child plr-139374-13 and child beneficiary is a son of child a nephew of child and a grandchild of settlor trustee is a_trust company sec_1 of trust provides that the trustee may make discretionary distributions of net_income to beneficiary and to beneficiary’s issue any net_income not distributed to beneficiary or beneficiary’s issue shall be accumulated and held for future distribution or added to the principal sec_2 provides that upon the death of beneficiary the trustee shall continue to hold the trust property or distribute it outright to or among or in trust for such of the issue of child as beneficiary by his last will appoints to the extent that beneficiary does not exercise beneficiary’s power_of_appointment in whole or in part the trustee is to pay the trust property to beneficiary’s issue living at the time of beneficiary’s death in equal shares per stirpes or if none to the issue of child living at the time of beneficiary’s death in equal shares per stirpes and if none to child if she is living and if she is not living to the issue of child living at the time of beneficiary’s death in equal shares per stirpes or if none to the then living issue of settlor in equal shares per stirpes and if none the trustee is to pay the trust property to charity if trust property is not effectively disposed of by the foregoing provisions the trustee is to pay trust property free of trust to those persons who would be entitled under the laws of state to inherit the personal_property of settlor if he had died intestate unmarried and domiciled in state immediately following the death of beneficiary sec_3 provides that if the trustee determines that by reason of changed economic conditions changes in the tax laws of the united_states or of any state or changes in property rights the continuance of trust will not be conducive to the best interests of beneficiary and of beneficiary’s issue and the other issue of settlor the trustee may terminate trust and pay over trust property to beneficiary free of all trust section provides that no interest of any beneficiary of trust shall be subject_to attachment pass to any trustee in bankruptcy or be in any fashion whatsoever subject_to the control of creditors of the beneficiary section provides that the construction and effect of each and every provision of trust shall be determined in accordance with the laws of state to address the potential ambiguity in trust as to whether beneficiary’s power_of_appointment over trust property is a general_power_of_appointment trustee filed a complaint for declaratory_judgment in state court all necessary parties were notified and gave no objection a guardian ad litem was appointed to represent minor and unborn and unascertained interests charity assented in writing to the relief sought such that state attorney_general was not a necessary party on date state court issued an order in the matter declaring that the testamentary power granted to beneficiary under sec_2 of trust to appoint property to one or more of the issue of plr-139374-13 child does not include the power to appoint property to beneficiary beneficiary’s estate beneficiary’s creditors or the creditors of beneficiary’s estate rulings requested beneficiary’s testamentary_power_of_appointment over trust property does not constitute a general_power_of_appointment within the meaning of sec_2041 the existence exercise failure to fully exercise or partial or complete release of beneficiary’s power to appoint trust property will not cause the value of trust property to be included in beneficiary’s gross_estate under sec_2041 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2041 provides that the value of the gross_estate includes the value of all property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition which is of such nature that if it were a transfer or property owned by the decedent the property would be includible in the decedent’s gross_estate under sec_2035 to inclusive for purposes of sec_2041 the power_of_appointment is considered to exist on the date of the decedent’s death even though the exercise of the power is subject_to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised sec_2041 provides with exceptions not relevant here that the term general_power_of_appointment means a power that is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_20_2041-1 of the estate_tax regulations provides that the term general_power_of_appointment as defined in sec_2041 means any power_of_appointment exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_20_2041-1 provides that a power_of_appointment is not a general_power_of_appointment if by its terms it is exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors or the decedent’s estate or the creditors of his estate in 387_us_456 the supreme court considered whether a state trial court’s characterization of property rights conclusively plr-139374-13 binds a federal court or agency in a federal estate_tax controversy the court held that the decision of a state trial_court as to an underlying issue of state law is not controlling when applied to a federal statute rather the highest court of a state is the best authority on the underlying substantive rule_of state law to be applied to the federal matter if there is no decision by that court then the federal authority must apply what it finds to be the state law after giving proper regard to the state trial court’s determination and to relevant rulings of other courts of the state bosch u s pincite under applicable state law trust instruments are to be construed to ascertain the intention of the settlor from the whole instrument attributing due weight to all its language and to give effect to that intent unless some positive rule_of law forbids citation citation the date state court order provides that the testamentary power granted to beneficiary under sec_2 of trust to appoint property to one or more of the issue of child does not include the power to appoint property to beneficiary beneficiary’s estate beneficiary’s creditors or the creditors of beneficiary’s estate based on an analysis of facts submitted and the representations made we conclude that the date state court order is consistent with applicable state law as it would be applied by the highest court of state accordingly based on the facts submitted and the representations made we conclude beneficiary’s testamentary_power_of_appointment over of trust property does not constitute a general_power_of_appointment within the meaning of sec_2041 and the existence exercise failure to fully exercise or partial or complete release of beneficiary’s power to appoint trust property will not cause the value of the trust property to be included in beneficiary’s gross_estate under sec_2041 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-139374-13 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 lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------------------ ---------------------------------------- --------------------------------------------------------- ------------------------------------ - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc corp plr-158057-04 date date -------------------------------------------------- ---------------------------------------- -------------------------------------------- --------------------------------------------- parent ------------------------------------------------------------------- ----------------------------------------------------------- intermediate ----------------------------------------------------------------- ----------------------------------------------------------- target ------------------------------------------------------------------- ----------------------------------------------------------- purchaser ------------------------------------------------------------------- ----------------------------------------------------------- purchasing group parent ------------------------------------------------------------------- date a date b year a b c --------------------- ----------------- --------------- --------------- --------------- -------------- ----------------------------------------- ----------- -------------------- -------------------------------------------------------------------------------- this letter responds to a letter dated date submitted on behalf of plr-158057-04 country a tax professional --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------- company official ------------------------------------------------------------- dear ------------------ parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election parent is requesting an extension of time to file the statement required by sec_1_337_d_-2t c the election to recognize some or all of a loss upon the disposition of the stock of a subsidiary additional information was received in letters dated date and date the material information is summarized below parent is the common parent of an affiliated_group that files a consolidated federal_income_tax return on a calendar_year basis parent owns all of the stock of intermediate which in turn owned all of the stock of target on date a intermediate sold all of the shares of target to purchaser a subsidiary of purchasing group parent a country a corporation for dollar_figurea a sec_338 election was made in connection with the sale parent has represented that the sale pursuant to the sec_338 election resulted in a worthless_stock deduction that was reported on the parent group consolidated_income_tax_return for year the amount reported was dollar_figureb in its request for this ruling parent has represented that the correct amount of the worthless_stock deduction is dollar_figurec the statement described in sec_1_337_d_-2t c to be filed in connection with the disposition of target stock was due on date b the due_date including extensions of the year parent group consolidated federal_income_tax return but for various reasons a valid election was not filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for any of the parent consolidated group’s purchaser’s or target’s taxable years that would have been affected by the election had it been timely filed under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i plr-158057-04 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under ' will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent to file a consolidated federal_income_tax return for the parent group for year amended to include the election and to modify the amount of the worthless_stock deduction as described above a copy of this letter must be attached to the return the above extension of time is conditioned on the parent group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the parent group’s tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax plr-158057-04 treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling in particular we express no opinion as to whether the parent group may claim a worthless_stock deduction in connection with the disposition of target stock or as to the amount of any such deduction for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office copies of this letter are being sent to your authorized representatives sincerely ____________________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


t c memo united_states tax_court federal_home_loan_mortgage_corporation petitioner v commissioner of internal revenue respondent docket nos filed date p was originally exempt from federal income_taxation however on date p became subject_to taxation under the deficit_reduction_act_of_1984 defra publaw_98_369 98_stat_709 during and when it was still exempt from income_tax p incurred certain costs relating to its freddie_mac trade_name and its trademark gnomes in its return for p filed a statement signifying its election to amortize its and trademark and trade_name expenditures under sec_177 i r c held sec_177 i r c provides an election to amortize trademark and trade_name expenditures over a period of not less than months for expenditures paid_or_incurred during a taxable_year beginning after date p’s trademark and trade_name expenditures were not paid_or_incurred during p’s taxable years because p was exempt from income_tax during those years p is not entitled to deductions under sec_177 i r c robert a rudnick stephen j marzen james f warren and neil h koslowe for petitioner gary d kallevang for respondent memorandum opinion ruwe judge respondent determined deficiencies in petitioner’s federal income taxes in docket no for and as follows year deficiency dollar_figure big_number petitioner claims overpayments of dollar_figure for and dollar_figure for respondent determined deficiencies in petitioner’s federal income taxes in docket no for and as follows year deficiency dollar_figure big_number big_number big_number petitioner claims overpayments of dollar_figure for dollar_figure for dollar_figure for and dollar_figure for petitioner and respondent filed cross-motions for partial summary_judgment under rule on the issue of whether petitioner’s election under sec_177 to amortize certain trademark and trade_name expenditures which were incurred in and when petitioner was tax exempt was valid where the election was filed with petitioner’s federal_income_tax return for its first taxable_year commencing date background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time of filing the petition petitioner’s principal office was located in mclean virginia at all relevant times petitioner was a corporation managed by a board_of directors petitioner was chartered by congress on date by the emergency home financing act of publaw_91_351 title iii federal_home_loan_mortgage_corporation act 84_stat_451 petitioner was originally exempt from federal income_taxation however congress repealed petitioner’s federal_income_tax exemption status in the deficit_reduction_act_of_1984 defra publaw_98_369 98_stat_709 pursuant to this act 1all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the taxable years in issue petitioner became subject_to federal income_taxation effective date during petitioner incurred expenses in creating the trade_name freddie_mac petitioner claims that these expenses amount to dollar_figure in petitioner launched a campaign to develop a new advertising concept to project a distinct identity and increase the market’s awareness of petitioner petitioner settled on gnomes tiny elfin cartoon characters representing the legend of the gnomes of zurich who were supposedly shrewd financial experts petitioner intended the gnomes to help it present the image of financial prowess resourcefulness and ingenuity petitioner contends that during it developed and registered separate gnome trademarks at a total out-of-pocket cost of dollar_figure whatever costs petitioner incurred for trademarks and trade names in and it expensed those costs currently on its books in the respective years and petitioner claims that under sec_177 it is entitled to amortization deductions based on trademark and trade_name expenditures that it incurred in and when it was exempt from income_tax sec_177 provides an election to 2respondent disputes petitioner’s substantiation of these expenses 3respondent also disputes petitioner’s substantiation of this cost amortize over a period of not less than months trademark and trade_name expenditures paid_or_incurred during a taxable_year beginning after date in order to amortize its claimed trademark and trade_name expenditures petitioner was required under sec_177 and sec_1 c income_tax regs to attach a statement signifying its election to amortize to its return for the taxable_year in which the expenses were incurred petitioner attached a statement to its return for the year which petitioner claims meets the requirements in the regulations petitioner claims that on page statement of its original income_tax return for the taxable_year it elected to defer and amortize its trademark and trade_name expenditures over a period of months starting on date in the case of the freddie_mac item and on date in the case of the gnome items petitioner deducted dollar_figure in respect of trademark and trade_name expenditures on its income_tax returns for each of the taxable years through and dollar_figure in the taxable_year discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials 116_tc_73 either party may move for summary_judgment upon all or any part of the legal issues in controversy rule a fpl group inc v commissioner supra pincite a decision will be rendered on a motion for partial summary_judgment if the pleadings answers to interrogatories depositions admissions and other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b 118_tc_226 the moving party has the burden of proving that no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law 119_tc_157 petitioner claims that under sec_177 it is entitled to deductions in and for part of the trademark and trade_name expenditures that it incurred during and when it was exempt from income_tax sec_177 a in effect for the taxable years at issue provided sec_177 election to amortize --any trademark or trade_name expenditure paid_or_incurred during a taxable_year beginning after date may at the election of the taxpayer made in accordance with regulations prescribed by the secretary be treated as a deferred expense in computing taxable_income all expenditures paid_or_incurred during the taxable_year which are so treated shall be allowed as a deduction ratably over such period of not less than months beginning with the first month in such taxable_year as may be selected by the taxpayer in making such election the expenditures so treated are expenditures properly chargeable to capital_account for purposes of sec_177 was repealed by the tax_reform_act_of_1986 publaw_99_514 100_stat_2181 effective for expenditures paid_or_incurred after date sec_1016 relating to adjustments to basis_of_property respondent contends that petitioner cannot meet the requirements of sec_177 because it was not taxable in and when its expenditures were incurred neither party cites court opinions supporting its respective interpretations of sec_177 and the issue appears to be one of first impression it is a well-settled principle that tax deductions are a matter of legislative grace and taxpayers must show that they come squarely within the terms of the law conferring the benefit sought see rule a 503_us_79 292_us_435 290_us_111 120_tc_109 further in interpreting a statute as in the instant cases we start as always with the language of the statute itself 447_us_102 fed home loan mortgage corp v commissioner t c ___ ___ date we look to the legislative_history primarily to learn the purpose of the statute and to resolve any ambiguity in the words contained in the text fed home loan mortgage corp v commissioner supra at ___ 120_tc_69 118_tc_1 if the language of the statute is plain clear and unambiguous we generally apply it according to its terms 489_us_235 fed home loan mortgage corp v commissioner supra at ___ 105_tc_41 if the statute is ambiguous or silent we may look to the statute’s legislative_history to determine congressional intent 481_us_454 fed home loan mortgage corp v commissioner supra at ___ 118_tc_494 sec_177 literally requires that the item to be amortized be an expenditure paid_or_incurred during a taxable_year it is clear that petitioner was not taxable in and when the expenditures were made and that those years were not taxable years with respect to petitioner indeed petitioner’s first taxable_year was sec_177 and the regulations thereunder provide that deductions be allowed ratably over a period of not less than months beginning with the first month of the taxable_year in which the expenditure is paid_or_incurred sec_1 a income_tax regs provides the number of continuous months selected by the taxpayer may be equal to or greater but not less than but in any event the deduction must begin with the first month of the taxable_year in which the expenditure is paid_or_incurred the number of months selected by the taxpayer at the time he makes the election may not be subsequently changed but shall be adhered to in computing taxable_income for the taxable_year for which the election is made and all subsequent taxable years petitioner computed its amortization deductions using a month amortization schedule commencing in and the years in which it incurred the trademark and trade_name expenditures but petitioner did not and could not claim deductions for any amortization in and with respect to its trademarks and trade_name costs because it was tax exempt during those years simply put petitioner cannot comply with the literal requirements of sec_177 and sec_1 a income_tax regs our reading of sec_177 and the regulations thereunder is also supported by the election rules specified in sec_177 sec_177 provides sec_177 time for and scope of election --the election provided by subsection a shall be made within the time prescribed by law including extensions thereof for filing the return for the taxable_year during which the expenditure is paid_or_incurred the period selected by the taxpayer under subsection a with respect to the expenditures paid_or_incurred during the taxable_year which are treated as deferred expenses shall be adhered to in computing his taxable_income for the taxable_year for which the election is made and all subsequent years sec_1 c income_tax regs which interprets sec_177 provides c time and manner of making election a taxpayer who elects to defer and amortize any trademark or trade_name expenditure paid_or_incurred during a taxable_year beginning after date shall within the time prescribed by law including extensions thereof for filing his income_tax return for that year attach to his income_tax return a statement signifying his election under sec_177 and setting forth the following i name and address of the taxpayer and the taxable_year involved ii an identification of the character and amount of each expenditure to which the election applies and the number of continuous months not less than during which the expenditures are to be ratably deducted and iii a declaration by the taxpayer that he will make an accounting segregation on his books_and_records of the trademark and trade_name expenditures_for which the election has been made sufficient to permit an identification of the character and amount of each such expenditure and the amortization period selected for each expenditure the provisions of subparagraph of this paragraph shall apply to income_tax returns and statements required to be filed after date elections properly made in accordance with the provisions of treasury_decision approved date f_r c b continue in effect the fact that petitioner’s election must be made in the tax_return for the taxable_year in which the expenditures were incurred supports our conclusion that sec_177 applies only to expenditures made during a taxable_year petitioner argues that its election was timely since it had no prescribed due_date for any income_tax returns for and and its first opportunity to file an election under sec_177 occurred in when petitioner first became subject_to federal_income_tax if timeliness of the election were the only issue we might agree but the issue here is whether petitioner meets the substantive requirements of sec_177 petitioner argues that the language in sec_177 referring to a taxable_year must be read in its full context petitioner points to the following language in sec_177 any trademark or trade_name expenditure paid_or_incurred during a taxable_year beginning after date emphasis added petitioner argues that this language merely establishes the effective date of sec_177 see act of date ch sec_4 70_stat_406 we disagree while the above quoted language certainly specifies that sec_177 applies only to expenditures made after date it also specifies that qualifying expenditures be paid_or_incurred during a taxable_year after that date we cannot simply read this requirement out of the statute petitioner cites no authority for doing so and there is nothing in the legislative_history indicating that congress intended such a limited application 5see 60_tc_917 election held effective where filed in response to the commissioner’s indication of intention to include additional_amount in the taxpayer’s return years after time prescribed in regulations for making the election see also 78_tc_1093 election filed in amended returns more than years after filing of original return allowed where taxpayer was unable to secure required certification at time original return filed bayley v commissioner 35_tc_288 election to compute gain on installment basis which was made in amended petition to this court held effective where taxpayer treated gain in original return as deferred under sec_1034 indeed the legislative_history of sec_177 indicates that congress was trying to help smaller companies qualify for a tax deduction for what would otherwise be nondeductible expenditures because larger companies were already deducting these expenditures in the form of salaries paid to their employees who performed work regarding trademarks and trade names congress believed that this disparity in tax treatment resulted in a hardship on small companies that were not able to deduct these expenses in computing their taxable_income the references in sec_177 to expenditures paid_or_incurred during a taxable_year are consistent with congress’s objective to establish parity between the way large and small companies compute their taxable_income nothing in the statute or 6the legislative_history provides under present law expenditures paid_or_incurred by smaller companies in connection with trademarks and trade names such as legal fees are not deductible but must be capitalized moreover such expenditures ordinarily are not amortizable over any period of time since the useful_life of most trademarks and trade names is indefinite and not ascertainable however certain larger corporations are in a position to hire their own legal staffs to handle such matters because of difficulties of identification these large corporations deduct in some instances compensation paid to their legal staffs for performing the same functions smaller companies however cannot afford to maintain their own legal staffs but must acquire outside counsel to perform their legal work by this amendment your committee intends to eliminate an existing hardship in the case of small companies s rept 84th cong 2d sess 1956_2_cb_1227 legislative_history indicates that congress wanted to extend this type of deduction to expenditures that were incurred during a year when the taxpayer was already exempt from income_tax we hold that petitioner is not entitled to the claimed amortization deductions under sec_177 an appropriate order will be issued


internal_revenue_service number release date index number 468a --------------------------- ----------------------------- -------------------------------------------- ------------- ---------------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------ telephone number -------------------- refer reply to cc psi b6 plr-114413-08 date date re initial schedule of deductions revised schedule of ruling amounts ------------------------------------------------------ -------------------------------------------- ein ---------------- --------------- ein ---------------- --------------------------------------------- ein ---------------- ------------------------------------------ ein ---------------- ------------------------- ein ---------------- ------------------------------------------------------ ------------------------------------------------------- ------------------------------------------------ --------------------------------------------------------------------------------- legend taxpayer company a company b company c parent plant seller location independent study --------------------------------------------------------------------------------------------------------------- method commission fund director ----------- ----------------------------------------------- ------------------------------------------ --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- dear ------------ this letter responds to your request dated --------------------- for a revised schedule of ruling amounts and an initial schedule of deduction amounts pursuant to plr-114413-08 sec_468a of the internal_revenue_code and sec_1_468a-8t of the temporary income_tax regulations the predecessor owner of the plant was previously granted schedules of ruling amounts most recently on ------------------- taxpayer submitted supplemental information by letter on ------------------- ------------------ -------------------- ---------------------- and ------------------------- information was submitted pursuant to sec_1_468a-3t e taxpayer represents the facts and information relating to its request for rulings as follows taxpayer a partnership for federal_income_tax purposes is owned by company a ------- percent interest and company b --------percent interest company a is a limited_partnership that has elected to be classified as an association_taxable_as_a_corporation for federal_income_tax purposes company b is a single member limited_liability_company that is wholly owned by company c and disregarded for federal_income_tax purposes company c is a single-member limited_liability_company that is also disregarded for federal_income_tax purposes from parent taxpayer purchased a ----- percent interest in the plant and related assets from seller as part of the purchase seller transferred the assets of the qualified and nonqualified decommissioning trust funds related to the plant to taxpayer and taxpayer assumed all decommissioning liability for the plant the service issued a private_letter_ruling to the taxpayer which provided that the qualified nuclear decommissioning fund of the predecessor for the plant were transferred to taxpayer’s qualified_fund for the plant and that the taxpayer’s qualified_fund would be treated as a qualified_fund pursuant to sec_468a of the internal_revenue_code taxpayer is the sole owner of the plant the plant is situated at location the estimated base cost for decommissioning plant is based on an independent study and the proposed method of decommissioning the plant is method based upon the assumptions used in seller’s most recent schedule of ruling amounts it is estimated that fund assets will earn an after-tax rate of return of ---- percent the total cost of decommissioning plant is estimated to be dollar_figure----------------- in --- ------ dollars this base cost of decommissioning plant is escalated at a ------ percent yearly rate resulting in a total future cost to taxpayer of decommissioning plant of dollar_figure----- --------------------- in ------- through ------- dollars under ratemaking assumptions used during the first proceeding before commission the plant would no longer be included in rate base in ------- in the prior schedule of ruling amounts issued under sec_468a of the code as in effect prior to the estimated_useful_life of the plant is --- years --------------- and the estimated period for which the fund is to be in effect is --- years --------------- pursuant to sec_1_468a-8 as in effect prior to date the qualifying percentage was based upon the percentage of the vintage depreciation costs that plr-114413-08 remained to be recovered as of date the amount of the original depreciation costs is dollar_figure--------------- and the amount remaining to be recovered as of date is dollar_figure--------------- thus the percentage of the total estimated costs qualifying for deduction in the schedule of ruling amounts under prior_law was --- percent sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate prior to the changes made by the act deductible contributions were limited to the amount necessary for an electing taxpayer to fund the plant’s post-1983 nuclear decommissioning costs determined as if decommissioning costs accrued ratably over the estimated_useful_life of the plant provided that the taxpayer elected to establish a fund in prior_law also did not allow a taxpayer electing to establish a fund later than to contribute to that fund any amount in excess of that amount necessary to fund the ratable portion of the plant’s nuclear decommissioning costs beginning in the year the fund is established sec_468a now allows a taxpayer to contribute to a nuclear decommissioning fund the entire cost of decommissioning the plant including both the pre-1984 amount that was denied under the law prior to the act as well as any amount attributable to any year after in which a taxpayer had not established a fund under sec_468a sec_468a provides that the deduction for the contribution of the plr-114413-08 previously-excluded amount is allowed ratably over the remaining useful_life of the nuclear plant sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1t a provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1t b of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2t b provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1 468a- 2t b does not apply to any special transfer permitted under sec_1_468a-8t sec_1_468a-3t a provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3t a provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3t a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3t a provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently plr-114413-08 applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer's most recent financial assurance filing with the nrc are described by the temporary regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3t a further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3t b provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3t c the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3t c provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3t c i a if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3t c i b provides that if the nuclear plant is not described in sec_1_468a-3t c i a the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3t c i c any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3t c i a sec_1_468a-3t d provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3t d provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant plr-114413-08 sec_1_468a-3t e enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3t f provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3t e the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sec_1_468a-8t a provides that under the provisions of sec_468a as described above a taxpayer may make a special transfer of cash or property to the nuclear decommissioning fund this special transfer is not subject_to the sec_468a limitation the amount of the special transfer is the present_value of the pre-2005 nonqualifying percentage of the estimated future costs of decommissioning the nuclear plant that was disallowed under sec_468a prior to the act sec_1_468a-8t a defines the pre-2005 nonqualifying percentage as equal to percent reduced by the sum of the qualifying percentage used in determining the taxpayer’s last schedule of ruling amounts for the fund under sec_468a as it existed prior to the act and the percentage transferred in any previous special transfer sec_1_468a-8t a provides that the taxpayer is not required to transfer the entire amount eligible for the special transfer in one year but must take any prior special transfers into account in calculating the pre-2005 qualifying percentage further pursuant to sec_1_468a-8t c a taxpayer making a special transfer in more than one year must request a new schedule of deduction amounts in connection with each special transfer sec_1_468a-8t b provides that the deduction for the special transfer is allowed ratably over the remaining useful_life of the nuclear plant under sec_1 468a- 8t b iii the deduction for property contributed in a special transfer is limited to the lesser_of the fair_market_value of the property or the taxpayer’s basis in the property under sec_1_468a-8t b the taxpayer recognizes no gain_or_loss on the special transfer of property the taxpayer’s basis in the fund is not increased by reason of the special transfer of property and the fund’s basis in the property transferred in the special transfer is the same as the transferee’s basis in that property immediately prior to the special transfer sec_1_468a-8t c provides that taxpayer may not make a special transfer to a qualified nuclear decommissioning fund unless the taxpayer requests from the irs a schedule of deduction amounts in connection with such transfer a request for a schedule of deduction amounts may be made in connection with a request for a plr-114413-08 schedule of ruling amounts but in such case the calculations for both the schedule of ruling amounts and the schedule of deduction amounts must be separately_stated as stated above prior to the changes made by the act deductible contributions were limited to the lesser_of the amount necessary to fund the plant’s post-1983 nuclear decommissioning costs or the amount necessary to fund the plant’s decommissioning costs for that portion of the plant’s estimated_useful_life for which a fund had been established under that prior_law seller was allowed to contribute --- percent of the amounts necessary to fully decommission its share of the plant sec_468a allows a taxpayer to contribute to the nuclear decommissioning fund the pre- amount that was denied under the law prior to the act thus taxpayer is able to contribute the additional --- percent of the amounts necessary to decommission its ownership share of plant this special transfer occurred on --------------------- we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we conclude that because the useful_life of the plant as defined by sec_1_468a-3t c ended in ------- taxpayer may make a special transfer of dollar_figure---------------- in ------- as set forth below schedule of deduction amounts year ------- deduction amount dollar_figure------------------ the special transfer amount stated above is the maximum amount permitted to be transferred to the fund under sec_468a if taxpayer transfers a lesser amount to the fund the taxpayer may deduct that lesser amount ratably over the period of years described above further in the event that taxpayer transfers a lesser amount for ------ ------- in order to make an additional special transfer in a later year including a special transfer of the difference between the special transfer amount stated above and the lesser amount transferred in ------ taxpayer must request a new schedule of deduction amounts and in that request must take the ------ transfer into account and recalculate the pre-2005 qualifying percentage in such request we note that if taxpayer elects to make a special transfer of property for all or a portion of this special transfer the amount of the deduction is the lesser_of the fair_market_value of the property transferred or the basis of the property in the hands of the taxpayer immediately prior to the transfer in either event the deduction of the taxpayer with respect to the property is limited to the taxpayer’s basis in the property plr-114413-08 we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3t a taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1t b of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3t d of the regulations the proposed schedule of ruling amounts was derived by following the assumptions contained in an independent commissioning study that taxpayer has represented is a standard type study used in the industry based on that representation taxpayer has demonstrated pursuant to sec_1_468a-3t a that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2t b of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts the mandatory review date for this matter remains the same approved schedule of ruling amounts year ------- total dollar_figure------------------ if any of the events described in sec_1_468a-3t f occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the plr-114413-08 tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above specifically no determination is made whether the independent commissioning study conforms to industry standards and practices this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7t a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc