internal_revenue_service number release date index number --------------- ---------------------------------------------- ---------------------------------------------- ------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number --------------------- refer reply to cc corp b03 plr-134729-09 date date ----------- ----------- legend parent --------------------------------------------------------------------------------- --------------------------------------------------------------------- ------------------------------------------------------ subsidiary1 ----------------------------------------------------------------------------- --------------------------------------------------------------------- ----------------------------------------------- subsidiary2 ----------------------------------------------------------- llc ----------------------------------------------------------------------------------------------- -------------------------------------------------------------------------- ----------------------------- bank ----------------------------------------------- business a -------------------------------------------------------------- ------------------------------------------------------- series a preferred_stock ------------------------------------------------------------------------ --------------------- ----------------------------------------------------------------------- series b preferred_stock --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------- series c preferred_stock ------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------- plr-134729-09 ------------------------------------------------------------------ series d preferred_stock ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------ ----------------------------------------------------------------------- date date date date date date a b c d e f g h i j k m n --------------------------- ----------------------- --- ------------------ ------------------- ------------------ --------------------------- -------------- ----------- --- ----------- ------------ ----------- ----------- ------------------ ---------- -- -- ---------- -------------- plr-134729-09 o z ---------- ------ trust ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------- x -------------------------------------------------------- dear --------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of a proposed transaction additional information was submitted on july august september october and date the information submitted for consideration is summarized below parent is the common parent of an affiliated_group_of_corporations that has elected to file a consolidated federal_income_tax return parent consolidated_group the parent consolidated_group is engaged in business a subsidiary1 and subsidiary2 are direct wholly owned subsidiaries of parent subsidiary1 currently owns approximately z percent of parent parent also owns all of the common interests in llc common units which are the only outstanding equity interests in llc llc is currently disregarded as an entity separate from parent for federal_income_tax purposes on date bank as lender and parent as borrower entered into a credit agreement bank made a loan the loan to parent pursuant to the credit agreement as of date the outstanding balance of the loan is a dollars pursuant to the credit agreement parent issued b shares of series a preferred_stock to trust convertible into approximately c percent of the common shares of parent on date parent issued d shares of series b preferred_stock and a warrant to x in exchange for e dollars the proceeds received from the series b preferred_stock and the warrant were used to reduce the outstanding balance on the loan on date parent issued f shares of series c preferred_stock to x in exchange for the d shares of outstanding series b preferred_stock also on date parent issued g shares of series d preferred_stock and a warrant to x in exchange for x’s commitment to invest up to h dollars with respect to the series d preferred_stock plr-134729-09 on date parent and bank executed a purchase agreement the proposed transaction described below is pursuant to the purchase agreement proposed transaction step parent will transfer its subsidiary1 stock to llc in exchange for newly issued nonvoting senior preferred interests senior preferred units and nonvoting junior preferred interests junior preferred units in llc together the senior preferred units and the junior preferred units may be referred to as the preferred units step llc will elect under sec_301_7701-3 to be treated as a corporation and will be referred to below as llc corp under sec_301_7701-3 parent will be deemed to transfer subsidiary1 stock to llc corp in exchange for the common units and the preferred units the deemed transfer step pursuant to the purchase agreement parent will transfer the preferred units to bank in repayment of i dollars of the loan step parent and llc corp will make a timely election under sec_338 in respect of the deemed transfer of the subsidiary1 stock to llc corp in step elections under sec_338 may also be made in respect of the deemed acquisition of direct and indirect domestic subsidiaries of subsidiary1 and elections under sec_338 may also be made in respect of the deemed acquisition of direct and indirect foreign subsidiaries of subsidiary1 step it is intended that subsidiary1 will acquire all of the outstanding_stock of subsidiary2 however it is possible that the stock of subsidiary2 will be acquired by llc corp rather than subsidiary1 llc corp ’s junior preferred units terms the terms of the junior preferred units include the following ranking the junior preferred units will generally rank senior to the common units and junior to the senior preferred units term perpetual or until redemption fixed yield cumulative at a rate of j per year until date and thereafter at the rate of k per year in each case compounded quarterly on the average daily balance of the liquidation preference plr-134729-09 liquidation preference the initial liquidation preference of dollar_figurem plus any accrued fixed yield minus the amount of distributions described below received by the holders of the junior preferred units distributions in general except for ordinary course distributions to the common units of up to dollar_figuren per year the ordinary course distributions distributions other than liquidating distributions will be made as follows a first to holders of senior preferred units until they have received an amount equal to the fixed yield on the senior preferred units for the then current quarter b second to the holders of junior preferred units until they have received an amount equal to the fixed yield for the then current quarter c third to the holders of junior preferred units until they have received under this clause c an amount equal to of the initial liquidation preference of dollar_figurem d fourth to the holders of senior preferred units until they have received under this clause d an amount equal to their liquidation preference e fifth to the holders of junior preferred units until they have received under this clause e an amount equal to the liquidation preference f sixth to the holders of common units until they have received together with any ordinary course distributions an amount equal to the sum of i dollar_figureo and ii the amount of any capital contributions other than the initial capital_contribution made by holders of the common units g seventh to the holders of the common units and to holders of the junior preferred units such the participation and h if in a year after holders of the common units have received distributions in an amount equal to the sum of i dollar_figureo and ii the amount of any capital contributions other than the initial capital_contribution made by holders of the common units distributions are made by llc corp the holders of the common units will receive ordinary course distributions prior to any distributions pursuant to clause g above distributions will be mandatory to the extent of the net_proceeds of certain events liquidating distributions liquidating distributions including distributions in any transaction in which all of the senior and junior preferred units are redeemed or otherwise cancelled will be made as follows a first to the holders of senior preferred units until they have received liquidating and non-liquidating distributions equal to the sum of the fixed yield on the senior preferred units for the then current quarter and their liquidation preference plr-134729-09 b second to the holders of the junior preferred units until they have received liquidating and non-liquidating distributions equal to the sum of the fixed yield on the junior preferred units for the then current quarter and their liquidation preference c third to the holders of the common units until they have received liquidating and non-liquidating distributions equal to the sum of i dollar_figureo and ii the amount of any capital contributions other than the initial capital_contribution made by the holders of the common units and d fourth to the holders of the common units and to the holders of the junior preferred units redemption the holders of the junior preferred units will have no right_of_redemption the participation will be redeemable in whole but not in part out of legally available funds at the option of llc corp after the liquidation preference has been reduced to zero for the value of the participation determined as follows following an ipo in general the amount of the liquidating_distribution that the holders of the junior preferred units would receive in connection with a public offering of of the equity securities in the ipo vehicle then owned by llc corp prior to an ipo the amount of the liquidating_distribution that holders of the junior preferred units would receive in the event of a sale of of the equity securities of llc corp based on a good_faith determination of llc corp ’s board_of managers or if contested by an investment banking firm of national standing designated by mutual agreement transferability the junior preferred units are freely transferable exchange rights in connection with an ipo the junior preferred units will be exchanged or converted into preferred_stock of the ipo vehicle having the same economic rights as the junior preferred units such stock of the ipo vehicle the successor stock in addition after an ipo the successor stock will be exchangeable for or convertible into common_stock of the ipo vehicle having a value equal to its liquidation preference representations the following representations have been made regarding the proposed transaction a except as described above none of llc subsidiary1 or any of their subsidiaries has purchased any stock of parent except that subsidiary1 llc llc corp and their subsidiaries may have purchased and may plr-134729-09 purchase in the future an aggregate amount of up to five percent of the stock of parent in the ordinary course of conduct of their businesses b all of the stock of subsidiary1 will be acquired by llc corp in a single transfer by parent in the deemed transfer in step of the proposed transaction c parent will be the common parent and subsidiary1 will be a member of the parent consolidated_group on the date on which llc corp will acquire subsidiary1 d llc was formed prior to the deemed transfer in step of the proposed transaction solely to effect a separation between parent and subsidiary1 and thereby to position subsidiary1 as an independent operation in order to maintain the value of its business and enhance its franchise except for activities incident to the proposed transaction llc will not have any activities or carry on any business prior to the deemed transfer in step of the proposed transaction e the terms of the purchase agreement have been determined pursuant to arm’s length negotiations with bank f there is no plan or intention for llc corp or subsidiary1 to cease to remain in existence as a separate corporation g parent has no plan or intention to liquidate or to distribute the common units to its shareholders h parent will own less than in value of the llc corp stock after step rulings based solely on the information submitted and the representations set forth above we hold as follows the junior preferred units will not be stock described in sec_1504 the deemed transfer by parent of subsidiary1 stock to llc corp in step of the proposed transaction will be a qualified_stock_purchase qsp within the meaning of sec_338 parent and llc corp will be eligible to make the election under sec_338 in respect of llc corp ’s acquisition of the stock of subsidiary1 in the deemed transfer plr-134729-09 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely ____________________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


internal_revenue_service number release date index number ---------------------------- --------------------------------- ----------------------- ----------------------------- in re ------------------------ -------------------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b09 plr-124708-04 date september ty ------------------------ ---------------- -------------------------------------- -------------- ------- --------------------------- ---------------------------- ---------------------- ---------------- index taxpayer date trust dollar_figurea year law firm attorney taxpayer’s accountant date dear --------------------- this is in response to your letter dated date sent on behalf of the estate of taxpayer requesting an extension of time under ' of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make a timely allocation of generation-skipping_transfer gst_exemption with respect to a transfer made by taxpayer to a charitable_lead_unitrust the facts and representations submitted are summarized as follows on date taxpayer created a charitable_lead_unitrust hereinafter trust and transferred to it cash and marketable_securities having a fair_market_value of dollar_figurea under the terms of trust the trustee of trust shall select from time to time one or more organizations described in sec_170 sec_2055 and sec_2522 hereinafter the charitable recipient and pay to the charitable recipient each year a unitrust_amount equal to percent of the net fair_market_value of the trust assets valued annually trust shall terminate at the expiration of years from the date of trust’s creation upon termination of trust the trustee shall pay principal and income to taxpayer’s plr-124708-04 grandchildren then living in equal shares per capita and to the issue of any grandchild of taxpayer who shall not then be living divided among the issue per stirpes however if any beneficiary has not yet reached the age of thirty years in lieu of distribution to the grandchild distribution shall be made to a separate trust for the benefit of the grandchild the trustee of any separate trust may make distributions of principal and income as the trustee deems necessary or desirable for the support maintenance education or other benefit of the grandchild in respect of whom the share shall be held for several years prior to the creation of trust taxpayer had relied on law firm to handle her estate_planning affairs on date upon the advice and recommendation of attorney a member of law firm taxpayer created trust at that time attorney explained to taxpayer that by creating a_trust the remainder of which would be for the benefit of taxpayer’s descendants beyond taxpayer’s children’s generation and allocating taxpayer’s gst tax exemption to it the assets of the trust would be exempt from the gst tax indeed trust was funded with an amount specifically intended to result in a taxable gift equal to the gst tax exemption available to taxpayer in year taxpayer signed and timely-filed the united_states gift and generation-skipping_transfer_tax return form_709 for year however due to an apparent misunderstanding taxpayer’s accountant who prepared the form_709 for year did not allocate taxpayer’s exemption to cover the amount_of_the_gift taxpayer made in year taxpayer died on date after reviewing the year form_709 upon taxpayer’s death it was discovered that no allocation of taxpayer’s gst_exemption had been made to the transfer to trust the executors of taxpayer’s estate now request an extension of time under sec_2642 to make an allocation of taxpayer’s gst_exemption to the assets transferred to trust in year in addition the executors of taxpayer’s estate request that the allocation be based on the value of the assets transferred to trust as of the date of the transfer sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst tax exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2632 provides that any allocation by an individual of his or her gst tax exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed in general the gst tax is computed by multiplying the taxable_amount by the applicable_rate the applicable_rate is the highest federal estate_tax rate multiplied by the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio plr-124708-04 is the excess if any of over the applicable_fraction determined for the trust from which such transfer is made under sec_2642 the applicable_fraction is a fraction a the numerator of which is the amount of the gst_exemption allocated to the trust and b the denominator of which is i the value of the property transferred to the trust reduced by ii the sum of i the federal estate_tax rate or state death_tax actually recovered from the trust attributable to such property and ii any charitable deduction allowed under sec_2055 or sec_2522 with respect to such property sec_2642 provides that except as provided in sec_2642 if the allocation of the gst tax exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst tax exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst tax exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except in subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute plr-124708-04 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an election described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or to advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer’s estate is granted an extension of time of days from the date of this letter to file a supplemental form_709 for the year transfer to trust the form_709 should include a notice of allocation properly allocating taxpayer’s gst tax exemption to the transfer in year if trust meets the requirements for a charitable deduction under sec_2055 or sec_2522 the value of the property transferred to trust will be reduced in the denominator of the applicable_fraction by the amount of this charitable deduction the gift_tax value of the transfer to trust will be used in determining the amount of gst tax exemption to be allocated to the trust and the allocation will be effective as of the date of the transfer a copy of this letter should be attached to the supplemental form_709 and filed with the internal_revenue_service center cincinnati ohio a copy is included for this purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter including whether trust meets the requirements for a charitable deduction under sec_2055 or sec_2522 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer’s estate plr-124708-04 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely heather c maloy associate chief_counsel passthroughs special industries enclosure


department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas tax_exempt_and_government_entities_division number release date date date taxpayer_identification_number person to contact employee identification_number employee telephone number uil certified mail - return receipt dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code our favorable determination_letter to you dated december 19xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx the revocation of your exempt status was made for the following reason s organizations described in sec_501 and exempt under sec_501 must be both organized and operated exclusively for exempt purposes you have failed to demonstrate that you are operating for charitable educational or other exempt purposes and that no part of your net_earnings inures to the benefit of private shareholders or individuals you have not implemented the controls as described within your application_for tax exempt status the form_1023 as stated within your bylaws as amended on september 19xx and as advised within our determination_letter dated december 19xx you were not able to produce contemporaneous_records to substantiate solicitation of grant funds the intended use of the funds solicited and the approval process additionally you were not able to demonstrate an exempt_purpose use of funds drawn from your bank accounts or for debit and credit card purchases made by your controlling officer and his spouse contributions to your organization are no longer deductible under sec_170 after january 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending december 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to the united_states tax_court at the following address united_states tax_court second street nw washington dc you also have the right to contact the office_of_the_taxpayer_advocate the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit taxpayeradvocate irs gov or call if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely maria hooke director eo examinations enclosures publication internal_revenue_service tax_exempt_and_government_entities_division department of the treasury date date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax manager’s name id number manager’s contact number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren’t an organization described in sec_501 after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don’t respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal letter rev catalog number 34809f standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you letter rev catalog number 34809f thank you for your cooperation sincerely margaret von lienen director eo examinations enclosures report of examination form_6018 publication publication catalog number 34809f letter rev form 886-a department of the treasury ‘internal revenue service explanation of items name of taxpayer schedule no or exhibit year period ended 20xx 20xx 20xx issue should the tax exempt status of revenue code irc sec_501 be revoked because under internal it is not operating in the manner as described within its application_for recognition of tax exempt status failure to exercise expenditure_responsibility over grant disbursements its funds inure to the benefit of its controlling officer and spouse facts was incorporated under the not-for-profit corporation law of the state of on february 19xx the organization was granted tax exempt status under sec_501 as a public charity described in sec_509 b a vi of code by our letter dated december 19xx the organization's purposes as stated within its certificate of incorporation are to award grants to c type of institutions and to help the poor needy sick and disabled form_1023 application_for recognition of exemption under section e educational the application founder and current officer the organization would award grants and or loans to institutions upon receipt of an application or request for funds for a specific purpose control will be exercised by requiring a report of the use of the award or loan from the institution reports concerning use of past grants or loans will be considered when evaluating future requests c of the internal_revenue_code was received on may 19xx the application was submitted by bears his signature as the organization's president and includes his name as the contact person during the application process the organization describes its activities within part il of the application as follows during the application process the bylaws were amended on september 19xx to include the following language the board_of directors shall review all requests for funds from other organizations the board shall require that such requests specify the use to which the funds will be put and if the board approves the request it shall authorize payment of such funds to the approved grantee the board_of directors shall require that the grantees furnish a periodic accounting to show that the funds were expended for the purposes which were approved by the the organization would award grants and or loans to the sick needy and disabled people and to such organizations that support and help such proof from individuals will be required as to the use of funds and or loans and if they qualify will be examined and approved by the board_of directors department of the treasury internal_revenue_service page -1 form 886-a rev schedule no or exhibit year period ended department of the treasury - internal_revenue_service form 886-a explanation of items nameof taxpayer 20xx 20xx 20xx board the article of amendment to the bylaws was signed by organization's president as the failed to implement the grant making controls it our examination determined that described within part i of the application form_1023 as stated within its amended bylaws and as advised within our determination_letter dated december 19xx form_990 returns filed for periods ending december 20xx through december 20xx report total support revenue from contributions of dollar_figurexxx xxx dollar_figurexxxx xxx and xxx xxxx respectively total grant distributions during these same years are reported as dollar_figurexxx xxx dollar_figurexxx xxx and dollar_figurexxx xxx respectively substantiate grants it made to individuals and organizations were used for exempt purposes the amounts involved are substantial dollar_figurexxx xxx in 20xx dollar_figurexxx xxx in 20xx and dollar_figurexxx xxx in 20xx representing xx xx and xx of total grant distributions reported in each of the years under examination see attached schedule was not able to produce records to although the application_for tax exempt status form_1023 and the bylaws indicate that there shall be three board officers president secretary and treasurer controlling officer of the organization he is the signing official of the filed forms and is listed as the organization's only officer it was noted that the organization filed an amended form_990 for calendar_year ending 20xx adding two trustees and his spouse is the sole draw employee compensation during the years under examination executed substantially_all of the checks on behalf of the organization those not executed by were executed by their combined salaries as reported on the returns for the calendar years ending 20xx through 20xx are dollar_figurexx xxx dollar_figurexx xxx and dollar_figurexx xxx respectively our examination also determined that total grant distributions as reported in return years 20xx through 20xx and as referenced in the paragraph above included the following transactions executed by withdrawals totaling dollar_figurexx xxx and debit credit card purchases totaling dollar_figurexx xxx the sum total of these transactions is dollar_figurexxx xxx see attached schedule provide records in order to substantiate an exempt_purpose for these transactions checks written to cash totaling dollar_figurexx xxx atm debit teller cash were unable to and and law sec_501 of the internal_revenue_code exempts from federal_income_tax organizations organized and operated exclusively for charitable educational and other exempt purposes provided that no part of the organization's net_earnings inures to the benefit of any private_shareholder_or_individual in order to qualify under sec_501 an organization must be both organized and operated exclusively for one or more purposes specified in that section ifthe organization fails to meet either the organizational_test or operational_test it is not exempt regs c -1 a the organizational_test relates to the rules for governing an organization and the department of the treasury - internal_revenue_service form 886-a rev page -2- form 886-a department of the treasury - internal_revenue_service name of taxpayer explanation of items schedule no or exhibit year period ended 20xx 20xx 20xx purposes stated in its articles of organization the operational_test relates to the organization's activities sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for exempt purposes only if accomplish one or more exempt purposes an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose it engages primarily in activities which sec_1_501_c_3_-1 provides that an exempt_organization must serve a public rather than a private interest the organization must demonstrate that it is not organized or operated to benefit private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests thus if an organization is operated to benefit private interests rather than for public purposes or is operated so that there is prohibited inurement of earnings to the benefit of private shareholders or individuals it may not retain its exempt status in 326_us_279 the supreme court stated that the presence of even a single non-exempt purpose if more than insubstantial in nature will defeat exemption under sec_501 of the code regardless of the manner or importance of the truly exempt purposes revrul_56_304 1956_2_cb_306 provides that an organization is not precluded from sec_501 exemption when it makes grants to individuals provided the distributions are made on a true charitable basis and in furtherance of its exempt purposes such organizations should keep adequate_records and case histories to show in 71_tc_102 the court upheld the denial of exemption on an organization that made grants to individuals the organization asserted that its grants were made in furtherance of a charitable purpose to assist the poor the organization was unable to furnish any documented criteria which would demonstrate the selection process of a deserving recipient the reason for specific amounts given or the purpose of the grant the court held that this information was insufficient in determining whether the grants were made in furtherance of an exempt_purpose i members officers or trustees of the organization ii a granter or substantial_contributor to the organization or a member_of_the_family of either and iii a corporation controlled by a granter or substantial_contributor the name and address of the recipients the amount distributed to each the purpose for which the aid was given the manner in which the recipient was selected and the relationship if any between the recipient and department of the treasury - internal_revenue_service page -3- form 886-a rev form 886-a department of the treasury - internal_revenue_service name of taxpayer explanation of items schedule no or exhibit year period ended 20xx 20xx 20xx revrul_68_489 1968_2_cb_210 states that an organization will notjeopardize its exemption under code sec_501 even though it distributes funds to nonexempt organizations provided it retains control and discretion over use of the funds for sec_501 purposes government's position has failed to demonstrate that it is operating for charitable educational or other exempt purposes it has not implemented the controls as described within its application_for tax exempt status the form_1023 as stated within its bylaws as amended on september 19xx and as advised within our determination_letter dated december 19xx a review of the form_1023 application submitted by controlling officer knowledge and was aware of the recordkeeping requirements of organizations having grant making programs this knowledge is further indicated by an amendment to the bylaws effected on september 19xx and signed by that will be followed by the organization in considering reviewing and approving grants indicate within part il of the application that he had incorporating specific procedures and signed by founder and was not able to produce contemporaneous_records to substantiate solicitation of grant funds the intended use of the funds solicited and the approval process additionally the organization was not able to demonstrate an exempt_purpose use of funds drawn from its bank accounts or for debit and credit card purchases made by its controlling officer and his spouse similar to church in boston v commissioner where the court upheld the denial of exemption of an organization that made grants to individuals was unable to furnish documented criteria which would demonstrate the selection process of a deserving recipient the reason for specific amounts given or the purpose of the grant the court held that this information was insufficient in determining whether the grants were made in furtherance of an exempt_purpose failed to put into place recordkeeping requirements similar to the ones described in revenue rulings and with respect to grant distributions to individuals and nonexempt organizations as it stated it would do within its application_for tax exempt status as stated within its amended bylaws and as was specifically advised within our determination_letter granting tax exempt status conclusion is not operating as an organization described in sec_501 of the internal_revenue_code accordingly we propose to revoke the organization's exempt status effective as of january 20xx as an organization that is no longer tax exempt you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center beginning with the tax_year ending december 20xx and for all tax years thereafter in accordance with the instructions of the return form 886-a rev department of the treasury - internal_revenue_service page -4- grant payments amount to individual sec_12 20xx 20xx 20xx total to individuals sxx xxx xx xx xxx xx xx xxx xx dollar_figurexx xxx xx 20xx 20xx 20xx amount xxx xxx xx total to individuals organizations amount dollar_figurexxx xxx xx xxx xxx xx xxx xxx xx dollar_figurexxx xxx xx 20xx 20xx 20xx total disbursements schedule transactions by principal officerand spouse calendar years ending transactions debit card atm withdrawals cash teller withdrawals total dollar_figurexx xxx xx xx xxx xx xx xxx xx dollar_figurexxx xxx xx 20xx dollar_figurexx xxx xx x xxx xx 20xx dollar_figurexxx xxx xx xx xxx xx - 20xx dollar_figurexx xxx xx debit credit check purchases checks drawn to cash dollar_figurexx xxx xx dollar_figurexxx xxx xx dollar_figurexx xxx xx xx xxx xx xx xxx xx xx xxx xx xx xxx xx xx xxx xx xx xxx xx x xxx xx total dollar_figurexx xxx xx schedule


internal_revenue_service number release date index number -------------------------------------- ----------------------------------- ----------------------- ---------------------- ----------------------------- in re ---------------------------------------- ------------------- department of the treasury washington dc person to contact --------------------- id no ------------ telephone number -------------------- refer reply to cc fip - plr-121694-04 date date ----------------------- -------------------------- -------------------------------------- legend trustee trust annuity_contracts ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -- ----------------------------------------------- --------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------- ---------------------------- ----------------------- ------------------------ settlor beneficiary life insurer life insurer life insurer ----------------------------------------------------------------------------------------------------------------- life insurer ----------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------- -------------------------------------------- the information submitted indicates that on june ------- the settlor on november ------- trustee invested the entire dollar_figure----------- that the settlor plr-121694-04 dear ---------------- this is in reply to the letters dated date and date submitted on your behalf requesting a ruling concerning the taxability of the annuity_contracts held by trustee on behalf of beneficiary under sec_72 of the internal_revenue_code established trust for the sole benefit of his grandchild beneficiary the settlor made a single gift of dollar_figure----------- to trust upon its creation as represented below the settlor is not considered the owner of trust for purposes of sec_672 through of the code contributed to trust in a single premium annuity issued by life insurer in ------- trustee in a sec_1035 transaction exchanged the life insurer annuity for an annuity_contract issued by life insurer in ------- trustee in another sec_1035 transaction exchanged the life insurer annuity_contract for an annuity_contract issued by life insurer contract for separate deferred variable_annuity policies issued by life insurer in a nonrecognition exchange pursuant to sec_1035 the annuity_contracts name trust as the owner of the annuity_contracts and names beneficiary as the annuitant the annuity_contracts are the only assets that trust owns may request that trustee distribute percent of the principal of trust to beneficiary outright when beneficiary attains the ages of and beneficiary may request that trustee distribute percent and percent respectively of the principal of trust to beneficiary outright the terms of trust provide further that if beneficiary elects not to request any of the distributions of principal mentioned above from trust upon attaining a designated age or trustee is required to hold the portion of the principal over which beneficiary has a power_of_withdrawal in a separate trust for the sole benefit of beneficiary beneficiary may direct trustee to distribute any portion of the principal of such separate trust to beneficiary outright and such separate trust may continue beyond the date on which beneficiary attains age the terms of trust provide further that if beneficiary attains age beneficiary on february ------- trustee exchanged --- of the life insurer annuity any distributions from trust to beneficiary or to a separate trust for beneficiary will be in the form of distributions of an annuity_contract or annuity_contracts in_kind sec_72 of the code provides that if an annuity_contract is held by a_trust will not receive any consideration from beneficiary or any other individual the legislative_history to sec_72 of the code states that if an annuity_contract plr-121694-04 or entity in exchange for any distributions of the annuity_contracts person who is not a natural_person then such contract shall not be treated as an annuity_contract for purposes of subtitle a other than subchapter_l and the income_on_the_contract for any taxable_year of the policyholder shall be treated as ordinary_income received or accrued by the owner during such taxable_year sec_72 further provides that if an annuity_contract is held by a_trust or other entity as an agent for a natural_person then sec_72 shall not apply is held by a person who is not a natural_person such as a corporation then the contract is not treated as an annuity_contract for federal_income_tax purposes and the income_on_the_contract for any taxable_year is treated as ordinary_income received or accrued by the owner of the contract during the taxable_year however the legislative_history further provides that in the case of an annuity_contract the nominal owner of which is not a natural_person eg a corporation or a_trust but the beneficial_owner of which is a natural_person the contract is treated as held by a natural_person h_r conf_rep no 99th cong 2d sess vol ii vol c b although trustee is the contract owner of the annuity its ownership_interest is nominal beneficiary is the beneficial_owner of the annuity_contracts purposes of of the code described in this request to anyone other than beneficiary or other than to the separate trust described above for beneficiary’s sole benefit if beneficiary is living if beneficiary dies prior to attaining age the distribution will be made to beneficiary’s issue or if beneficiary dies without issue the distribution will be made to or for the benefit of persons related to beneficiary made we conclude as follows a beneficiary is a natural_person as that term is defined in sec_72 of the code accordingly based solely on the information submitted and the representations the following representations were made in connection with this ruling_request b settlor as the grantor of trust will not be considered the owner of trust for e under no circumstance will trust distribute any of the annuity_contracts d any annuity_contracts involved satisfy the terms of sec_72 c beneficiary is not employed by trust this ruling letter is directed only to the taxpayer who requested it section except as specifically set forth above no opinion is expressed as to the tax the annuity_contracts are considered owned by a natural_person for purposes of plr-121694-04 sec_72 of the code treatment of the annuity_contracts trust or separate trust under the provisions of any other section of the code nor the income_tax regulations specifically no opinion is expressed as to whether or not the annuity_contracts are in fact annuity_contracts under sec_72 of the code no opinion is expressed as to whether the annuity_contracts meet the requirements of sec_72 furthermore no opinion is expressed as to any_tax consequences under sec_72 if any distributions from trust are cash j of the code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the ruling it is relevant copy of this letter to your authorized representative donald j drees jr senior technician reviewer branch office of associate chief_counsel financial institutions products a copy of this letter should be attached to any federal_income_tax return to which in accordance with the power_of_attorney on file in this office we are sending a sincerely yours s


signiticant index no department of the treasury oo internal_revenue_service washington d c mar t’ ep ra ad re dear this letter is in response to your request with respect to the above-referenced defined benefit pension_plan pursuant to revproc_90_49 for the plan_year commencing january revproc_90_49 sets forth the procedure whereby under certain circumstances a disallowance of the deduction of employer contributions to a qualified defined_benefit_plan may be obtained thereby fulfilling a condition under which such contributions could revert to the employer which were made for the plan_year commencing january based on the information submitted we have determined that contributions totaling may be considered as disallowed solely for the purpose of applying revrul_91_4 therefore the return of contributions not exceeding dollar_figure qualified status of the plan providing this reversion occurs no later than one year from the date of this letter in granting this approval we are not expressing any opinions as to the accuracy or acceptability of any calculations or other material submitted with your request would not adversely affect the this ruling is directed only to the taxpayer that requested it sec_61 k of the code provides that it may not be used or cited by others as precedent when filing forms for the plan years commencing date a copy of this letter must be attached to the schedule b a copy of this letter should be furnished to the enrolled_actuary for the plan we have sent a copy to your authorized representative pursuant to a power_of_attorney on file in this office if you require further assistance concerning this matter please contact sincerely yours dy sm b_y david m ziegler manager employee_plans actuarial group


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division apr uniform issue list kk kkk kak kkk legend taxpayer a taxpayer b decedent d estate e county s state m iraa ira company r company c age a age b age d kak week ekk wee dak kee kkk kkk kkk kik kee kkk kkk kek kee kkk page -_ ee ee wie date date date will w dear this is in response to your request dated date in which you in your capacity as the personal representative of estate e request a ruling under sec_401 of the internal_revenue_code the code concerning the transfer and treatment of a beneficiary’ interest in an ira after the death of the ira owner the following facts and representations have been submitted under penalty of perjury in support of the rulings requested taxpayer a age a and taxpayer b age b hereinafter taxpayers are the children of decedent d who died on date at age d decedent d was survived by her two children the taxpayers decedent d died testate with her estate estate e being administered in accordance with will w in accordance with paragraph of will w taxpayer a was appointed as personal representative of estate e personal representative and was granted letters of administration on date by the probate_court of county s in state m decedent d’s non-ira estate has been distributed outright to her heirs taxpayers a and b in equal shares as of the date of her death decedent d was the owner of ira a which was held by company r decedent d designated her estate as sole beneficiary of ira a accordingly estate e is the beneficiary of ira a and as such ira a was transferred to ira held by company c in date in accordance with paragraph of will w are entitled to equal one-half shares of the proceeds ira taxpayer a and taxpayer b a as it is part of decedent d’s residual estate in her capacity as personal representative taxpayer a intends to divide ira into two equal one-half shares one for taxpayer a and one for taxpayer b respectively this will be accomplished by means of a series of trustee-to-trustee transfers into two distinct sub-iras each established as an inherited ira each such inherited ira will be maintained in the name of decedent d for the benefit of one of the taxpayers as a beneficiary of decedent d’s estate for instance it is proposed that one sub-ira will be maintained by company c in the name of decedent d for the benefit of taxpayer a as beneficiary of decedent d’s estate each sub-ira created as a result of the division of ira will receive a pro-rata share of all earnings and interest calculated up to the date of transfer which is expected to occur in - page tee furthermore it is intended that the two resulting inherited iras will make distributions intended to meet the minimum distribution_requirements of sec_401 of the code based on decedent d’s remaining life expectancy the distributions are to be made from each of the two transferee sub-iras and will begin during taxpayer a asserts that as of the date of her ruling_request the funds in ira remain undistributed except that the required minimum distributions that were made with respect to taxpayer further asserts that the required minimum distributions for ira were waived with respect to based on the facts and representations you request the following rulings that the sub-ira created for taxpayer a by means of a trustee-to-trustee transfer beneficiary ira which will be maintained in the name of decedent d for the benefit of taxpayer a beneficiary of decedent d’s estate will constitute an inherited ira as such term is defined in sec_408 of the code that the trustee-to-trustee transfer pursuant to revrul_78_406 of taxpayer a’s one-half interest in ira to a beneficiary ira in decedent d’s name for the benefit of taxpayer a as beneficiary of decedent d’s estate will not constitute a distribution within the meaning of sec_408 of the code nor will it be considered an attempted rollover from ira into the beneficiary ira set up to benefit for taxpayer a that taxpayer a’s one-half interest of ira can be segregated and held in a separate inherited beneficiary ira for purposes of determining the minimum required distributions under sec_401 of the code and that the minimum_required_distribution requirements under sec_401 of the code concerning the beneficiary ira set up for the benefit of taxpayer a may be met by distributing amounts annually from such ira calculated by using decedent d’s remaining life expectancy using the age of decedent d as of her birthday in the calendar_year of her death reduced by one for each subsequent calendar_year in accordance with sec_1_401_a_9_-5 of the final income_tax regulations question and answer with respect to your first ruling_request sec_408 of the code provides generally that in accordance with the rules of sec_72 of the code amounts paid or distributed from an ira are included in gross_income by the payee or distributee in addition sec_408 of the code provides that an ira will be considered an inherited ira if the ira is maintained by a person who acquired the ira by reason of the death of another individual and was not the surviving_spouse of such individual pursuant to the facts represented herein taxpayer a who was not decedent d’s spouse will acquire her beneficiary ira by virtue of the decedent d’s death page accordingly to the extent the beneficiary ira is considered an ira it will constitute an inherited ira within the meaning of such term under sec_408 of the code with respect to your second ruling_request sec_408 of the code provides that in general amounts from an inherited ira cannot be rolled over into another ira revrul_78_406 1978_2_cb_157 provides that the direct transfer of funds from one ira trustee to another irs trustee even if at the behest of the ira holder does not constitute a payment or distribution to a participant payee or distributee as those terms are used in sec_408 of the code and does not constitute a rollover_distribution revrul_78_406 is applicable if the trustee-to-trustee transfer is directed by the beneficiary of an ira after the death of the ira owner as long as the transferee ira is set up and maintained in the name of the deceased ira owner for the benefit of the beneficiary the beneficiary accomplishing such a post-death trustee-to-trustee transfer need not be the surviving_spouse of a deceased ira holder thus with respect to your second ruling_request the proposed trustee-to-trustee transfer to be used to establish the beneficiary ira set up to benefit taxpayer a will not pursuant to the above-referenced revrul_78_406 constitute a taxable_payment or distribution within the meaning of sec_408 of the code to taxpayer a and also will not be considered an attempted rollover from ira a into the beneficiary ira set up to benefit taxpayer a with respect to your third ruling_request two distinct beneficiary iras will be set up one to benefit taxpayer a and one to benefit taxpayer b each ira will hold assets transferred from ira maintained by the estate of decedent d as of her death while nothing in the code or income_tax regulations promulgated thereunder precludes the two beneficiary iras to be set up separately to benefit taxpayer a and taxpayer b respectively the regulations do preclude separate_account treatment for purposes of sec_401 of the code on date final income_tax regulations regulations were published in the federal_register with respect to sec_401 and sec_408 of the code see also 2002_19_irb_852 date sec_1_408-8 of the regulations question and answer a provides in part that iras are subject_to the required_minimum_distribution rules under sec_401 of the code and that in order to satisfy sec_401 of the code for purposes of determining required minimum distributions for calendar years beginning on or after date the rules of sec_1_401_a_9_-1 through a -9 of the regulations must be applied except as otherwise provided sec_1_401_a_9_-8 question and answer a of the regulations contains the separate account’ rules as applied to defined contribution plans a separate_account page wee is an account under which the beneficiary or beneficiaries differ from the beneficiary or beneficiaries of other accounts in general if separate_accounts are established for years subsequent to the calendar_year containing the date on which the separate_accounts were established or the date of death if later a separate_account under a plan ira is not aggregated with the other separate_accounts under the plan ira in order to determine whether the distributions from such separate_account satisfy the requirements of sec_401 of the code rather the rules in sec_401 of the code apply separately to each separate_account under the plan ira sec_1_401_a_9_-8 question and answer of the regulations provides that a separate_account is a separate portion of an employee’s ira holder's benefit reflecting the separate interest of the employee’s ira holder’s beneficiaries under the plan ira as of the date of the employee’s ira holder's death for which separate_accounting is maintained the separate_accounting must allocate all post-death investment gains and losses contributions and forfeitures for the period prior to the establishment of the separate_accounts on a pro-rata basis in a consistent and reasonable manner among the separate_accounts sec_1_401_a_9_-4 question and answer c of the regulations provides in relevant part that the separate_account rules are not available to beneficiaries of a_trust with respect to the trust’s interest in an employee’s benefit accordingly the beneficiary ira to be created by means of a trustee-to-trustee transfer of a portion of ira to an ira established in decedent d’s name and maintained by company c for the benefit of taxpayer a may be maintained separately from the ira to be established by means of a trustee-to-trustee transfer of a portion of ira to the ira established in the name of decedent d and maintained by company b for the benefit of taxpayer a this conclusion assumes that the beneficiary ira will be titled in the following format decedent d deceased for the benefit of taxpayer a as beneficiary of decedent d's estate with respect to your fourth ruling_request sec_408 of the code provides that under regulations prescribed by the secretary rules similar to the rules of sec_401 of the code shall apply to the distribution of the entire_interest of an individual for whose benefit an ira trust is maintained sec_401 of the code provides that a_trust shall not constitute a qualified_trust under the code unless the plan provides that the entire_interest of each employee ira holder will be distributed to such employee ira holder not later than the required_beginning_date or will be distributed beginning not later than the required_beginning_date in accordance with regulations over the life of such employee ira holder or over the lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee ira holder or the life expectancy of such employee ira holder and a designated_beneficiary sec_401i of the code provides in general that if an employee ira holder dies after distribution of his interest has begun in accordance with sec_401 after his required_beginning_date the remaining portion of his interest - page ee must be distributed at least as rapidly as under the method of distribution being used as of the date of his death sec_401 of the code provides in relevant part that for purposes of sec_401 the term required_beginning_date means april of the calendar_year following the calendar_year in which the employee ira holder attains age and sec_1_401_a_9_-4 of the regulations question and answer states that only individuals may be designated beneficiaries for purposes of sec_401 of the code a person that is not an individual such as the employee’s ira holder's estate may not be a designated_beneficiary sec_1_401_a_9_-4 of the regulations question and answer a provides that in order to be a designated_beneficiary that beneficiary must be a beneficiary as of the date of the employee’s ira holder's death the designated_beneficiary will generally be determined based on the beneficiaries designated as of the date of death who remain beneficiaries as of september of the calendar_year following the - calendar_year of death with further respect to your fourth ruling_request sec_1_401_a_9_-5 question and answer a of the regulations provides in part that if an employee ira holder dies on or after his required_beginning_date the applicable distribution period for distribution calendar years after the distribution calendar_year containing the employee’s ira holder's date of death is either - if the employee ira holder has a designated_beneficiary as of the date determined under sec_1_401_a_9_-4 question and answer the longer of i the remaining life expectancy of the employee’s ira holder's designated_beneficiary determined in accordance with paragraphs c or c of question and answer and ii the remaining life expectancy of the employee ira holder determined in accordance with paragraph c of question and answer or if the employee ira holder has no designated_beneficiary as of the date determined under sec_1_401_a_9_-4 question and answer the remaining life expectancy of the employee ira holder as determined under sec_1_401_a_9_-5 question and answer c sec_1_401_a_9_-5 question and answer c of the regulations provides in general that with respect to an employee ira holder that does not have a designated_beneficiary the applicable distribution period measured by the employee’s ira holder's remaining life expectancy is the life expectancy of the employee ira holder using the age of the employee ira holder as of the employee’s ira holder's birthday in the calendar_year of the employee’s ira holder's death the applicable distribution is reduced by one for each subsequent calendar_year that has elapsed after the calendar_year of the employee’s ira holder's death the relevant single life table for determining life expectancy is provided in sec_1_401_a_9_-9 question and answer of the regulations page wee sec_1_408-8 of the regulations question and answer a provides in part that iras are subject_to the required_minimum_distribution rules under sec_401 of the code as noted above decedent d died after her required_beginning_date for her required minimum distributions under sec_401 furthermore because she did not list a beneficiary for ira a decedent d’s estate was the beneficiary of ira a addition pursuant to paragraph of the will w taxpayers a and b are each entitled to one-half equal share’s of decedent d’s residual estate which included ira a the proceeds of which were later transferred to ira accordingly there is no designated_beneficiary with respect to ira i in as further noted above sec_1_408-8 of the regulations question and answer accordingly the minimum distribution a provides in part that iras are subject_to the required_minimum_distribution rules under sec_401 of the code requirements under sec_401 of the code may be met with respect to taxpayer a’s beneficiary ira by distributing amounts annually to taxpayer a from the beneficiary ira computed using decedent d’s remaining life expectancy using the age of decedent age d as of decedent d’s birthday in the calendar of decedent d's death and using single life table as provided in sec_1_401_a_9_-9 of the regulations question and answer beginning with calendar_year and continuing each calendar_year thereafter no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable hereto this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others 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 page ie if you wish to inquire about this ruling please contac krekkkekkekrereerer at _ _ please address all correspondence to se t ep ra t2 littlejohn manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc ee kkk


internal_revenue_service number release date index number ------------------------------------------------ ----------------------------------------------- ---------------------- ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no -------------- telephone number ---------------------- refer reply to cc psi b01 plr-144464-13 date date legend x --------------------------------------------------- ----------------------------------------------- y --------------------------------------------------- ----------------------------- date date date date state ------------------ ---------------------- ------------------ ------------------- --------------- dear ------------- this responds to a letter dated date submitted on behalf of x by x’s authorized representative requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated under the laws of state on date and elected to be an s_corporation effective date x’s election was terminated effective date when y an ineligible shareholder became an owner of x plr-144464-13 stock x represents that it has taken corrective action on date by having y distribute x’s shares to eligible shareholders x represents that the circumstances resulting in the termination of x’s s_corporation_election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make the adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1362 states that a in general an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation and b any termination under sec_1362 shall be effective on and after the date of cessation sec_1362 provides in relevant part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation for which the election was made or the termination occurred is a small_business_corporation or b to acquire the required shareholder consents and the corporation for which the election was made or the termination occurred and each person who was a shareholder in such corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of such corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such plr-144464-13 corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and representations made we conclude that x’s s_corporation_election was terminated on date because y was an ineligible shareholder of x we further conclude that the termination of x’s s_corporation_election constituted an inadvertent termination within the meaning of sec_1362 under the provisions of sec_1362 x will be treated as an s_corporation from date and thereafter provided that x’s s_corporation_election was otherwise valid and has not otherwise terminated under sec_1362 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion regarding whether x is otherwise eligible to be treated as an s_corporation further we express or imply no opinion regarding the federal tax treatment of y’s distribution of x’s shares this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely david r haglund david r haglund branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc


t c memo united_states tax_court estate of william h kaiser deceased william r kaiser and robert b kaiser co-executors successor_in_interest to kaiser family_corporation and margaret g kaiser qualified terminable_interest trust william r kaiser and robert b kaiser co- trustees successor_in_interest to estate of william h kaiser petitioner v commissioner of internal revenue respondent estate of william h kaiser deceased margaret g kaiser william r kaiser and robert b kaiser co-executors and margaret g kaiser qualified terminable_interest trust margaret g kaiser william r kaiser and robert b kaiser co-trustees petitioner v commissioner of internal revenue respondent docket nos filed date john kevin mahoney for petitioners raymond m boulanger for respondent memorandum findings_of_fact and opinion foley judge by notices dated date respondent determined deficiencies in petitioners' federal income taxes as follows kaiser family_corporation formerly kaiser agency inc docket no year deficiency dollar_figure big_number big_number william h deceased and margaret g kaiser docket no year deficiency -- -- dollar_figure unless otherwise indicated all section references are to the internal_revenue_code as in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions the sole issue for decision is whether kaiser agency inc 's subchapter_s_election terminated as a result of excess passive_investment_income findings_of_fact some of the facts have been stipulated and are so found at the time the petitions were filed petitioners had mailing addresses in rochester new york kaiser agency inc kaiser was an independent insurance agency and was incorporated under new york law in william h kaiser was kaiser's sole shareholder until he died on date from that date until the corporation was dissolved on or about date mr kaiser's estate was kaiser's sole shareholder kaiser marketed insurance policies underwritten by several large insurance underwriters and performed three primary services first it issued new policies to insurance purchasers in issuing new policies a kaiser representative would meet with the prospective insured to discuss his or her insurance needs based on those needs and the prices offered on suitable policies kaiser would recommend a policy upon issuing the policy kaiser would collect the initial premium from the insured and issue the policy from its office policies were printed on forms provided by the underwriters and were subject_to the underwriters' specifications the issuance of a policy by kaiser generally bound the underwriter to the terms of the policy second kaiser made changes to existing policies when required for example if an insured sold his car and bought another the agent would review the policy on the car and make the necessary changes third kaiser renewed policies for insureds the policies kaiser marketed generally expired and had to be renewed periodically between and days prior to a policy's renewal date the relevant underwriter would transmit the renewal policy to kaiser at that time kaiser would review the policy to determine if it was the best policy for the particular insured if kaiser determined that a change in coverage was warranted it would contact the insured and recommend the change the insured could either accept the recommended policy change or renew the existing policy kaiser had a separate contract with each underwriter it represented each contract delineated the terms of the agency relationship the contracts provided that kaiser would earn a commission on each policy it issued the commission generally was a percentage of the premium due under the policy and the percentage varied depending on the type of insurance issued the agency contracts also provided that the expirations ie renewal lists and all other information regarding insureds held by kaiser generally remained kaiser's property even after termination of the agency relationship and that the underwriters were not permitted to solicit business directly from or discuss policies with prospective or existing insureds the insureds paid premiums either to kaiser ie indirect premium payments or directly to the underwriter ie direct premium payments in the case of indirect premium payments kaiser generally received a check from the insured payable to kaiser kaiser would deposit the check retain its commission and hold the balance for the underwriters in a separate premium account kaiser's contracts with each underwriter required kaiser to hold such funds in a fiduciary capacity and prohibited kaiser from commingling them with kaiser's own funds kaiser would later send these funds to the underwriter in the case of direct premium payments the underwriter would send kaiser its commission and retain the balance kaiser elected subchapter_s status on date and filed forms 1120s u s income_tax return for an s_corporation in and kaiser reported its income on the accrual_method of accounting in calculating its gross_income kaiser included in its gross_receipts the premiums_paid on all policies issued by it during the year and deducted as a cost_of_goods_sold the portion of the premiums forwarded to the underwriters in the case of indirect premium payments or retained by the underwriters in the case of direct premium payments respondent issued a notice_of_deficiency dated date to kaiser family_corporation the successor_in_interest to kaiser for years and in the notice respondent determined that kaiser was not an s_corporation during the years in issue as a result respondent determined that kaiser owed corporate income taxes as a subchapter_c_corporation respondent issued a second notice_of_deficiency also dated date to william and margaret kaiser relating to their and joint federal_income_tax returns respondent determined that certain deductions and items of income reported on the individual returns should have been reported on kaiser's corporate_income_tax returns the petitions in these cases were filed on date opinion generally a small_business_corporation may elect to be treated as an s_corporation sec_1361 sec_1362 sec_1362 provides that an election to be treated as an s_corporation terminates if the corporation has subchapter_c_earnings_and_profits at the close of each of consecutive taxable years and gross_receipts for each of such taxable years more than percent of which are passive_investment_income sec_1362 sec_1375 the parties have stipulated that kaiser had subchapter_c_earnings_and_profits at the close of each of relevant consecutive years the only issue is whether kaiser had passive_investment_income in excess of percent of its gross_receipts petitioners contend that kaiser should be allowed to include all premiums ie kaiser's commission plus amounts forwarded to or retained by the underwriters paid on policies it issued and as a result kaiser's passive_investment_income did not exceed percent of its gross_receipts respondent contends that kaiser should be permitted to include only its commissions on such policies and as a result kaiser's passive_investment_income exceeded percent of its gross_receipts petitioners bear the burden_of_proof rule a the code does not define gross_receipts for purposes of sec_1362 and sec_1375 the temporary regulations under sec_1362 in effect for the years in issue also did not define the term see generally sec and -2 temporary income_tax regs fed reg date and later amendments petitioners contend that because kaiser determined which underwriter would ultimately receive the premiums and because kaiser owned the expirations associated with the policies it issued kaiser should be permitted to accrue in its gross_receipts the premiums_paid on all policies it issued petitioners emphasize that kaiser was an accrual_method taxpayer and that in petitioners' view all events necessary to trigger accrual had occurred petitioners do not advance nor do we find any plausible theory that would allow kaiser to include direct premium payments in its gross_receipts even assuming that accrual rules were applicable to kaiser in determining gross_receipts those rules do not support petitioners' position an accrual_method taxpayer includes income in the year in which the amount can be determined with reasonable accuracy and all events have occurred which establish the right to receive the item_of_income see sec_1_451-1 income_tax regs the direct premium payments however were made directly to the underwriters and kaiser had no present or future claim to the funds thus there was no set of events that would ever establish kaiser's right to receive the payments as a result the amounts were not includable in kaiser's gross_receipts we do not reach the issue of whether the indirect premium payments were includable in kaiser's gross_receipts because petitioners have not established the respective amounts of direct and indirect premium payments as a result even if kaiser were permitted to include indirect premium payments in its gross_receipts petitioners have not established the amount if any of such payments we note however that approximately percent of the premiums were directly billed by the insurance underwriters the parties have brought to our attention revrul_69_192 1969_1_cb_206 that ruling allowed an insurance agent similar to kaiser to include in its gross_receipts the indirect premium payments on policies it issued in the present case petitioners have not established the amount if any of indirect premium payments consequently the revenue_ruling does not support petitioners' contentions accordingly we conclude that kaiser's s_corporation_election terminated by reason of excess passive_investment_income and we sustain respondent's determination we have considered all other arguments made by the parties and found them to be either irrelevant or without merit to reflect the foregoing decisions will be entered under rule