internal_revenue_service number release date index number ---------------- ------------------------------ ------------------------------------------------------ --------------------- ------------------------ - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc corp plr-136395-06 date november -------------------------------------------------------------- ------------------------------------------------------- ------------------------------------- legend distributing ------------------------------------------------------------------- ----------------------------------------------------------- controlled ------------------------------------------------------------------------ ----------------------------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- sub ---------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------- --------------------------------------- --------------------------------------------- ----------------------------------------------- ----------------------- ----------------------- plr-136395-06 sub ------------------------------------------------------------------- foreign sub ---------------------------------------------------------------- foreign sub ----------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------- foreign sub ------------------------------------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ------ -------------------------------------------------------------------------------- ----------------------------------------------------------------- ---------------------------------------------------------------- foreign sub --------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------- foreign sub ---------------------------------------------------------------- business x business y investment bank dear -------------- ------------------------------------------ ------------------------------------------------ --------------------------- this letter responds to your date letter requesting rulings as to certain federal_income_tax consequences of a proposed transaction the information provided in that letter and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the proposed transaction i satisfies the business_purpose requirement of plr-136395-06 sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 a b of the internal_revenue_code and sec_1 d or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 summary of facts distributing is the common parent of an affiliated_group whose includible corporations join in filing a consolidated federal_income_tax return distributing has two classes of voting common_stock outstanding class a and class b distributing wholly owns the stock of several domestic and foreign subsidiaries distributing is directly and indirectly engaged in business x and y the taxpayer including the direct ownership of sub sub sub sub sub sub foreign sub foreign sub foreign sub foreign sub and foreign sub has submitted financial information indicating that business x and business y as conducted by distributing directly and through its relevant subsidiaries has each had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years distributing's management has determined that the separation of business x from business y will serve a number of corporate business purposes including to facilitate an ipo private_placement or similar stock issuance by distributing and increase the aggregate share value of controlled and distributing over the value of distributing prior to the distribution described below proposed transaction proposed collectively the proposed transaction to accomplish the stated business purposes the following transaction has been i distributing will contribute to newly formed controlled all of the assets and liabilities used in connection with business x in exchange for controlled class a stock and controlled class b stock and the assumption by controlled of certain liabilities related to the transferred assets the contribution included in the assets being transferred to controlled is the stock of wholly owned domestic and controlled_foreign_corporations cfc that also operate business x plr-136395-06 ii iii distributing will distribute all of its shares of controlled class a common_stock and class b common_stock to its shareholders pro_rata with the distributing shareholders receiving controlled class a shares on the class a shares of distributing and the class b shares of controlled on the class b shares of distributing the distribution following the distribution distributing intends to engage investment bank to assist it with an initial_public_offering ipo private_placement or similar transaction of less than 50-percent of distributing stock representations distributing makes the following representations with respect to the contribution and the distribution a the indebtedness owed by controlled to distributing if any after the distribution will not constitute stock_or_securities b no part of the consideration to be distributed by distributing will be received by any distributing shareholder as a creditor employee or in any capacity other than that of a distributing shareholder c the five years of financial information submitted on behalf of distributing’s business x and business y represents the present operations of each business and regarding each business there have been no substantial operational changes since the date of the last financial statements submitted d to facilitate the transition of business x to controlled for a period of time certain employees will perform services for both distributing and controlled and will be paid the fair_market_value of their services by each corporation following the distribution distributing and controlled will each continue the active_conduct of its business independently and with its separate employees e the distribution is being carried out for the following business_purpose to facilitate an ipo private_placement or similar stock issuance by distributing and to increase the aggregate share value of distributing and controlled the distribution is motivated in whole or in substantial part by one or more of these corporate business purposes f the distribution is not being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both g for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing 50-percent or more plr-136395-06 of the total combined voting power of all classes of distributing entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution h for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing 50-percent or more of the total combined voting power of all classes of controlled stock entitled to vote or 50-percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five- year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution i the total fair_market_value of the assets transferred by distributing to controlled in the contribution will equal or exceed the aggregate adjusted_basis of the transferred assets j the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation k the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing each equals or exceeds the sum of the liabilities assumed as determined under sec_357 by controlled plus any liabilities to which the transferred assets are subject the fair_market_value of the controlled assets will exceed the amount of the liabilities immediately after the contribution l the liabilities to be assumed as determined under sec_357 in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred m no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution n immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d c b and as currently in effect sec_1_1502-13 as published by t d further distributing's excess_loss_account if any with respect to its controlled common_stock will be included in income immediately before plr-136395-06 the distribution to the extent required by applicable treasury regulations see sec_1_1502-19 o payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length p no two parties to the transaction are investment companies as defined in sec_368 and iv q earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 follows on the contribution and distribution rulings based solely on the information and representations submitted we rule as the contribution followed by the distribution will qualify as a reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss on the contribution sec_357 and sec_361 sec_1032 controlled will not recognize any gain_or_loss on the contribution controlled's basis in each asset received in the contribution will equal the basis of that asset in the hands of distributing immediately before its transfer sec_362 controlled's holding_period in each asset received from distributing included the period during which distributing held that asset sec_1223 distributing will not recognize any gain_or_loss on the distribution sec_361 the aggregate basis of the distributing stock and the controlled stock in the hands of each distributing shareholder immediately after the distribution will equal the shareholder’s aggregate basis in the distributing stock held immediately before the distribution such aggregate basis will be allocated between the distributing stock and the controlled stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 b plr-136395-06 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of a distributing shareholder on the distribution sec_355 the holding_period of the controlled stock received by each distributing shareholder will include the holding_period of the distributing stock on which the distribution is made provided such stock is held as a capital_asset on the date of the distribution sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 no opinion is expressed about the tax treatment of the proposed transaction caveats described above under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the proposed transaction satisfies the business_purpose requirement of sec_1_355-2 ii whether the proposed transaction is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both and iii whether the proposed transaction is part of a plan or series of related transactions under sec_355 procedural statements this ruling letter is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file in this office a copy of this ruling letter will be sent to your authorized representative sincerely ____________________________________ richard k passales senior counsel branch office of associate chief_counsel corporate


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b01 iglazman preno-138993-11 uilc date date to phil whitworth internal revenue_agent ipg-cam sme from john p moriarty chief branch income_tax and accounting third party communication none date of communication not applicable subject satisfying the 90-day and 120-day window period requirements of revproc_2011_14 for changes described in section dollar_figure of the appendix this responds to your question asking how a taxpayer under examination wishing to change its method_of_accounting for advance_payments in accordance with section dollar_figure of the appendix of revproc_2011_14 2011_4_irb_329 date may satisfy the requirement to file a copy of the application with the national_office during the and 120-day window periods you note that taxpayers changing a method_of_accounting under section dollar_figure of the appendix file a statement in lieu of form_3115 and are not required to file duplicate copies of their applications with the national_office as described below taxpayers under examination wishing to change a method_of_accounting for advance_payments under section dollar_figure of the appendix may satisfy the requirement to file a copy of the application with the national_office during the and 120-day window periods by filing a copy of the statement in lieu of the application with the national_office if you have any questions regarding this memorandum or our conclusion please contact innessa glazman pincite-5020 analysis taxpayers that receive advance_payments as defined in section dollar_figure of revproc_2004_34 may defer the inclusion of these advance_payments in gross_income to the next succeeding taxable_year in accordance with revproc_2004_34 section dollar_figure of the appendix to revproc_2011_14 provides procedures for taxpayers to obtain automatic consent for a change in method_of_accounting for certain advance_payments preno-138993-11 section of revproc_2011_14 provides that applying for a consent to change a method_of_accounting is accomplished ordinarily by filing a form_3115 however in some cases a taxpayer may file a statement in lieu of a form_3115 as the application section a requires taxpayers to file an application in duplicate the taxpayer must attach the original application to its federal_income_tax return implementing the change in method_of_accounting in addition the taxpayer must submit a copy of the application to the national_office or to the ogden service_center for this purpose an application can be either a form_3115 or a statement filed in lieu of a form_3115 see sec_3 sec_15 b b of the appendix to revproc_2011_14 waives the requirement to file an application on form_3115 and authorizes a statement in lieu of form_3115 for certain changes in addition the section waives the requirement to file a duplicate application a taxpayer under examination generally is prohibited from using the consent provisions of revproc_2011_14 unless it complies with one of the exceptions in section see sec_4 section dollar_figure provides that a taxpayer that is under examination may file an application to change a method_of_accounting under revproc_2011_14 if the taxpayer is within the 90-day or 120-day window as defined in sections and both the 90-day and 120-day window periods require a taxpayer to file a copy of its application with the national_office or the ogden service_center as applicable in accordance with sec_3 a taxpayer under examination wishing to change its method_of_accounting for advance_payments under section dollar_figure of the appendix satisfies the requirement to file a copy of the application with the national_office during the and 120-day window periods by filing a copy of the statement in lieu of the application with the national_office the copy must be mailed to the address specified in section and state whether the taxpayer is submitting the statement under the 90-day or 120-day window in addition a copy of the statement must be supplied to the examining agent s in accordance with section c all of the section references in this advice are to sections in revproc_2011_14 2011_4_irb_329 date unless specifically noted otherwise section dollar_figure provides other alternative rules by which a taxpayer under examination may obtain consent to change its method_of_accounting these other rules are not relevant to this discussion


t c memo united_states tax_court donald g cave a professional law corp petitioner v commissioner of internal revenue respondent docket no filed date jerry f pepper for petitioner donna mayfield palmer for respondent memorandum findings_of_fact and opinion marvel judge this case is before the court on a petition for redetermination of employment status filed pursuant to sec_7436 in a notice_of_determination of worker 1unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure all continued classification notice_of_determination issued to petitioner respondent determined that donald g cave donald cave michael l cave michael cave david lahaye mr lahaye michael matthews mr matthews and renee cooper willis ms willis were petitioner’s employees for all taxable periods of calendar years and and that petitioner was not entitled to relief under the revenue act of publaw_95_600 92_stat_2885 as amended act sec_530 consequently respondent determined that petitioner was liable for employment taxe sec_2 and penalties in the following amounts sec_6656 quarter year amount penalty tax fica withholding dollar_figure dollar_figure fica withholding big_number big_number fica withholding big_number big_number fica withholding big_number big_number futa big_number fica withholding big_number big_number fica withholding big_number big_number fica withholding big_number big_number fica withholding big_number big_number futa big_number the issues for decision are whether petitioner is a proper party before this court whether donald cave michael continued monetary figures have been rounded to the nearest dollar 2for convenience we use the term employment_taxes to refer to taxes under the federal_insurance_contribution_act fica secs and the federal_unemployment_tax_act futa secs and federal_income_tax withholding secs cave mr lahaye mr matthews and ms willis were petitioner’s employees for employment_tax purposes in and whether petitioner is entitled to act sec_530 relief and whether petitioner is liable for the failure to deposit penalty under sec_6656 i background findings_of_fact some of the facts have been stipulated we incorporate the stipulated facts into our findings by this reference on the date the petition was filed petitioner was a louisiana corporation with a principal_place_of_business in baton rouge louisiana on date after the filing of the petition petitioner was dissolved under louisiana law and petitioner’s assets were transferred to cave law firm l l c which continued petitioner’s business petitioner was incorporated on date as a louisiana professional law corporation petitioner’s business consisted primarily of representing individuals injured in accidents fees generated from the provision of legal services were petitioner’s only source_of_income in and all attorney’s fees and reimbursements of case expenses were paid directly to petitioner which then paid a portion of the gro sec_3although petitioner handled most cases on a contingency basis ms willis handled some family law matters on an hourly basis in and fee generally one-half or one-third to the attorney who handled the case petitioner was an s_corporation for federal_income_tax purposes in and at all relevant times donald cave was petitioner’s president and sole shareholder ii donald cave donald cave has been licensed to practice law in the state of louisiana since date and he maintained an active trial practice with petitioner in and in addition donald cave performed the following services for petitioner in and he selected the associate attorneys who would work for petitioner he hired law clerks to provide legal services to petitioner he hired petitioner’s support staff which in and included an investigator a receptionist and several secretaries he set the support staff members’ hours he determined whether petitioner’s workers would receive bonuses and in what amounts he approved petitioner’s payroll and he decided whether to make advance_payments or reimburse petitioner’s workers for case-related and work-related expenses in addition donald cave owned the professional office building in which petitioner’s principal_place_of_business was located and arranged for petitioner to lease space in the building in and petitioner’s attorneys and support staff occupied only of the office suites in the building and donald cave as lessor leased or held out for lease the remaining office suites petitioner maintained several client trust accounts operating accounts and banking lines of credit in and case recoveries generally were deposited into the client trust accounts which were under the control of donald cave in addition donald cave was one of only two authorized signatories on petitioner’s checking accounts and was the only attorney permitted to access any of petitioner’s banking lines of credit in and donald cave delegated some of petitioner’s day-to-day responsibilities to petitioner’s office manager elizabeth wells ms wells in and ms wells’ responsibilities included preparing petitioner’s payroll drafting and signing workers’ checks maintaining petitioner’s books_and_records monitoring petitioner’s bank balances interviewing potential employees and approving advance_payment and reimbursement requests for less than dollar_figure donald cave received a portion of the fees generated in cases he handled in and he also received draws from petitioner of dollar_figure in and dollar_figure in iii the associate attorneys donald cave considered petitioner an attorney incubator because he generally hired recent law school graduates with little prior professional experience in and the following attorneys in addition to donald cave worked for petitioner michael cave mr lahaye and ms willis for convenience we will refer to michael cave mr lahaye and ms willis collectively as the associate attorneys michael cave is the son of donald cave mr lahaye and ms willis are not related to donald cave each of the associate attorneys joined petitioner as a law clerk before graduating from law school and continued to work for petitioner as an attorney after graduating from law school and passing the louisiana bar exam petitioner treated the associate attorneys as employees for employment_tax purposes during their tenures as law clerks 4ms willis admitted to the louisiana bar on date worked for petitioner as an associate attorney from that date through mr lahaye admitted to the louisiana bar on date worked for petitioner as an associate attorney from that date through michael cave admitted to the louisiana bar on date worked for petitioner as an associate attorney until its dissolution whereupon he began working for cave law firm l l c petitioner did not require the associate attorneys to work from petitioner’s principal office to work set hours or to account for their time petitioner did not require the associate attorneys to sign written contracts of employment or association nor did it require the attorneys to sign noncompetition agreements the record contains no evidence however that any of the associate attorneys either offered services to or performed services for other law firms while they worked for petitioner nor is there any evidence in the record that the associate attorneys offered their services to the public other than as representatives of petitioner none of the associate attorneys had any clients or cases when they joined petitioner as attorneys and donald cave referred cases to them to help them develop their practices the associate attorneys also occasionally worked on cases donald cave was personally handling donald cave expected the associate attorneys to generate new business for petitioner and he provided an incentive for them to do so in and the associate attorneys received one-half of the gross fees collected in cases they generated but only one-third of the gross fees collected in cases referred to them by or on behalf of petitioner the associate attorneys did not receive any other 5indeed following the birth of her child in date ms willis worked part time from home for the rest of and throughout compensation from petitioner in or the balance of the fee remaining after payment of the associate attorney’s share went to petitioner and was used to pay firm expenses including support staff salaries telephone bills and computer and software expenses and distributions to donald cave when a new associate attorney joined petitioner donald cave recommended but did not require that the new attorney attend seminars in maritime law and trial practice suggested articles for the new attorney to read and asked the new attorney to attend one or two of his trials petitioner did not review pleadings or correspondence prepared by the associate attorneys in cases they generated but did review pleadings and correspondence prepared by the attorneys in cases referred to them petitioner generally did not require the associate attorneys to give oral or written status updates regarding their cases but did require oral status updates in cases that were independently generated by one of the associate attorneys and in which petitioner had made an advance_payment of case expenses 6although ms willis testified that neither petitioner nor donald cave reviewed any of the pleadings or correspondence she prepared in and or required oral status updates in any of the cases she handled her testimony is not necessarily inconsistent with the parties’ stipulation that petitioner reviewed pleadings and correspondence and required oral status updates in at least some cases indeed donald cave testified that by and ms willis had developed her own clients and that the matters she handled rarely if ever required advances petitioner paid each of the associate attorneys a stipend during the attorney’s first few months on the job but discontinued the stipend once the attorney’s cases began generating fees petitioner did not require the associate attorneys to accept or reject particular cases or kinds of cases and at least one of the associate attorneys michael cave rejected some of the cases that donald cave referred to him however donald cave could not recall either of the other associate attorneys ever rejecting a case he referred to him or her petitioner provided the associate attorneys with the following professional office space including office furniture utilities janitorial services and security monitoring secretarial services letterhead and professional business cards identifying the associate attorneys as petitioner’s attorneys computers printers telephones copy machines fax machines and other office equipment and supplies access to petitioner’s law library internet service and computer server premises liability insurance coverage and advances for certain case expenses to receive advances for case expenses the associate attorneys were required to make written requests as noted above requests for less than dollar_figure could be approved by ms wells but requests for more than dollar_figure required donald cave’s authorization petitioner recovered the advances when it received a recovery in the case if a case did not result in a recovery petitioner absorbed the loss petitioner also paid or reimbursed the associate attorneys for other work-related expenses in and including mandatory louisiana state bar association dues and disciplinary assessments the cost of hours per year of continuing legal education cle and gasoline expenses petitioner also paid michael cave’s and mr lahaye’s automobile expenses in and including automobile payments insurance premiums and repairs donald cave decided on a case-by-case basis whether to pay an associate attorney’s automobile expenses petitioner did not maintain firmwide malpractice insurance in and and did not pay or offer to pay the associate attorneys’ malpractice insurance premiums petitioner did not offer the associate attorneys health or medical insurance paid vacation or sick leave retirement contributions student_loan repayment assistance or child care allowances 7petitioner paid the associate attorneys’ gasoline expenses by issuing them credit cards that they could use to purchase gasoline it is not clear whether the associate attorneys could also use the credit cards to pay other work-related expenses iv mr matthews in date donald cave hired mr matthews to provide legal services to petitioner as a law clerk mr matthews was hired on a nonexclusive basis meaning he was permitted to work for other attorneys who were not associated with petitioner mr matthews also was allowed to pursue other business interests which included serving as a motorcycle safety training instructor and as a consultant in litigation involving motorcycle accidents mr matthews’ work for petitioner in and consisted primarily of doing legal research and preparing pleadings and briefs for donald cave mr matthews also worked on occasion for the associate attorneys mr matthews was paid a set amount--generally dollar_figure every other week he also received bonuses from petitioner totaling dollar_figure in mr matthews generally performed his work either at his home or at petitioner’s office petitioner provided mr matthews with most of the same amenities it provided to the associate attorneys including a shared office office equipment and supplies internet access and access to petitioner’s law library in and petitioner also reimbursed mr matthews for some of the expenses_incurred in his work petitioner did not provide mr matthews with secretarial services letterhead or business cards and did not offer him health insurance retirement contributions or other_benefits mr matthews continued to work for petitioner until its dissolution as of the trial date mr matthews did occasional work for cave law firm l l c but did not use or have access to an office at the firm v petitioner’s tax returns petitioner filed forms 1120s u s income_tax return for an s_corporation for and form sec_941 employer’s quarterly federal tax_return for all quarters of and and forms 940-ez employer’s annual federal unemployment futa_tax return for and petitioner did not treat donald cave the associate attorneys or mr matthews as employees for employment_tax purposes on its and federal tax filings petitioner issued forms 1099-misc miscellaneous income to the associate attorneys and to mr matthews for and petitioner did not issue a form_w-2 wage and tax statement or a form 1099-misc to donald cave for or donald cave believed it was appropriate for petitioner to treat the associate attorneys and mr matthews as independent contractors because he did not have sufficient control_over their work the record does not disclose however the basis on which 8donald cave testified that his treatment of the associate attorneys was affected by a prior audit in the early 1970s of a continued donald cave determined it was appropriate for petitioner to treat the associate attorneys mr matthews and himself as independent contractors richard roberts mr roberts the certified_public_accountant who assisted in the preparation of petitioner’s form_1120s reviewed petitioner’s books_and_records and had discussions with donald cave before preparing the return mr roberts agreed with donald cave that petitioner’s attorneys and law clerks should be classified as independent contractors for employment_tax purposes but did not investigate the facts or do any research to verify mr cave’s position i proper party opinion as an initial matter we must determine whether petitioner which was dissolved under louisiana law after the filing of the petition is a proper party before the tax_court the capacity of a corporation to engage in litigation in the tax_court shall be determined by the law under which the corporation was organized rule c see also 87_tc_586 petitioner was a louisiana corporation before its dissolution accordingly continued law firm with which he was then affiliated however the record does not contain any details with respect to the prior audit including whether worker classification for employment_tax purposes was even an issue in the prior audit louisiana law governs petitioner’s right to prosecute an action in this court louisiana law provides upon issuance of the certificate of dissolution the corporate existence shall cease as of the effective date stated in the certificate except for the sole purpose of any_action or suit commenced theretofore by or commenced timely against the corporation la rev stat ann sec_12 c see also 13_f3d_168 5th cir in mayfair sales inc v sams so 2d la ct app the court of appeal of louisiana explained the purpose of la rev stat ann sec_12 c is to allow for the extension of corporate existence to finalize litigation previously commenced by or against the corporation without this statute unresolved claims by or against a corporate entity asserted prior to dissolution would abate upon dissolution of the corporation citation omitted petitioner commenced an action in this court by filing a petition although petitioner was subsequently dissolved under louisiana law petitioner is entitled under louisiana law to prosecute this action see la rev stat ann sec_12 c grubbs v gulf intl marine inc supra consequently petitioner is a proper party before the court ii employees v independent contractors sec_3111 and sec_3301 impose fica and futa taxes respectively on employers on the basis of wages they pay to employees 119_tc_121 affd 93_fedappx_473 3d cir sec_3121 provides that for fica tax purposes the term employee includes any individual who has the status of an employee under common_law sec_3121 and describes other individuals who are considered employees for fica tax purposes regardless of their status under common_law individuals who are described in sec_3121 and including an officer of a corporation are commonly referred to as statutory employees joseph m grey pub accountant p c v commissioner supra pincite with certain exceptions not relevant in this case the sec_3121 definition of employee also applies for futa_tax purposes sec_3306 for purposes of income_tax_withholding the term employee includes inter alia an officer of a corporation sec_3401 the term also includes every individual performing services if the relationship between him and the person for whom he performs such services is the legal relationship of employer and employee sec_31_3401_c_-1 employment_tax regs the existence of an employer-employee relationship for income_tax_withholding purposes is determined generally by reference to the usual common_law rules applicable in determining such relationships see sec_31_3401_c_-1 employment_tax regs see also revrul_75_343 1975_2_cb_403 a burden_of_proof the commissioner’s determinations are presumed correct and the taxpayer bears the burden of proving that they are incorrect rule a 290_us_111 this principle applies to the commissioner’s determinations that a taxpayer’s workers are employees 117_tc_263 citing 77_f3d_236 8th cir b whether donald cave was petitioner’s employee an officer of a corporation who performs substantial services for the corporation and receives remuneration for such services is an employee for employment_tax purposes sec_3121 sec_3306 see also 117_tc_141 affd sub nom 54_fedappx_100 3d cir sec_31_3121_d_-1 employment_tax regs however an officer of a corporation who does not perform any services or performs only minor services and who neither receives nor is entitled to receive any remuneration directly or indirectly is not an employee of the corporation sec_31_3121_d_-1 employment_tax regs in veterinary surgical consultants p c v commissioner supra we held that a surgeon who was the president and sole shareholder of an s_corporation and performed services for the corporation was an employee for employment_tax purposes see also joseph m grey pub accountant p c v commissioner supra pincite in and donald cave was petitioner’s president made virtually all corporate decisions with respect to petitioner received a percentage of the legal fees recovered in cases he handled and received draws from petitioner of dollar_figure and dollar_figure in and respectively these facts tend to establish that donald cave was petitioner’s employee within the meaning of sec_3121 there is no evidence in the record such as a service agreement to support a finding that donald cave performed services for petitioner in some capacity other than as president see joseph m grey pub accountant p c v commissioner supra pincite see also revrul_82_83 1982_1_cb_151 it is a question of fact in all cases whether officers of a corporation are performing services within the scope of their duties as officers or whether they are performing services as independent contractors moreover the management services donald cave performed for petitioner were fundamental to petitioner’s operations and such services rarely are performed by independent contractors see revrul_82_83 supra c b pincite finally the fact that donald cave delegated some day-to-day responsibilities with respect to petitioner to ms wells is immaterial because the record reflects that ms wells was acting on donald cave’s behalf and she performed only those tasks that donald cave delegated to her in summary we conclude that donald cave was a statutory_employee of petitioner for employment_tax purposes in and see sec_3121 sec_3306 sec_31_3121_d_-1 employment_tax regs c whether the associate attorneys and mr matthews were petitioner’s employees sec_3121 defines an employee as any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee see also sec_3306 the regulations provide additional guidance with respect to a worker’s classification as a common_law_employee specifically sec_31_3121_d_-1 employment_tax regs provides an employer-employee relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished i t is not necessary that the employer actually direct or control the manner in which the services are performed it is sufficient if he has the right to do so the right to discharge is also an important factor indicating that 9even if we were to evaluate donald cave’s worker classification taking into account only those services he personally performed for petitioner we would still conclude that donald cave was petitioner’s employee in and because he was petitioner’s president he personally performed substantial services for petitioner and he received remuneration from petitioner the person possessing that right is an employer other factors characteristic of an employer but not necessarily present in every case are the furnishing of tools and the furnishing of a place to work to the individual who performs the services absent a stipulation to the contrary this case is appealable to the court_of_appeals for the fifth circuit see sec_7482 the court_of_appeals for the fifth circuit considers the following factors in deciding whether a worker is a common_law_employee the degree of control the principal has over the worker the worker’s opportunity for profit or loss the worker’s investment in facilities the permanence of the relationship and the skill required in the operationdollar_figure 900_f2d_49 5th cir no single factor is determinative all facts and circumstances must be taken into account and doubtful questions should be resolved in favor of employee status id pincite 10this court and the internal_revenue_service use similar tests this court considers the degree of control exercised by the principal over the worker which party invests in work facilities used by the worker the worker’s opportunity for profit or loss whether the principal has the right to discharge the worker whether the work is part of the principal’s regular business the permanency of the relationship and the relationship the parties believed they were creating see eg 117_tc_263 see also weber v commissioner 103_tc_378 affd 60_f3d_1104 4th cir no single factor is determinative and all facts and circumstances must be considered weber v commissioner supra pincite the internal_revenue_service applies a 20-factor analysis which also requires an examination of all relevant facts and circumstances see revrul_87_41 1987_1_cb_296 degree of control in determining the existence of an employer-employee relationship the crucial test is the principal’s right to control the worker not only as to the result to be obtained but also as to the manner in which the service is to be performed weber v commissioner 103_tc_378 affd 60_f3d_1104 4th cir sec_31_3121_d_-1 employment_tax regs the degree of control necessary to find an employer- employee relationship varies depending on the nature of the services provided by the worker ewens miller inc v commissioner t c pincite the level of control necessary to find employee status generally is lower when applied to professionals than when applied to nonprofessionals weber v commissioner supra pincite 25_tc_1296 noting that there are many eminent lawyers who are full-time employees of corporations and who carry on their professional work with a minimum of direct supervision or control_over their methods on the part of their employer in order for the principal to retain the requisite control_over the details of a worker’s work it is not necessary that the principal stand over the worker and direct every move made by the worker weber v commissioner supra pincite sec_31 d - c employment_tax regs rather the crucial test is whether the principal had the right to impose control weber v commissioner supra pincite in weber v commissioner supra pincite we concluded that the taxpayer a united methodist church minister was subject_to significant control where inter alia he was required to perform numerous duties lacked authority to discontinue the church’s regular services was required to be amenable to the church’s governing authority and was subject_to discipline including termination for ineffectiveness or unfitness conversely in 64_tc_974 we concluded that the taxpayer an insurance agent was not subject_to significant control where inter alia he set his own work schedule submitted no written reports and was not provided with any leads to help him sell insurance policies a associate attorneys whether petitioner had the right to control the details of the associate attorneys’ work is an intensely factual question on the one hand petitioner provided the associate attorneys with minimal training and supervision donald cave suggested but did not require that new attorneys attend one or two of his trials attend particular seminars and read certain legal articles the associate attorneys were not required to work from a particular location to work particular hours or to account for their time the associate attorneys were not required to accept or reject certain cases or kinds of cases and were free to reject cases referred to them by donald cave on the other hand petitioner acting through its president donald cave controlled the assignment of cases to the associate attorneys and determined whether the associate attorneys would be reimbursed for case-related and other work-related expenses these facts are highly probative that petitioner had substantial control_over the manner in which the associate attorneys performed their work petitioner acting through donald cave also reviewed pleadings and correspondence prepared by the associate attorneys in at least some cases and required them to give oral status reports in certain circumstances in addition donald cave made suggestions to the associate attorneys about how to handle particular cases and he expected the associate attorneys to help out occasionally with cases he was personally handling finally unlike the firm in simpson v commissioner supra which did not provide the taxpayer with any leads to help him develop business petitioner routinely referred cases to the associate attorneys to help them generate fees and develop practices on balance we conclude that the analysis regarding control tips in favor of an employer-employee relationship petitioner’s ability to affect the course of litigation by its decisions regarding the funding of litigation work assignments and working conditions including the supervision of associate attorneys who worked on cases generated by petitioner and or donald cave weighs in favor of an employer-employee relationship the independence of the associate attorneys in dealing with cases they originated for petitioner11 is not sufficient to overcome the control that petitioner exercised and had the right to exercise over the operation of the firm and the funding and conduct of firm litigation in general this factor is indicative of an employer-employee relationship b mr matthews like the associate attorneys mr matthews was not required to work from a particular location to work particular hours or to account for his time but unlike the associate attorneys who were expected to generate cases and clients for petitioner 11the internal_revenue_service issued two revenue rulings regarding the worker classification status of registered nurses and practical nurses that discussed at least in part the effect of a worker’s education and professional credentials see revrul_75_101 1975_1_cb_318 revrul_61_196 1961_2_cb_155 both revenue rulings state that whether a nurse is to be treated as an independent_contractor or as an employee depends on the facts and circumstances of the case although both revenue rulings conclude that registered nurses and practical nurses may be considered as self-employed if they are engaged in private duty nursing under circumstances where they function independently as licensed professionals the revenue rulings also state that such nurses are employees if they are on the regular staff of a hospital clinic nursing home or physician and are subject_to the direction and control of those that engaged them the revenue rulings do not conflict with the conclusions we reach in this case and who had discretion to manage their cases as they saw fit mr matthews received all of his assignments directly from donald cave or in rare instances from one of the associate attorneys and there is no evidence that mr matthews was free to reject assignments this factor is indicative of an employer-employee relationship investment in facilities the fact that a worker provides his or her own tools generally indicates the worker is an independent_contractor ewens miller inc v commissioner t c pincite conversely the fact that a worker has no investment in the facilities used in the work is indicative of an employer- employee relationship see id where the value of the tools provided by the worker is minimal this factor is not of great weight see breaux daigle inc v united_states f 2d pincite a associate attorneys petitioner provided the associate attorneys with all of the tools and facilities necessary to complete their work including office space office furniture computers telephones fax machines copying machines and office supplies petitioner also provided the associate attorneys with secretarial services telephone and internet service and access to petitioner’s computer server law library and online legal research services in some instances petitioner even paid or reimbursed the associate attorneys’ automobile expenses although some of the associate attorneys used their own funds to decorate their offices or to set up home offices there is no credible_evidence that the associate attorneys had more than a de_minimis investment in the facilities used in their work this factor is indicative of an employer-employee relationship b mr matthews petitioner provided mr matthews with most of the same amenities it provided to the associate attorneys including office space office furniture a computer office supplies and equipment and access to petitioner’s law library online research services and computer server although mr matthews sometimes worked from home there is no evidence that he had a significant investment in any of the facilities used in connection with his work for petitioner in or this factor is indicative of an employer-employee relationship profit or loss a compensation arrangement in which an individual works on commission may be indicative of an independent_contractor relationship see simpson v commissioner t c pincite characterizing an individual as an independent_contractor where inter alia his opportunity for and the degree to which he might make a profit or loss in any given year was solely dependent upon his own efforts and skill conversely a compensation arrangement in which an individual cannot increase his profits through his own efforts and is not at risk for loss is indicative of an employer-employee relationship see juliard v commissioner tcmemo_1991_230 characterizing an individual as an employee where inter alia he was paid a salary and reimbursed for expenses_incurred with respect to his work a associate attorneys the associate attorneys’ compensation in and consisted of a percentage of the gross fees petitioner collected in the cases they handled the percentage varied depending on who secured the case thus the associate attorneys could increase their profit by developing new clients and cases and by securing larger fees in the cases they handled however the associate attorneys bore little if any risk of loss from petitioner’s cases and clients that they handled even if they brought them into the firm petitioner provided the associate attorneys with virtually all of the tools facilities and services necessary to complete their work moreover petitioner paid or reimbursed the associate attorneys for most case-related expenses and absorbed the loss if a case never generated a fee petitioner also paid or reimbursed the associate attorneys for various other professional expenses including louisiana state bar association dues cle courses and voluntary professional association memberships in summary the associate attorneys could increase their profits through their own efforts and skill but bore no risk of loss this factor is neutral b mr matthews unlike the associate attorneys mr matthews had no ability to increase his profits by attracting new clients or securing larger fees in the matters he worked on instead mr matthews was paid a flat amount to perform legal services for petitioner and was reimbursed for the costs incurred in his work thus mr matthews could not increase his profits through his own effort and skill and bore no risk of loss with respect to his work for petitioner this factor is indicative of an employer-employee relationship permanence of the relationship a associate attorneys petitioner did not require the associate attorneys to sign written contracts of employment or covenants not to compete nevertheless the record reflects that the relationship between petitioner and the associate attorneys was continuous permanent and exclusive ms willis worked for petitioner as an attorney for years mr lahaye worked for petitioner as an attorney for years and michael cave had worked for petitioner and its successor cave law firm l l c as an attorney for years as of the trial date although the associate attorneys were not required to work exclusively for petitioner there is no credible_evidence that any of the associate attorneys ever provided or offered to provide services to another law firm during the periods at issue nor did they offer services directly to the public other than in their capacity as attorneys working for petitioner this factor is indicative of an employer-employee relationship b mr matthews although mr matthews was not required to sign a written contract of employment or a covenant_not_to_compete the record reflects that mr matthews’ relationship with petitioner was permanent rather than temporary indeed as of the trial date mr matthews had been associated with petitioner and its successor for around years however mr matthews routinely provided legal and other services to lawyers law firms and organizations unaffiliated with petitioner including petitioner’s competitors this factor is neutral skill required in operation a associate attorneys in breaux daigle inc v united_states f 2d pincite- the court_of_appeals for the fifth circuit observed that a worker’s minimal skill argued against a finding of independent_contractor status ‘ t he workers were not specialists called in to solve a problem but unskilled laborers who performed the essential everyday chores of the taxpayer’s operation ’ id quoting 861_f2d_450 5th cir modified 867_f2d_875 5th cir unlike the workers whose classification was at issue in breaux daigle the associate attorneys were highly educated professionals on the other hand the associate attorneys who were newly licensed lawyers when first hired by petitioner were not specialists called in to solve a particular problem but instead performed the essential everyday professional tasks in petitioner’s business this factor is neutral b mr matthews the preceding paragraph applies with equal force to mr matthews although mr matthews’ work for petitioner arguably required less skill than the work performed by the associate attorneys mr matthews was an educated and skilled professional whose responsibilities included essential everyday professional tasks in petitioner’s business this factor is neutral other factors as noted above in determining whether a worker is an employee or an independent_contractor for employment_tax purposes no single factor is determinative and all facts and circumstances must be taken into account some of the other factors that the court_of_appeals for the fifth circuit and this court consider include whether the work is an integral part of the principal’s business and whether the principal has the right to discharge the worker see id pincite weber v commissioner t c pincite a associate attorneys fees generated from the provision of legal services were petitioner’s only source_of_income in and petitioner hired the associate attorneys to provide legal services to existing clients and to develop new clients the services the associate attorneys provided petitioner in and were therefore an integral part of petitioner’s business this factor suggests the associate attorneys were petitioner’s employees the record does not contain any information regarding whether petitioner had the right to discharge the associate attorneys and if so whether there were any limitations on this right this factor is neutral b mr matthews mr matthews’ work was also an integral part of petitioner’s business although mr matthews was a law clerk rather than a licensed attorney his responsibilities-- conducting legal research and drafting legal pleadings--were crucial to petitioner’s law practice this factor suggests an employer-employee relationship the record does not contain any information regarding whether petitioner had the right to discharge mr matthews and if so whether there were any limitations on this right this factor is neutral summary a the associate attorneys in summary we conclude on the basis of all of the relevant facts and circumstances that the associate attorneys were petitioner’s common_law employees three of the five specific factors--degree of control investment in facilities and permanence of the relationship--indicate an employer-employee relationship and the remaining factors are neutral in addition the fact that the work performed by the associate attorneys is an integral part of petitioner’s business supports our conclusion keeping in mind that petitioner bears the burden_of_proof and that doubtful questions should be resolved in favor of employer-employee status we conclude that the associate attorneys were petitioner’s employees for employment_tax purposes in and b mr matthews most of the five specific factors we considered are indicative of an employer-employee relationship in particular petitioner’s control_over mr matthews’ work and compensation arrangements strongly suggests that he was petitioner’s employee in and keeping in mind that respondent’s determinations are presumed correct that petitioner has the burden_of_proof and that doubtful questions should be resolved in favor of employment and after considering all the facts and circumstances we conclude that mr matthews was petitioner’s employee for employment_tax purposes in and iii act sec_530 relief12 when applicable act sec_530 relieves a taxpayer from employment_taxes notwithstanding that the relationship between the taxpayer and the individual performing services would otherwise require payment of such taxes 121_tc_89 affd 425_f3d_1203 9th cir to qualify for act sec_530 relief the taxpayer must not have treated the individual as an employee for any period must have consistently treated the individual as not being an employee on all tax returns for periods after date and must have had a 12petitioner suggested on brief that we need not reach the merits of petitioner’s claim for act sec_530 relief and made no argument with respect to act sec_530 relief reasonable basis for not treating the individual as an employee act sec_530 joseph m grey pub accountant p c v commissioner t c pincite a taxpayer is treated as having had a reasonable basis for not treating an individual as an employee if the taxpayer’s treatment of the individual was in reasonable reliance on judicial precedent published rulings technical_advice with respect to the taxpayer a letter_ruling to the taxpayer a past internal_revenue_service audit of the taxpayer that entailed no assessment attributable to the taxpayer’s employment_tax treatment of individuals holding positions substantially_similar to the position held by the individual whose status is at issue or a longstanding recognized practice of a significant segment of the industry in which the individual was engaged act sec_530 veterinary surgical consultants p c v commissioner t c pincite see also ewens miller inc v commissioner t c pincite a taxpayer may also qualify for act sec_530 relief if it establishes that it had some other reasonable basis for treating its workers as independent contractors see eg images in motion of el paso inc v commissioner tcmemo_2006_19 if a taxpayer establishes a prima facie case that it meets the reporting consistency and substantive consistency_requirements of act sec_530 relied on one of the reasonable basis safe harbors in act sec_530 and cooperated with all reasonable requests from the secretary then the burden shifts to the commissioner to establish that the taxpayer is not entitled to act sec_530 relief act sec_530 added by the small_business job protection act of publaw_104_188 sec a stat with this background in mind we now consider whether petitioner is entitled to act sec_530 relief with respect to any of the workers that respondent determined were employees in and a donald cave although act sec_530 is not by its terms limited to situations involving worker classification under common_law we have held that act sec_530 relief is not available with respect to statutory employees joseph m grey pub accountant p c v commissioner supra pincite see also charlotte’s office boutique inc v commissioner supra pincite n donald cave was petitioner’s statutory_employee in and see supra p consequently act sec_530 relief is not available to petitioner with respect to donald cave b the associate attorneys respondent appears to concede that petitioner did not treat any of the associate attorneys as employees for any period during which they performed services for petitioner as attorneys13 and that petitioner issued forms to the associate attorneys in and however petitioner has not established that it relied on any of the authorities listed in the act sec_530 safe_harbor or that it had any other reasonable basis for treating the associate attorneys as independent contractors donald cave testified at trial that he believed the associate attorneys were appropriately classified as independent contractors because he did not have control_over them however there is no credible_evidence that donald cave did any research or conducted any meaningful investigation with respect to the associate attorneys’ worker classification or that he relied on the informed advice of mr roberts on the contrary the record suggests that mr roberts accepted donald cave’s conclusion that the associate attorneys were independent contractors without thoroughly investigating the issue consequently we conclude that petitioner is not entitled to act sec_530 relief with respect to the associate attorneys c mr matthews act sec_530 clarifies act sec_530 by providing that act sec_530 relief is not available if the 13as noted above petitioner treated the associate attorneys as employees during their tenures as law clerks taxpayer or a predecessor has treated any individual holding a substantially_similar position as an employee for purposes of the employment_taxes for any period beginning after date petitioner treated mr matthews as an independent_contractor in and however petitioner treated the associate attorneys as employees during their tenures as law clerks--when they held positions substantially_similar to the one mr matthews held in and consequently act sec_530 relief is not available to petitioner with respect to mr matthews iv sec_6656 penalty sec_6656 imposes a penalty equal to percent of the portion of an underpayment_of_tax that is required to be deposited if the failure to deposit is for more than days charlotte’s office boutique inc v commissioner t c pincite the taxpayer may avoid the penalty under sec_6656 if the taxpayer’s failure to deposit a tax was due to reasonable_cause and not willful neglect id a taxpayer’s reliance on the advice of a competent professional adviser may constitute reasonable_cause where the taxpayer establishes by a preponderance_of_the_evidence that the adviser was a competent professional who had sufficient expertise to justify reliance the taxpayer provided the adviser with necessary and accurate information and the taxpayer actually relied in good_faith on the adviser’s judgment 115_tc_43 affd 299_f3d_221 3d cir see also charlotte’s office boutique inc v commissioner supra pincite respondent has demonstrated that petitioner failed to deposit employment_tax with respect to donald cave the associate attorneys and mr matthews consequently petitioner must come forward with evidence sufficient to persuade the court that respondent’s determination is incorrect see 116_tc_438 petitioner has not offered any argument that respondent’s determination of a penalty is incorrect or inappropriate nor has petitioner argued that its failure to deposit employment_tax was due to reasonable_cause and not to willful neglect petitioner does not argue that it relied on mr roberts’ advice and in any event petitioner has not established that it provided him with all necessary and accurate information or relied in good_faith on his judgment consequently we sustain respondent’s determination that petitioner is liable for the sec_6656 penalty for and v conclusion in summary we hold that petitioner is a proper party before this court donald cave the associate attorneys and mr matthews were petitioner’s employees for employment_tax purposes in and petitioner is not entitled to act sec_530 relief and petitioner is liable for the sec_6656 penalty we have considered the remaining arguments of both parties for results contrary to those expressed herein and to the extent not discussed above we conclude such arguments are irrelevant moot or without merit 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 3-plr-102780-02 date date legend p q state date date dear this letter responds to a letter dated date and subsequent correspondence requesting a ruling under sec_301 a of the procedure and administration regulations that p be granted an extension of time to file an election to treat q as a qualified_subchapter_s_subsidiary under sec_1361 of the internal_revenue_code effective date facts p was incorporated on date in state also on date p acquired percent of q it is represented that on date p timely elected s_corporation status effective date it is also represented that p intended to elect to treat q as a qualified s subsidiary effective date but p and q inadvertently failed to file a timely election plr-102780-02 law and application sec_1361 defines the term qualified_subchapter_s_subsidiary as a domestic_corporation which is not an ineligible_corporation as defined in sec_1361 if an s_corporation holds percent of the stock of the corporation and that s_corporation elects to treat the subsidiary as a qualified_subchapter_s_subsidiary the election is made by filing form_8869 qualified_subchapter_s_subsidiary election sec_301_9100-1 permits the commissioner to grant a reasonable extension of time for making certain elections sec_301_9100-3 provides that an extension of time to file certain elections will be granted if the taxpayer is able to establish that it acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election see sec_301_9100-1 further sec_301_9100-2 provides automatic extensions of time for making certain elections and sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government see sec_301_9100-3 conclusion based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly p is granted an extension of time of sixty days from the date of this letter to make an election to treat its wholly owned subsidiary q as a qualified subchapter_s_corporation effective date p should submit the properly completed form_8869 to the appropriate service_center a copy of this letter should be attached to the election a copy is enclosed for this purpose except for the specific rulings above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the internal_revenue_code pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to the requested tax representative plr-102780-02 pursuant to your request and a power_of_attorney on file with this office we are sending a copy of this letter by facsimile transmission to the requested tax representative this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely s heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copies of this letter


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 b3 plr-119526-15 date date legend trust ------------------------------------------- ------------------------------------------------------------ ----------------------------------------------------------- ---------------------------------------------------------- ------------------------------------------------------------ ----------------------------------------- --------------------------------------------- a --------------------------------- b ------------------------ ------------------------------------------------- x --------------------------- ----------------------------------------------- state ------------ to whom it may concern this is in reply to your letter of date and supplemental correspondence submitted on behalf of trust requesting a ruling under sec_1361 of the internal_revenue_code code that trust is eligible to be a qualified_subchapter_s_trust and thus an eligible shareholder of x an s_corporation plr-119526-15 facts a created trust for the benefit of child b b is a citizen_of_the_united_states article seventh sec_3 of the trust agreement provides that the income from trust shall be paid in convenient installments at least quarterly to b until complete distribution of the trust or his prior death article seventh sec_3 of the trust agreement further provides that t he trustee may also pay to the child such sums from the principal of trust as the trustee deems necessary or advisable from time to time for the health maintenance in reasonable comfort education including postgraduate and best interests of the child and his descendants individually and as a group considering the income of each of them from all sources known to the trustee no payment made for a descendant of the child shall be charged against the share hereinafter provided for the descendant or his ancestor or descendants article seventh sec_3 of the trust agreement continues to provide i t is my intention that my child be the primary beneficiary of trust accordingly the trustee may disregard the interests of the remaindermen of such trust in the investment of the trust assets and in making discretionary distributions of trust property to the child pursuant to the laws of state which govern trust interested parties may enter into a binding non-judicial settlement agreement with respect to the validity interpretation or construction of the terms of a_trust that is final and binding on the trustee on all beneficiaries of the trust both current and future and on all other interested persons as if ordered by a court pursuant to this procedure the trustees and beneficiary of trust entered into a non-judicial settlement agreement regarding the administration of trust under the terms of the agreement each party agreed that the power of the trustees to distribute the principal of trust pursuant to article seventh sec_3 of the trust agreement is limited to a distribution to b and is not for the benefit of any other person during the life of b that the terms of the trust agreement governing trust do not authorize or permit distributions of principal to any descendant of b directly or indirectly during the life of b and that principal distributions from trust may only be made for b’s benefit that the provisions of trust do not create nor did a intend to create any right claim or cause of action in any such descendant as against b or the trustees to compel or require b or the trustees to pay over any part or all of a principal distribution to such descendants or any of them whether or not the trustees took into account the health maintenance in reasonable comfort education and best interests of plr-119526-15 those descendants in determining the amount of the principal distribution law sec_1361 of the code provides that in the case of a qualified_subchapter_s_trust with respect to which a beneficiary makes an election under sec_1361 such trust shall be treated as a_trust described in sec_1361 relating to trusts that may be shareholders of a small_business_corporation under sec_1361 sec_1361 provides that for purposes of sec_678 the beneficiary of a qualified_subchapter_s_trust shall be treated as the owner of that portion of the trust consisting of stock in an s_corporation with respect to which the election under d is made sec_1361 provides in general for the time and manner in which a beneficiary of a qualified_subchapter_s_trust may elect to have the provisions of sec_1361 apply sec_1361 defines the term qualified_subchapter_s_trust as a_trust all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states in addition the terms of the trust must require that during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary's death or the termination of the trust and upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to such beneficiary sec_643 provides that for purposes of subpart a b c and d of the code the term income when not preceded 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 which 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_1_643_c_-1 of the income_tax regulations provides that the term ‘beneficiary‘ includes any person with respect to an amount used to discharge or satisfy that person's legal_obligation as that term is defined in sec_1_662_a_-4 plr-119526-15 sec_1_662_a_-4 provides in part that any amount which pursuant to the terms of a will or trust instrument is used in full or partial discharge or satisfaction of a legal_obligation of any person is included in the gross_income of such person under sec_662 or whichever is applicable as though directly distributed to him as a beneficiary conclusion based on our examination of the trust described above and the additional information submitted we conclude that trust meets the requirements of sec_1361 of the code except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the transaction described above under any other provisions of the code specifically no opinion is expressed concerning whether x meets the requirements of a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely bradford r poston senior counsel branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


significant index no oo ck ane department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division sep 3s et ep tar in re company this letter constitutes notice that pursuant to your request of date as ’ modified by your authorized representative's letter dated date your request for waivers of the minimum_funding_standard for the above-named plan for the plan years ending december have been withdrawn and the case has been closed by this office and december waivers of the percent tax under sec_4971 of the internal_revenue_code code have been december granted for the above-named plan for the december ha and december plan years ending the waivers of the percent tax have been granted in accordance with b of the employee retirement income security act erisa the amounts for which the waivers have been granted are equal to percent of the accu deficiencies in ding standard account as of december december and december jm the end of the plan years for which the waivers have been granted to the extent such funding deficiencies have not been corrected funding -_ zv vat0v035 the company manufactures straight and specialized and and associated tooling used by processors and hardened wear parts for machines the company also and provides regrinding services on the knives it manufactures as well as miscellaneous products including resale items the company is privately held with nearly of the outstanding and issued shares owned by one family according to information submitted by your authorized representative the company intends to file a request with the pension_benefit_guaranty_corporation to effect a distress termination of the plan this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the manager ep classification in to the manager ep compliance unit in _ and to your authorized representative pursuant to a power_of_attorney on file in this office if you require further assistance in this matter please contact sincerely yours donna m prestia manager employee_plans actuarial group


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-164263-04 uilc date date to director submission processing cincinnati oh attn entity unit from office of division counsel associate chief_counsel tax exempt government entities subject railroad_retirement_tax_act status ------------------------------------------------------------------- in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business ceased to be an employer under the railroad retirement act and the railroad unemployment insurance act effective ------------------------- ----------------------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------------ --------------------------------------------------------------- we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we also conclude that ------------------------------------------------------------------ --------ceased to be an employer under the railroad_retirement_tax_act effective --------- ------------------------ please take the appropriate action regarding this business cc ____________________________ janine cook