internal_revenue_service number release date index number --------------------------------------------- ------------------------------------------------------------ ---------- ------------------------------------------------- ------------------------------------ ------------------------------------------------------------ - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc intl br2 plr-101265-08 date date legend corporation a --------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------------------------------------- corporation b ------------------------------------------------------------ ----------------------------------------------------------------------------- partnership x ------------------------------------------------------------ ------------------------------------------------------------------------- partnership y ------------------------------------------------------------ ---------------------------------------------------------------------------- exchange m continent h country j month date date date date q percent ----------------------------- ---------- ------------- -------------- ------------------ ---------------- ------------------ --------------------------- ------ plr-101265-08 r percent s percent ------ ----- dear ----------------------- this is in response to a letter dated date and supplemented by letter dated date requesting certain rulings on behalf of corporation a corporation b and partnership y collectively taxpayer the rulings contained in this letter are based upon information and representations submitted on behalf of taxpayer by its authorized representative 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 this request_for_ruling such material is subject_to verification upon examination the information submitted in the request is substantially as set forth below facts corporation a was organized in month under the laws of country j corporation a is a passive_foreign_investment_company pfic within the meaning of internal_revenue_code code sec_1297 for u s federal_income_tax purposes corporation a has two classes of stock outstanding i class a shares which have limited voting rights and ii class b shares which have full voting rights corporation a’s class a shares are traded on exchange m the continent h leader in the market regulator of exchange m has supervisory powers with respect to the publication of information by listed companies and together with surveillance units of exchange m monitors and supervises all trading operations to prevent fraud to improve free and open trading and to protect investors certain of corporation a’s public shareholders are u s persons who may desire to make a qualified_electing_fund qef election within the meaning of code sec_1295 with regard to corporation a or a mark to market mtm election within the meaning of code sec_1296 with regard to corporation a an electing shareholder of corporation a on date corporation a together with another party who is not the subject of this ruling_request formed and registered partnership x a partnership for u s federal tax purposes under the laws of country j corporation a holds a q percentage interest in partnership x partnership x is the sole shareholder of corporation b which was formed on date corporation b is organized in country j and is a pfic for u s federal_income_tax purposes certain of the public shareholders of corporation a who are indirect shareholders of corporation b may desire to make a qef election with regard to corporation b an electing shareholder of corporation b electing shareholders of corporation a and electing shareholders of corporation b being referred to collectively as electing shareholders on date corporation b and partnership x formed partnership y a domestic_partnership for u s federal tax purposes for the purpose of making portfolio investments partnership x has an r percent interest in partnership y and corporation b has an s percent interest in partnership y various non-u s investments owned directly and indirectly by partnership y are considered plr-101265-08 to be pfics for u s federal_income_tax purposes each a subsidiary pfic in this regard partnership y owns certain subsidiary pfics indirectly through foreign entities that are treated as partnerships for u s federal_income_tax purposes foreign funds partnership y desires to make qef elections with regard to each of these directly and indirectly owned subsidiary pfics corporation a corporation b and partnership x each expect to have income that is effectively connected to a u s trade_or_business or other u s source income that will require them to file a u s federal_income_tax return none of corporation a corporation b partnership x or partnership y has yet filed its first u s federal_income_tax return each entity has filed form_7004 application_for automatic 6-month extension of time to file certain business income_tax information and other returns each entity plans on its first filed u s federal_income_tax return to adopt a fiscal_year ending november as permitted by code sec_441 and the related regulations the adoption of a fiscal_year ending november by partnership y will allow each subsidiary pfic additional time to provide partnership y with complete information about itself including information relating to the earnings and net_capital_gain of the subsidiary pfic this will in turn provide partnership y with additional time to file timely and accurate forms return by a shareholder of a passive_foreign_investment_company or qualified electing trust additionally the adoption of a fiscal_year ending november by corporation a corporation b partnership x and partnership y should not give rise to deferral of inclusions by an electing shareholder in excess of the time contemplated by sec_1_1295-1 rulings requested solely with respect to the electing shareholders partnership y will be treated as a u s partnership for purposes of making qef elections pursuant to code sec_1295 with respect to each of the subsidiary pfics solely with respect to the electing shareholders partnership y’s code sec_1295 election with respect to each of the subsidiary pfics will be effective for all purposes of part iv of subchapter_p of chapter of the code solely with respect to the electing shareholders partnership y is the owner of each of the subsidiary pfics for purposes of code sec_1291 through and the electing shareholders are not the owners of the subsidiary pfics for purposes of code sec_1291 through only partnership y will be required to file forms with respect to each of the subsidiary pfics and as such only partnership y will be required to receive an annual information statement ais from each subsidiary pfic and only partnership y will have access to the books_and_records of each subsidiary pfic under sec_1 g solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the earnings_and_profits e_p under code sec_312 of corporation a and corporation b with respect to the electing plr-101265-08 shareholders under code sec_1293 and sec_702 r percent of partnership y’s qef inclusions with respect to each of the subsidiary pfics will be allocable and includable as income to partnership x and s percent of such qef inclusions will be allocable and includable as income to corporation b further such inclusions will retain their character as either ordinary_earnings or net_capital_gain in the hands of partnership x and corporation b pursuant to code sec_702 solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a with respect to the electing shareholders regarding partnership x’s qef inclusions allocated under code sec_1293 and sec_702 q percent will be allocable and includable as income to corporation a under code sec_702 further such inclusions will retain their character as either ordinary_earnings or net_capital_gain in the hands of corporation a pursuant to code sec_702 an electing shareholder’s pro_rata share of ordinary_earnings and net_capital_gain in connection with such electing shareholder’s qef inclusions with respect to corporation a and corporation b will include respectively corporation a’s and corporation b’s pro_rata amounts of the subsidiary pfics ordinary_earnings and net_capital_gain for which partnership y has made qef elections but will not include any net_operating_loss or net_capital_loss computed without regard to their respective qef inclusions attributable to the subsidiary pfics of corporation a and corporation b nor their respective share of distributions of previously taxed amounts under code sec_1293 attributable to the subsidiary pfics solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a and corporation b with respect to the electing shareholders to the extent that partnership y is required to include an amount under code sec_1293 partnership y will correspondingly increase its basis in each of the directly or indirectly owned subsidiary pfics pursuant to code sec_1293 by an amount equal to such inclusion solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a and corporation b with respect to the electing shareholders to the extent that partnership y is required to include an amount under code sec_1293 resulting from its indirect ownership of a subsidiary pfic through a foreign fund partnership y will increase its basis in its interest in such foreign fund under code sec_1293 and the principles of code sec_1293 by an amount equal to the inclusion solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a and corporation b with respect to the electing shareholders to the extent that partnership y is required to include an amount under code sec_1293 attributable to the subsidiary pfics and partnership x and corporation b are required to include corresponding distributive_share amounts under code sec_702 pursuant plr-101265-08 to code sec_705 partnership x and corporation b will increase their bases in their respective interests in partnership y by an amount equal to such inclusion solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a with respect to the electing shareholders to the extent that partnership y is required to include an amount under code sec_1293 attributable to the subsidiary pfics partnership x is required to include a corresponding distributive_share under code sec_702 with respect to its interest in partnership y and corporation a is similarly required to include an amount under code sec_702 with respect to its interest in partnership x corporation a will correspondingly increase its basis in its interest in partnership x under code sec_705 by an equal amount of such inclusion to the extent that an electing shareholder has a qef inclusion with respect to corporation a or corporation b the electing shareholder will correspondingly increase its basis in corporation a under code sec_1293 by an amount equal to such inclusion s solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a with respect to the electing shareholders to the extent the electing shareholders are required to include an amount under code sec_1293 with respect to corporation b partnership x will increase its basis in corporation b under code sec_1293 and corporation a will increase its basis in partnership x under code sec_1293 and the principles of code sec_1293 by an equal amount of the inclusion the electing shareholders will only be required to have access to the books_and_records of corporation a and or corporation b as applicable for purposes of the annual election requirements of sec_1_1295-1 but will not be required to have access to the books_and_records of partnership x partnership y or any subsidiary pfic and solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a and corporation b with respect to the electing shareholders to the extent that partnership y is required to include an amount under code sec_1293 a corresponding amount of the relevant subsidiary pfic’s e_p is treated as a previously taxed amount under code sec_1293 and will not be further taken into account with respect to the electing shareholders under code sec_1293 principles corporation a’s class a stock held by electing shareholders is marketable_stock under sec_1296 and sec_1_1296-2 for the calendar_year ending on date law code sec_1297 defines a pfic as any foreign_corporation if either percent or more of the gross_income of such corporation for the taxable_year is passive_income income test or plr-101265-08 the average percentage of assets held by such corporation during the taxable_year which produce passive_income or which are held for the production of passive_income is at least percent asset test code sec_1295 provides that any pfic will be treated as a qef with respect to a shareholder if the shareholder makes a qef election and the pfic complies with certain requirements as set forth in regulations sec_1_1295-1 provides in general that any u_s_person that is a shareholder of a pfic may make a qef election with respect to that pfic sec_1_1295-1 also provides that in a chain of ownership only the first u_s_person that is a shareholder of a pfic may make the qef election code sec_7701 defines u_s_person to include among others a citizen or resident_of_the_united_states a domestic_corporation and a domestic_partnership sec_1_1295-1 provides that a domestic_partnership that holds an interest in a pfic makes the qef election with respect to that pfic the partnership election applies only to the stock of the pfic held directly or indirectly by the partnership and not to any other stock held directly or indirectly by any partner sec_1_1295-1 provides that a u_s_person that holds an interest in a foreign_partnership that in turn holds an interest in a pfic makes the qef election with respect to that pfic a qef election by a partner applies only to that partner as provided in sec_1_1293-1 shareholders owning stock of a qef by reason of an interest in a partnership take into account the sec_1293 inclusions with respect to the qef shares owned by the partnership under the rules applicable to inclusions of income from the partnership code sec_702 provides generally that in determining income_tax each partner will take into account a distributive_share of the partnership’s income or gain code sec_702 provides that the character of an item_of_income or gain included in a partner’s distributive_share is determined as if such item were realized directly from the source from which realized by the partnership or incurred in the same manner as incurred by the partnership code sec_705 provides that the adjusted_basis of a partner’s interest in a partnership is increased by the partner’s distributive_share for the taxable_year sec_1_1295-1 provides that a qef election applies only to the foreign_corporation for which the election is made therefore if a shareholder makes a qef election that election applies only to stock in that foreign_corporation and not to stock in any other corporation which the u_s_person is treated as owning by virtue of its ownership of stock in the qef plr-101265-08 code sec_1293 provides that a u_s_person that owns or is treated under sec_1298 as owning stock of a qef must include in gross_income a as ordinary_income such shareholder’s pro_rata share of the ordinary_earnings of such qef for the year and b as long term capital_gain such shareholder’s pro_rata share of the net_capital_gain of such qef for the year code sec_1293 provides that the inclusion under code sec_1293 is for the taxable_year of the shareholder in which or with which the taxable_year of the qef ends code sec_1298 provides rules pursuant to which a u_s_person may be attributed ownership in the stock held indirectly in a pfic code sec_1298 provides generally that if percent or more in value of the stock of a corporation is owned directly or indirectly by or for any person such person will be considered as owning the stock owned directly or indirectly by or for such corporation in proportion to the value of the stock which such person owns bears to the value of all stock in the corporation code sec_1298 provides that stock owned directly or indirectly by or for a partnership shall be considered as being owned proportionately by its partners code sec_1293 provides generally that if a taxpayer establishes to the satisfaction of the secretary that any amount distributed by a pfic is paid out of earnings_and_profits of the pfic which were included in the income of any u_s_person such amount will be treated as a distribution which is not a dividend except that such distribution shall immediately reduce earnings_and_profits code sec_1293 provides that the basis of a taxpayer’s stock in a pfic will be increased by any amount which is included in the income of the taxpayer under code sec_1293 code sec_1293 provides that the basis of a taxpayer’s stock in a pfic will be decreased by any amount distributed with respect to such stock which is not includible in the income of the taxpayer by reason of code sec_1293 code sec_1293 authorizes the secretary to prescribe rules to adjust the provisions of code sec_1293 to prevent the same item_of_income of a qef from being included in the gross_income of a u_s_person more than once sec_1_1295-1 provides that a qef election of a pass through entity may be invalidated with respect to the interest holder if the inclusion required under code sec_1293 is not included in the gross_income of either the pass through entity an intermediate pass through entity or the interest holder within two years of the end of the pfic’s taxable_year due to nonconforming taxable years of the interest holder and the pass through entity or any intermediate pass through entity sec_1_1295-1 provides generally that a pfic with respect to which a shareholder has made a qef election must provide an annual information statement ais to the shareholder at the end of each taxable_year of the shareholder to which the qef election applies the ais must contain certain information and representations as described in sec_1_1295-1 including in most instances a statement that the pfic will permit the shareholder to examine its books_and_records and other documents see sec_1 g iv a plr-101265-08 code sec_1296 provides generally that a u_s_person that owns marketable_stock in a pfic at the close of any taxable_year of the u_s_person can make an election ie mark to market election to treat the excess of the fair_market_value of the stock over its adjusted_basis as gross_income or treat the excess of the adjusted_basis of the stock over the fair_market_value as a deduction sec_1_1296-1 provides generally that any u_s_person that owns directly or is treated as owning marketable_stock in a pfic may make an election to mark to market such stock code sec_1296 and sec_1_1296-1 provide that for purposes of code sec_1296 stock owned directly or indirectly by or for a foreign_partnership will be considered as being owned proportionately by its partners code sec_1296 defines marketable_stock to mean any stock that is regularly_traded on any exchange or market that the secretary determines has rules adequate to carry out the purposes of the mark to market provisions sec_1_1296-2 provides that marketable_stock means pfic stock that is regularly_traded as defined in sec_1_1296-2 on a qualified exchange as defined in sec_1_1296-2 sec_1_1296-2 provides that stock is regularly_traded in a calendar_year if it is traded on a qualified exchange in more than de_minimis quantities and on at least days during each calendar_quarter of that year sec_1_1296-2 provides generally that a qualified exchange includes a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located and which enforces requirements designed to prevent fraudulent and manipulative acts and practices perfects the mechanism of a free and open market and protects investors and has rules that effectively promote active trading of listed stocks code sec_1296 provides that the adjusted_basis of stock in a pfic for which a u_s_person has made a mark to market election will be increased by the amount included in the gross_income of the u_s_person under code sec_1296 with respect to such stock and will be decreased by the amount allowed as a deduction to the u_s_person under code sec_1296 with respect to such stock analysis results to partnership y when making qef election for a subsidiary pfic partnership y a domestic_partnership is a u_s_person within the meaning of code sec_7701 partnership y is the first person in the chain of ownership of the subsidiary pfics that is a u_s_person thus pursuant to sec_1_1295-1 partnership y may make a qef election with respect to any subsidiary pfic in which it owns or is treated as owning stock further because partnership y is the shareholder that is making the qef election with plr-101265-08 respect to the subsidiary pfics the annual information described in sec_1_1295-1 must be provided only to partnership y by any subsidiary pfic for which partnership y makes a qef election under code sec_1293 partnership y must include in gross_income each year a as ordinary_income its pro_rata share of the ordinary_earnings of any subsidiary pfic for which it makes a qef election and b as long term capital_gain its pro_rata share of the net_capital_gain of any subsidiary pfic for which it makes a qef election pursuant to code sec_1293 the basis of partnership y’s stock in any directly or indirectly owned subsidiary pfic for which it makes a qef election will be increased by the amount of partnership y’s qef inclusions with respect to that subsidiary pfic under code sec_1293 partnership y’s basis in any subsidiary pfics stock should be decreased by any amount distributed with respect to such stock which is not includible in partnership y’s income by reason of code sec_1293 results to corporation b of partnership y’s qef election with regard to subsidiary pfics corporation b is a partner of partnership y as such pursuant to sec_1_1293-1 and under the general rules applicable to inclusions of income from a partnership corporation b will take into account its distributive_share of the qef inclusions of partnership y in this case s percent of partnership y’s qef inclusions will be allocable and includable as income to corporation b in accordance with code sec_702 such income will retain its character as either ordinary_earnings or net_capital_gain as if corporation b had realized the income directly from the source from which it was realized by partnership y in accordance with code sec_1293 to avoid inclusion in gross_income of an amount that is distributed by partnership y and that has previously been included in gross_income by corporation b corporation b should increase its basis in partnership y by an amount equal to corporation b’s distributive_share of the qef inclusions of partnership y to the extent distributions from partnership y are attributable to qef inclusions that have been previously included in income by corporation b corporation b should exclude those amounts from income and decrease its basis in partnership y results to partnership x of partnership y’s qef election with regard to subsidiary pfics partnership x is a partner of partnership y as such pursuant to sec_1_1293-1 and under the general rules applicable to inclusions of income from a partnership partnership x will take into account its distributive_share of the qef inclusions of partnership y in this case r percent of partnership y’s qef inclusions will be allocable and includable as income to partnership x in accordance with code sec_702 such income will retain its character as either ordinary_earnings or net_capital_gain as if partnership x had realized the income directly from the source from which it was realized by partnership y in accordance with code sec_1293 to avoid inclusion in gross_income of an amount that is distributed by partnership y and that has previously been included in gross_income by partnership x partnership x should increase its basis in partnership y by an amount equal to its distributive_share of the qef inclusions of partnership y to the extent distributions of partnership y are attributable to items of income that have been previously included by partnership x partnership x should exclude those amounts from income and decrease its basis in partnership y plr-101265-08 results to corporation a of partnership y’s qef election with regard to subsidiary pfics corporation a is a partner of partnership x as such pursuant to sec_1_1293-1 and under the general rules applicable to inclusions of income from a partnership corporation a will take into account its distributive_share of the qef inclusions of partnership y that are allocable to partnership x in this case q percent of partnership y’s qef inclusions that are allocable to partnership x will be allocable and includable as income to corporation a in accordance with code sec_702 such income will retain its character as either ordinary_earnings or net_capital_gain as if corporation a had realized the income directly from the source from which it was realized by partnership x in accordance with code sec_1293 to avoid inclusion in gross_income of an amount that is distributed by partnership x and that has previously been included in gross_income by corporation a corporation a should increase its basis in partnership x by an amount equal to its distributive_share of the qef inclusions of partnership y that are allocable to partnership x to the extent distributions of partnership x are attributable to items of income that have been previously included by corporation a corporation a should exclude those amounts from income and decrease its basis in partnership x results of making qef election for corporation b corporation b is a pfic for purposes of this ruling the first u s persons in the chain of ownership eligible to make a qef election related to corporation b are the public shareholders of corporation a that are u s persons public shareholders thus pursuant to sec_1_1295-1 a public shareholder may make a qef election with respect to corporation b an electing shareholder of corporation b to satisfy the annual election requirements described in sec_1_1295-1 corporation b must provide the required information and statements to each electing shareholder of corporation b under code sec_1293 an electing shareholder of corporation b must include in gross_income a as ordinary_income its pro_rata share of the ordinary_earnings of corporation b for the year and b as long term capital_gain its pro_rata share of the net_capital_gain of corporation b for the year the pro_rata share of an electing shareholder of corporation b will equal such shareholder’s percentage of ownership in corporation a multiplied by corporation a’s q percent interest in partnership x pursuant to code sec_1293 the stock basis of an electing shareholder of corporation b will be increased by the amount of the qef inclusion of such shareholder as the sole shareholder of corporation b partnership x should increase its basis in corporation b by the full amount of the qef inclusions attributable to corporation b taken into account by the electing shareholders corporation a should in turn increase its basis in partnership x by the amount of the electing shareholders’ qef inclusions attributable to corporation b an electing shareholder of corporation b should increase its basis in corporation a by the amount of its pro_rata share of the qef inclusion allocable to corporation b which such shareholder is required to include as gross_income reductions in basis should be done correspondingly for a distribution from corporation b that has been previously included in income results of making qef election for corporation a plr-101265-08 corporation a is also a pfic for purposes of this ruling the first u s persons in the chain of ownership eligible to make a qef election related to corporation a are the public shareholders of corporation a that are u s persons public shareholders thus pursuant to sec_1_1295-1 a public shareholder may make a qef election with respect to corporation a an electing shareholder of corporation a to satisfy the annual election requirements described in sec_1_1295-1 corporation a must provide the required information and statements to each electing shareholder of corporation a under code sec_1293 an electing shareholder of corporation a must include in gross_income a as ordinary_income its pro_rata share of the ordinary_earnings of corporation a for the year and b as long term capital_gain its pro_rata share of the net_capital_gain of corporation a for the year code sec_1293 provides that the basis of an electing shareholder of corporation a will be increased by the amount of the qef inclusion required to be included in gross_income by such shareholder to the extent any distribution of corporation a is treated as a previously taxed amount under code sec_1293 the electing shareholder of corporation a will reduce its basis in corporation a stock by the amount treated as previously taxed determination of marketable_stock any u_s_person that owns directly or indirectly marketable_stock in a pfic may make a mtm election under code sec_1296 marketable_stock means any stock that is regularly_traded on any exchange or market that the secretary determines has rules adequate to carry out the purposes of the mark to market provisions to the extent corporation a stock is traded in more than de_minimis quantities on at least days during each calendar_quarter of the year it is regularly_traded within the meaning of sec_1_1296-2 to the extent corporation a stock is traded on an exchange that is monitored and supervised by a regulatory authority that satisfies the requirements of sec_1_1296-2 it is traded on a qualified exchange however due to the factual nature of these determinations and in the interest of sound tax_administration no ruling is provided on whether the class a stock of corporation a is marketable_stock under code sec_1296 rulings based on the information submitted and the representations made we rule as follows solely with respect to the electing shareholders partnership y will be treated as a u s partnership for purposes of making qef elections pursuant to code sec_1295 with respect to each of the subsidiary pfics solely with respect to the electing shareholders partnership y’s code sec_1295 election with respect to each of the subsidiary pfics will be effective for all purposes of part iv of subchapter_p of chapter of the code solely with respect to the electing shareholders partnership y is the owner of each of the subsidiary pfics for purposes of code sec_1291 through and the plr-101265-08 electing shareholders are not the owners of the subsidiary pfics for purposes of code sec_1291 through only partnership y will be required to file forms with respect to each of the subsidiary pfics and as such only partnership y will be required to receive an annual information statement ais from each subsidiary pfic and only partnership y will have access to the books_and_records of each subsidiary pfic under sec_1 g solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the earnings_and_profits e_p under code sec_312 of corporation a and corporation b with respect to the electing shareholders under code sec_1293 and sec_702 r percent of partnership y’s qef inclusions with respect to each of the subsidiary pfics will be allocable and includable as income to partnership x and s percent of such qef inclusions will be allocable and includable as income to corporation b further such inclusions will retain their character as either ordinary_earnings or net_capital_gain in the hands of partnership x and corporation b pursuant to code sec_702 solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a with respect to the electing shareholders regarding partnership x’s qef inclusions allocated under code sec_1293 and sec_702 q percent will be allocable and includable as income to corporation a under code sec_702 further such inclusions will retain their character as either ordinary_earnings or net_capital_gain in the hands of corporation a pursuant to code sec_702 an electing shareholder’s pro_rata share of ordinary_earnings and net_capital_gain in connection with such electing shareholder’s qef inclusions with respect to corporation a and corporation b will include respectively corporation a’s and corporation b’s pro_rata amounts of the subsidiary pfics ordinary_earnings and net_capital_gain for which partnership y has made qef elections but will not include any net_operating_loss or net_capital_loss computed without regard to their respective qef inclusions attributable to the subsidiary pfics of corporation a and corporation b nor their respective share of distributions of previously taxed amounts under code sec_1293 attributable to the subsidiary pfics solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a and corporation b with respect to the electing shareholders to the extent that partnership y is required to include an amount under code sec_1293 partnership y will correspondingly increase its basis in each of the directly or indirectly owned subsidiary pfics pursuant to code sec_1293 by an amount equal to such inclusion solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a and corporation b with respect to the electing shareholders to the extent plr-101265-08 that partnership y is required to include an amount under code sec_1293 resulting from its indirect ownership of a subsidiary pfic through a foreign fund partnership y will increase its basis in its interest in such foreign fund under code sec_1293 and the principles of code sec_1293 by an amount equal to the inclusion solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a and corporation b with respect to the electing shareholders to the extent that partnership y is required to include an amount under code sec_1293 attributable to the subsidiary pfics and partnership x and corporation b are required to include corresponding distributive_share amounts under code sec_702 pursuant to code sec_705 partnership x and corporation b will increase their bases in their respective interests in partnership y by an amount equal to such inclusion solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a with respect to the electing shareholders to the extent that partnership y is required to include an amount under code sec_1293 attributable to the subsidiary pfics partnership x is required to include a corresponding distributive_share under code sec_702 with respect to its interest in partnership y and corporation a is similarly required to include an amount under code sec_702 with respect to its interest in partnership x corporation a will correspondingly increase its basis in its interest in partnership x under code sec_705 by an equal amount of such inclusion to the extent that an electing shareholder has a qef inclusion with respect to corporation a or corporation b the electing shareholder will correspondingly increase its basis in corporation a under code sec_1293 by an amount equal to such inclusion s solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a with respect to the electing shareholders to the extent the electing shareholders are required to include an amount under code sec_1293 with respect to corporation b partnership x will increase its basis in corporation b under code sec_1293 and corporation a will increase its basis in partnership x under code sec_1293 and the principles of code sec_1293 by an equal amount of the inclusion the electing shareholders will only be required to have access to the books_and_records of corporation a and or corporation b as applicable for purposes of the annual election requirements of sec_1_1295-1 but will not be required to have access to the books_and_records of partnership x partnership y or any subsidiary pfic and solely for purposes of determining inclusions under code sec_1293 with respect to the electing shareholders and calculating the e_p under code sec_312 of corporation a and corporation b with respect to the electing shareholders to the extent that partnership y is required to include an amount under code sec_1293 a plr-101265-08 corresponding amount of the relevant subsidiary pfic’s e_p is treated as a previously taxed amount under code sec_1293 and will not be further taken into account with respect to the electing shareholders under code sec_1293 principles no opinion is expressed regarding the marketability of the stock of any pfic identified in this letter_ruling this private_letter_ruling is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited as precedent a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer’s first and second representatives sincerely ethan a atticks senior technical reviewer branch associate chief_counsel international


- significant index number se t cpi ras az department of the treasury internal_revenue_service washington g cows ente jan re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 b 2xb and b of the intemal revenue code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa’ this extension is effective with the plan_year beginning date this extension applies to the eligible amortization charge bases established as of date which result in a net unfunded_liability of dollar_figure the extension of tha amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 d of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a pian for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 b the plan has submitted the required information to meet the criteria in section d b including a certification from the plan’s actuary that of that date as i absent the extension under subparagraph plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years a the i the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the and to the this ruling is directed only to the taxpayer that requested it sec_6110 of the intemal revenue code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours lm a david m ziegler managet ep actuarial group


department of the treasury internal_revenue_service washington d c mar i tf tax_exempt_and_government_entities_division uics 408a legend taxpayer a taxpayer b taxpayer c roth_ira x company d state e year date year date year value trust w subtrust a subtrust b dear page this is in response to the letter_ruling request dated in which your authorized representative on your behalf requests several letter rulings under sec_408a and sec_4973 of the internal_revenue_code the following facts and representations support your ruling_request during year taxpayer a converted a traditional individual_retirement_arrangement ira described in code sec_408 into a roth_ira roth_ira x described in code sec_408a company d was and remains the custodian of roth_ira x taxpayer a died on date year while a resident of state e survived by his spouse taxpayer b taxpayer a had named trust w as the beneficiary of his roth_ira x as of the date of this ruling_request roth_ira x had a value of approximately value trust w is a joint revocable_trust created by taxpayers a and b as joint settlors and trustees on date year your authorized representative asserts that trust w is valid under the laws of state e item c paragraph of trust w provides that upon the death of the first settlor to die and after payment of debts and funeral_expenses the surviving settlor trustee is to divide trust w into two separate and continuing trusts subtrust a and subtrust b item c paragraph grants taxpayer b the authority to select the assets with which to fund each subtrust item c paragraph of trust w provides that subtrust a is to be funded with the first dollar_figure next dollar_figure allocated to subtrust a subtrust b became irrevocable at the death of taxpayer a item g of trust w provides in relevant part that ' of assets and subtrust b is to be funded with the of trust assets any assets in excess of dollar_figure are to be item c paragraph of trust w provides that subtrust a shall be considered the sole and separate_property of taxpayer b and shail be administered as she directs taxpayer b is the sole trustee of subtrust a who retains the right to revoke subtrust a item f of trust w designated taxpayer b and her son taxpayer c as the co- trustees of subtrust b pursuant to item c paragraph a of trust w taxpayer b is entitled to receive all of the income from subtrust b b of trust w provides that taxpayer b subtrust b only in cases of dire need after taking into account the assets in subtrust a and all other sources of income or assets item c paragraph a c of trust w provides that upon the death of taxpayer b the assets remaining in subtrust b are to be distributed to the issue of the settlors item c paragraph is entitled to receive principal from page as surviving settlor and trustee of trust w taxpayer b roth_ira x to subtrust a taxpayer b intends to do so once so allocated taxpayer b will distribute outright and free of trust said roth_ira x to herself as beneficiary of subtrust a within days of the date roth_ira x is paid to taxpayer b as trustee of trust w for the purpose of being allocated to subtrust a and paid to taxpayer b taxpayer b will roll over said roth_ira x proceeds into another roth_ira set up and maintained in her taxpayer b’s name is authorized to allocate based on the above facts and representations you through your authorized representative request the following letter rulings that roth_ira x is not an inherited ira as that term is defined in code sec_408 with respect to taxpayer b that taxpayer b will be treated as the payee or distributee of roth_ira x and as such is eligible to roll over the proceeds of roth_ira x set up and maintained in her taxpayer b’s name as long as said rollover occurs no later that the day from the date said distribution is received by taxpayer b as the trustee of trust w and that no portion of the proceeds distributed from roth_ira x and rolled over into another roth_ira set up and maintained in taxpayer b’s name will be subject_to the tax on excess_contributions imposed by code sec_4973 with respect to your ruling requests code sec_408a and sec_1_408a-1 through 408a-9 of the income_tax regulations provide the rules governing roth iras code sec_408a provides in relevant part that notwithstanding subsections a and b of sec_408 the mandatory distribution rules of code sec_401 and the incidental death_benefit requirements of sec_401 do not apply to roth iras sec_1_408a-1 of the regulations question and answer-1 b provides in relevant part that roth iras are treated as traditional iras except where the internal_revenue_code specifies different treatment sec_1_408a-6 of the regulations q a-14 a provides in relevant part that no minimum distributions are required to be made from a roth_ira under sec_408 and b while the roth_ira owner is alive page sec_1_408a-6 of the regulations q a-14 b provides in relevant part that the minimum_required_distribution rules apply to a roth_ira as though the roth_ira owner died before his or her required_beginning_date in short the mandatory distribution rules do not apply before the death of the roth_ira holder sec_1_408a-6 of the regulations q a-14 b further provides in relevant part that if the sole beneficiary of a decedent's roth_ira is the decedent's spouse such spouse may delay distributions until the decedent would have attained age or may treat the roth_ira as his or her own sec_1_408a-8 of the regulations q a-1 b provides that the phrase treat an ira as his or her own means to treat an ira for which a surviving_spouse is the sole beneficiary as his or her ira after the death of the ira owner in accordance with the terms of the ira instrument or in the manner provided in the regulations under sec_408 or b sec_1_408a-2 of the regulations q a-4 provides in relevant part that the effect of a surviving_spouse of a roth_ira owner treating a roth_ira as his her own as of a date is that the roth_ira is treated from that date forward as though it were established for the benefit of the surviving_spouse and not the roth_ira owner thus for example the surviving_spouse is treated as the roth_ira owner for purposes of applying the minimum_distribution_rules of code sec_408 and sec_408 in short the above sections of the code and regulations provide that an eligible surviving_spouse may elect to treat the roth_ira of a decedent as his her own pursuant to sec_1_408a-8 of the regulations q a-1 b it is necessary to look to code sec_408 and the regulations thereunder for guidance as to who is an eligible surviving_spouse code sec_408 provides that except as otherwise provided in this subsection any amount_paid or distributed out of an individual_retirement_plan shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 code sec_408 provides that sec_408 does not apply to a rollover_contribution if such contribution satisfies the requirements of sec_408 and d b page code sec_408 provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the account is maintained if the entire amount received including money and any other_property is paid into an ira other than an endowment_contract for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution code sec_408 provides in pertinent part that in the case of an inherited ira sec_408 shall not apply to any amount received by an individual from such account and no amount transferred from such account to another ira shall be excluded from income by reason of such transfer and such inherited account shall not be treated as an ira for purposes of determining whether any other amount is a rollover_contribution code sec_408 provides that an ira shall be treated as inherited if the individual for whose benefit the account is maintained acquired such account by reason of the death of another individual and such individual was not the surviving_spouse of such other individual thus pursuant to code sec_408 c ii a surviving_spouse who acquires ira proceeds from and by reason of the death of her husband may elect to either treat those ira proceeds as her own or roll them over into her own ira code sec_408 provides in short that the rollover treatment authorized by code sec_408 does not apply to distributions required under code sec_408 as noted previously no minimum required distributions are required to be made from a roth_ira under sec_408 and b while the roth_ira owner is alive final income_tax regulations under code sec_401 and sec_408 were published in the federal_register pincite federal_register date and in the internal_revenue_bulletin pincite r b date the preamble to the final regulations in relevant part provides that the regulations apply for determining required minimum distributions for calendar years beginning after date sec_1_408-8 of the final regulations q a-5 a provides that a surviving_spouse is the only individual who may elect to treat a beneficiary's interest in an ira as the beneficiary's own account if the surviving_spouse makes such an election the spouse’s interest in the account would then be subject_to the distribution_requirements of code sec_401 rather than the requirements of sec_401 page sec_1_408-8 of the final regulations q a-5 a further provides in relevant part that a surviving_spouse may make an election to treat an ira of a deceased individual as his or her own only if he or she the surviving_spouse is the sole beneficiary of the ira and has an unlimited right to withdraw amounts from the ira such election is permitted to be made at any time after the ira holder's date of death a surviving_spouse may not treat an ira as his or her own if a_trust is the beneficiary of the ira even if the surviving_spouse is a or sole beneficiary of the trust sec_1_408-8 of the final regulations q a-5 a also provides in relevant part that if a surviving_spouse makes an election to treat an ira of a deceased individual as his or her own in the calendar_year containing the ira owner's death the surviving_spouse is required to take a minimum_required_distribution for that year determined with respect to the deceased ira owner to the extent such a distribution was not made to the ira owner before death in effect a surviving_spouse may not elect to convert the amount of a minimum_required_distribution for the year of an ira owner's death to his her own ira sec_1_408-8 of the final regulations q a-5 b provides in pertinent part that an election will be considered to have been made if either of the following occurs any required amounts in the account have not been distributed within the appropriate time period applicable to the beneficiary of the decedent under sec_401 or any additional_amounts are contributed to the account which are subject or deemed to be subject_to the distribution_requirements of sec_401 sec_1_408-8 of the final regulations q a-5 c concludes that the result of such an election described in paragraph b is that the surviving_spouse shall then be considered the individual for whose benefit the trust is maintained pursuant to the above sections of the code and final regulations a surviving_spouse may not treat a traditional_ira as her own if the ira assets initially pass through a_trust in this case roth_ira x passes through trust w before being paid to taxpayer b thus taxpayer b may not elect to treat roth_ira x as her own roth_ira next in accordance with sec_1_408a-1 of the regulations q a-1 b it is necessary to determine when if ever a surviving_spouse not eligible to elect to treat a decedent's roth_ira as her own may elect to roll over a roth_ira into a roth_ira set up and maintained in her name page in this regard code sec_408a in relevant part provides that the term qualified_rollover_contribution means a rollover_contribution to a roth_ira from another such account but only if such rollover_contribution meets the requirements of sec_408 the preamble to the final regulations provides in relevant part that if a surviving_spouse actually receives a distribution from an ira that was the property of a deceased individual the surviving_spouse is permitted to roll over that distribution within days into an ira in his or her name to the extent that the distribution is not a required_distribution regardless of whether the surviving_spouse is the sole direct beneficiary of the ira owner as noted above no distributions from a roth_ira are required during the life of the roth_ira owner with respect to traditional iras the general_rule is that if the proceeds of a decedent's ira are payable either to a decedent's trust or to his her estate are paid to either the trust’s trustee or the executor trix or personal representative of the estate who then pays them to the decedent’s surviving_spouse either as trust_beneficiary or as testate or intestate beneficiary of the estate said surviving_spouse shall be treated as having received the ira proceeds from either the trust or the estate and not from the decedent thus pursuant to the general_rule such surviving_spouse will not be treated as the payee or distributee of the ira as that term is used in code sec_408 accordingly such surviving_spouse generally shall not be eligible to roll over or have transferred said distributed ira proceeds into her own ira in accordance with sec_1_408a-1 of the regulations q a-1 b we will apply the same general_rule and its exceptions below to distributions from a roth jra the above described general_rule may not apply under several sets of circumstances one set of circumstances in which the general_rule does not apply is the case where an ira is payable to a_trust where the surviving_spouse is the sole trustee of the trust with sole authority to allocate trust assets and who allocates an ira including a roth_ira to herself in this case taxpayer b the surviving_spouse of taxpayer a who owned roth_ira x at his death is the sole trustee of trust w the named beneficiary of roth_ira x as sole trust w trustee taxpayer b will allocate roth_ira x to subtrust a created under the terms of trust w once allocated to subtrust a taxpayer b as beneficiary thereof will request that roth_ira x be paid or distributed to her pursuant to the language of trust w which provides that taxpayer b may administer subtrust a as she directs after receiving roth_ira x taxpayer b will contribute said roth_ira x to another roth_ira set up and maintained in her name page 90042401t since every action to be taken with respect to roth_ira x from it’s being distributed to the trustee of trust w will be taken by taxpayer b the service will not apply the general_rule set forth above thus with respect to your first two ruling requests the service concludes as follows to it’s being rolled over into another roth_ira that roth_ira x is not an inherited ira as that term is defined in code sec_408 with respect to taxpayer b and that taxpayer b will be treated as the payee or distributee of roth_ira xand as such is eligible to roll over the proceeds of roth_ira x set up and maintained in her taxpayer b’s name as long as said rollover occurs no later that the day from the date said distribution is received by taxpayer b as the trustee of trust w with respect to your third ruling_request code sec_4973 imposes a percent excise_tax on the amount of excess_contributions to an ira within the meaning of code sec_408 an archer_msa within the meaning of code sec_220 an individual_retirement_annuity within the meaning of sec_408 or a custodial_account described in code sec_403 a coverdell account as described in code sec_530 or a health_savings_account within the meaning of code sec_223 code sec_4973 does not reference roth iras described in code sec_408a however code sec_4973 defines excess_contributions as said term relates to roth iras in relevant part code sec_4973 provides that an excess_contribution to a roth_ira does not include a qualified_rollover_contribution described in code sec_408a as noted above code sec_408a in relevant part defines the term qualified_rollover_contribution in response to your first and second ruling requests we have concluded that you taxpayer b may accomplish a rollover of roth_ira x into a roth_ira set up and maintained in your name such a rollover will comply with the requirements of code sec_408 thus with respect to your third ruling_request we conclude as follows that no portion of the proceeds distributed from roth_ira x and timely rolled over into another roth_ira set up and maintained in taxpayer page b's name will be subject_to the tax on excess_contributions imposed by code sec_4973 this letter_ruling is based on the assumption that roth_ira x either has met meets or will meet the requirements of code sec_408a at all times relevant thereto it also assumes that the roth_ira into which roth_ira x will be rolled over will also meet the requirements of code sec_408a at all times relevant thereto this letter_ruling is based on the facts and representations contained herein this letter is directed only to the taxpayer that requested it and is based solely on the representations made with respect thereto sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative the service's point_of_contact with respect to this letter_ruling is who may be reached at phone or fax sincerely yours sone ute frances v sloan manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


t c summary opinion united_states tax_court law offices of robert a cushman llc petitioner v commissioner of internal revenue respondent docket no 5218-10s filed date robert a cushman for petitioner frank w louis for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by 1unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended all rule references are to the tax_court rules_of_practice and procedure any other court and this opinion shall not be treated as precedent for any other case this case is before the court on petitioner’ sec_2 request for judicial review of respondent’s determinations to sustain notices of intent to levy to collect employment_taxes and a failure to deposit penalty respondent sent petitioner two notices of determination the first for the tax period ending date and the second for the tax periods ending march and date the issues for decision are whether respondent correctly assessed employment_taxes for the fourth quarter of whether petitioner is liable for a failure to deposit penalty under sec_6656 for the second quarter of and whether respondent abused his discretion by conducting petitioner’s collection_due_process cdp hearing through correspondence and telephone calls and by denying petitioner’s request for an installment_agreement 2petitioner was represented by robert a cushman mr cushman mr cushman signed the petition as a member of the l l c 3at trial petitioner agreed that it owed the tax penalty and interest for the tax period ending date the court deems that issue conceded and that tax period will not be discussed further 4the only determination for the tax period ending date was a sec_6656 failure to deposit penalty some of the facts have been stipulated and they 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_place_of_business was in connecticut as a matter of convenience we will combine our findings and discussion herein applicable law we have jurisdiction under sec_6330 to review respondent’s determinations that the notices of intent to levy were proper and that respondent may proceed to collect by levy the secretary may not levy upon any property or any right to property of any taxpayer unless the secretary has notified such taxpayer in writing of the right to a hearing before the levy is made sec_6330 if the taxpayer requests a cdp hearing the hearing will be held before an impartial officer_or_employee of the internal_revenue_service irs office of appeals sec_6330 at the cdp hearing the taxpayer may raise any relevant issue including challenges to the appropriateness of the collection action and collection alternatives sec_6330 the taxpayer is expected to provide all relevant information 5the pension_protection_act of publaw_109_280 120_stat_1019 amended sec_6330 and granted this court jurisdiction over all sec_6330 determinations made after date 129_tc_58 n requested by the appeals_office including financial statements for consideration of the facts and issues involved in the cdp hearing sec_301_6330-1 proced admin regs a cdp hearing may consist of one or more written or oral communications between an appeals officer ao and the taxpayer sec_301_6330-1 q a-d6 proced admin regs see 115_tc_329 dinino v commissioner tcmemo_2009_284 the statute requires only that a taxpayer be given a reasonable chance to be heard before the issuance of a notice_of_determination roman v commissioner tcmemo_2004_ the taxpayer may not dispute the existence or amount of his underlying tax_liability unless he did not receive a notice_of_deficiency for the tax in question or did not otherwise have an opportunity to dispute the tax_liability sec_6330 see 114_tc_604 if the underlying tax_liability is at issue the court will review the ao’s determination de novo sego v commissioner supra pincite where the validity of the underlying tax_liability is not properly placed at issue the court will review the determination for abuse_of_discretion see 114_tc_176 see also sego v commissioner supra pincite any other administrative determination regarding the proposed collection action will be reviewed for abuse_of_discretion sego v commissioner supra pincite goza v commissioner supra pincite an abuse_of_discretion occurs when the exercise of discretion is without sound basis in fact or law 125_tc_301 affd 469_f3d_27 1st cir respondent’s determinations concern federal employment_taxes reported on form_941 employer’s quarterly federal tax_return and a failure to deposit penalty pursuant to sec_6656 petitioner did not receive a notice_of_deficiency or otherwise have an opportunity to dispute the tax_liability before the cdp hearing thus we review the determinations de novo in making a determination following a cdp hearing the ao must consider whether the requirements of any applicable law or administrative procedure have been met any relevant issues raised by the taxpayer and whether the proposed collection action balances the need for efficient collection with legitimate concerns that the collection action be no more intrusive than necessary sec_6330 fourth quarter of the amount at issue for the tax period ending date is the unpaid employment_tax liability from the first quarter of that was assessed for the fourth quarter of under combined annual wage reporting cawr cawr adjustments are appropriate when there is a discrepancy between an employer’s form_941 returns and the_amount_of_wages reported to the social_security administration at the end of the year in re howard indus inc bankr bankr s d ohio petitioner received a letter from respondent dated date explaining that there was a discrepancy between the form sec_941 filed with the irs and the_amount_of_wages reported to the social_security administration for petitioner’s only argument for the tax period ending date is that it paid the tax_liability in and that this issue was previously resolved by the court in docket no 27333-07s although petitioner disputes respondent’s assertion that the l l c has not paid the tax_liability due for the first quarter of mr cushman testified that he had no record of filing a tax_return or remitting a payment on petitioner’s behalf for the first quarter of respondent submitted into evidence form_4340 certificate of assessments payments and other specified matters for the first quarter of attached to form_4340 is form_3050 certification of lack of record certifying that respondent did not receive from petitioner a form_941 for the first quarter of respondent may rely on form_4340 for 6although the tax period at issue in the tax_court case included the fourth quarter of the first quarter of was not at issue in that case verification purposes see 118_tc_162 respondent also presented into evidence a form_4340 for the fourth quarter of the form shows that an additional tax was assessed on date after petitioner settled the issues in the aforementioned docketed_case the amount assessed dollar_figure is the amount that respondent determined petitioner owes for the first quarter of after submission into evidence of the forms petitioner reiterated that it already paid the tax_liability for the fourth quarter of and asserted that the first quarter of is not at issue in this proceeding the assessment of the tax owed for the first quarter of in the fourth quarter of was proper see in re howard indus inc supra petitioner has offered no viable argument that might suggest the assessment is improper therefore we sustain respondent’s determination with respect to the fourth quarter of second quarter of a penalty will be imposed upon any taxpayer who fails to deposit as required by title_26 the internal_revenue_code any amount of tax imposed by that title unless it is shown that such failure is due to reasonable_cause and not due to willful neglect sec_6656 see charlotte’s office boutique inc v 7all amounts are rounded to the nearest dollar commissioner 121_tc_89 affd 425_f3d_1203 9th cir a taxpayer can establish reasonable_cause by showing that ordinary business care and prudence were exercised sec_301_6651-1 and proced admin regs willful neglect results from a conscious decision or from reckless indifference 469_us_241 the taxpayer has the burden of proving reasonable_cause and the absence of willful neglect rule 116_tc_438 the applicable_percentage of the penalty will be percent of the underpayment if the failure is for more than days sec_6656 with respect to employment_taxes if the total amount due for a tax period is less than dollar_figure the tax is considered de_minimis and timely deposited if remitted with a timely filed return sec_31_6302-1t f i temporary employment_tax regs fed reg date respondent submitted into evidence a form_4340 for the second quarter of petitioner filed form_941 and remitted tax due of dollar_figure on date respondent assessed a failure to deposit penalty of dollar_figure on date petitioner argues that the amount that exceeds the de_minimis limit is in 8the regulations pertaining to a failure to deposit do not provide a definition of reasonable_cause however courts have used the reasonable_cause definition for additions to tax in failure to deposit penalty cases see eg univ of chi v 547_f3d_773 7th cir itself de_minimis and that it did not willfully neglect to make deposits mr cushman testified that he assumed that the firm’s paralegal would not work sufficient hours in the second quarter for the l l c to be required to make deposits of employment_taxes although petitioner’s form_941 was timely filed the tax due was more than dollar_figure therefore the de_minimis exception does not apply see sec_31_6302-1t f i temporary employment_tax regs supra mr cushman’s assumption about how many hours the firm’s paralegal would work does not show ordinary business care and prudence and does not rise to reasonable_cause petitioner was liable for dollar_figure of employment_taxes for the first quarter of and ordinary business care and prudence would dictate planning for its second quarter tax_liabilities from the outcome of the first quarter petitioner has not shown reasonable_cause for the failure to timely deposit employment_taxes for the second quarter of therefore we sustain respondent’s determination for the second quarter of petitioner’s cdp hearing and installment_agreement petitioner argues that it did not receive a cdp hearing and that a request for an installment_agreement was denied without consideration petitioner’s cdp hearing was held through telephone calls and correspondence see 115_tc_329 dinino v commissioner tcmemo_2009_284 sec_301_6330-1 q a-d6 proced admin regs most of the correspondence that is part of the cdp hearing record pertains to the tax period ending date during a telephone call on date the tax period ending date was also discussed petitioner was afforded a reasonable opportunity to be heard for each of the tax periods at issue see roman v commissioner tcmemo_2004_20 the irs is authorized to enter into written agreements with taxpayers for installment payments for any_tax due if the irs determines that such agreements will facilitate full or partial collection of such liabilities sec_6159 it is within the ao’s discretion to decide that petitioner’s tax debt can more readily be eliminated by levy than by an installment_agreement see 412_f3d_819 7th cir affg 123_tc_1 sec_301_6159-1 proced admin regs petitioner requested an installment_agreement and the ao informed petitioner that an installment_agreement was not an option because petitioner had not timely filed form sec_941 and there was doubt as to petitioner’s ability to timely file and pay employment_taxes in the future when asked what amount of its past due liabilities the l l c would be able to pay monthly mr cushman responded that he did not know because the firm was experiencing a decline in business the record does not include a form 433-b collection information statement for businesses petitioner did not offer any other collection alternatives therefore respondent did not abuse his discretion in denying petitioner’s request for an installment_agreement see goza v commissioner t c pincite see also sego v commissioner t c pincite conclusion on the basis of our findings stated above we sustain respondent’s determinations for the tax periods ending date and date we also find that there was no abuse_of_discretion in conducting petitioner’s cdp hearing through correspondence and telephone calls and no abuse_of_discretion in denying petitioner an installment_agreement we have considered the parties’ arguments and to the extent not discussed herein we conclude the arguments to be irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ----------------------------- --------------------------------------------------- --------------------------- department of the treasury washington dc third party communication date of communication none person to contact --------------------------- id no --------------- ----------------- telephone number ---------------------- refer reply to cc psi b03 plr-122253-15 date december date ---------------------------- grantor --------------------------------------------------------- permissible beneficiaries --------------------------------------------------------- ------------------------------------------------- --------------------------------------------- ---------------------------------------------- ---------------------------------------------------- ------------------------------------------- ---------------------------------------------------- ---------------- ---------------- -------------- -------------------------------------------------------- ------------------------------------------------ ------------------------------------------------ distribution committee trust state trustee son daughter dear --------------- this responds to a letter dated date and subsequent correspondence requesting rulings under sec_671 sec_2501 sec_2514 and sec_2041 of the internal_revenue_code facts on date grantor created trust an irrevocable_trust for the benefit of grantor and the other permissible beneficiaries trustee a corporate trustee is the sole trustee of trust during grantor’s lifetime trustee must distribute such amounts of net_income and principal to any of the permissible beneficiaries as directed by distribution committee and or grantor as follows at any time trustee pursuant to the direction of a majority of distribution committee with the written consent of grantor plr-122253-15 shall distribute to any of the permissible beneficiaries such amounts of the net_income or principal of trust grantor’s consent power at any time trustee pursuant to the direction of all distribution committee members shall distribute to permissible beneficiaries such amounts of the net_income unanimous member power and at any time trustee shall distribute to any of the permissible beneficiaries other than grantor all or any portion of the principal of trust directly for the health education maintenance or support of the permissible beneficiaries as directed by grantor grantor’s sole power grantor’s exercise of grantor’s sole power shall be exercisable in a nonfiduciary capacity distribution committee may direct that distributions be made equally or unequally and to or for the benefit of any one or more of the permissible beneficiaries of trust to the exclusion of others any net_income not distributed by trustee will be accumulated and added to principal trust provides that at all times there must be at least two members of the distribution committee if at any time there are fewer than two individuals serving on the distribution committee then the distribution committee shall be deemed not to exist the grantor shall not serve as a member of the distribution committee the distribution committee shall consist of two adults other than grantor who are also permissible beneficiaries the distribution committee members act in a nonfiduciary capacity a vacancy on the distribution committee must be filled in the following order grantor’s father grantor’s son and grantor’s daughter distribution committee is initially composed of three of the permissible beneficiaries and will cease to exist upon grantor’s death upon grantor’s death trust shall terminate and the remaining balance of trust shall be distributed to or for the benefit of any person other than grantor’s estate grantor’s creditors or the creditors of grantor’s estate as grantor may appoint by will in default of the exercise of this limited power to appoint grantor’s testamentary power the balance of trust property will be divided into equal shares and distributed either outright or in trust to or for grantor’s named individuals you have requested the following rulings for so long as the distribution committee is serving no portion of the income deductions and credits against tax of trust shall be included in computing the taxable_income deductions and credits of grantor or any member of the distribution committee under sec_671 the contribution of property to trust by grantor will not be a completed_gift for federal gift_tax purposes any distribution_of_property by the distribution committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee plr-122253-15 any distribution_of_property by the distribution committee from trust to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee the members of the distribution committee do not possess a general_power_of_appointment within the meaning of sec_2041 and accordingly trust will not be includible in any distribution committee member’s gross_estate under sec_2041 ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides that for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceed sec_5 percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the power in sec_674 regardless of by whom held sec_674 describes a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard which is set forth in the trust instrument sec_674 provides that sec_674 shall not apply to a power exercisable plr-122253-15 only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant to its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to re-vest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor's spouse held or accumulated for future distribution to the grantor or the grantor's spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor's spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof based solely on the facts submitted and representations made we conclude an examination of trust reveals none of the circumstances that would cause grantor to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 or sec_677 because none of the other distribution committee members has a power exercisable solely by himself to vest trust income or corpus in himself none shall be treated as the owner of any portion of the trust under sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of grantor under sec_675 thus the circumstances attendant on the operation of trust will determine whether grantor will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been plr-122253-15 examined by the office with responsibility for such examination ruling sec_2 and sec_2501 of the internal_revenue_code provides for the imposition of a gift_tax on the transfer of property by gift sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein with respect to which the donor has so parted with dominion and control as to leave the donor with no power to change the disposition of the property whether for the donor's own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 provides an example where the donor transfers property in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor's descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but had instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard under sec_25_2511-2 a donor is considered as possessing a power if it is exercisable by the donor in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no plr-122253-15 power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer's gift was complete in when he relinquished his right to change the beneficiaries of the trust grantor’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantor retained the grantor's consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom distribution committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power under sec_25_2514-3 a co-holder of a power is only considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in this case the distribution committee ceases to exist upon grantor's death accordingly the distribution committee members do not have interests adverse to grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore grantor is considered as possessing the power to distribute income and principal to any beneficiary himself because he retained the grantor's consent power the retention of this power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes grantor also retained the grantor's sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the plr-122253-15 donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard in this case the grantor's sole power gives grantor the power to change the interests of the beneficiaries even though grantor’s power is limited by an ascertainable_standard ie health education maintenance and support grantor ‘s power is not a fiduciary power accordingly the retention of the grantor's sole power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes further grantor retained grantor's testamentary power to appoint the property in trust to any persons other than grantor's estate grantor's creditors or the creditors of grantor's estate under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder in trust for federal tax purposes finally the distribution committee members possess the unanimous member power over income this power is not a condition_precedent to grantor's powers grantor's power over the income is presently exercisable and not subject_to a condition_precedent grantor retains dominion and control_over the income of trust until the distribution committee members exercise their unanimous member power accordingly this power does not cause the transfer of property to be complete with respect to the income_interest for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax any distribution from trust to grantor is merely a return of grantor's property therefore we conclude that any distribution_of_property by the distribution committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further upon grantor's death the fair_market_value of the property in trust is includible in grantor's gross_estate for federal estate_tax purposes ruling sec_4 and sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor plr-122253-15 the possessor's estate the possessor's creditors or the creditors of the possessor's estate sec_25_2514-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor's estate or the creditors of the estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor's power sec_25_2514-3 provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditor or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of 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 by a disposition which is of such nature that if it were a transfer or property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive plr-122253-15 under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides however that in the case of a power_of_appointment created after date which is exercisable by the decedent only in conjunction with another person if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent -- such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent's power sec_20_2041-3 of the estate_tax regulations provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the decedent's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the powers held by the distribution committee members under the grantor's consent power are powers that are exercisable only in conjunction with the creator grantor accordingly under sec_2514 and sec_2041 the distribution committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the distribution committee members under the unanimous member powers are not general powers of appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and sec_20_2041-3 the distribution committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than grantor pursuant to the exercise of these powers the grantor's consent power and the unanimous member powers are not gifts by the distribution committee members instead such distributions are gifts by grantor based upon the facts submitted and representations made we conclude that any distribution_of_property by the distribution committee from trust to any beneficiary of plr-122253-15 trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further we conclude that any distribution_of_property from trust to a beneficiary other than grantor will be a completed_gift by grantor finally we conclude that the powers held by the distribution committee members are not general powers of appointment for purposes of sec_2041 and accordingly the possession of these powers by the distribution committee members will not cause trust property to be includible in any the distribution committee member's gross_estate under sec_2041 except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on the trust provisions permitting trustee to distribute income or principal to trustees of other trusts this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely bradford r poston senior counsel branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes