internal_revenue_service number release date index number ------------------------------- ------------------------------------------------------------ ------------ ------------------------------- ----------------------------- - department of the treasury washington dc person to contact --------------------------- --------------- telephone number --------------------- refer reply to cc psi b03 - plr-171459-03 date date ------------------ -------------------------------------- ----------------------------------------------------------------------- legend legend taxpayer ------------------------------------------------------------- members ------------------------------------------------------------- -------------------------------------------------------------- foreign_country date dear ------------- this letter responds to a letter dated date and supplemental correspondence requesting a ruling under sec_301_9100-3 of the procedure and administration regulations that taxpayer be granted an extension of time to make an election to be treated as a partnership for federal_income_tax purposes --------------------- ---------- facts according to the representations submitted taxpayer was formed as a foreign_country limited_liability_company taxpayer intended to be treated as a partnership for federal tax purposes effective date but inadvertently failed to file a timely form_8832 entity classification election plr-171459-03 law and application sec_301_7701-2 generally provides that a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 further provides that an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership sec_301_7701-3 provides that so long as a business_entity is not classified sec_301_7701-3 provides that an eligible_entity may elect to be as a corporation under sec_301_7701-2 or it may elect its classification for federal tax purposes sec_301_7701-3 provides that unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability classified other than as provided under sec_301_7701-3 by filing a form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 taxpayer provides evidence to establish 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 requests for relief will be granted when the under sec_301_9100-1 the commissioner has discretion to grant a reasonable sec_301_9100-1 through provide the standards the plr-171459-03 conclusion based on the facts represented we conclude that the requirements of except for the specific ruling above no opinion is expressed or implied this ruling is directed only to the taxpayer requesting it sec_6110 of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer is granted an extension of time to file a form_8832 electing partnership treatment effective date the form_8832 must be filed with the philadelphia service_center within days of the date of this letter and a copy of this letter should be attached to form_8832 a copy is enclosed for this purpose concerning the federal_income_tax consequences of the facts of this case under any other provision of the internal_revenue_code the internal_revenue_code provides that it may not be used or cited as precedent being sent to the requested tax representative enclosures heather c maloy associate chief_counsel passthroughs and special industries pursuant to a power_of_attorney on file with this office a copy of this letter is copy of this letter copy for sec_6110 purposes sincerely s


tax_exempt_and_government_entities_division release number release date uil code department of the treasury internal_revenue_service commerce street mc dallas tx date date taxpayer_identification_number tax period ended december 20xx person to contact identification_number contact information certified mail - return receipt requested dear this is a final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 as an organization described in code sec_501 c for the tax period s above your exempt status is hereby-revoked effective january 20xx our adverse determination as to your exempt status was made for the following reason s you have not demonstrated that you are operated exclusively for exempt purposes within the meaning of internal_revenue_code sec_501 and sec_1_501_c_6_-1 exempt business league must have a common business_purpose the purpose of which is to promote a common business_interest and activities must be directed to the improvement of one or more lines of business as distinguished from the performance of particular services for individual persons your activities are not directed to the improvement of business conditions of an industry as a whole because your sole activity is to provide advertising services to your members who consist solely of franchisees of a particular brand that operates in competition with other brands within the same industry organizations that are not exempt under sec_501 generally are required to file federal_income_tax returns and pay tax where applicable for further instructions forms and information please visit wwww its gov if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory_judgment by referring to the enclosed publication you may write to the courts at the following addresses united_states tax_court second street n w washington d c u s court of federal claims madison place n w washington d c u s district_court for the district of columbia constitution ave n w washington d c processing of income_tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory_judgment under sec_7428 of the internal_revenue_code the taxpayer_advocate_service tas is an independent organization within the irs that can help protect you taxpayer rights we can offer you help if your tax problem is causing a hardship or you've tried but haven’t been able to resolve your problem with the irs if you qualify for our assistance which is always free we will do everything possible to help you visit taxpayeradvocate its gov or call sincerely yours if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter mary a epps acting director eo examinations enclosure publication department of the treasury yi internal_revenue_service tax exempt and government entities irs exempt_organizations examinations date taxpayer_identification_number form tax_year s ended december 20xx and 20xx person to contact id number contact numbers manager’s name id number manager's contact number response due_date 20xx certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren’t an organization described in sec_501 if we don't hear from you if you don’t respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you’ll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also letter rev catalog number 34809f may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn’t a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate letter rev catalog number 34809f for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely margaret von lienen director eo examinations enclosures report of examination form_6018 publication publication letter rev catalog number 34809f form_886 a department of the treasury - internal_revenue_service name of taxpayer explanation of items schedule no or exhibit year petriod ended december 20xx issue does the nonprofit organization described below whose primary activity is promoting the common business interests of its members qualify for exemption from federal_income_tax as a business league under sec_501 of the internal_revenue_code facts the brand partners operating the organization is a non-profit organization made up of in the the organization was formed to provide a arrangement for the membership to benefit from mass additional market promotion through various media for the benefit of the area of its membership is made up primarily of in the general area of businesses that own one or more the organization collects monies monthly based on a percentage of sales from each member to conduct a perform a comprehensive marketing support program for all in good standing with the as identified by the executive committee wide marketing advertising program income is from advertising fees charged to each participating expenditures are made for advertising expenses and miscellaneous administrative costs the following are proposed marketing objectives performed by for the area for the organization increase public awareness about increase base of potential increase increase support other marketing programs and special events as required guests through advertising individual and average profits sales over previous year law and analysis form 886-a rev revenue agent’s report page sec_501 of the code provides for the exemption from federal_income_tax of business_leagues not organized for profit no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_6_-1 of the income_tax regulations defines a business league as an association of persons having some common business_interest the purpose of which is to promote such common interest its activities should be directed towards the improvement of department of the treasury - internal_revenue_service form_8 a explanation of items department of the treasury - internal_revenue_service name of taxpayer schedule no or exhibit year period ended december 20xx business conditions in one or more lines of business as distinguished from the performance of particular services for individual persons revrul_74_147 1974_1_cb_136 holds that a nonprofit organization whose members represent diversified businesses that own rent or lease digital computers produced by various manufacturers and that is organized to improve the efficiency of its members’ use of computers qualifies for exemption under sec_501 of the code states that the common business_interest of the members of the organization is their common business problem concerning the use of digital computers the primary objective of the organization is to provide a forum for the exchange of information that will lead to the more efficient utilization of computers by its members and other interested users and thus improve the overall efficiency of the business operations of each rev_rul revrul_83_164 1983_2_cb_95 holds that a nonprofit organization whose primary activity is promoting the common business interests of users of one particular brand of computers does not qualify for exemption from federal_income_tax as a business league under sec_501 of the code although the members of both the organization described in revrul_74_147 and revrul_83_164 have a common business_interest concerning the use of computers the organization in revrul_74_147 directs its activities to users of computers made by diverse and competing manufacturers while revrul_83_164 directs its activities to users of computers made by one manufacturer by directing its activities only to the users of brand m computers the organization in revrul_83_164 is directing its activities towards the improvement of business conditions in only segments of the various lines of business to which its members belong because it limits its activities to the users of m computers the organization helps to provide a competitive advantage to m and to its customers at the expense of m's competitors and their customers that may use other brands of computers thus the organization's activities in revrul_83_164 are not directed towards the improvement of business conditions in one or more lines of business within the meaning of sec_1_501_c_6_-1 of the regulations in addition to promoting the common business_interest of its members a business league exempt under sec_501 of the code must also seek to improve conditions in one or more lines of business in 440_us_472 ct_d 1979_1_cb_198 the united_states supreme court held that an organization of muffler dealers franchised by midas international corporation does not qualify for exemption from federal_income_tax as a business league under sec_501 of the code because the organization's purpose was too narrow to satisfy the line_of_business test of sec_1_501_c_6_-1 of the regulations the court concluded that the line_of_business_limitation of sec_1_501_c_6_-1 is well grounded in the origin of sec_501 and in its enforcement over a long period of time the court further concluded that exemption under sec_501 is not available to aid one group in competition with another within an industry the term line_of_business has been interpreted to mean either an entire industry see 267_fsupp_830 w d wash and form 886-a crev department of the treasury - internal_revenue_service revenue agent’s report page form_886 a explanation of items department of the treasury - internal_revenue_service name of taxpayer schedule no or exhibit year period ended december 20xx 9_tc_121 acq 1947_2_cb_3 or all components of an industry within a geographic area see 128_f2d_424 7th cir 37_f2d_83 8th cir and 46_bta_64 acq 1942_1_cb_17 organizations that have failed to meet the line_of_business test but instead were found to have served only a segment of a line includes groups composed of businesses that have licenses to e e e promote a single patented product rev_rul c b or market a certain make of automobile rev_rul c b or bottle one type of soft drink rev_rul c b these groups promote segments of an industry at the expense of others in the industry revrul_67_77 1967_1_cb_138 holds that a nonprofit organization composed of dealers in a certain make of automobile in a designated area is organized and operated for the primary purpose of financing general advertising campaigns to promote with funds contributed by dealer members the sale of that make of automobile held the organization is performing particular services for its members and is not entitled to exemption from federal_income_tax as a business league under sec_501 of the internal_revenue_code of revrul_68_182 c b p involves an organization whose members were engaged in the bottling and sale of a single franchised soft-drink product its purpose and activities were directed to more efficient production and sale of that product while the u s court_of_appeals decided the organization to be exempt under sec_501 the internal_revenue_service has refused to follow this decision it is the service's position that organizations promoting a single brand or product within a line_of_business does not qualify for exemption under sec_501 in this case the court held that an organization of this services position was upheld by the supreme court in 440_us_472 muffler dealers franchised by midas international corporation did not qualify for exemption from federal_income_tax as a business league under sec_501 of the internal_revenue_code because the organization's purpose was too narrow to satisfy the line_of_business test of regulation c -1 the court concluded that the line_of_business_limitation of sec_501 -1 is well grounded in the regulations and in its enforcement over a well-established period the court further concluded that exemption under sec_501 is not available to aid one group in competition with another within an industry revrul_69_106 c b p discusses an organization formed and operated by a group of manufacturers to carry on research_and_development in projects of common interest to their industry a committee of the membership agreed on what projects will be undertaken the results of the research were made only available to members while membership in the organization was open to all businesses in the industry not all businesses in the industry were members in order to qualify for exemption under sec_50i c a research organization must make the results of its research available to all the members of the industry form 886-a rev department of the treasury - internal_revenue_service revenue agent’s report page form_886 a explanation of items department of the treasury - internal_revenue_service name of taxpayer schedule no or exhibit year period ended december 20xx the activities of the organization were not considered to be directed toward the improvement of business conditions facing the industry since it distributed the results of its research only to members of the organization revrul_70_80 1970_1_cb_130 holds that a nonprofit trade_association of manufacturers whose principal activity is the promotion of its members’ products under the association's registered trademark does not qualify for exemption under sec_501 of the code the trademark is promoted by the organization in a way that is intended to give the members of the association a competitive advantage over others in the same industry by extolling the superior quality of the trademarked products is not directed to the improvement of business conditions of the industry as a whole but is the performance of particular services for members accordingly this organization is not exempt from federal_income_tax under sec_501 of the code this case is distinguishable from 267_fsupp_830 in that case the advertising of the association trademark was found to be of minor importance and only an incidental part of the advertising that extolled the advantages of the industry product in general is held that the trademark promotion thus it taxpayers position response or statements as to their position on this issue has not provided any conclusion based on the facts and the case law cited it is conclude that the activities which you conduct and the services that you provide to your members are not directed to the improvement of business conditions facing the industry as a whole your activities are solely for those engaged in the operations of members arestricted membership engaged in the product or product bearing a particular trademark or trade marketing of a particular name does not constitute a line_of_business as a result the line_of_business test is not met therefore it has been determined that you do not qualify for exemption as an organization described in sec_501 of the code in accordance with this determination you are required to file federal_income_tax returns on form_1120 - form 886-arev department of the treasury - internal_revenue_service revenue agent’s report page


t c summary opinion united_states tax_court richard n brogan petitioner v commissioner of internal revenue respondent docket no 15320-12s filed date richard n brogan pro_se bryan j dotson for respondent summary opinion guy special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by unless otherwise indicated section references are to the internal revenue continued any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for year in issue petitioner filed a timely petition for redetermination with the court pursuant to sec_6213 petitioner concedes that he failed to report a taxable_distribution of dollar_figure from a retirement account for the year in issue the only issue remaining for decision is whether petitioner received a taxable_distribution of dollar_figure as reported by new york life_insurance co ny life on form 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc background some of the facts have been stipulated and are so found the stipulation of facts the supplemental stipulation of facts and the accompanying exhibits are incorporated herein by this reference at the time the petition was filed petitioner resided in texas continued code code as amended and in effect for and rule references are to the tax_court rules_of_practice and procedure on date petitioner purchased a thirty payment life_insurance_policy from ny life the policy required petitioner to make quarterly premium payments of dollar_figure for years and provided a basic death_benefit of dollar_figure the policy identified petitioner as the insured and his wife as the primary beneficiary under the terms of the policy if ny life had a divisible surplus petitioner was entitled to a fractional share of the surplus in the form of an annual dividend the policy provided that petitioner could direct ny life to pay dividends directly to him in cash allow dividends to accumulate interest at not less than per annum apply dividends to the payment of any premium due or apply dividends to purchase paid-up additional insurance petitioner normally directed ny life to pay annual dividends to him by check although on one or two occasions he directed that dividends be applied to pay premiums due on his policy in date petitioner received a letter from ny life stating that his policy would be fully paid up as of date the letter further stated that he was no longer required to make premium payments his insurance protection would remain fully in force and he would continue to participate in ny life dividends petitioner’s annual policy statement for the one-year period ending date indicated that the death_benefit at that time was dollar_figure the cash_value of the policy was dollar_figure and petitioner was owed a dividend of dollar_figure ny life provided the parties with a schedule listing annual dividends_paid to petitioner from to the annual dividends which totaled approximately dollar_figure fluctuated from year to year and ranged from a low of dollar_figure to a high of dollar_figure although ny life was unable to produce records of the dividends_paid to petitioner before petitioner does not dispute that he received total dividends of dollar_figure over the life of the policy petitioner did not recall including the annual dividends in taxable_income when they were paid to him and there is no evidence that ny life issued any forms that would have prompted him to do so in petitioner surrendered his policy to ny life and the company sent him a check for dollar_figure ny life subsequently issued a form 1099-r reporting that petitioner received a gross distribution of dollar_figure and designating dollar_figure of that amount as taxable_income ny life calculated petitioner’s taxable_income as follows cash_value as of dividend deposits termination dividend dividend interest total gain dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure ny life subtracted dividend deposits of dollar_figure and dividend interest of cents from the total_distribution of dollar_figure to arrive at taxable_income of dollar_figure petitioner filed a form_1040 u s individual_income_tax_return for the year in issue but he did not include any of the income reported by ny life on form 1099-r as indicated respondent determined that petitioner is required to include the dollar_figure reported by ny life in his gross_income petitioner disputes respondent’s determination discussion as a general_rule the commissioner’s determination of a taxpayer’s liability in a notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is incorrect rule a 290_us_111 petitioner does not contend that the burden_of_proof should shift to respondent under sec_6201 or sec_7491 in any event given that resolution of this case turns on the preponderance_of_the_evidence we conclude that the allocation of the burden_of_proof is immaterial see 110_tc_189 ndollar_figure the term gross_income is broadly defined in the code to include all income from whatever source derived sec_61 in the present case we look to sec_72 and related regulations which prescribe detailed rules governing recognition of income in connection with the surrender of a life_insurance_policy in general any amount received upon the surrender of a life_insurance_contract which is not received as an annuity is gross_income to the extent that it exceeds the investment_in_the_contract sec_72 a c 693_f3d_765 7th cir aff’g tcmemo_2011_83 sanders v commissioner tcmemo_2010_279 sec_1_72-11 income_tax regs sec_72 defines investment_in_the_contract as of any date as the aggregate amount of premiums or other consideration paid for the contract before that date minus the aggregate amount received under the contract before that date to the extent that such amount was excludable from gross_income to determine the amount of petitioner’s investment in the ny life policy we begin with the premiums that he paid ny life concluded that petitioner had paid total premiums of dollar_figure and he does not dispute that amount we also know that petitioner received dividends from ny life totaling dollar_figure over the life of the contract the question that arises in connection with determining petitioner’s investment_in_the_contract is the amount of dividends excludable from his gross_income when paid to him if all of the dividends were excludable from income as respondent contends petitioner’s investment_in_the_contract at the time it was surrendered equaled zero because the premiums that he had paid were wholly offset by the dividends that he received although petitioner did not include the dividends in taxable_income when they were paid to him he now maintains that they were not excludable from his gross_income and asserts that they cannot be taken into account at this time in computing his investment in the insurance_policy specifically he contends that the normal three-year period of limitations prescribed in sec_6501 bars the assessment of any deficiency attributable to the ny life dividends as explained in detail below petitioner’s reliance on the period of limitations is misplaced we note that if petitioner paid a quarterly premium of dollar_figure for years the total premiums_paid would equal dollar_figure there is no explanation in the record for the additional dollar_figure reflected in ny life’s calculations we also note however that the annual policy statement indicated that the death_benefit under the policy at that time was dollar_figure in contrast to the dollar_figure death_benefit identified in the policy itself suggesting that petitioner may have paid for a small amount of additional insurance along the way sec_72 provides the general_rule that any amount received in the nature of a dividend shall be treated as an amount not received as an annuity sec_72 in turn provides in relevant part that any amount not received as an annuity eg a dividend payment which is received under a life_insurance_contract shall be included in gross_income but only to the extent that it exceeds the investment_in_the_contract in conjunction with the foregoing sec_1 b income_tax regs provides if dividends or payments in the nature of dividends or a return of premiums or other consideration are received under a contract to which sec_72 applies and such payments are received before the annuity_starting_date or before the date on which an amount is first received as an annuity whichever is the later such payments are includible in the gross_income of the recipient only to the extent that they taken together with all previous payments received under the contract which were excludable from the gross_income of the recipient under the applicable income_tax law exceed the aggregate_of_premiums_or_other_consideration_paid or deemed to have been paid_by the recipient sec_1_72-11 income_tax regs is applicable in respect of the dividends that ny life paid to petitioner because he surrendered his insurance_policy and no amount was ever paid as an annuity see sec_72 defining the annuity_starting_date brown v commissioner tcmemo_2011_83 sec_72 provides that subsection e of sec_72 applies to any amount received under a contract on its complete surrender redemption or maturity there is no evidence that at any point the dividends that petitioner received viewed singly or in the aggregate ever exceeded the aggregate of the premiums that he had paid on the insurance_policy the parties agree that petitioner stopped paying premiums in but he continued to receive annual dividends until he surrendered the policy in between and petitioner received total dividends of approximately dollar_figure none of which exceeded dollar_figure in a single year significantly it was not until however that the aggregate of the dividends_paid under the policy equaled the aggregate policy premiums all of which leads to the inescapable conclusion that the dividends_paid to petitioner up to the time he surrendered the policy were excludable from gross_income in accordance with sec_72 and sec_1_72-11 income_tax regs because the annual dividends were excludable from petitioner’s income when he received them his argument that respondent is barred by the period of limitations from assessing the deficiency is simply incorrect the record reflects that at the time he surrendered his insurance_contract to ny life the aggregate premiums that petitioner had paid on the policy equaled the aggregate dividends_paid to him consequently petitioner’s investment_in_the_contract was zero see sec_72 and ny life correctly reported that of the dollar_figure paid to him upon the surrender of the insurance_policy dollar_figure constituted taxable_income see sec_72 a c consistent with the foregoing the income_tax deficiency that respondent determined is sustained to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 1-plr-146009-02 date date legend x state d1 dear this responds to your letter dated date requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 under the law of state the shareholder of x intended that x be treated as an s_corporation effective on d1 but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective d1 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed plr-146009-02 sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely david r haglund senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries 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 psi plr-126011-16 date date legend x ----------------------------- ---------------------------- country ----------------------------- date ------- ------------ 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 to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts the information submitted states that x was formed under the laws of country on date x represents that as of date it was a foreign_entity eligible to elect to be a partnership for u s federal tax purposes and at all times its partners intended x to be treated as a partnership x’s default status is an association_taxable_as_a_corporation x represents that it relied upon a qualified_tax professional to file the election effective date however the tax professional failed to file the election timely x represents that its partners consistently reported income treating x as a partnership x also represents that granting relief will not prejudice the interests of the government and that hindsight is not involved in seeking relief to file a late election x further represents that such relief would not result in a lower tax_liability in the aggregate for all years to which the request applies finally x represents that it acted reasonably and in good_faith plr-126011-16 law and analysis 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 an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single member having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed and no more than months after the date the election is filed sec_301_9100-1 provides that the commissioner may 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic_extension of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for the 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 a taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonable and in good_faith and granting relief will not prejudice the interests of the government plr-126011-16 conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of one hundred twenty days from the date of this letter to file form_8832 with the appropriate service_center to elect to be treated as a partnership for federal tax purposes effective date a copy of this letter is attached for that purpose this ruling is contingent on the owners of x filing within days of this letter all required returns for all open years consistent with the requested relief to the extent appropriate these returns must include but are not limited to form_8865 information_return of u s persons with respect to certain foreign_partnerships such that the forms and returns reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns except as expressly set forth herein no opinion is expressed or implied concerning the federal tax consequences any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by laura c fields laura c fields senior technician reviewer branch passthroughs special industries enclosures copy of letter copy for purposes


internal_revenue_service number release date index number 468a ----------------------- --------------------------- ------------------------------------------- --------------------- ---------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ---------------------------------------------------- telephone number -------------------- refer reply to cc psi b06 plr-140706-05 date december ------------------------------------- ------------------------------------------- ------------------------------------------------------------ in re revised schedule of ruling amounts legend taxpayer ----------------------------------------------------- parent ----------------------------------------------------- plant state location commission a -------------------------------------------- commission b ----------------------------------------------------- method order a b c d e f g h i j k --------------------- ------ ---------------- ------ ------ ------- ------------------------------------- ---- -------------------------------------- ---------------- ---- ------------------------------------------------------------ ---------- ---------------------------------- ---------------------------------------------------------- ------------------------------------------------------------ ------- ---------------------------------------- ---------------------------------------- ----- ------------------ plr-140706-05 l m n o p dear ----------------- this letter responds to a letter dated date and subsequent submissions submitted by taxpayer's authorized representatives requesting a revised schedule of ruling amounts for plant pursuant to sec_1_468a-3 of the income_tax regulations taxpayer was previously granted a schedule of ruling amounts on a information was submitted pursuant to sec_1_468a-3 we understand the facts as presented by taxpayer to be as follows taxpayer is an investor-owned electric utility incorporated in state and serving customers predominantly located in state taxpayer is owned by parent with whom it files a consolidated_return on a calendar_year basis using the accrual_method of accounting plant is situated in location taxpayer previously owned a b percent interest in plant taxpayer sold c percent of its overall interest in plant to unrelated purchasers and entered into agreements with those purchasers to lease back the entire c percent interest therefore taxpayer is a lessee with respect to an undivided_interest of approximately d percent of plant and a fee simple owner of approximately e percent of plant under the lease agreements taxpayer remains fully responsible for decommissioning both the leased interest and the retained fee simple interest in plant and taxpayer is required to fully fund its decommissioning obligations through means of external trusts the collection of decommissioning costs for plant from ratepayers with respect to taxpayer's interest in plant is subject_to the regulatory jurisdiction of commission a and commission b the method for decommissioning plant is the method the cost of which is based on a site-specific decommissioning study the regulatory percentage for commission a is f percent commission a and commission b have determined the amount of decommissioning costs for plant to be included in taxpayer's cost of service for ratemaking purposes there are no proceedings pending before the commissions that would may result in an increase or decrease in the amount of decommissioning costs to be included in taxpayer's cost of service this request for a revised schedule of ruling amounts applies only to ruling amounts under the jurisdiction of commission a plr-140706-05 in determining the decommissioning costs for plant in order commission a used an estimated base cost of dollar_figureg commission a escalated these costs annually at a rate of h percent resulting in a future decommissioning cost of dollar_figurei in addition to the escalated base cost commission a also included in the future estimated cost of decommissioning dollar_figurej of pre-shutdown and post-shutdown interim spent fuel storage installation costs for taxpayer's interest in plant commission a also approved an assumed after-tax rate of return of k percent for the assets of the qualified nuclear decommissioning fund taxpayer represents that under the sec_468a regulations the defined level_funding limitation period and the defined funding_period extend through l the estimated period for which the fund will be in effect is m and the estimated_useful_life of plant is n therefore the qualifying percentage is o percent taxpayer had previously submitted a request for a schedule of ruling amounts with regard to commission b that request was withdrawn from consideration on p prior to withdrawing its request taxpayer contributed amounts computed under the jurisdictional percentage for commission b to the qualified nuclear decommissioning fund for plant taxpayer intends to withdraw those excess_contributions along with any earnings attributable to those excess_contributions from the fund on or before the due_date for the fund's federal_income_tax return for the taxable_year to which the excess_contribution relates taxpayer has requested an additional ruling that the excess_contribution described above does not disqualify the qualified nuclear decommissioning fund maintained with respect to plant so long as taxayer withdraws the excess_contributions along with any earnings attributable to those excess_contributions from the fund on or before the due_date for the fund's federal_income_tax return for the taxable_year to which the excess_contribution relates and a ruling that the amount earned by the qualified nuclear decommissioning fund on the excess_contributions is included in the gross_income of the fund sec_468a of the internal_revenue_code provides that a taxpayer may elect to deduct the amount of payments made to a qualified decommissioning fund however sec_468a limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear power plant as the period for which the plr-140706-05 nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the tax_year if the payment is made on account of this tax_year and is made within months after the close of the tax_year additionally a taxpayer that files for a schedule of ruling amounts and receives such schedule of ruling amounts after the month deadline for making a payment to a nuclear decommissioning fund must make such payment to the fund within days after the date that the taxpayer receives the schedule of ruling amounts for the tax_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest including an interest as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such tax_year if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b the excess is not deductible by the electing taxpayer in addition under sec_1_468a-5 there are rules which provide that the internal_revenue_service may disqualify a nuclear decommissioning fund if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under sections plr-140706-05 468a-3 a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of this section sec_1_468a-3 of the regulations provides that in general the ruling_amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 i and ii of the regulations provide that the funding_period for a nuclear decommissioning fund is the period that begins on the first day of the first taxable_year for which a deductible payment is made or is deemed to be made to such nuclear decommissioning fund and ends the later of the last day of the taxable_year that includes the estimated date on which the decommissioning costs of the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer's cost of service for ratemaking purposes or the last day of the taxable_year that includes the estimated date on which the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides in part that the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3 of the regulations provides that the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant plr-140706-05 sec_1_468a-3 of the regulations provides that if two or more public_utility commissions establish or approve rates for electric energy generated by a single nuclear power plant then the schedule of ruling amounts shall be separately determined pursuant to the rules of sec_1_468a-3 through e for each public_utility commission that has determined the amount of decommissioning costs to be included in the cost of service for ratemaking purposes for this plant under sec_1_468a-3 this separate determination shall be based on the reasonable assumptions and determinations used by the relevant public_utility commission and shall take into account only that portion of the total estimated cost of decommissioning that is properly allocable to the ratepayer whose rates are established or approved by the public_utility commission according to sec_1_468a-3 the ruling amounts for any taxable_year is the sum of the ruling amounts for such taxable_year determined under the separate schedules of ruling amounts sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 of the regulations enumerates the information required to be submitted by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-5 of the regulations provides that a nuclear decommissioning fund is not permitted to accept any contributions in cash or property other than cash payments with respect to which a deduction is allowed under sec_468a and sec_1_468a-2 sec_1_468a-5 of the regulations provides in part that except as provided in sec_1_468a-5 if at any time during a taxable_year of a nuclear decommissioning fund the nuclear decommissioning fund does not satisfy the requirements of sec_1 468a- a the internal_revenue_service may in its discretion disqualify all or a portion of the fund as of the date that the fund does not satisfy the requirements of sec_1_468a-5 or as of any subsequent date sec_1_468a-5 of the regulations provides that a nuclear decommissioning fund will not be disqualified under paragraph 468a-5 c by reason of an excess_contribution or the withdrawal of such excess_contribution by an electing taxpayer if the amount of the excess_contribution is withdrawn by the electing taxpayer on or before the date prescribed by law including extensions for filing the return of the nuclear decommissioning fund for the taxable_year to which the excess_contribution relates sec_1_468a-5 defines excess_contribution as the plr-140706-05 amount by which cash payments made or deemed made to a nuclear decommissioning fund during any taxable_year exceed the payment limitation contained in sec_468a and sec_1_468a-2 sec_1_468a-5 provides that the income of a nuclear decommissioning fund attributable to an excess_contribution is required to be included in the gross_income of the nuclear decommissioning fund under section 1468a-4 b we have examined the representations and the data submitted by the taxpayer in relation to the requirements set forth in the code and the regulations based solely upon these representations of the facts we reach the following conclusions the taxpayer has a qualifying interest in plant and is therefore an eligible_taxpayer under sec_1_468a-1 and of the regulations commission a has permitted an amount for decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations the taxpayer has calculated the total decommissioning costs under sec_1_468a-3 of the regulations taxpayer has determined that under sec_1_468a-3 of the regulations o percent is the qualifying percentage for commission a the taxpayer has proposed a schedule of ruling amounts that meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commission a and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund based on the above determinations we conclude that the taxpayer's proposed schedule of ruling amounts with regard to the commission satisfies the requirements of sec_468a of the code approved schedule of ruling amounts --------------------------------------------------- ------------------------------------------- ------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- plr-140706-05 -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time this ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year in addition we conclude that the excess_contributions made by taxpayer to the qualified nuclear decommissioning fund maintained by taxpayer with respect to plant will not cause the fund to be disqualified under sec_1_468a-5 because taxpayer has complied with sec_1_468a-5 however this relief is granted with the understanding that the excess_contribution represents a one-time inadvertent error by taxpayer any income to the qualified nuclear decommissioning fund attributable to the excess_contribution must be included in the gross_income of the nuclear decommissioning fund this letter_ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that this ruling may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied in accordance with the power_of_attorney on file with this office copies of this plr-140706-05 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter letter are being sent to your authorized representative we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each taxable_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


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 b07 plr-140027-06 date date legend trust --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ---------------------- trust --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ----------------------- -------- ------------------------------------------------ state grantor --------------------- date -------------------------- court child -------------------------- date ----------------------- child --------------------------------- date ------------------ date ----------------------- date --------------------------- statute ------------------------------------------------------------------------------------ dear ----- correspondence requesting income gift and generation-skipping_transfer gst tax rulings with respect to the proposed conversion of trust to a total_return_trust under state law this letter responds to your letter dated date and subsequent date and date are before date no additions actual or the facts and representations are as follows grantor created two irrevocable under the terms of each of the original trust agreements and the date court plr-140027-06 trusts on date at the request of the trustees court divided the irrevocable_trust into four separate trusts on date trust and trust are two of the eight trusts created by the date court order and each is held for the benefit of child and his descendants the dispositive provisions of trust and trust are identical constructive have been made to trust or trust since date each trust is governed by state law order after child 1’s death child may direct the payment of up to one-third of the net_income in his last will and testament to his surviving_spouse the balance of the net_income or all of the net_income if none becomes payable to a surviving_spouse shall be paid to child 1’s issue from time to time surviving per stirpes child may by will change the proportion in which his issue shall share in the net_income by exercise of a limited_power_of_appointment if child dies without issue before the termination of the trust the trust assets shall be added to the shares of the remaining children in the same proportion that such shares bear to each other order each trust shall continue until twenty years after the death of the last surviving of eight named individuals child was the last surviving named individual child died on date upon termination of a_trust the trust estate shall be paid to the person s then in receipt of the income if a spouse is currently receiving income a share of the trust necessary to produce such income shall continue to be held in trust during the spouse’s life but the person s who would have received the income shall immediately have a vested interest in the principal withheld the trustees may choose to purchase an annuity for the spouse and make immediate distribution of the entire trust estate child exercised his rights under each trust to change the percentage of net_income paid to his issue but did not direct payment of any net_income to a surviving_spouse income from each trust is currently distributed in accordance with the percentages set out in child 1’s will state statute permits a court to convert a_trust to a total_return_trust or unitrust if the court determines that the conversion will enable the trustee to better carry out the purposes of the trust and that the conversion is in the best interests of the beneficiaries statute provides that following conversion of a_trust to a total_return_trust income in the governing instrument means an annual amount equal to a percentage of the net fair_market_value of the total trust assets averaged over a three-year period finally statute provides that a court has the power to determine the percentage of the total value of the trust assets to be distributed from a total_return_trust under the terms of each of the original trust agreements and the date court child died on date under article three of his will executed on date sec_2501 of the internal_revenue_code imposes a tax on the transfer of the trustees have requested rulings that the proposed conversions of trust plr-140027-06 the trustees of each trust have filed a complaint in court requesting that the court convert trust and trust to a total return trusts under statute and that court approve a distribution percentage from each trust after the conversion the complaint further requests the court declare that on termination the assets from each trust will be distributed to the persons then in receipt of a portion of the unitrust_amount in the same proportions as the unitrust_amount is then being paid the trustees further propose to consolidate trust and trust after the conversion and merger the unitrust_amount will be divided among the beneficiaries as directed in child 1’s will and trust to a total return trusts and subsequent merger will not cause either trust to lose its status as exempt from the gst tax will not cause any beneficiary to have made a gift_for gift_tax purposes will not cause either trust or any beneficiary to realize capital_gain from an exchange of a_trust interest for income_tax purposes and will not change the basis or holding periods of the assets of either trust ruling sec_1 and property by gift by an individual transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible the date of the gift shall be considered the amount_of_the_gift distribution a taxable_termination and a direct_skip under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation-skipping_transfer_tax provisions do not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date however this exemption does not apply if additions actual or constructive are made to the trust after date regulations provides that any trust in existence on date will be sec_2512 provides that if a gift is made in property the value thereof at sec_2611 defines the term generation-skipping_transfer as a taxable sec_2511 provides that the tax imposed by sec_2501 applies whether the sec_26_2601-1 of the generation-skipping_transfer_tax sec_2601 imposes a tax on every generation-skipping_transfer sec_26_2601-1 provides rules for determining when a modification sec_26_2601-1 provides that a modification of the governing plr-140027-06 considered an irrevocable_trust except as provided in sec_26_2601-1 or c which relate to property includible in a grantor’s gross_estate under sec_2038 and sec_2042 judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in sec_26_2601-1 are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer to determine whether a modification of an irrevocable_trust will shift a beneficial_interest in a_trust to a beneficiary who occupies a lower generation the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification if the effect of the modification cannot be immediately determined it is deemed to shift a beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered to shift a beneficial_interest in the trust in addition administration of a_trust in conformance with applicable local law that defines the term income as a unitrust_amount or permits a right to income to be satisfied by such an amount or that permits the trustee to adjust between principal and income to fulfill the trustee’s duty_of impartiality between income and principal beneficiaries will not be considered to shift a beneficial sec_26_2601-1 provides that for purposes of this section a sec_26_2601-1 example considers a situation where a_trust the trustees represent that trust and trust were irrevocable on september plr-140027-06 interest in the trust if applicable local law provides for a reasonable apportionment between the income and remainder beneficiaries of the total return of the trust and meets the requirements of sec_1_643_b_-1 of the income_tax regulations that is otherwise exempt from the gst tax because it was irrevocable prior to date provides that trust income is payable to a for life and upon a’s death the remainder is to pass to a’s issue per stirpes state x the situs of the trust then amends its income and principal statute to define income as a unitrust_amount of of the fair_market_value of the trust assets valued annually the example concludes that the administration of the trust in accordance with the state statute defining income to be a unitrust_amount will not be considered to shift a beneficial_interest in the trust therefore the trust will not be subject_to the provisions of chapter further under the facts of the example no trust_beneficiary will be treated as having made a gift_for federal gift_tax purposes and neither the trust nor any trust_beneficiary will be treated as having made a taxable_exchange for federal_income_tax purposes and that there were no additions to either trust after date b i e which provides that the conversion of an income_interest to a unitrust_interest pursuant to state statute will not be considered to shift a beneficial_interest in a_trust for gst purposes example further concludes that no trust_beneficiary will be treated as having made a gift_for federal gift_tax purposes and neither the trust nor any trust_beneficiary will be treated as having made a taxable_exchange for federal_income_tax purposes provided the proposed conversion meets the requirements of state statute and an order from state court approving the conversion is obtained we conclude that the conversion of the income interests in trust and trust to unitrust interests and the subsequent merger will not be considered to shift any beneficial_interest in either trust and therefore will not cause either trust to lose its status as exempt from the gst tax we further conclude that the proposed modifications will not result in any beneficiary being treated as having made a taxable gift_for federal gift_tax purposes ruling whatever source derived including gains derived from dealings in property and income from an interest in an estate_or_trust shall be the excess of the amount_realized therefrom over the adjusted_basis provided in under sec_1001 of the code gain from the sale_or_other_disposition of property the facts in this case are similar to those set forth in example of sec_26 sec_61 and provides that gross_income means all income from sec_1001 provides that the amount_realized from the sale or other sec_1_1001-1 provides that a loss is not ordinarily sustained prior to the plr-140027-06 sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized under sec_1_1001-1 of the income_tax regulations the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially in_kind or in extent is treated as income or loss sustained disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sale_or_other_disposition of the property for the reason that until such sale_or_other_disposition occurs there remains the possibility that the taxpayer may recover or recoup some of the adjusted_basis of the property until some identifiable_event fixes the actual sustaining of a loss and the amount thereof the loss is not taken into account an exchange of property results in the realization of gain_or_loss under sec_1001 if the properties are materially different 499_us_554 properties exchanged are materially different if the properties embody legal entitlements different in_kind or extent or if the properties confer different rights and powers id pincite in cottage savings the supreme court held that mortgage loans made to different obligors and secured_by different homes embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans id in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent id pincite sec_1_643_b_-1 provides a comprehensive definition of income as that term applies to trusts_and_estates it provides in part that items such as dividends interest and rents are generally allocated to income and proceeds from the sale_or_exchange of trust assets are generally allocated to principal however an allocation of amounts between income and principal pursuant to applicable local law will be respected if local law provides for a reasonable apportionment between the income and remainder beneficiaries of the total return of the trust for the year including ordinary and tax- exempt_income capital_gains and appreciation for example a state statute providing that income is a unitrust_amount of no less than and no more than of the fair_market_value of the trust assets whether determined annually or averaged on a multiple year basis is a reasonable apportionment of the total return of the trust sec_1_643_b_-1 further provides that a switch between methods of determining trust income authorized by state statute will not constitute a recognition event for purposes of sec_1001 in the present case the preliminary question is whether the trustees and plr-140027-06 beneficiaries of the trust and trust will have the same property interests and legal entitlements as a result of the proposed conversion under state statute a conversion to a total_return_trust may be made upon the court's determination that the conversion will enable the trustee to better carry out the purposes of the trust in addition and under the facts presented there is to be no material_change in property interests or legal entitlements for trust trust the trustees or the beneficiaries if the conversion of the trusts to total return trusts does not result in a material_change in property interest or legal entitlements there is no occasion for realizing taxable gain_or_loss under sec_1001 the same analysis applies in determining the tax consequences of the merger of the two trusts in this case the interests of all taxpayers before and after the proposed merger of trust and trust remain the same because each trust has the same beneficiaries and identical terms the exchanged properties are not materially different because they do not involve legal entitlements that are different in_kind or confer different rights and powers neither the consolidation of trust and trust nor a deemed_distribution of the assets of both to the resulting trust result in gain_or_loss realization to any taxpayer in this case ruling sec_1015 provides that if property is acquired by a transfer in trust other than a transfer in trust by a gift bequest or devise the basis shall be the same as it would be in the hands of the grantor increased by the amount of gain or decreased by the amount of loss recognized to the grantor on such transfer date by transfer in trust other than by transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made if the taxpayer acquired the property by transfer in trust this basis applies whether the property be in the hands of the trustee or the beneficiary and whether acquired prior to termination of the trust and distribution of the property or thereafter sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if under chapter of subtitle a such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in his hands as it would have in the hands of such other person see also sec_1_1223-1 sec_1_1015-2 provides that in the case of property acquired after except as expressly provided herein no opinion is expressed or implied based on the information submitted and the representations made we conclude plr-140027-06 that because sec_1001 does not apply to the conversion and merger of the trust and trust assets under sec_1015 the basis of the assets received by the resulting trust will be the same after the conversion and merger as the basis of those assets before furthermore pursuant to sec_1223 the holding_period of each assets in the resulting trust will include the holding_period of that asset in the hands of each original trust concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 provides that it may not be used or cited as precedent being sent to the taxpayer’s representatives pursuant to the power_of_attorney on file with this office a copy of this letter is this ruling is directed only to the taxpayer s requesting it sec_6110 the rulings contained in this letter are based upon information and sincerely melissa c liquerman melissa c liquerman senior technician reveiwer branch passthroughs special industries enclosure copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 1-plr-116277-00 date date legend a x this responds to your letter dated date submitted on behalf of a in which you request a ruling under sec_7701 of the internal_revenue_code facts a is the sole owner of property property part of which is rented to unrelated third persons for residential use and the remainder of which is used by a for residential purposes a proposes to transfer of property to a newly formed limited_liability_company llc in exchange for a interest in llc thereafter a intends to transfer approximately x of a’s interest in llc to a_trust trust which a will create a represents that trust will be treated as a grantor_trust in which a is the sole owner within the meaning of sec_671 through on an ongoing basis a will make rental payments to llc for a’s personal_use of the property and llc will collect rental payments from the unrelated third party tenants a represents that llc will not make an election to be treated as an association_taxable_as_a_corporation for federal_income_tax purposes rather llc will exist according to its default classification under sec_301_7701-3 of the procedure and administration regulations law and analysis sec_301_7701-3 of the procedure and administration regulations provides guidance on the classification of domestic eligible entities for federal tax purposes generally a domestic eligible_entity with a single member is disregarded as an entity separate from its owner unless the entity elects to be treated otherwise sec_301 b ii sec_671 provides that when the grantor is treated as the owner of any portion plr-116277-00 of a_trust there shall be then be included in computing the taxable_income and credits of the grantor those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account in computing taxable_income or credits against the tax of an individual a represents that trust is a grantor_trust in which a is considered the sole owner because a is considered to be the owner of the entire trust a is considered to be the owner of the trust assets for federal_income_tax purposes see 549_f2d_89 8th cir cert_denied 432_us_906 69_tc_165 the reason for attributing items of income deduction and credit to the grantor under sec_671 is that by exercising dominion and control_over a_trust either by retaining a power over or an interest in the trust or by dealing with the trust property for the grantor’s benefit the grantor has treated the property as though it were the grantor’s property revrul_85_13 1985_1_cb_184 conclusion based solely on the facts submitted and representations made llc will be considered disregarded as an entity separate from its owner a and the payment of rent by a to llc does not result in any taxable_income to or deduction for a except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer s christopher t kelley sincerely acting assistant to the branch chief associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 2-plr-122772-98 date date trust settlor corporation trustee state a b c d1 cite cite dear this letter is in response to your letter dated date and subsequent correspondence requesting a ruling regarding the tax consequences of a consent_dividend to trust a charitable_remainder_unitrust the information submitted states that settlor established trust on d1 trustee is the trustee of trust trust is governed by the laws of state and is intended to qualify as charitable_remainder_unitrust under sec_664 the governing document of trust provides that trustee shall pay to settlor a unitrust_amount equal to the lesser_of a the trust income for the year as defined under sec_643 of the code and regulations thereunder or b five percent of the aggregate fair_market_value of the trust assets for the year the trust instrument also provides that the unitrust_amount for any year shall also include any amount of trust income for such year that is in excess of the amount required to be distributed under b above to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed at five percent of the net fair_market_value of the trust assets currently the aggregate of the amounts paid in prior years is approximately a dollars less than the aggregate of the amounts computed at five percent of the net fair_market_value of trust assets in prior years the primary asset held by trust is stock in corporation corporation currently has in excess of a dollars of accumulated earnings and profit corporation intends to convert to a real_estate_investment_trust reit to be eligible to convert to a reit corporation must distribute its pre-reit accumulated_earnings_and_profits to accomplish this corporation proposes to distribute to its shareholders approximately b percent of its earnings_and_profits through a cash dividend and c percent of its earnings_and_profits in a non-cash consent_dividend under sec_565 of the code trustee represents that it will only agree to the consent_dividend if the consent_dividend made to trust is pro- rata when compared with the aggregate consent dividends made to the other existing shareholders of corporation it will not be an option for trust or any other shareholder of corporation to receive additional common_stock or notes of corporation as part of the distribution of corporation’s earnings_and_profits trustee represents that amounts treated as consent dividends will be included by trustee in trust’s gross_income described in sec_664 trustee also represents that under the laws of state a_trust generally does not have either income or principal until the trust receives money or property see cite trustee also represents that under the laws of state and under the terms of the governing document of trust all distributions from a reit to trust other than distributions made from ordinary_income are principal see cite thus the trustee represents that all distributions by corporation after it is a reit to trust other than distributions of the reit’s ordinary_income will be allocated to principal by trustee and thus will never be distributed to settlor as part of the unitrust_amount sec_664 provides that for purposes of sec_664 a charitable_remainder_unitrust is a_trust from which a fixed percentage that is not less than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons sec_664 provides that the trust instrument may provide that the trustee shall pay the income_beneficiary the amount of the trust income if such amount is less than the amount required to be distributed under sec_664 and any amount of the trust income which is in excess of the amount required to be distributed under sec_664 to the extent that by reason of subparagraph a the aggregate of the amounts paid in prior years was less than the aggregate of such required amounts sec_1_664-3 provides that trust income for purposes of sec_664 means income as defined in sec_643 and the regulations thereunder sec_643 provides that for purposes of subparts a through d part i subchapter_j chapter the term income when not preceeded by the words taxable distributable net undistributed net or gross means the amount of income of the estate_or_trust for the taxable_year determined under the terms of the governing instrument and applicable local law items of gross_income constituting extraordinary dividends or taxable stock_dividends that the fiduciary acting in good_faith determines to be allocable to corpus under the terms of the governing instrument and applicable local law shall not be considered income sec_664 contains the ordering rules for determining the character of a charitable_remainder trust’s distribution in the hands of the recipient sec_664 provides that the amounts distributed by a charitable_remainder_trust are first considered amounts of income other than gains and amounts treated as gains from the sale_or_other_disposition of capital assets includible in gross_income to the extent of such income of the trust for the year and such undistributed_income of the trust for prior years sec_565 provides that if a person owns consent_stock in a corporation on the last day of the taxable_year of the corporation and such person agrees in a consent filed with the return of the corporation to treat as a dividend the amount specified in such consent the amount so specified shall be treated as a consent_dividend sec_565 provides that the amount of the consent_dividend shall be considered as distributed in money by the corporation to the shareholder on the last day of the taxable_year and as contributed to the capital of the corporation by the shareholder on such day based on the facts and representations submitted we conclude that because trust does not have income under state law until it is in actual receipt of money or other_property the amount treated as a consent_dividend by trustee and corporation is not income under sec_643 accordingly amounts treated as consent dividends are included in trust’s gross_income for purposes of sec_664 but do not constitute trust income for purposes of sec_664 no opinion is expressed or implied as to the federal tax consequences of the formation and operation of trust under any other provision of the code specifically no opinion is expressed as to whether trust qualifies as a charitable_remainder_unitrust under sec_664 whether corporation qualifies as a reit whether the proposed transaction meets the requirements of sec_565 the tax consequences of the proposed transaction to corporation and the tax consequences of any future transaction treated as a consent_dividend by trustee and corporation to trust settlor and corporation further this ruling applies only to trust as currently structured in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to trustee this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be cited or used as precedent sincerely yours j thomas hines senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes