internal_revenue_service department of the treasury number release date index number 368-dollar_figure washington dc person to contact telephone number refer reply to cc corp 6-plr-116619-00 date date legend distributing controlled company name company name controlled affiliate corp unrelated corp unrelated corp transaction affiliate corp agreement shareholder a shareholder b shareholder c shareholder d plr-116619-00 shareholder e shareholder f shareholder g shareholder h shareholder i business a product a business b the first business b shareholders agreement the second business b shareholders agreement state a decade date date date date date plr-116619-00 date date date date date date date date date date dollar_figurea dollar_figureb dollar_figurec a b c d e f g h i plr-116619-00 j a b c d e f g h i this is in response to your authorized representative’s letter dated date requesting rulings under sec_351 and sec_355 of the internal_revenue_code the code with respect to a proposed series of transactions additional information was received in subsequent letters and facsimiles the material information submitted is summarized below certain of the proposed or contemplated actions in the letter_ruling request have since occurred or been consummated however to avoid confusion the tense of any such statements and representations have not been changed herein the rulings contained in this letter are predicated upon the facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the factual information representations and other data may be required as part of the audit process distributing in general distributing was incorporated in state a on date distributing files its federal_income_tax return on a calendar_year basis using the accrual_method of accounting distributing made a subchapter_s_election effective date plr-116619-00 distributing has one class of stock with a total of a shares outstanding the stock is voting common_stock having no dividend or liquidation preferences or limitations there are no other_securities or other outstanding interests in the nature of bonds debentures notes warrants options puts etc that could be considered a stock interest in distributing the stock of distributing is owned as follows shareholder number of shares percent a b c d e f g h i totals b c c c c d e c c a a b b b b c d b b shareholders a and b are husband and wife shareholders c d and e are the daughters of shareholders a and b shareholders f and g were formerly husband and wife but are now divorced shareholders h and i are the son and daughter respectively of shareholders f and g distributing is engaged in the operation of two distinct businesses which are business a and business b distributing has been engaged in both business a and business b for more than fifteen years business a has employed more than full-time employees at all times during each of the past five years business b has employed more than full-time employees at all times during each of the past five years financial information has been received indicating that business a and business b have each had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the last five years affiliate of distributing sold in the late decade affiliate corp was organized as an affiliate of distributing to handle certain business activity all of the shareholders of distributing were plr-116619-00 shareholders of affiliate corp there were also several shareholders of affiliate corp who are not and never have been shareholders of distributing affiliate corp has been a major customer of business a and has historically accounted for a large percentage of distributing’s sales of product a effective date affiliate corp was acquired by unrelated corp as a wholly owned subsidiary by merging a wholly owned subsidiary of unrelated corp into affiliate corp in a tax free reorganization under code sec_368 by means of code sec_368 pursuant to which the shareholders of affiliate corp exchanged all of their affiliate corp stock for stock of unrelated corp the unrelated corp transaction on date in conjunction with the unrelated corp transaction distributing and its shareholders entered into an agreement with affiliate corp the affiliate corp agreement the affiliate corp agreement is an exclusive purchase agreement by and between distributing and affiliate corp which provides that affiliate corp shall purchase exclusively from distributing all of affiliate corp 1’s requirements for custom product a and other products used in connection with affiliate corp 1’s business the affiliate corp agreement further provides that affiliate corp shall contract exclusively with distributing for its requirements for third party development of prototype molds and tooling for the design of product a and for third party technical development and engineering services in connection with product a collectively referred to as services in consideration of affiliate corp 1’s agreements distributing agrees to the limitations and restrictions to sell lease license or otherwise provide to any third party other than affiliate corp or an affiliate of affiliate corp product a services contract packaging or manufacturing services or intellectual_property the affiliate corp agreement also provides for the assignment by affiliate corp of its machine sales division to distributing and the transfer of the web page content relating to affiliate corp 1’s machine sales division the affiliate corp agreement was executed as of the effective date of the unrelated corp transaction in conjunction with the unrelated corp transaction distributing and shareholder a as the affiliate corp stockholders representative entered into an indemnification agreement dated date whereby distributing indemnifies and holds harmless the affiliate corp stockholders from any and all liability with respect to the agreement and plan of merger for the unrelated corp transaction dated date under which affiliate corp makes certain representations and warranties to unrelated corp including some representations and warranties concerning distributing controlled in general controlled was incorporated in state a on date to effectuate the proposed transaction controlled was established under the name company name but changed its name to company name controlled on date controlled was initially capitalized on date when distributing transferred dollar_figure to plr-116619-00 controlled in exchange for all of the stock of controlled controlled has one class of stock which is voting common_stock having no dividend or liquidation preferences or limitations all of which is currently owned by distributing there will be no other_securities or other outstanding interests in the nature of bonds debentures notes warrants options puts etc that could be considered a stock interest in controlled on date distributing elected to have controlled treated as a qualified_subchapter_s_subsidiary qsub effective as of the date of incorporation of controlled pursuant to revproc_98_55 1998_2_cb_643 distributing subsequently filed a form_8869 qualified_subchapter_s_subsidiary election to change the effective date of the qsub election for controlled to date buy-sell agreements there are two shareholder buy-sell agreements the first dated date and subsequently amended is by and between distributing and all of its shareholders a through i listed above the original shareholders agreement the second dated date is by and between distributing and shareholder g the second shareholders agreement a third shareholder agreement dated date by and between distributing and all of the shareholders a through i listed above the split off agreement was executed in anticipation of the transactions for which this letter_ruling was requested in respect to the original shareholders agreement and the second shareholders agreement the split-off agreement provides that as of the closing of the transactions contemplated therein and for which this letter_ruling was requested the closing date a the original shareholders agreement and the second shareholders agreement will be terminated by the appropriate parties as provided in the respective agreements b all parties agree to waive all obligations of each other under the respective agreements and c all parties agree to permit the transactions contemplated therein and for which this letter_ruling was requested for the limited purposes of agreeing to the provisions of section of the affiliate corp agreement all the shareholders of distributing also entered into the affiliate corp agreement pursuant to section distributing and each of its shareholders agree that distributing will not sell any of distributing’s assets and distributing’s shareholders agree that they will not dispose_of any of their distributing capital stock except a by redemption b gifts or transfers to family members or c subject_to a right_of_first_refusal by affiliate corp both affiliated corp and unrelated corp have consented to the transactions for which this letter_ruling was requested reason for split-off serious disputes have arisen between the two major shareholders of distributing specifically shareholders a and f which are having an adverse effect on the day-to-day plr-116619-00 operations of distributing historically shareholder a has served as chairman of distributing and shareholder f has served as president corporate governance management and operational issues simply cannot be resolved effectively as long as shareholders a and f are significant shareholders of distributing the following transaction has been proposed i distributing will transfer to controlled all of the assets of business b subject_to the assumption by controlled of certain liabilities associated with business b as a contribution_to_capital distributing may transfer or hold back certain cash or receivables in order to assure that the fair_market_value of the controlled stock received by the shareholders to whom such stock is distributed will be approximately equal to the fair_market_value of the stock of distributing surrendered by such shareholders in the exchange of distributing stock for controlled stock ii distributing will distribute all of the stock of controlled held by distributing immediately before the distribution to the group of shareholders consisting of shareholders f g h and i collectively the business b shareholders in exchange for all of the shares of distributing held by the business b shareholders no other_securities will be distributed it is contemplated that the entire distribution will be effective as of midnight on date which date is within one year from the date controlled was formed the following representations have been made in connection with the proposed transaction a b c neither distributing nor controlled has any foreign shareholders except for the formation and initial capitalization of controlled distributing will not modify its ownership of controlled stock within the 5-year period preceding the distribution the distribution of the stock of controlled is carried out for the following corporate business_purpose to eliminate the problems generated by the shareholder disputes and to enhance the success of business a and business b by allowing shareholders a b c d and e to focus on business a without having to deal with business b and shareholders f g h and i and conversely allowing shareholders f g h and i to focus on business b without having to deal with business a and shareholders a b c d and e the distribution of the stock of controlled is motivated in whole or substantial part by this corporate business_purpose d no shares of stock_or_securities of controlled will be retained and held by plr-116619-00 e f g distributing after the distribution nor does or will distributing hold any options to acquire stock in controlled controlled will not be indebted to distributing after the distribution of controlled stock the distribution of controlled stock will not be pro_rata with respect to the shareholders of distributing only the business b shareholders will receive controlled stock the business b shareholders will receive controlled stock in proportion to their stockholdings in distributing immediately prior to the distribution the number of shares and the percentage interest of the single class of common voting_stock outstanding in distributing and controlled that will be owned by each shareholder immediately after the distribution is as follows distributing shareholder number of shares percent a b c d e totals b c c c c f e f f f f controlled shareholder number of shares percent f g h i g h i i g h i i totals j h no shareholders of distributing will receive any securities of controlled other than the common_stock listed above plr-116619-00 i j k l m n o p the fair_market_value of the controlled_corporation stock and other consideration to be received by each shareholder of the distributing_corporation will be approximately equal to the fair_market_value of the distributing_corporation stock surrendered by the shareholder in the exchange no part of the consideration to be distributed by the distributing_corporation will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation distributing no shareholder or security holder of distributing will transfer or surrender any property in the transaction other than stock of distributing business a has been continuously conducted within the meaning of sec_1_355-3 by distributing for the 5-year period ending on the date of the proposed distribution business a has been conducted by distributing since the late decade the affiliate corp agreement which provides that affiliate corp shall purchase product a exclusively from distributing and also provides certain limitations and restrictions regarding distributing’s ability to contract with and sell to third parties particularly competitors of affiliate corp will not materially change the business operations of distributing since the affiliate corp agreement essentially provides for the continuation of the relationship of the two companies when they were affiliates affiliate corp continues to be a major customer of distributing and it is not anticipated that the unrelated corp transaction will adversely affect the operations of business a the preceding 5-year period does not include any time during which there was no business activity or a significant amount of time during which there was a substantial reduction in business activity none of the real_property intellectual_property and other intangible_property which has historically been occupied or used by business a will be separated from business a such property will be retained by distributing the five years of financial information submitted on behalf of the distributing_corporation is representative of the corporation’s present operation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted plr-116619-00 q r s t u v w business b has been continuously conducted within the meaning of sec_1_355-3 by distributing for the 5-year period ending on the date of the proposed distribution there have been no substantial changes in the business activities of business b during the preceding 5-year period the unrelated corp transaction did not have any direct affect on the operations of business b the preceding 5-year period does not include any time during which there was no business activity or a significant amount of time during which there was a substantial reduction in business activity none of the real_property intellectual_property and other intangible_property which has historically been occupied or used by business b will be separated from business b such property will be transferred to and retained by controlled each of distributing and controlled will be directly engaged in an active business and neither will be so engaged indirectly through ownership of stock and securities in one or more other corporations immediately after the distribution no active business that is or will be directly conducted by distributing or controlled or any other corporation has been acquired by that corporation during the 5-year period ending on the date of the proposed distribution except for the transfer of the assets of business b from distributing to controlled as a contribution_to_capital neither distributing nor controlled has owned the stock of any other corporation continuously for the 5-year period ending on the date of the proposed distribution no stock of any corporation other than controlled was acquired by distributing controlled or any other corporation during the 5-year period ending on the date of the proposed distribution on date shareholder f transferred e shares of distributing stock to shareholder g pursuant to the terms of their divorce and marital property settlement agreement on the same date distributing redeemed c shares of distributing stock from shareholder g which shareholder g had previously owned in her own name the redemption price was dollar_figurea per share based upon the company’s book_value per share for the fiscal_year ending date as provided in the original shareholders agreements x following the transaction the distributing and controlled corporations will each continue the active_conduct of its business independently and with its separate employees in separate facilities plr-116619-00 y z for an interim period after the distribution and until distributing is able to provide for all administrative shipping and receiving functions with its own employees those functions will be performed for distributing by employees of controlled at facilities maintained by controlled and distributing will reimburse controlled for these services reimbursements will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length it is not contemplated that distributing or any of its employees will be providing services for controlled if any such services are provided by distributing or any of its employees for controlled controlled will reimburse distributing for such services and such reimbursements will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length aa there are no planned or intended substantial reductions in business activity for any active business bb the purpose for the distribution does not include the facilitation of personal planning of any shareholder cc the distributing_corporation is an s_corporation within the meaning of code sec_1361 having made its s election effective date prior to that date the distributing_corporation was a c_corporation with accumulated_earnings_and_profits the controlled_corporation is a qsub the controlled_corporation will elect to be an s_corporation pursuant to code sec_1362 and treas reg section c and there is no plan or intent to revoke or otherwise terminate the s_corporation_election of either the distributing or controlled_corporation dd no reduction in federal taxes of distributing controlled or any other corporation is expected to result from the transaction ee the business a shareholders intend to continue to operate distributing as a subchapter_s_corporation the business b shareholders intend to have controlled elect to be a subchapter_s_corporation effective as of the date of the distribution and each of the business b shareholders has agreed to consent to such an election ff there is no plan or intention by the shareholders of the distributing_corporation to sell exchange transfer by gift or otherwise dispose_of any of their stock in or securities of either the distributing or controlled_corporation after the transaction gg there is no plan or intention by either the distributing_corporation or the plr-116619-00 controlled_corporation directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 hh there is no plan or intent to dispose_of the stock_or_securities of either distributing or controlled other than the distribution of the stock of controlled by distributing to the business b shareholders and the exchange of their stock of distributing by the business b shareholders for the stock of controlled as described in the letter_ruling request ii jj kk ll distributing does not have any inactive assets distributing has investment_assets the investment_assets are marketable securities-primarily high grade corporate bonds as of date distributing had dollar_figureb of marketable_securities which amount equaled approximately 10-percent of distributing’s total assets as of date distributing had dollar_figurec of marketable_securities which amount equaled approximately 18-percent of distributing’s total assets as of the closing date final adjustments will be made pursuant to which distributing will transfer to controlled or hold back certain cash marketable_securities or receivables so that after final adjustment each company will have adequate working_capital as of the closing date the final adjustment will be an allocation of any remaining marketable_securities in such amounts as are required to assure that the fair_market_value of the controlled stock to be received by the business b shareholders will be approximately equal to the fair_market_value of the distributing stock to be surrendered by the business b shareholders in the exchange of distributing stock for controlled stock these assets will be allocated between distributing and controlled after the allocation of the business a and business b assets in a manner to assure that the fair_market_value of the controlled stock received by the shareholders to whom such stock is distributed will be approximately equal to the fair_market_value of the stock of distributing surrendered by such shareholders in the exchange of distributing stock for controlled stock mm there is no plan or intention to liquidate either the distributing or controlled_corporation to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business nn after the distribution the business a shareholders will own of the plr-116619-00 stock of distributing and the business b shareholders will own of the stock of controlled oo none of the outstanding_stock of distributing or controlled was acquired by purchase during the 5-year period ending on the date of the proposed distribution the only stock acquired during that period was the e shares of distributing owned by shareholder g that was transferred to her from shareholder f pursuant to the terms of their divorce and marital property settlement agreement on date shareholder g’s basis in those shares is the same as shareholder f’s adjusted_basis immediately prior to the transfer pp the total adjusted bases and the fair_market_value of the assets transferred to the controlled_corporation by the distributing_corporation each equals or exceeds the sum of the liabilities assumed by the controlled_corporation plus any liabilities to which the transferred assets are subject qq rr ss tt the liabilities assumed in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred no investment_credit determined under code sec_46 has been or will be claimed with respect to any property being transferred between distributing and controlled it is anticipated that receivables from business b customers and partially completed contracts for business b customers will be transferred from distributing to controlled however the matching of income and deductions will not be distorted pursuant to these transfers as distributing shall have recognized income earned and deductions incurred prior to any such transfer under the accrual_method of accounting and or the percentage-of-completion method for long-term_contracts income on partially completed contracts will be recognized by controlled only for that portion of the performance period for each such contract following any such transfer the transaction will not involve or result in a situation in which one party recognizes income but another party recognizes the deductions associated with such income or one party owns property but another party recognizes the income associated with such property no income items or any items resulting from a sale exchange or disposition that would have resulted in income to distributing or any items of expense will be transferred to controlled plr-116619-00 uu the distributing_corporation neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction vv no indebtedness has been or will be canceled in connection with the transaction ww no intercorporate debt will exist between the distributing_corporation and the controlled_corporation at the time of or subsequent to the distribution of the controlled_corporation stock xx none of the transactions contemplated involve the distribution of stock from one member_of_an_affiliated_group as defined in code sec_1504 to another member of such group yy payments made in connection with all continuing transactions if any between the distributing and controlled corporations will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length zz no two parties to the transaction are investment companies as defined in code sec_368 and iv aaa no money or other_property will be received by distributing in connection with the transaction bbb neither distributing controlled nor any other corporation is a foreign_corporation ccc there have not been and will not be any other related transactions other than those described herein ddd the distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing or more of the total value of all classes of stock of either distributing or controlled eee controlled is a party to the split-off agreement immediately prior to the distribution controlled will have no other shareholder agreements fff the business b shareholders intend to execute two shareholders agreements the first business b shareholders agreement and the second business b shareholders agreement plr-116619-00 ggg the first business b shareholders agreement will provide that in the event any of shareholders f h and i desires to transfer any shares of stock of controlled other than permitted transfers to grantor trusts or family members the remaining shareholders other than shareholder g or controlled shall purchase such shares the purchase_price being the book_value of the shares being sold determined as of the end of the immediately preceding fiscal_year of the company hhh the second business b shareholders agreement will provide that in respect to shareholder g’s shares of controlled stock that she will receive in exchange for the shares of distributing transferred to shareholder g from shareholder f pursuant to the terms of their divorce and marital property settlement agreement a in the event shareholder g desires to transfer any such shares other than permitted transfers to grantor trusts or family members controlled shall purchase the shares at a price equal to their book_value and b in the event that shareholder f sells any of his shares to controlled shareholder g shall be required to sell and controlled shall be required to purchase a percentage of her shares equal to the percentage of shareholder f’s shares purchased by controlled at the same price and on the same terms and conditions iii the business a shareholders intend to execute a new shareholders agreement the new business a shareholders agreement immediately after the distribution the new business a shareholders agreement will provide that in the event any shareholder desires to transfer any shares of stock of distributing other than permitted transfers to grantor trusts or family members distributing or the remaining shareholders of distributing shall have the right_of_first_refusal to purchase such shares in the case of a proposed transfer to a third party in an arm’s length transaction the purchase_price shall be equal to the price negotiated with the prospective purchaser in the case of any other voluntary or involuntary transfer the purchase_price shall be the book_value of the shares being sold determined as of the end of the immediately preceding fiscal_year of the company based solely on the information submitted and on the representations made it is held as follows the transfer by distributing to controlled of the assets described above solely in exchange for all of the stock of controlled and the assumption of certain liabilities as described above followed by the distribution of the controlled stock to f g h and i in exchange for all of their distributing stock will be a reorganization within the meaning of sec_368 of the internal_revenue_code_of_1986 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 plr-116619-00 no gain_or_loss will be recognized to distributing upon the transfer of assets subject_to liabilities to controlled in exchange for controlled stock as described above sec_361 and sec_357 no gain_or_loss will be recognized to controlled on the receipt of the assets in exchange for controlled stock as described above sec_1032 the basis of the assets received by controlled will be the same as the basis of such assets in the hands of distributing immediately prior to the transaction described above sec_362 the holding_period of the distributing assets received by controlled will include the period during which such assets were held by distributing sec_1223 no gain_or_loss will be recognized to distributing upon the distribution of its controlled stock to the exchanging shareholders pursuant to the plan_of_reorganization as described above sec_361 no gain_or_loss will be recognized to and no amount will be included in the income of f g h and i upon the receipt of the controlled stock in exchange for all of their distributing stock as described above sec_355 the basis of the controlled stock in the hands of f g h and i will in each instance be the same as the basis of the distributing stock surrendered in exchange therefor sec_358 the holding_period of the controlled stock received by f g h and i will in each instance include the holding_period of the distributing stock surrendered in exchange therefor provided that such stock is held as a capital_asset on the date of the exchange sec_1223 as provided in sec_312 of the code proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 of the income_tax regulations distributing’s accumulated_adjustments_account immediately before the transaction will be allocated between distributing and controlled in a manner similar to the manner in which distributing’s earnings_and_profits will be allocated under sec_312 sec_1_1368-2 controlled will be subject_to sec_1374 with respect to any asset transferred by distributing to controlled to the same extent distributing was subject_to sec_1374 with respect to any such asset for purposes of sec_1374 controlled's recognition_period will be reduced by the portion of distributing's recognition_period that elapses prior to distributing's transfer of any such asset to controlled ann plr-116619-00 i r b the distribution of controlled to the business b shareholders will terminate the qsub election with respect to controlled sec_1361 sec_1 a iii controlled may without requesting the commissioner’s consent make an s election with respect to it before the expiration of the five-year period described in sec_1361 and sec_1_1361-5 provided that i immediately following the termination controlled or its successor is otherwise eligible to make an s election and ii the election is made effective immediately following the termination of the qsub election sec_1_1361-5 sec_1 c example providing that the election may be made as of the date of the stock_distribution without requesting the commissioner’s consent any momentary ownership by distributing of the stock of controlled on the day of termination of the qsub election in connection with a corporate separation to which code sec_368 applies will not in and of itself prohibit controlled from being eligible under code sec_1361 to make an s election under code sec_1362 provided it satisfies the other requirements for making an election cf sec_1_1361-5 example distributing will not be required to consent to controlled’s s election because of any momentary ownership of controlled by distributing resulting from the termination of controlled’s qsub election cf sec_1_1361-5 example revrul_72_320 1972_1_cb_270 any momentary ownership by distributing of the stock of controlled on the day of termination of the qsub election will not in and of itself terminate the s election of controlled under code sec_1362 cf sec_1_1361-5 example no opinion is expressed as to the tax treatment of the transactions under other provisions of the code or regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above rulings no opinion is expressed as to whether distributing’s s_corporation_election is valid or whether controlled’s qsub election is valid no opinion is expressed as to whether controlled is otherwise eligible to elect to be an s_corporation and whether the election will be valid under sec_1362 furthermore no opinion is expressed with respect to the assignment of the machine sales division pursuant to the affiliate corp agreement in accordance with a power_of_attorney on file in this office copies of this letter are being sent to your authorized representatives this ruling is directed only to the taxpayer s requesting it sec_6110 of plr-116619-00 the code provides that it may not be used or cited as precedent sincerely assistant chief_counsel corporate by branch chief cc corp b6


internal_revenue_service number release date index number ------------------------ ----------------------------------- ----------------------------- in re -------------------- ------------------ --------------------------------------------- ----------------------------- department of the treasury washington dc person to contact ----------------------- telephone number --------------------- refer reply to cc tege eb qp2 - plr-159257-03 date date legend taxpayers company ---------------------------------------------------- -------------------------------------------------------- -------------------------------------------- esop --------------------------------------------------------------- ------------------------------------------------------------------------------------------- --------------------------------------- x shares state y investment firm investment_advisor tax accountant ------------------------------------------ ---------- ------------------- --------------- -------------------------------------- dear ----------------- this responds to your letter on behalf of the above-named taxpayers requesting a ruling under the facts described below that the taxpayers will be treated as having substantially complied with the requirements of sec_1_1042-1t of the temporary income_tax regulations concerning notarized statements of purchase in connection plr-159257-03 with the sale of stock of the company to the employee_stock_ownership_plan esop maintained by the company taxpayer a owned x shares of company common_stock the stock was acquired by taxpayer a by inheritance taxpayer a had not received the stock in a distribution from a plan described in sec_401 or in a transfer pursuant to an option or other right to acquire stock to which sec_83 sec_422 sec_422a sec_423 or sec_424 of the internal_revenue_code_of_1986 code applied the company is a domestic c_corporation that has never had any stock outstanding on an established_securities_market we will assume for purposes of this ruling_request that common_stock of the company constitutes qualified_securities within the meaning of sec_1042 of the code and that the esop is qualified under sec_401 and meets the requirements of sec_4975 on september ------- taxpayer sold x shares of common_stock of the during may and june of ------ taxpayers were on an extended motor-home trip company to the esop as a result of the sale taxpayer realized a gain after this transaction and related contemporaneous transactions involving other shareholders of the company the esop held more than percent of the total value of all outstanding_stock of the company other than stock described in sec_1504 to the u s east coast and mid-west regions and were not planning to return to their home in state y until the first week of july ------- taxpayer first heard about the offer to purchase the company's shares and the short time frame for responding to the offer through a telephone call from a relative who also owned shares in the company taxpayer flew home to obtain the stock certificate from taxpayer's safe deposit box and to retrieve the mail copies of a memorandum dated june ------- from management of the company the formal offer to purchase dated june ------- from the esop administrator and trustee and the letter of transmittal to tender taxpayer's common_stock after taxpayer's return from the midwest in june ------- taxpayer spoke with the esop administrator and trustee as well as the attorney for the company about certain details of the transaction and then signed and submitted taxpayer's notarized letter of transmittal and stock certificate these individuals did not advise the taxpayer of the day notarization requirement applicable to statements of purchase of qualified_replacement_property contained in sec_1_1042-1t of the temporary income_tax regulations investment_advisor to inform her that the taxpayer would soon be receiving a large payment and to discuss the best_method for reinvesting the proceeds taxpayer informed the investment_advisor of the month replacement_period and of the after taxpayer's return to state y in july ------- taxpayer met with taxpayer's on september ------- taxpayer received a letter from the trustee bank on september ------- the sales proceeds were deposited in a new separate while documents received by the taxpayer contained suggestions to obtain tax plr-159257-03 requirement to invest the proceeds in qualified_replacement_property the investment_advisor indicated that she was not familiar with these requirements but would consult the home_office to make certain that only appropriate investments were purchased neither the home_office nor the investment_advisor advised taxpayer of the day notarization requirement transmitting a check in the amount of the sales_price and suggesting that the taxpayer consult a tax professional concerning the tax consequences of the sale advice taxpayers assumed they had been told all the significant requirements and assumed the investment firm would have informed them if there were any further requirements relating to the stock purchases taxpayers also believed that their tax accountant would know how to properly report the transaction on taxpayers' returns accordingly taxpayers did not consult with a tax accountant investment firm account designated as the taxpayers' esop account during the period october ------ through february ------- taxpayers purchased qualified_replacement_property with monies from the taxpayers' esop account since both taxpayers and the investment_advisor were unaware of the day notarization requirement no notarized statements of purchase were prepared within days of each purchase in march of ------- taxpayers received a memorandum dated march ------- from the attorney for the company containing more specific information about the tax filing_requirements and for the first time mentioning the day notarization requirement including documents relating to the sale to the esop to tax accountant during the tax_return preparation process tax accountant's associate reviewed the documents relating to the sale to the esop and recommended meeting with taxpayers to discuss the requirements of sec_1042 and the regulations this meeting took place on date tax accountant's associate advised taxpayers to file an extension of time to file their ------- returns investment_advisor to review facts and make certain that all purchases of replacement_property made after march ------- were properly notarized on march ------- taxpayers delivered their ------- tax_return information on april ------- tax accountant's associate met with taxpayers and on august ------- taxpayers executed and had notarized the statement of plr-159257-03 election to treat the sale of shares of company stock to the esop as a sale on the same day taxpayers had statements of purchase for qualified_replacement_property purchased between october ------- and february ------- notarized statements of purchase for qualified_replacement_property purchased from march to march ----- ------- and from june to july ------- were notarized within days of purchase on august -------- tax accountant filed a request for an additional extension of time until october ------ for filing taxpayers' ----- income_tax return on or before october taxpayers filed their ------- income_tax return and included a statement electing nonrecognition treatment under sec_1042 as well as a statement of consent pursuant to sec_1042 signed by the company whereby the company agreed to be bound by the terms of sec_4978 and sec_4979a the notarized statements of purchase as described above were filed with the taxpayers' --------income tax_return you have requested a ruling that based on the specific facts of this case the taxpayers will be treated as having substantially complied with the requirements of sec_1_1042-1t of the temporary income_tax regulations sec_1042 of the code provides that a taxpayer or executor may elect in certain cases not to recognize long-term_capital_gain on the sale of qualified_securities to an esop as defined in sec_4975 or eligible worker owned cooperative if the taxpayer purchases qualified_replacement_property as defined in sec_1042 within the replacement_period of sec_1042 and the requirements of sec_1042 and sec_1_1042-1t of the temporary income_tax regulations are satisfied a sale of qualified_securities meets the requirements of sec_1042 if the qualified_securities are sold to an esop as defined in sec_4975 or an eligible worker owned cooperative the plan or cooperative owns after application of sec_318 immediately after the sale at least percent of - a each class of outstanding_stock of the corporation other than stock described in sec_1504 which issued the securities or b the total value of all outstanding_stock of the corporation other than stock described in sec_1504 the taxpayer files with the secretary a verified written_statement of the employer whose employees are covered by the esop or an authorized officer of the cooperative consenting to the application of sec_4978 and sec_4979a with respect to such employer or cooperative and the taxpayer's holding_period with respect to the qualified_securities is at least years determined as of the time of the sale sec_1042 provides that the term qualified_securities means employer_securities as defined in sec_409 which are issued by a domestic c_corporation that has no stock outstanding that is readily_tradable on an established_securities_market and were not received by the taxpayer in a distribution from a plan described in plr-159257-03 sec_401 or in a transfer pursuant to an option or other right to acquire stock to which sec_83 sec_422 or sec_423 applied the taxpayer must purchase qualified_replacement_property within the replacement_period which is defined in sec_1042 as the period which begin sec_3 months before the date on which the sale of qualified_securities occurs and end sec_12 months after the date of such sale sec_1042 defines qualified_replacement_property qrp as any security issued by a domestic operating_corporation which did not for the taxable_year preceding the taxable_year in which such security was purchased have passive_investment_income as defined in sec_1362 in excess of percent of the gross_receipts of such corporation for such preceding_taxable_year and is not the corporation which issued the qualified_securities which such security is replacing or a member of the same controlled_group_of_corporations within the meaning of sec_1563 as such corporation sec_1_1042-1t q a-3 of the temporary income_tax regulations states that the election shall be made in a statement of election attached to the taxpayer's income_tax return filed on or before the due_date including extensions of time for the taxable_year in which the sale occurs sec_1_1042-1t q a-3 of the temporary income_tax regulations states that the statement of election shall provide that the taxpayer elects to treat the sale of securities as a sale of qualified_securities under sec_1042 and shall contain the following information a description of the qualified_securities sold including the type and number of shares the date of the sale of the qualified_securities the adjusted_basis of the qualified_securities the amount_realized upon the sale of the qualified_securities the identity of the esop or worker-owned cooperative to which the qualified_securities were sold if the sale was part of a single interrelated transaction under a prearranged agreement between taxpayers involving other sales of qualified_securities the names and taxpayer identification numbers of the other taxpayers under the agreement and the number of shares sold by the other taxpayers plr-159257-03 sec_1_1042-1t q a-3 of the temporary income_tax regulations further provides that if the taxpayer has purchased qualified_replacement_property at the time of the election the taxpayer must attach as part of the statement of election a statement of purchase describing the qualified_replacement_property the date of the purchase and the cost of the property and declaring such property to be qualified_replacement_property with respect to the sale of qualified_securities the statement of purchase must be notarized no later than days after the purchase literal compliance with procedural directions in treasury regulations on making elections is not always required see 67_tc_736 acq in result 1979_1_cb_1 regulatory requirements that relate to the substance or the essence of the statute on the other hand must be complied with strictly with respect to the present ruling_request taxpayers were not aware of the day notarization requirement for purchases of qualified_replacement_property and were not informed of it by tax professionals upon whom they had relied for advice on the esop transaction until after some purchases of qualified_replacement_property had already been made taxpayers requested relief before the expiration of the time for filing the return on which the election must be made all purchases of qrp were made within the qualified replacement_period with respect to the esop sale upon learning of the notarization requirement statements of purchase for subsequent purchases of qrp were notarized within days of the date of purchase and notarized statements of purchase were executed for previous purchases of qrp therefore based on the specific facts of this case and representations made by taxpayers we conclude that taxpayers have substantially complied with the requirements of sec_1_1042-1t of the temporary income_tax regulations with respect to the taxpayers' sale of qualified_securities to the esop 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 the code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayers requesting it sec_6110 of in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayers plr-159257-03 the rulings contained in this letter are based upon information and representations submitted by the taxpayers 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 yours robert d patchell chief qualified_plans branch division counsel associate chief_counsel tax exempt and government entities enclosure copy for purposes cc --------------------


number release date internal_revenue_service index numbers - ---------------------------------------- ------------------------------------ ------------------------- ------------------------- --------------------- department of the treasury washington dc person to contact ----------------------------------------------------- -------- telephone number -------------------- refer reply to cc psi - plr-100336-06 date date legend x -------------------------------------- --------------- ----------- ----- ---------- ------------------ d1 country dear -------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be treated as a disregarded_entity under the laws of country was acquired by a single owner with limited_liability on d1 x intended to be treated as a disregarded_entity for federal tax purposes effective d1 however x did not timely file a form_8832 entity classification election according to the information submitted all of the interest in x an entity formed sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes under sec_301_7701-3 except as provided in sec_301 b unless it elects otherwise a foreign eligible_entity is classified as an association if all members have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a sec_301_7701-3 provides that an election under sec_301_7701-3 member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed 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 code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 and elect to be treated as a disregarded_entity for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 based on the facts submitted and representations made we conclude that the except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the transaction described above under any other provision of the code sec_6110 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer on whose behalf it was requested in accordance with the power_of_attorney on file with this office a copy of this sincerely letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes heather c maloy associate chief_counsel passthroughs and special industries


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 fip b03 plr-107252-12 date date legend legend company ----------------------------------------------------------------------- -------------------------------------- subsidiary ----------------------------------------------------------------------- ---------------------------------------------------- accounting firm law firm state x state y date date date date date date date date ----------------------- ------------------------ ------------- ------------- ------------------------ ----------------- ---------------------- ---------------------- -------------------- --------------------------- ----------------------- --------------------------- plr-107252-12 dear ------------- this letter responds to a letter dated date and subsequent correspondence on behalf of company and subsidiary requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an election under sec_856 of the internal_revenue_code code to treat subsidiary as a taxable_reit_subsidiary of company effective as of date facts company was organized on date as a state x corporation company invests in real_estate and real_estate related assets such as loans secured_by real_property company attempts to structure its investments to permit it to qualify as a real_estate_investment_trust reit under part ii of subchapter_m of the code on date company filed its first registration_statement with the securities_and_exchange_commission sec on form s-11 registering its common_stock for sale to the public the registration_statement stated company intended to qualify as a reit for federal_income_tax purposes commencing with the taxable_year in which it satisfied its minimum offering requirements and indicated company would organize taxable reit subsidiaries to lease any hotels it acquired company represents that for each of its two taxable years immediately preceding its taxable_year ending on date it had no operations it failed to satisfy its minimum offering requirements it did not issue any shares of its common_stock to the public and it filed form_1120 u s_corporation income_tax return as a c_corporation subsidiary was organized on date as a state y corporation subsidiary engages in certain activities that if conducted directly by company would prevent company from qualifying as a reit for federal_income_tax purposes on date the chief financial officer cfo of company and subsidiary prepared executed on behalf of company and subsidiary and filed with the internal_revenue_service form_8875 taxable_reit_subsidiary election to treat subsidiary as a taxable_reit_subsidiary of company election election specified date as an effective date for its taxable_year ending date however company did not satisfy the shareholder requirement under sec_856 accordingly company filed form_1120 as a c_corporation for that year cfo assumed that election was effective notwithstanding that company was not a reit for that year and that it would not be necessary to file another form_8875 for the next year plr-107252-12 company commenced operations during its taxable_year ending date but did not elect to be treated as a reit for federal_income_tax purposes for such taxable_year company has disclosed in its sec filings that it intends to make a reit election for federal_income_tax purposes for its taxable_year ending date company and subsidiary are now requesting an extension of time to elect to treat subsidiary as a taxable_reit_subsidiary of company effective as of date company and subsidiary represent neither company nor subsidiary are using hindsight in requesting relief and make the following additional representations the request for relief was filed by company and subsidiary before the failure to make the regulatory election was discovered by the service granting the relief requested will not result in company or subsidiary having a lower tax_liability in the aggregate for all years to which the regulatory election applies then that they would have had if the election had been timely made taking into account the time_value_of_money company and subsidiary did not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the time they requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences company and subsidiary did not choose to not file the election law and analysis the ticket to work and work incentives improvement act of p l included a change for tax years beginning after date to the reit provisions of sec_856 this change allows a reit to form a taxable_reit_subsidiary that can perform activities that otherwise would result in impermissible_tenant_service_income the election under sec_856 is made on form_8875 taxable_reit_subsidiary election officers of both the reit and the taxable_reit_subsidiary must jointly sign the form which is filed with the irs service_center in ogden ut sec_856 provides that a reit and a corporation other than a reit may jointly elect to treat such corporation as a taxable_reit_subsidiary to be eligible for treatment as a taxable_reit_subsidiary sec_856 provides that the reit must directly or indirectly own stock in the corporation and the reit and the corporation must jointly elect such treatment the election is irrevocable once made unless both the reit and the subsidiary consent to its revocation in addition sec_856 specifically provides that the election and any revocation thereof may be made without the consent of the secretary plr-107252-12 in announcement 2001_1_cb_716 the service announced the availability of new form_8875 taxable_reit_subsidiary election according to the announcement this form is to be used for tax years beginning after for eligible entities to elect treatment as a taxable_reit_subsidiary the instructions to form_8875 provide that the subsidiary and the reit can make the election at any time during the tax_year however the effective date of the election depends upon when the form_8875 is filed the instructions further provide that the effective date on the form cannot be more than months and days prior to the date of filing the election or months after the date of filing the election if no date is specified on the form the election is effective on the date the form is filed with the service sec_301_9100-1 of the regulations provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i sets forth rules that the internal_revenue_service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and representations made we conclude that company and subsidiary have satisfied the requirements for granting a reasonable extension of time to elect under sec_856 to treat subsidiary as a taxable_reit_subsidiary of company effective as of date accordingly company and subsidiary are granted days from the date of this letter to file a correct form_8875 to make the intended election this ruling is limited to the timeliness of the filing of the form_8875 this ruling’s application is limited to the facts representations code sections and regulations cited herein plr-107252-12 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed with regard to whether company qualifies as a reit or whether subsidiary otherwise qualifies as a taxable_reit_subsidiary under subchapter_m of the code no opinion is expressed with regard to whether the tax_liability of company and subsidiary is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely charles w culmer acting chief branch office of associate chief_counsel financial institutions products enclosures copy of this letter copy for sec_6110 purposes cc


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 fip b03 plr-119228-18 date august legend company sub sub ---------------------------- ------------------------ ---------------------- ------------------------ --------------------------------- ------------------------ partnership -------------------------------------- member firm firm firm state state date date date ---------------------------- --------------------- --------------------------- ----------------------------------------- -------------- -------------- -------------------- ------------------- --------------------------- plr-119228-18 date date date date date date date a b ------------------------ -------------------------- ----------------- -------------------- --------------------------- -------------------------- ---------------------- ------ ---- dear --------------- this ruling responds to a letter dated date submitted on behalf of company sub and sub collectively taxpayers taxpayers request an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations regulations to jointly make an election under sec_856 of the internal_revenue_code code to treat sub and sub each as a taxable real_estate_investment_trust subsidiary trs of company effective date facts company is a_trust formed under the laws of state on date company intends to timely file its initial federal_income_tax return for the taxable_year ended date on a form 1120-reit u s income_tax return for real_estate_investment_trusts on which company will elect to be treated as a real_estate_investment_trust reit under sec_856 of the code company timely filed a form_7004 application_for automatic_extension of time to file certain business income_tax information and other returns company will file its initial federal_income_tax return by the extended due_date of date company uses an accrual_method as its overall_method_of_accounting company’s taxable_year is the calendar_year company was formed for the purpose of facilitating the investment by a private equity_investment fund into partnership a joint_venture entity created to pursue a focused real_estate investment strategy partnership is classified as a partnership for plr-119228-18 federal_income_tax purposes partnership wholly owns sub and sub member has a a percent ownership_interest in partnership member is an entity classified as a partnership for federal_income_tax purposes company has a b percent ownership_interest in member sub is a limited_liability_company formed under the laws of state on date sub is also a limited_liability_company formed under the laws of state on date partnership intended to treat sub and sub each as a trs of company this intention was documented in a second amended and restated limited_liability_company agreement agreement executed on date by partnership and company along with other entities section f of the agreement provides that partnership was to take all actions necessary or advisable to cause sub and sub each to be treated as a trs of company partnership relied on firm for counsel and guidance with respect to partnership’s investment structuring and tax obligations under the agreement firm prepared and provided the instructions to file a form_8832 entity classification election to partnership for sub and sub to each elect to be classified as an association_taxable_as_a_corporation for federal_income_tax purposes effective date a form_8832 was timely filed for each of sub and sub however firm failed to prepare and provide the instructions to file a form_8875 taxable_reit_subsidiary election to partnership for company and each of sub and sub to jointly elect to be treated as a trs of company the deadline to file each form_8875 for taxpayers with an effective date of date was date on or about date partnership and company engaged firm to perform a reit compliance review during a date assessment of company’s reit compliance firm discovered that company and each of sub and sub had not filed a form_8875 at this time taxpayers were made aware that the forms were never filed an officer of company then retained firm to seek advice as to how to rectify the missed elections in date taxpayers submitted a form_8875 for each of sub and sub with a requested effective date of date which is more than months and days prior to the date of filing each election firm then assisted taxpayers with this request for an extension of time under sec_301_9100-1 and sec_301_9100-3 to elect under sec_856 to treat sub and sub each as a trs of company effective date taxpayers make the following additional representations in connection with their request for an extension of time the request for relief was filed before the failure to make the regulatory election was discovered by the internal_revenue_service service plr-119228-18 granting the relief requested will not result in company sub or sub having a lower tax_liability in the aggregate for all years to which the election applies than they would have had if the election had been timely made taking into account the time_value_of_money taxpayers do not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the time they requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences taxpayers did not choose to not file the election taxpayers are not using hindsight in making the decision to seek the relief requested no specific facts have changed since the due_date for making the election that make the election advantageous to company sub or sub the period of limitations on assessment under sec_6501 has not expired for company sub or sub for the taxable_year in which the election should have been filed nor for any taxable_year s that would have been affected by the election had it been timely filed in addition affidavits on behalf of taxpayers have been provided as required by sec_301_9100-3 of the regulations law and analysis sec_856 of the code provides that a reit and a corporation other than a reit may jointly elect to treat such corporation as a trs to be eligible for treatment as a trs sec_856 provides that the reit must directly or indirectly own stock in the corporation and the reit and the corporation must jointly elect such treatment the election is irrevocable once made unless both the reit and the subsidiary consent to its revocation in addition sec_856 specifically provides that the election and any revocation thereof may be made without the consent of the secretary in announcement 2001_1_cb_716 the service announced the availability of new form_8875 taxable_reit_subsidiary election according to the announcement this form is to be used for taxable years beginning after for eligible entities to elect treatment as a trs the instructions to form_8875 provide that the subsidiary and the reit can make the election at any time during the taxable_year however the effective date of the election depends on when the form_8875 is filed the instructions further provide that the effective date cannot be more than months and days prior to the date of filing the election or more than months after the date plr-119228-18 of filing the election if no date is specified on the form the election is effective on the date the form is filed with the service sec_301_9100-1 of the regulations provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 through c sets forth rules that the service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of 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 i requests relief under this section before the failure to make the regulatory election is discovered by the service ii failed to make the election because of intervening events beyond the taxpayer’s control iii failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election a taxpayer will be deemed to have not acted reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief sec_301_9100-3 provides that a reasonable extension of time to make a regulatory election will be granted only when the interests of the government will not be prejudiced by the granting of relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 provides that the plr-119228-18 interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section conclusion based on the information submitted and the representations made we conclude that taxpayers have satisfied the requirements for granting a reasonable extension of time to elect under sec_856 to treat sub and sub each as a trs of company effective date accordingly the forms filed by taxpayers in date will be considered timely filed and the effective date of the trs elections is date this ruling is limited to the timeliness of the filing of form_8875 this ruling’s application is limited to the facts representations and code and regulation sections cited herein except as provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether company qualifies as a reit or whether either sub or sub otherwise qualifies as a trs of company under part ii of subchapter_m of the code no opinion is expressed with regard to whether the tax_liability of taxpayers is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the u s federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the u s federal_income_tax effect the ruling contained in this letter is based upon information and representations submitted by taxpayers and accompanied by penalty of perjury statements executed by the appropriate parties 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 this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-119228-18 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely ______________________________ k scott brown branch chief branch office of the associate chief_counsel financial institutions products


- legend x a 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 b03 plr-130102-04 date date --------------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------------- ----------------------- country ----------------------- d1 ------------------- this letter responds to your letter dated date and subsequent dear -------------------- correspondence on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be classified as an entity disregarded from its owner for federal tax purposes effective d1 facts according to the information submitted x was formed as a country company on d1 x’s sole owner for federal tax purposes a a u s individual intended for x to elect to be treated as a disregarded_entity effective d1 however due to inadvertence x’s form_8832 entity classification election was not filed timely law and analysis sec_301_7701-3 provides in part that a business_entity that is not sec_301_7701-3 provides that an eligible_entity may elect to be sec_301_7701-3 provides that an election under ' c i plr-130102-04 classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes it further provides that an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the default classification of a foreign eligible_entity for federal tax purposes sec_301_7701-3 provides that unless it elects otherwise a foreign eligible_entity is an association if all members have limited_liability classified other than as provided in ' b by filing form_8832 entity classification election with the service_center designated on form_8832 will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 cannot be more than days prior to the date the election is filed and cannot be more than months after the date on which the election is filed reasonable extension of time under the rules set forth in and 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 code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register making certain elections determine whether to grant an extension of time for regulatory elections that do not meet the requirements of ' under ' a request for relief will be granted when the taxpayer provides 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 conclusions based on the facts submitted and representations made we conclude that the requirements of ' sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and elect to be classified as a disregarded_entity for sec_301_9100-2 provides the rules governing automatic extensions of time for sec_301_9100-1 provides that the commissioner has discretion to grant a sec_301_9100-3 sets forth the standards the commissioner will use to except as specifically set forth above no opinion is expressed or implied as to under a power_of_attorney on file with this office we are sending a copy of this plr-130102-04 federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 the federal tax consequences of the transaction described above under any other provision of the code letter to x sec_6110 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer on whose behalf it was requested heather c maloy associate chief_counsel passthroughs and special industries sincerely s enclosures copy of this letter copy for sec_6110 purposes cc


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number release date conex-127469-10 uil the honorable joe donnelly member u s house of representatives west colfax south bend in attention ------------------ dear congressman donnelly i apologize for the delay in responding to your inquiry dated date on behalf of your constituent -------------------- ------------- asked about the tax treatment of reimbursed union dues ------------- is an officer in a local janitor’s union he pays dues and the union reimburses him for the amount of the dues taxpayers can deduct all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business sec_162 of the internal_revenue_code the code the taxpayer can deduct dues and other_payments which otherwise meet the requirements of the regulations under sec_162 of the code to organizations such as labor unions sec_1_162-15 of the income_tax regulations if an employee incurs a deductible expense while performing services for his or her employer reimbursement of the expense is taxable unless the reimbursement is made under an accountable_plan the accountable_plan rules apply only for reimbursements to employees amounts treated as paid under an accountable_plan are excluded from an employee’s gross_income the employer does not report these amounts as wages on the employee's form_w-2 and they are exempt from withholding and payment of employment_taxes conversely employers must include amounts treated as paid under a nonaccountable_plan in the employee's gross_income and must report them as wages or other compensation on the employee's form_w-2 these amounts are subject_to_withholding and payment of employment_taxes conex-127469-10 an accountable_plan is a reimbursement or other expense allowance arrangement that meets the requirements of business connection substantiation and return of excess sec_62 of the code and sec_1_62-2 of the income_tax regulations publication circular_e employer’s tax guide has information on accountable plans business connection requirement an arrangement meets the business connection requirement if the employer pays advances allowances or reimbursements only for deductible business_expenses that the employee pays or incurs while performing services for the employer if however an employer pays an employee regardless of whether the employee incurs or is reasonably expected to incur bona_fide business_expenses the arrangement does not satisfy the business connection requirement and the amounts are treated as paid under a nonaccountable_plan and are subject_to employment_taxes an employer may not treat as a nontaxable expense reimbursement an amount that he or she would otherwise pay as wages substantiation requirement to meet the substantiation requirement an arrangement must require the employee to substantiate each business_expense to the payor within a reasonable period of time the employee must submit enough information to allow the employer to identify the specific nature of each expense and attribute the expense to the employer's business activity generally the employee must submit an expense account or other written_statement to the employer showing the business nature and amount of each of his or her expenses combining expenses into broad categories or reporting individual expenses using vague non-descriptive terms such as miscellaneous expenses is not sufficient return of excess requirement to meet the return of excess requirement the employee must return to the employer within a reasonable period of time any amount the employer paid in excess of the employee's substantiated expenses conex-127469-10 i hope this information is helpful if you have any questions please contact me or ------- -------------------- identification_number ------------- at -------------------- sincerely thomas d moffitt chief branch office of associate chief_counsel income_tax accounting


t c memo united_states tax_court claude s thompson petitioner v commissioner of internal revenue respondent docket no 7669-11l filed date douglas bradley walsh for petitioner beth a nunnink for respondent memorandum opinion wells judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule we must decide whether respondent’ sec_1unless otherwise indicated section references are to the internal_revenue_code_of_1986 as amended and rule references are to the tax_court rules of continued appeals_office abused its discretion when it upheld respondent’s notice_of_intent_to_levy with respect to petitioner’s liability for trust fund recovery penalties pursuant to sec_6672 for the quarterly periods ending date through date background the facts set forth below are based upon examination of the pleadings moving papers responses and attachments at the time he filed his petition petitioner resided in mississippi on or about date respondent mailed to petitioner letter trust funds recovery penalty letter proposing an assessment of trust fund recovery penalties pursuant to sec_6672 against petitioner as an individual required to collect account for and pay over employment_taxes for professional healthcare associates inc pha the letter proposed to collect trust fund recovery penalties from petitioner with respect to pha’s unpaid liabilities for quarterly periods ending date through date petitioner received the letter on date and signed the certified mail receipt however petitioner failed to submit a protest to the appeals_office with respect to continued practice and procedure the letter on date respondent assessed the trust fund recovery penalties against petitioner and sent notices of balance due on date respondent mailed petitioner a notice_of_intent_to_levy and notice of your right to a hearing on date respondent received petitioner’s completed form request for collection_due_process or equivalent_hearing on the form petitioner checked the boxes requesting an installment_agreement and an offer-in-compromise and he also checked the other box and provided the following explanation the entity that has not paid the taxes pha has filed an offer_in_compromise that is pending the former president of the entity has also admitted responsibility and is working on sales that would substantially payoff sic the liability in a cover sheet accompanying the form petitioner’s attorney explained that petitioner was unaware that the president of pha was not properly withholding employment_taxes from pha’s employees on date settlement officer barbara jordan mailed petitioner a letter notifying him that she had received his form and scheduling a telephone conference for date on date petitioner called ms jordan and requested a face-to-face hearing for date he stated that he wanted to challenge the trust fund recovery penalty assessment because he contended that his business partner was responsible for the liabilities when ms jordan inquired about his receipt of the letter petitioner explained that although he had received the letter his attorney had not timely submitted a formal protest ms jordan told petitioner that he should consider filing a refund claim and explained how he could do that ms jordan also advised petitioner during the phone call on date and in her letter of date that he needed to file form 433-a collection information statement for wage earners and self-employed individuals if he wanted the appeals_office to consider collection alternatives on date ms jordan telephoned petitioner’s attorney who advised her that petitioner did not wish to have the face-to-face hearing on date petitioner’s attorney discussed the underlying liabilities with ms jordan and ms jordan advised him that petitioner needed to file a form_843 claim_for_refund and request for abatement with respect to the underlying liabilities ms jordan and petitioner’s attorney scheduled a telephone conference for date 2as the letter explains in detail petitioner would also first need to pay at least some of the tax due on date ms jordan telephoned petitioner’s attorney and left a message advising him that she had not received petitioner’s form 433-a she gave petitioner an extension until date to file the form 433-a on date petitioner’s attorney submitted a form 656-l offer_in_compromise doubt as to liability but he failed to submit the form 433-a petitioner never submitted a completed form 433-a and on date respondent’s appeals_office mailed to petitioner a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination the notice_of_determination explained that although petitioner and his attorney had repeatedly raised the issue of petitioner’s underlying liabilities because petitioner had an earlier opportunity to raise that issue when he received the letter he had forfeited his opportunity to contest the underlying liabilities before the appeals_office in response petitioner timely filed his petition in the instant case in his petition petitioner continues to dispute his liability for the trust fund recovery penalties and he contends that his business partner should be responsible for the liabilities discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials and may be granted where there is no genuine issue of material fact and a decision may be rendered as a matter of law rule a and b fla peach corp v commissioner 90_tc_678 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences are viewed in the light most favorable to the nonmoving party 98_tc_518 aff’d 17_f3d_965 7th cir however the party opposing summary_judgment must set forth specific facts that show a genuine issue of material fact exists and may not rely merely on allegations or denials in the pleadings rule d the underlying liabilities in the instant case were assessed under sec_6672 which imposes penalties for failure to collect account for and pay over income and employment_taxes of employees those penalties are commonly known as trust fund recovery penalties such penalties are assessed and collected in the same manner as taxes against a person who is an officer_or_employee of a corporation who as such officer_or_employee is under a duty to perform the duties referred to in sec_6672 sec_6671 such persons are referred to as responsible persons and the court_of_appeals for the fifth circuit to which this case is appealable ‘generally takes a broad view of who’ qualifies as a ‘responsible person under sec_6672 ’ 132_tc_301 quoting 876_f2d_485 5th cir see generally 195_f3d_229 5th cir 988_f2d_1449 5th cir any person who qualifies as a responsible_person under the statute is liable for the penalty a right of contribution against other responsible persons exists but must be claimed separate and apart from proceedings to collect the penalty brought by the united_states sec_6672 the liability of a responsible_person pursuant to sec_6672 is independent of the employer corporation’s duty to pay trust_fund_taxes see 961_f2d_562 5th cir a taxpayer has the opportunity to dispute his liability for a_trust fund recovery penalty when he receives a letter sparkman v commissioner tcmemo_2009_308 mcclure v commissioner tcmemo_2008_136 petitioner acknowledged that he received letter and that he failed to submit a protest to respondent’s appeals_office disputing his liability for the trust fund recovery penalties accordingly petitioner is not entitled to dispute his underlying liabilities before the appeals_office or before this court see 128_tc_48 sparkman v commissioner tcmemo_2009_308 where the underlying tax_liability is not in issue we review the determination of the appeals_office for abuse_of_discretion see 114_tc_604 in reviewing for abuse_of_discretion we will reject the determination of the appeals_office only if the determination was arbitrary capricious or without sound basis in fact or law see 125_tc_301 aff’d 469_f3d_27 1st cir we have consistently held that it is not an abuse_of_discretion for the appeals_office to reject collection alternatives and sustain the proposed collection action on the basis of the taxpayer’s failure to submit requested financial information see huntress v commissioner tcmemo_2009_161 prater v commissioner tcmemo_2007_241 roman v commissioner tcmemo_2004_20 in doing so the appeals_office is following the requirements of sec_301_6320-1 proced admin regs accordingly we conclude that it was not an abuse_of_discretion for the appeals_office to reject petitioner’s collection alternatives and sustain the levy on the basis of petitioner’s failure to submit the form 433-a after repeated requests by ms jordan consequently we will grant respondent’s motion for summary_judgment in reaching these holdings we have considered all the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without merit to reflect the foregoing an appropriate order and decision will be entered for respondent