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 b09 plr-115605-04 date date - legend date taxpayer taxpayer trust child spouse individual individual bank grandchild a grandchild b grandchild c trust 1a trust 1b trust 1c date grandchild d trust 1d date trust trust ---------------- ------------------- ------------------------- ---------------------------------------- ------------------ ----------------------- ----------------------- ------------------------ --------------------------- ---------------------------------- ------------------------------ ----------------------------------- --------------------------------------------------------------------------------------------- ---------------------- --------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------- ----------------------- ---------------------- --------------------------- --------------------------------------------------------------------------------------------- ----------------------- -------------------------- ----------------------------------------------- ----------------------------------------------- this is in response to your authorized representative’s letter dated article i sec_1 of trust provides in part that spouse individual and plr-115605-04 dear ----------------- date requesting rulings on the income estate gift and generation-skipping_transfer gst tax consequences of a proposed trustee action the facts and representations submitted are summarized as follows on date taxpayer and taxpayer settlors established trust an irrevocable_trust for the benefit of the children of child and spouse individual shall be the initial co-trustees of trust settlors reserve during their lifetimes the power to appoint an independent_trustee should spouse fail refuse or cease to serve as independent_trustee however upon the death of taxpayer settlors appoint bank and its corporate successors as an independent_trustee to serve in conjunction with any other then serving trustees or to serve alone in the event there are no other then serving trustees settlors and child reserve the power during their lifetimes to appoint additional related trustees special trustees or independent trustees provided however that in no event shall settlors or child ever serve as a trustee of this trust nor shall settlors or child have the power to appoint themselves as a trustee of this trust settlors shall not have the power to remove any trustee however child while living and competent and subsequent to her death or incapacity spouse while serving as a trustee shall have the power to remove any special trustee when in their respective sole discretion the best interests of the trust and beneficiaries will be better served by the appointment of a respective successor special trustee any specific reference in this trust to a special trustee shall be in reference to individual and individual any specific reference in this trust to a related trustee shall mean any beneficiary in their capacity as a trustee of the trust any specific reference to an independent_trustee shall be in reference to a trustee who is not a special trustee or related trustee otherwise any general reference to trustee or trustees shall be in reference to an independent_trustee or a related trustee article i sec_1 provides in part that the trustees shall establish a separate trust for each child of child and spouse settlors’ grandchildren whether now living or hereafter born or adopted at the time of trust 1’s formation this included grandchild a grandchild b and grandchild c in the event any child is born to or adopted by child and spouse after the creation of trust but while child and spouse are married the trustee shall establish a separate trust for such child article ii sec_2 provides in part that the trustees may distribute so much or all of the net_income and or principal of the trust to or for the benefit of the beneficiaries as is necessary to provide for their respective health education and maintenance in accordance with their respective standard of living article ii sec_2 provides in part that if any then living child of child and plr-115605-04 article ii sec_2 provides in part that each separate trust shall terminate on the last day of the month which is twelve months after the date on which the first of the following events occur the date of death of the survivor of settlors and child or the earlier death of the respective child of child and spouse for whose benefit a_trust was established the trustees shall distribute the assets of each separate trust to the respective child of child and spouse for whose benefit such separate trust was established provided such child is then living and further subject_to the provisions of this trust agreement regarding continued trust administration of a child’s trust because of his or her age or incompetency in the event a separate trust terminates because of the prior death of a child of child and spouse each child shall have the testamentary power to appoint the principal of his or her trust to or for the benefit of a class of individuals consisting solely of his or her descendants and his or her siblings and their respective descendants in the event a child fails to exercise his or her special testamentary_power_of_appointment the trustees shall distribute the trust estate of that separate trust to the then living descendants of child and spouse per stirpes or if none to the heirs at law of each settlor spouse is below the age of years at the time the trust estate of his or her separate trust is to be distributed that trust shall not terminate instead the trustee shall continue to administer the trust estate of that separate trust for such child’s benefit with actual terminating distributions to be made as follows a if the child is below the age of years at such time the trustee shall retain all of that child’s share in trust and shall distribute that share one-third when the child attains the age of years one-half of the balance of the trust when the child attains the age of years and the remainder when the child attains the age of years b if the child has attained the age of years but is below the age of years the trustee shall distribute one-third of that share immediately to the child the remaining portion shall be retained by the trustee in trust for the child’s benefit the trustee shall distribute one-half of the balance of the trust to the child when he or she attains the age of years and the remainder when he or she attains the age of years c if the child has attained the age of years but is below the age of years the trustee shall distribute two-thirds of that share immediately to the child the remaining portion shall be retained by the trustee in trust for his or her benefit and distributed to that child when he or she attains the age of years exhibit a article ii sec_2 of trust provides in part that the successor trustees of the trust be appointed pursuant to the following provisions a in no event shall settlors ever serve as a trustee of this trust nor shall the appointment powers be interpreted to permit either settlor to serve as a trustee b should all named and or designated related trustees for any reason cease or fail to serve taxpayer while living and competent and subsequent to his death or incapacity taxpayer while living and competent shall have the continuing power to appoint a successor related trustee subsequent to the death or incapacity of both settlors child shall have the continuing power to appoint a successor related trustee subsequent to the death or incapacity of child the independent_trustee shall have the continuing power to exhibit a article iii section dollar_figure of trust provides in part that all trusts plr-115605-04 either act alone or to appoint another related trustee whichever the independent_trustee in its sole discretion shall determine c should all named and or designated special trustees for any reason cease or fail to serve taxpayer while living and competent and subsequent to his death or incapacity taxpayer while living and competent shall have the continuing power to appoint a successor special trustee subsequent to the death or incapacity of both settlors child shall have the continuing power to appoint a successor special trustee subsequent to the death or incapacity of child the independent_trustee shall have the continuing power to either act alone or to appoint another special trustee whichever the independent_trustee in its sole discretion shall determine created by this trust agreement shall in all events terminate not later than twenty-one years from and after the death of the survivor of the following persons settlors child and all beneficiaries and their descendants living on the date trust is effective or deemed created exhibit a article iii section dollar_figure of trust provides in part that it is possible that the trustee in the exercise of its discretion may find it advisable to make income and or principal distributions to the trustees of any other trust of which a beneficiary is a current beneficiary the trustee is also authorized but not directed to distribute the income and principal for a respective beneficiary to the trustees of any other trust which has been established for the benefit of that respective beneficiary and expressly prohibited from utilizing and or distributing any part of the income and or principal of the trust for settlors’ any trustee’s or any beneficiary’s parents’ legal or contractual obligation to support any lawful dependent trustee of this trust shall also be acting as a trustee of any other trust for the benefit of the same beneficiary or beneficiaries and upon substantially the same terms conditions and provisions the corporate trustee in its discretion is authorized to transfer and merge all of the assets held in this trust to and with the other such trusts and terminate this trust in no event however shall this discretionary power be construed as a power of amendment modification or appointment in the hands of the trustee trust 1c separate trusts for the benefit of grandchild a grandchild b and grandchild c respectively on date grandchild d was born and pursuant to article i sec_1 a separate trust trust 1d was established it is represented that no additions were made to trust after date pursuant to article i sec_1 trust was divided into trust 1a trust 1b and exhibit a article iii section dollar_figure of trust provides that the trustee is specifically exhibit a article iv sec_4 b of trust provides that if at any time any pursuant to exhibit a article iii section dollar_figure of trust on date the trustee of plr-115605-04 trust transferred all of the assets of trust sec_1a through trust 1d to corresponding separate trusts for each grandchild under a newly created trust trust sec_2a through 2d the dispositive provisions of trust sec_2a through 2d are identical to those contained in trust sec_1a through trust 1d trust also provided the trustee with the limited power to distribute the assets of trust to another trust for the benefit of the same beneficiaries under the same provisions as were included in trust in addition trust provided that all trusts created by the trust agreement shall in all events terminate not later than twenty-one years from and after the death of the survivor of the following persons child settlors and all beneficiaries and their descendants living on date rule_against_perpetuities provision the only changes reflected in trust pertain to the administration of the trust and include provisions relating to issues such as the appointment and removal of trustees and the management and handling of certain trust assets exhibit c sec_1 a of trust provides in part that spouse as trustee of trust may appoint co-trustees or successor trustees none of whom may be child or settlors spouse may grant any of the powers described in exhibit c sec_1 a to settlors’ grandchild who is a primary beneficiary of the separate trust at any time after he or she attains the age of notwithstanding the foregoing upon spouse’s death or incapacity and after attaining age settlors’ grandchild who is the primary beneficiary of the separate trust shall have the power to appoint co-trustees or successor trustees exhibit c sec_1 b of trust provides in part that if spouse fails or ceases to serve as trustee of any trust and if either i no trustee is appointed as provided in exhibit c sec_1 a or ii all the trustees appointed fail or cease to act as trustee grandchild a and grandchild b are appointed successor co-trustees if either of grandchild a or grandchild b fail or cease to serve as co-trustee the other of them shall serve as sole trustee notwithstanding the foregoing upon spouse’s death or incapacity and after attaining age settlors’ grandchild who is the primary beneficiary of the separate trust shall have the right to begin serving as sole trustee of his or her separate trust serving trustees may at any time appoint one or more terminating trustees none of whom may be the beneficiary spouse child or settlors or any related_or_subordinate_party pursuant to sec_672 of the code to act upon any stated contingency trustee if any shall have the discretionary power to terminate the trust or any separate trust if the continued management of the trust or any separate trust is no longer economical under the circumstances that may exist at that time the remaining property of the trust so terminated shall be distributed to or for the benefit of the beneficiary or beneficiaries of each trust in accordance with the dispositive provisions of the trust agreement exhibit c sec_1 c of trust provides in part that a majority of then exhibit a section dollar_figure of trust provides generally that the terminating it is represented that there have been no additions to trust after september plr-115605-04 the trustee of trust proposes to transfer the assets of trust sec_2a through 2d the separate trusts under trust to a newly created trust trust sec_3a through 3d trust will contain the same rule_against_perpetuities provision as contained in trust and trust generally the dispositive provisions of trust will be identical to those contained in trust with the following exceptions article ii sec_2 a of trust will provide that each separate trust shall terminate when the first of the following events occur the date of death of the respective child of child and spouse for whose benefit a separate trust was established or the date on which the terminating trustee terminates the trust article ii sec_2 b will provide that the trustee shall distribute the assets of each separate trust to the respective child of child and spouse for whose benefit such separate trust was established provided such child is then living article ii sec_2 c will provide that in the event a separate trust terminates because of the death of a child of child and spouse each child shall have the power to appoint the principal of his her trust to or for the benefit of a class of individuals consisting solely of his her descendants and his her brothers and sisters and their respective descendants pursuant to a clause in his her last will and testament revised in addition several of the administrative provisions contained in trust will be the following rulings have been requested the trustee’s exercise of its limited_power_of_appointment in trust to distribute the income and principal of the trust for each grandchild to trust the newly created successor trust for the benefit of the same grandchild does not cause trust to be subject_to the gst tax under sec_2601 the modifications of the administrative provisions contained in trust do not cause trust to be subject_to gst tax under sec_2601 the trustee’s exercise of its limited_power_of_appointment in trust to distribute the income and principal of the trust for each grandchild to a proposed newly created successor trust for the benefit of the same grandchild under trust will not cause trust to be subject_to gst tax under sec_2601 the modification of the administrative provisions under trust compared to trust do not cause trust to be subject_to gst tax under sec_2601 of the code plr-115605-04 the beneficiaries of trust will not hold a general_power_of_appointment as defined in sec_2041 or sec_2514 of the code even if such beneficiary acts as trustee or may appoint successor trustees because the trustee of each trust may only make distributions for the grandchild’s health education and maintenance which is an ascertainable_standard trust will not realize gain_or_loss under sec_1001 on the transfer of assets to trust the assets in trust will retain the same basis and holding periods under sec_1015 and sec_1223 of the code as in trust and trust trust and trust are qualified trusts so that the transfer of assets to the successor trust will not constitute an accumulation_distribution under sec_665 of the code sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 defines the term generation-skipping_transfer as a taxable ruling requests 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 date will be considered an irrevocable_trust except as provided in sec_26_2601-1 or c which relates 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 sec_26_2601-1 provides rules for determining when a modification sec_26_2601-1 provides that any trust in existence on plr-115605-04 the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that either- ii at the time the exempt trust became irrevocable state the terms of the governing instrument of the new or continuing the distribution of trust principal from an exempt trust to a new trust or retention of trust principal in a continuing trust will not cause the new or continuing trust to be subject_to the provisions of chapter if- i the terms of the governing instrument of the exempt trust authorize distributions to the new trust or the retention of trust principal in a continuing trust without the consent or approval of any beneficiary or court or law authorized distributions to the new trust or retention of principal in the continuing trust without the consent or approval of any beneficiary or court and trust do not extend the time for vesting of any beneficial_interest in the trust in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date the original trust became irrevocable plus a period of years plus if necessary a reasonable period of gestation for purposes of this paragraph b i a the exercise of a trustee’s distributive power that validly postpones or suspends the vesting absolute ownership or power of alienation of an interest in property for a term of years that will not exceed years measured from the date the original trust became irrevocable will not be considered an exercise that postpones or suspends vesting absolute ownership or the power of alienation beyond the perpetuities period if a distributive power is exercised by creating another power it is deemed to be exercised to whatever extent the second power may be exercised sec_26_2601-1 example provides that in grantor established an irrevocable_trust trust for the benefit of grantor’s child a a’s spouse and a’s issue at the time trust was established a had two children b and c a corporate fiduciary was designated as trustee under the terms of trust the trustee has the discretion to distribute all or part of the trust income to one or more of the group consisting of a a’s spouse or a’s issue the trustee is also authorized to distribute all or part of the trust principal to one or more trusts for the benefit of a a’s spouse or a’s issue under terms specified by the trustee in the trustee’s discretion any trust established under trust however must terminate years after the death of the last child of plr-115605-04 a to die who was alive at the time trust was executed trust will terminate on the death of a at which time the remaining principal will be distributed to a’s issue per stirpes in the trustee distributes part of trust’s principal to a new trust for the benefit of b and c and their issue the new trust will terminate years after the death of the survivor of b and c at which time the trust principal will be distributed to the issue of b and c per stirpes the terms of the governing instrument of trust authorize the trustee to make the distribution to a new trust without the consent or approval of any beneficiary or court in addition the terms of the governing instrument of the new trust do not extend the time for vesting of any beneficial_interest in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date of creation of trust extending beyond any life in being at the date of creation of trust plus a period of years plus if necessary a reasonable period of gestation therefore neither trust nor the new trust will be subject_to the provisions of chapter of the internal_revenue_code in the present case trust was established on date date is a date prior to date trust is considered irrevocable because neither sec_2038 nor sec_2042 apply further it is represented that there have been no additions made to trust after date accordingly trust is currently exempt from the gst tax under sec_26_2601-1 based on the facts submitted and the representations made the terms of trust authorize the distribution of income and or principal to a new trust without the consent or approval of any beneficiary or court in addition the terms of trust incorporate the same rule_against_perpetuities provision contained in trust and do not extend the time for vesting of any beneficial_interest therefore neither the trustee’s exercise of the power to distribute the income and principal of each trust to trust nor the modifications to the administrative provisions contained in trust cause trust to be subject_to gst tax under sec_2601 trust without the consent or approval of any beneficiary or court the terms of trust incorporate the same rule_against_perpetuities provision contained in both trust and trust and do not extend the time for vesting of any beneficial_interest therefore neither the trustee’s exercise of the power to distribute the income and principal of trust sec_2a through 2d to trust nor the modifications to the administrative provisions contained in trust cause trust to be subject_to gst tax under sec_2601 ruling_request which the decedent has at the time of his death a general_power_of_appointment created the terms of trust authorize the distribution of income and or principal to a new sec_2041 provides that to the extent of any property with respect to sec_20_2041-1 of the estate_tax regulations provides in part that the sec_2041 provides that the term general_power_of_appointment means plr-115605-04 after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate except that a power to consume invade or appropriate property for the benefit of the decedent which is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent shall not be deemed a general_power_of_appointment term power_of_appointment includes all powers which are in substance and effect powers of appointment regardless of the nomenclature used in creating the power and regardless of local property law connotations a power in a donee to remove or discharge a trustee and appoint himself may be a power_of_appointment for example if under the terms of a_trust instrument the trustee or his successor has the power to appoint the principal of the trust for the benefit of individuals including himself and the decedent has the unrestricted power to remove or discharge the trustee at any time and appoint any other person including himself the decedent is considered as having a power_of_appointment however the decedent is not considered to have a power_of_appointment if he only had the power to appoint a successor including himself under limited conditions which did not exist at the time of his death without an accompanying unrestricted power of removal similarly a power to amend only the administrative provisions of a_trust instrument which cannot substantially affect the beneficial_enjoyment of the trust property or income is not a power_of_appointment the mere power of management investment custody of assets or the power to allocate receipts and disbursements as between income and principal exercisable in a fiduciary capacity whereby the holder has no power to enlarge or shift any of the beneficial interests therein except as an incidental consequence of the discharge of such fiduciary duties is not a power_of_appointment defined in sec_2041 means any power_of_appointment exercisable in favor of the decedent his estate his creditors or the creditors of his estate except i joint powers to the extent provided in sec_20_2041-2 and sec_20_2041-3 and ii certain powers limited by an ascertainable_standard appropriate income or corpus or both for the benefit of the decedent which is limited by an ascertainable_standard relating to the health education support or maintenance of the decedent is by reason of sec_2041 not a general_power_of_appointment a power is limited by such a standard if the extent of the holder’s duty to exercise and not sec_20_2041-1 provides that a power to consume invade or sec_20_2041-1 provides that the term general_power_of_appointment as the trustee appointment succession and removal provisions and general sec_2514 provides for a similar definition of a general_power_of_appointment plr-115605-04 to exercise the power is reasonably measurable in terms of his needs for health education or support or any combination of them for gift_tax purposes and sec_25_2514-1 of the gift_tax regulations contains provisions similar to sec_20_2041-1 dispositive provisions of trust will be identical to those contained in trust in this case the settlors’ grandchildren who are the primary beneficiaries of the separate trusts under trust are permitted to serve as trustee of their respective trusts however article ii sec_2 of trust limits the trustee’s power to distribute net_income and or principal of the trust to an ascertainable_standard relating to the respective beneficiary’s health education support or maintenance in addition article i sec_1 b iii provides that neither the beneficiary spouse child nor settlors or any related_or_subordinate_party pursuant to sec_672 may serve as terminating trustee with the discretion to terminate trust or any separate trust accordingly pursuant to sec_2041 and sec_2514 the beneficiaries of trust will not possess a general_power_of_appointment ruling_request in property and under sec_61 from an interest in a_trust property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized 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 sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained in 499_us_554 the supreme court of the united_states ruled on the elements necessary to determine that under sec_1001 a sale_or_exchange resulting in realization of gain_or_loss had occurred the court held that realization under sec_1001 required a sale exchange or other sec_61 provides that gross_income includes gains derived from dealings sec_1001 states that the amount_realized from the sale_or_other_disposition sec_1001 provides that the gain from the sale_or_other_disposition of because no exchange has occurred it is unnecessary to analyze whether the accordingly the proposed transfer of assets from trust to trust will not result plr-115605-04 disposition and in the case of an exchange the receipt of property that was materially different from the property disposed of because the transfer of assets from trust to trust was made under the authority granted to the trustee under the express terms of the trust document the beneficiaries do not acquire their interests in trust as a result of the exchange of their interests in trust but instead by reason of the exercise of the trustee’s existing authority to make distributions in further trust in addition the trustee’s additional administrative_powers do not constitute an exchange by the beneficiaries materially different standard has been satisfied in realization of gain_or_loss under sec_61 or sec_1001 ruling_request 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 in the amount of gain or decreased in 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 by 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 held property however acquired there shall be included the period for which such property was held by any other person if under chapter of the code 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 that because sec_1001 does not apply to the transfer of assets from trust to trust the basis of each asset in the hands of trust will be the same as the basis of that asset in the hands of trust immediately before the distribution in further trust sec_1223 provides that in determining the period for which a taxpayer has based upon the information submitted and representations made we conclude sec_1_1015-2 provides that in the case of property acquired after plr-115605-04 under sec_1223 as in trust ruling_request distributions by a_trust accordingly the assets transferred to trust will retain the same holding_period sec_665 through provide rules for the taxation of accumulated income sec_665 provides that for purposes of subpart d except as provided in sec_665 the term accumulation_distribution means for any taxable_year of the trust the amount by which the amounts specified in paragraph of sec_661 for such taxable_year exceed distributable_net_income for such year reduced but not below zero by the amounts specified in paragraph of sec_661 sec_661 provides that in any taxable_year there shall be allowed as a deduction in computing the taxable_income of an estate_or_trust other than a_trust to which subpart b applies the sum of any amount of income for such taxable_year required to be distributed currently including any amount required to be distributed which may be paid out of income or corpus to the extent such amount is paid out of income for such taxable_year and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed for such taxable_year but such deduction shall not exceed the distributable_net_income of the estate_or_trust sec_661 provides that the amount determined under sec_661 shall be treated as consisting of the same proportion of each class of items entering into the computation of distributable_net_income of the estate_or_trust as the total of each class bears to the total distributable_net_income of the estate_or_trust in the absence of the allocation of different classes of income under the specific terms of the governing instrument sec_661 provides that no deduction shall be allowed under sec_661 in respect of any portion of the amount allowed as a deduction under sec_661 without regard to sec_661 which is treated under sec_661 as consisting of any item of distributable_net_income which is not included in the gross_income of the estate_or_trust sec_665 provides that for distributions in tax years beginning after date for purposes of subpart d in the case of a qualified_trust any distribution in any taxable_year beginning after the date of the enactment of sec_665 shall be computed without regard to any undistributed_net_income sec_665 defines qualified_trust for the purposes of sec_665 as any trust other than a a foreign_trust or except as provided in regulations a domestic_trust which at any time was a foreign_trust or b a_trust created before date unless it is established that the trust would not be aggregated with other trusts under sec_643 if such section applied to such trust plr-115605-04 sec_643 provides that for purposes of subchapter_j under regulations prescribed by the secretary two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiaries and a principal purpose of such trusts is the avoidance of the tax_imposed_by_chapter_1 trust created separate trusts for each of settlors’ grandchildren while each trust had the same grantors each trust had a different primary beneficiary since each trust was separately managed and administered each should be treated as a separate trust therefore based on these facts the trustee’s transfer of the principal and undistributed_income of trust into trust and subsequently into trust is not a distribution under sec_661 and subsequent distributions from the trusts will not be subject_to the accumulation_distribution rules under sec_665 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 tax consequences of the transaction under the cited provisions or under any other provisions of the code except as specifically ruled herein we express or imply no opinion on the federal this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely melissa c liquerman branch chief branch passthroughs special industries enclosure copy of letter for sec_6110 purposes


department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc psi b01 plr-147500-12 date date internal_revenue_service number release date index number -------------------------- ---------------------------------- ------------------------------------- ----------------------------- legend x ------------------------------------------- ---------------------------------- state -------------- dear ---------------- this responds to a letter dated date submitted on behalf of x by x’s authorized representative requesting a ruling under sec_7704 of the internal_revenue_code facts x is a limited_partnership organized under the laws of state x is a publicly_traded_partnership within the meaning of sec_7704 x is principally engaged in the processing transportation storage and distribution of natural_gas natural_gas liquids and crude_oil x through a subsidiary also provides fluid handling services to customers engaged in the exploration for and the development and production of oil and natural_gas fracturing is a technique by which fluids are pumped into an oil or gas well at high pressure to fracture geologic formations and open up pathways for the oil or gas to flow to this end x will supply and provide transportation and tank storage services with respect to production fluid appropriate for the fracturing process to operators of oil_and_gas wells x will also remove store and transport flowback generated in the fracturing process as well as naturally occurring produced water contained in the geological formation from which the oil_and_gas is procured x will treat the flowback and produced water so that it can be reused in a fracturing process or be disposed of consistent with environmental regulations where possible x will extract and process naturally plr-147500-12 occurring minerals and chemicals including barite hydrochlochloric acid and chlor- alkali products from the produced water for commercial wholesale x will charge its customers fees for the provision of fractionation fluids and other fluids necessary for the drilling and completion of oil and natural_gas wells which fees may include tank storage and transportation components x will also charge its customers fees or the removal treatment and disposal of flowback and produced water which fees may include tank storage and transportation components x will also earn income from the non-retail sale of the minerals and chemicals it extracts from the produced water law and analysis sec_7704 provides that except as provided in sec_7704 a publicly_traded_partnership will be treated as a corporation sec_7704 provides that the term publicly_traded_partnership means any partnership if interests in that partnership are traded on an established_securities_market or interests in that partnership are readily_tradable on a secondary market or the substantial equivalent thereof sec_7704 provides that sec_7704 does not apply to a publicly_traded_partnership for any taxable_year if such partnership meets the gross_income requirements of sec_7704 for the taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence sec_7704 provides in relevant part that a partnership meets the gross_income requirements of sec_7704 for any taxable_year if percent or more of the gross_income of the partnership for the taxable_year consists of qualifying_income sec_7704 provides that the term qualifying_income includes income and gains derived from the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or the marketing of any mineral_or_natural_resource including fertilizer geothermal_energy and timber conclusion based solely on the facts submitted and representations made we conclude that the gross_income derived by x from the supply transportation and storage of fractionation fluid and other fluids for oil and natural_gas wells and from the removal treatment and disposal of fracturing flowback and produced water including the provision of frac tanks and transportation services to oil and natural_gas producers for use in their exploration plr-147500-12 for and production of oil and natural_gas resources constitutes qualifying_income under sec_7704 we further conclude that the gross_income derived by x from recycling waste water including the extraction processing and non-retail sale of naturally occurring minerals and chemicals in the water will constitute qualifying_income under sec_7704 except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of this case under any other provision of the code specifically we express or imply no opinion as to whether x is taxable as a partnership for federal_income_tax purposes this ruling is directed only to the taxpayer requesting it however in the event of a technical_termination of x under sec_708 the resulting_partnership may to continue to rely on this ruling in determining its qualifying_income under sec_7704 sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely laura c fields laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court walter a barniskis and mary sue barniskis petitioners v commissioner of internal revenue respondent docket no filed date scott m nelson and robert b patterson for petitioners blaine c holiday for respondent memorandum opinion dinan special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable years in continued - - respondent determined deficiencies in petitioners' federal income taxes for and in the amounts of dollar_figure dollar_figure and dollar_figure respectively the issue for decision is whether petitioners' claimed schedule c losses for and constitute passive_activity_losses under sec_469 the resolution of this issue turns on whether petitioners materially participated in the activity of renting their condominium unit during the taxable years in issue some of the facts have been stipulated and are so found the stipulations of fact and attached exhibits are incorporated herein by this reference petitioners resided in new hope minnesota on the date the petition was filed in this case petitioner husband works ass an engineering manager for honeywell corporation at its sensor guidance products division in minneapolis minnesota his formal education consists of a bachelor's degree in electrical engineering from the university of notre dame and some graduate courses in the electrical engineering program at the university of minnesota petitioner wife works as a librarian in date petitioners purchased condominium unit number the unit at bluefin bay a condominium complex t continued issue all rule references are to the tax_court rules_of_practice and procedure located in tofte minnesota tofte is located on the shore of lake superior in superior national forest approximately miles northeast of petitioners' residence in new hope bluefin bay consists of six buildings each having a different layout the six buildings contain a total of condominium units petitioners' unit is located in a building which has three floors and consists of condominium units including one-story units on the first floor and two-story units on the second and third floors petitioners' unit is a two-story unit since there are exterior doors on both floors the unit may be rented in its entirety or by individual floor by simply unlocking or locking an interior adjoining door petitioners were members of the bluefin bay condominium association bbca the common interest owner of bluefin bay bbca owns all of bluefin bay's common property including an indoor swimming pool tennis courts a conference room a parking area water and waste treatment facilities and communication and cable equipment bbca arranged for the tofte management company tmc to manage and operate the bluefin bay complex prior to bbca had member committees who would collectively decide the nature and extent of the services to be performed by tmc other member committees were responsible for establishing minimum standards for the individual units in response to increasing difficulties in making decisions through the committee process - bbca and tmc decided to simplify the relationships between the unit owners and tmc by negotiating for individual written management contracts between each unit owner and tmc the contracts were modeled after the policies that bbca's committees had developed in preceding years with the exception of a few unit owners who lived at bluefin bay all year most of the unit owners entered into management contracts with tmc petitioners' management_contract with tmc was effective date through the taxable years in issue under the management_contract tmc was appointed as the exclusive rental agent for petitioners' unit petitioners were required to specifically reserve their unit in writing for the days which they intended to personally use it in the event petitioners failed to properly notify tmc of their intended use rental arrangements previously made by tmc with other guests would hold priority over petitioners' personal_use unless the guests could be assigned to another comparable unit the management_contract provided for tmc to receive percent of the gross rental proceeds from petitioners' unit in exchange for its services under the management_contract tmc's duties included but were not limited to managing reservations checking in and out guests providing housekeeping services collecting rents generating financial reports conducting damage - inspections and making any necessary maintenance calls and repairs tmc owns and operates a restaurant located adjacent to the condominium complex during the taxable years in issue tmc's employees staffed a reception desk near the restaurant entrance for guests staying at bluefin bay tmc also employed managers activity directors bookkeepers a housekeeping staff anda maintenance staff all of whom participated in the activity of renting petitioners' unit tmc's employees developed drafted and printed marketing and promotional materials for bluefin bay tmc maintained a toll-free telephone number for promotional and reservation purposes tmc's employees answered this telephone line booked reservations for owners and guests and mailed promotional and marketing materials to interested parties tmc's employees checked in guests received deposits and issued keys they responded to maintenance calls and made any necessary repairs tmc's employees opened closed and cleaned the pool hot tub and pool house on a daily basis they also maintained bluefin bay's tennis courts and exercise room in the winters tmc's employees plowed the parking lots and shoveled salted and sanded the walkways tmc's employees collected payments from guests and checked them out of the unit they cleaned and inspected the unit after -- - guests departed the cleaning activity included cleaning the interior of the unit and laundering the linens and towels tmc's employees maintained daily books_and_records reflecting the collected rents and fees owed by petitioners they issued monthly and annual reports to petitioners reflecting the rental_activity owner charges and tmc's share of the gross rentals petitioners’ duties under the management_contract included providing tmc with a schedule of their intended personal_use maintaining adequate insurance on their unit and complying with certain interior quality standards tmc made detailed inspections of petitioners' unit at least annually and compiled lists of mandatory repairs and items which needed to be replaced in order to satisfy the interior quality standards petitioners were given the choice to personally make these repairs and improvements or to authorize tmc to make them if they failed to comply by certain dates tmc would arrange for the work to be performed by its employees or subcontractors and charge petitioners accordingly petitioners traveled to bluefin bay or times during each of the taxable years in most cases petitioners would stay at bluefin bay in their unit for a long weekend they also spent full week each summer in their unit petitioners' trips to bluefin bay usually combined family vacations with owner - activities such as attending board meetings and or making some repairs to their unit petitioner husband also attended several bbca meetings in st paul minnesota during the taxable years in issue petitioners sold their unit on or about date on schedules c attached to their and returns petitioners reported the following amounts with respect to the rental of their unit gross_income dollar_figure dollar_figure dollar_figure total expenses big_number big_number big_number net_loss big_number big_number big_number petitioners claimed business loss deductions on their and returns in amounts equal to the amounts of their net losses reported on the schedules c in the statutory_notice_of_deficiency respondent disallowed the claimed business loss deductions on the ground that the losses were sustained in connection with an activity in which petitioners did not materially participate sec_469 generally disallows for the taxable_year any passive_activity_loss that exceeds passive_activity income see sec_469 d a passive_activity is any activity which involves the conduct of any trade_or_business in which the taxpayer does not materially participate see sec_469 the term passive_activity also includes any rental_activity regardless of whether the taxpayer materially continued - - in general sec_469 provides that a taxpayer shall be treated as materially participating in an activity only if the taxpayer 1s involved in the operations of the activity on a basis which is regular continuous and substantial sec_469 authorizes the secretary to prescribe regulations as may be necessary or appropriate to carry out the provisions of sec_469 including regulations which specify what constitutes material_participation see sec_469 sec_1_469-5t temporary income_tax regs fed reg date provides that an individual will be treated as materially participating in an activity for the taxable_year if the individual participates in the activity for more than hours during such year the individual's participation in the activity for the taxable_year constitutes substantially_all of the participation in such activity of all individuals including individuals who are not owners of interests in the activity for such year the individual participates in the activity for more than hours during the taxable_year and such individual's participation in the activity for the taxable_year is not less than the participation in the continued participates in the activity sec_469 a rental_activity is any activity where payments are principally for_the_use_of tangible_property see sec_469 however petitioners' activity does not constitute a rental_activity within the meaning of sec_469 because the average customer stay at their unit was less than days see sec_1 1t e a temporary income_tax regs fed reg date activity of any other individual including individuals who are not owners of interests in the activity for such year the activity is a significant_participation_activity for the taxable_year and the individual's aggregate participation in all significant participation activities during such year exceeds hours the individual materially participated in the activity for any five taxable years whether or not consecutive during the ten taxable years that immediately precede the taxable_year the activity is a personal_service_activity and the individual materially participated in the activity for any three taxable years whether or not consecutive preceding the taxable_year or based on all of the facts and circumstances the individual participates in the activity ona regular continuous and substantial basis during such year petitioners argue that they satisfy the requirements of sec_1_469-5t temporary income_tax regs fed reg date respondent argues that petitioners have not satisfied this material_participation test petitioners' participation we must first decide whether petitioners participated in the rental of their unit for more than hours during each of the taxable years in issue sec_1_469-5 income_tax regs generally provides that any work done by an individual in connection with an activity in which the individual owns an interest at the time the work is done shall be treated as participation of the individual in the activity we consider -- - petitioners’ combined hours of participation in deciding whether this material_participation test is satisfied see sec_469 sec_1_469-5t f temporary income_tax regs fed reg date with respect to the evidence which may be used to establish hours of participation sec_1_469-5t temporary income_tax regs fed reg date provides the extent of an individual's participation in an activity may be established by any reasonable means contemporaneous daily time reports logs or similar documents are not required if the extent of such participation may be established by other reasonable means reasonable means for purposes of this paragraph may include but are not limited to the identification of services performed over a period of time and the approximate number of hours spent performing such services during such period based on appointment books calendars or narrative summaries in their brief petitioners characterized their personal time records as detailed records of their participation we have carefully reviewed these personal time records and find that the exhibit which purports to summarize petitioners’ total hours of participation is not accurate the summary exhibit lists petitioners' total hours of participation a sec_174 hours for hours for and hours for we compute the total hours of participation as listed in the underlying records to be dollar_figure hours for dollar_figure hours for and dollar_figure hours for - furthermore sec_1_469-5t a temporary income_tax regs fed reg date provides that work performed by an individual in the individual's capacity as an investor in an activity shall not be treated as participation of the individual in the activity unless the individual is involved in the day-to-day management or operations of the activity we find that petitioners were not involved in the day-to-day management or operations of their unit because tmc managed and operated the entire bluefin bay complex on a daily basis sec_1_469-5t b temporary income_tax regs fed reg date provides that investor activities include studying and reviewing financial statements or reports on operations of the activity preparing or compiling summaries or analyses of the finances or operations of the activity for the individual's own use and monitoring the finances or operations of the activity in a non-managerial capacity we find that several of the activities described in petitioners' personal time records constitute investor activities in particular petitioners' activities of organizing their personal records preparing their taxes paying bills and reviewing their monthly statements of the rentals of their unit all constitute investor activities petitioners have failed to establish that they materially participated in the rental_activity even if we were to assume that petitioners expended hours in their rental_activity during the years in issue they have not proved that their participation was greater than the management company's participation other individuals' participation the second requirement of the sec_1_469-5t temporary income_tax regs supra material_participation test is that petitioners participation in the activity of renting their unit must not have been less than the participation in such activity of any other individuals petitioners must establish that no other individuals participated in the activity of renting their unit for more time than they did during the years in issue dennis rysdahl the founder president secretary and general manager of tmc was involved in the construction of bluefin bay in and more recently an adjacent development called tofte cove mr rysdahl currently oversees the management and operation of bluefin bay and did so during the taxable years in issue in a letter dated date to the bluefin bay and tofte cove owners mr rysdahl solicited contributions to a fund we find that the listed hours of participation include hours dollar_figure hours and dollar_figure hours of investor activities for and respectively which some of the owners had created to challenge respondent's position in cases such as this one mr rysdahl stated in the letter that he was personally contributing on behalf of the unit that he owned and explained his motivation as follows i do so mainly based on the concern that since tax benefits are useful to at least some of our owners a victory in this case would make ownership of a unit more desirable for some prospective buyers and therefore help retain the re-sale value of our units immediately prior to the submission of this date letter as evidence mr rysdahl had testified as follows qo mr rysdahl you in fact own a unit at bluefin bay don't you a i am a percent owner in one unit at bluefin bay actually i'm a percent owner in a unit at tofte cove townhomes which is amore recent and adjacent development i no longer own any part of a unit at bluefin bay q but it -- and it's your opinion or belief that the outcome of this case will affect the resale value of your unit a no it won't affect the resale value of my unit mr rysdahl later testified about the type and extent of tmc's employees participation in the management and operation of bluefin bay in light of his personal and business interests in the outcome of this case we discredit mr rysdahl's testimony concerning the number of hours spent by tmc's employees in the activity of renting petitioners' unit we rely on his testimony only to the extent it is corroborated by other reliable evidence the monthly statements generated by tmc during and reveal that both or one of the floors of petitioners' unit were used by different guests during and by different guests during tmc's maintenance records for petitioners’ unit show that petitioners were separately charged for hours of labor during and hours of labor during these charges were in addition to the 45-percent gross rental fee paid_by petitioners under the management_contract the maintenance records do not reflect the maintenance staff's work on the facilities and grounds outside of petitioners' unit based on the record we find that petitioners have failed to prove that they participated in the activity of renting their unit more than tmc's employees during the years in issue the record contains only mr rysdahl's biased testimony about the number of hours tmc's employees devoted to petitioners' unit which we do not rely upon without corroboration it is clear however that the front desk staff checked in and out over of petitioners' guests each year in addition the housekeeping staff inspected and cleaned petitioners' unit after each of their guests checked out the frequency with which these services were required convinces us that tmc's employees devoted a substantial amount of time to petitioners' unit we are unable to conclude although available to mr rysdahl tmc's business records of its employees' work hours and assignments were not made part of the record in this case -- - from this record that petitioners' participation during the years in issue was greater than the participation of tmc's employees we conclude that petitioners did not materially participate in the activity of renting their unit during and accordingly we hold that petitioners' claimed losses from such activity constitute passive_activity_losses which are not deductible in the taxable years in issue by reason of sec_469 cf oberle v commissioner tcmemo_1998_156 chapin v commissioner tcmemo_1996_56 to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c government entities division oct uniform issue list legenda taxpayer a ira b ira c financial_institution d bank e account f ira g ira h amount amount amount dear this letter is in response to a request for a letter_ruling dated supplemented by correspondence dated in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code as the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that she received a distribution from ira b and ira c iras b c totaling amount taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to mistakes by bank e taxpayer a represents that in date she completed paperwork provided by bank e intending to transfer ras b c from financial_institution d to bank e taxpayer a received a check in amount from financial_institution d dated the check was made out directly to bank e as successor custodian for taxpayer a’s ira rollover’ taxpayer a delivered this direct rollover’ check to bank e to be deposited into an ira however on bank e deposited amount discovered in date when taxpayer a attempted to effectuate another rollover with an insurance_company bank e has provided documentation acknowledging the error in a non-ira cd account f the mistake was a representative of in date taxpayer a received a distribution of amount and placed amount in ira cds jra g and ira h iras g h and seeks a waiver on amount based on the above facts and representations you request that the service waive the 60-day rollover requirement contained in code sec_408 with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or - ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 i received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 i from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers _ sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the _ distribution occurred the information presented and the documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover was caused by an error committed by bank e therefore pursuant to code sec_408 the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from iras b c provided all other requirements of sec_408 of the code except the 60-day requirement are met the deposit of amount into iras g h on of sec_408 of the code will be considered a rollover_contribution within the meaning no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent a copy of this letter_ruling has been sent to your authorized representative pursuant to a power_of_attorney on file in this office this ruling please contact se t ep ra‘t1 address all correspondence to se t ep ra t1 at if you wish to inquire about please sincerely yours cootx a withers carlton a watkins manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice _ boothsos department of the treasury internal_revenue_service washington d c government entities division oct uniform issue list legend taxpayer a _ irab rag financial_institution d bank e account f - irag ira h amount amount amount dear ae l this letter is in response to a request for a letter_ruling dated date as supplemented by correspondence dated september september and date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code i the following facts and representations have been submitted u der penaity of perjury in support of the ruling requested _ re rn taxpayer a age represents that she received a distribution from ira b and -ira c iras b c totaling amount taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed bys sec_408 _ was due to mistakes by bank e - taxpayer a represents that in date she completed paperwork provided by bank e intending to transfer iras b c from financial_institution d to bank e _ taxpayer a received a check in amount from financial_institution the check was made out directly to bank e as successqr custodian for taxpayer a’s ira rollover taxpayer a delivered this direct_rollover check to bank e to be deposited into an ira however on date a representative of - bank e deposited amount discovered in date when taxpayer a attempted to effectuate another rollover with an insurance_company bank e has provided documentation acknowledging the error in a non-ira cd account f the mistake was d-dated april in date taxpayer a received a distribution of amount amd placed amount in ira cds ira g and ira h iras g h and seeks a waiver on amount oo based on the above facts and representations you request that the service waive the 60-day rollover requirement contained in code section respect to the distribution of amount d with sec_408 of the code provides that except as otherwise sec_408 any amount_paid or distributed out of an ira shall -gross income by the payee or distributee as the case may be in the manner provided under sec_72 of the code provided in be included in - sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - a - i the entire amount received including money and any vy ott property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible _ on --in gross_income determined without regard to sec_408 at sec_408 of the code provides that sec_408 apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such does not fete receipt such individual received any other amount described in section d a i from an ira which was not includible in gross_income because of - the application of sec_408 sec_408 of the code provides a similar day rollover period for partial rollovers sec_408 of the code provides that the ‘secretary may waive the day requirement under sections d a and d d of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal use of the amount distributed for example in the case of paymen by check whether the check was cashed and the time claps d since the distribution occurred error the - ode the information presented’ and the documentation submitted by taxpayer ais consistent with her assertion that-her failure to accomplish a timely rollover was - caused by an error committed by bank e therefore pursuant to code sec_408 the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from iras b c provided all other requirements of sec_408 of the code except the 60-day requirement are met the deposit of amount into iras g h on date will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the e taxpayer who requested it sec_6110 _ of the code provides that it may not be used or cited as precedent heen a copy of this letter_ruling has been sent to your authorized representative pursuant to a power_of_attorney on file in this office if you wish fo inquire about this ruling please contact a o please se t ep ra t1 address all correspondence to se t ep ra at sincerely yours cota a jjthind carlton a watkins manager _ employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice a


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 1-plr-114934-99 date date legend x state d1 d2 this responds to your letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 x first had shareholders and began doing business on d2 x’s shareholders intended that x be a subchapter_s_corporation effective d2 however an s_corporation_election to be treated as an s_corporation was not timely filed law and analysis sec_1362 provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made 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 made plr-114934-99 sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed for making such election for such taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary can treat the election as timely made for such taxable_year x’s s_corporation_election was not filed timely for the election to be effective as of d2 nevertheless x has established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and assuming that x otherwise qualifies as a subchapter_s_corporation as of d2 we conclude that x will be recognized as an s_corporation effective as of d2 x should file a completed form_2553 with a copy of this ruling attached reflecting its election of subchapter_s_corporation status as of d2 with the applicable service_center within days of the date of this letter except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely signed david r haglund david r haglund senior technician reviewer branch office of assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court thomas and deborah mcintyre petitioners v commissioner of internal revenue respondent docket nos filed date terri a merriam and adam j blake for petitioners nhi t luu for respondent memorandum opinion kroupa judge these consolidated cases are before the court on respondent’s motion to dismiss for lack of jurisdiction and to strike partnership items and a theft_loss claim from taxable_year both cases are partner-level proceedings involving this court’s jurisdiction under the partnership provisions of the tax equity and fiscal responsibility act of tefra publaw_97_248 96_stat_648 petitioners were partners in various hoyt-related1 tefra partnerships in and and received distributive shares of the partnerships’ losses for those years petitioners’ partnership losses for also generated a net_operating_loss nol that petitioners carried back to respondent issued petitioners affected items deficiency notices affected items notices for and disallowing the losses after the related partnership-level proceedings had concluded the affected items are sec_6662 a accuracy-related penaltie sec_1the partnerships were organized promoted sold and managed by jay hoyt hoyt organized over similar investor partnerships for owning and breeding cattle this court determined in that hoyt cattle operations constituted a tax_shelter durham farms j v v commissioner tcmemo_2000_159 affd 59_fedappx_952 9th cir respondent subsequently removed all hoyt income and deductions from the investor partnership returns and then he made computational adjustments to the individual partners’ returns following the respective partnership proceedings 2petitioners’ partnership losses for also generated a net_operating_loss that petitioners carried back to taxable years and that are not at issue 3docket no relates to the affected items notices for and that respondent issued on date docket no relates to the affected items notices for and that respondent issued on date 4all section references are to the internal_revenue_code in effect for the years at issue based on petitioners' underpayments of income_tax for those years we are asked to decide whether we have jurisdiction to redetermine the accuracy of respondent’s computational adjustments and petitioners’ entitlement to a theft_loss offset we dealt with this same issue in hay v commissioner tcmemo_2009_265 we hold that this court lacks jurisdiction to redetermine respondent’s computational adjustments and the theft_loss offset because this is an affected items deficiency proceeding accordingly we will grant respondent’s motion to dismiss for lack of jurisdiction and to strike the partnership items and theft_loss claim background the following information is stated for purposes of resolving the pending motion petitioners resided in colorado at the time they filed the petition computational adjustments for and petitioners were partners in shorthorn genetic engineering durham genetic engineering durham genetic engineering and durham genetic engineering collectively the partnerships in and decision documents for taxable years and were entered in the partnership proceedings beginning in date respondent made computational adjustments to petitioners’ tax_liabilities for and based on the decisions entered in the partnership proceedings respondent disallowed portions of petitioners’ distributive shares of losses from the partnerships for and resulting in underpayments for those years respondent also disallowed the nol_carryback from to resulting in an underpayment for respondent did not remove certain sec_1231 gain for that petitioners claim was related to the hoyt investment and should have been removed respondent determined petitioners were liable for sec_6662 accuracy-related_penalties for the underpayments for and respondent issued petitioners the affected items notices for those years which are at issue in this proceeding theft_loss carryback petitioners filed amended returns for and petitioners claimed a dollar_figure personal theft_loss from the hoyt investment on the amended_return for petitioners sought to have the alleged overpayment of income_tax for carried back to reduce the deficiency on the amended_return for and then carried forward to reduce the deficiency for respondent informed petitioners six years ago that respondent would refrain from processing petitioners’ amended returns until the partnership proceedings were completed as previously noted the partnership proceedings concluded in despite the three years since the partnership proceedings’ conclusion respondent has not processed the amended returns for and nor has respondent issued petitioners a deficiency_notice for petitioners filed a claim of erroneous computation with respondent to obtain a refund and also raise the theft_loss issue in this proceeding to compel respondent to process their returns rather than processing their returns respondent filed the pending motion to dismiss for lack of jurisdiction and to strike the partnership items and the theft_loss claim from discussion we begin our analysis with a discussion of our jurisdiction over a tefra partner-level proceeding this court is a court of limited jurisdiction and we may exercise jurisdiction only to the extent provided by statute sec_7442 114_tc_519 our jurisdiction to redetermine a deficiency in tax depends on a valid deficiency_notice and a timely filed petition gaf corp subs v commissioner supra pincite a taxpayer may generally file a 5congress enacted the unified_audit and litigation procedures of the tax equity and fiscal responsibility act of tefra to provide consistent treatment among partners in the same partnership and to ease the administrative burden that resulted from duplicative audits and litigation see 131_tc_84 petition for redetermination of a deficiency with this court after receiving a deficiency_notice sec_6213 our jurisdiction to redetermine the deficiency for a given year is limited however by the deficiency_notice issued by the commissioner sec_6214 furthermore normal deficiency procedures apply only to affected items requiring partner-level factual determinations and do not apply to computational adjustments see sec a a i computational adjustments for and we must first decide whether we have jurisdiction to redetermine respondent’s computational adjustments following the partnership proceedings petitioners ask us to redetermine the computational adjustments by reconsidering partnership items that were finally determined in the related partnership-level proceedings specifically petitioners ask us to remove hoyt- related sec_1231 gain from the computation for petitioners also ask us to determine that they were not partners in a hoyt partnership in and that respondent therefore improperly disallowed the losses for that year and the nol_carryback to respondent contends that we lack jurisdiction 6the taxpayer_relief_act_of_1997 amended sec a a to exclude penalties and additions to tax that relate to adjustments to partnership items from deficiency proceedings effective for partnership years ending after date taxpayer_relief_act_of_1997 sec_1238 publaw_105_34 111_stat_788 to redetermine computational adjustments based on partnership items in an affected items proceeding we agree with respondent we have consistently held that we lack jurisdiction under the tefra rules to redetermine an underpayment attributable to partnership items in an affected items deficiency proceeding 102_tc_683 93_tc_730 87_tc_783 the sec_1231 gain petitioners ask us to reconsider is a partnership_item that should have been addressed in the partnership proceedings see sec_301_6231_a_3_-1 proced admin regs final decisions for and have already been entered at the partnership level we hold therefore that we lack jurisdiction to redetermine respondent’s computational adjustments for in this proceeding petitioners make a second argument regarding the computational adjustments for petitioners argue that respondent improperly disallowed the losses claimed on the return for and carried back to as hoyt related because petitioners were not involved in any hoyt partnerships in we lack jurisdiction to determine in this proceeding whether petitioners were partners in a hoyt partnership in partner status is a partnership_item where it is necessary to know who the partners are when determining each partner’s distributive_share 118_tc_541 respondent’s computational adjustments after the partnership proceedings were based on petitioners’ distributive_share of partnership losses petitioners should have raised the argument that they were not partners in at the partnership proceeding they cannot raise it now we lack jurisdiction to determine whether the losses were improperly disallowed because petitioners’ status as partners is a partnership_item and we lack jurisdiction to redetermine deficiencies attributable to partnership items in an affected items deficiency proceeding see crowell v commissioner supra saso v commissioner supra maxwell v commissioner supra petitioners make a third argument regarding our ability to redetermine the accuracy-related_penalties for each of the years at issue petitioners maintain we have jurisdiction over the accuracy-related_penalties because they are affected items rather than partnership items and this is an affected items deficiency proceeding we agree with petitioners that the accuracy-related_penalties are affected items because they are based on tax petitioners owe as a result of adjustments to partnership items on the partnership returns see olson v commissioner tcmemo_1996_384 sec_301_6231_a_5_-1t d temporary proced admin regs fed reg date we lack jurisdiction however in an affected items deficiency proceeding as here to redetermine liability for affected items that do not require partner-level factual determinations see sec a 108_tc_1 crowell v commissioner supra n c f energy partners v commissio89_tc_741 we have repeatedly held that we lack jurisdiction in an affected items deficiency proceeding to redetermine the commissioner’s computational adjustments brookes v commissioner supra pincite 100_tc_367 saso v commissioner supra pincite kohn v commissioner tcmemo_1999_150 olson v commissioner supra accordingly we find that we lack jurisdiction to redetermine respondent’s computational adjustments for and in this partner-level proceeding ii theft_loss carryback to and the next issue we must decide is whether we have jurisdiction to offset petitioners’ and deficiencies with the theft_loss petitioners claimed on the amended_return for respondent argues that this court lacks jurisdiction to determine whether petitioners are entitled to the theft_loss carryback because we lack jurisdiction to redetermine the deficiencies for and we agree generally this court has jurisdiction to consider the later years not before the court that may be necessary to correctly redetermine the deficiency for the years currently before the court sec_6214 vincentini v commissioner tcmemo_2008_271 we have already decided however that we lack jurisdiction to redetermine the deficiencies for and because the deficiencies are attributable to partnership items and we lack jurisdiction to redetermine deficiencies attributable to partnership items in an affected items proceeding moreover petitioners cannot confer jurisdiction where none exists see 119_tc_242 accordingly we conclude that we lack jurisdiction to determine whether petitioners are entitled to a theft_loss carryback to tax years and to reflect the foregoing and the concessions of the parties an appropriate order will be issued 7we note that our holding does not bar petitioners from seeking future relief on these issues petitioners may challenge respondent’s computational adjustments for and by paying them and filing a claim for a refund see sec c


department of the treasury internal_revenue_service washington d c ft tax_exempt_and_government_entities_division nov uniform issue list set ey a tt l u legend taxpayer a ira b custodian c individual d company e partnership f account g custodian h amount dear this is in response to your letter dated date as supplemented by correspondence dated date submitted on your behalf by your authorized representative in which you requested a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalties of perjury in support of your request taxpayer a represents that she received a distribution from ira b totaling amount on date taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was caused by the misrepresentation of individual d that partnership f was an eligible ira custodian taxpayer a further represents that amount has not been used for any other purpose taxpayer a owns ira b with custodian c in individual d a real_estate investor with company e alerted taxpayer a to an investment opportunity in partnership f a limited-liability real_estate company on two occasions taxpayer a represents that she consulted with her certified public account prior to making the investment the cpa advised taxpayer a that an investment in real_estate would be possible with an ira provided that the proceeds were held by a non-bank custodian h taxpayer a indicated to her cpa that individual d had assured her in several conversations that taxpayer a could use her ira toward the investment in partnership f without any negative tax consequences individual d had represented to taxpayer a that over of her clients had invested in this manner individual d told taxpayer a that she was very experienced in handling real_estate investments with iras and that since taxpayer a was not personally touching the money the transfer from the ira to the real_estate investment would be a direct_rollover based on these conversations taxpayer a represents that she believed individual d to be an eligible custodian for amount in a self-directed account on date taxpayer a signed a subscription agreement for partnership f the agreement indicated that taxpayer a was issued a class a membership unit valued at amount in partnership f taxpayer a twice indicated on the agreement that ira b was to own the membership unit on date taxpayer a wired amount to account g at custodian h on date individual d emailed taxpayer a confirming that amount was received by account g the subject of the email from individual d was entitled partnership f ira rollover investment taxpayer a asserts that upon receiving the date email she believed that she had done everything she needed to do to effectuate a timely rollover of the ira distribution custodian c sent taxpayer a a 1099-r accounting for the distribution of amount taxpayer a asserts that she thought she had completed a timely rollover to partnership f taxpayer a asserts that she learned of the failed rollover in date when she received partnership f’s form k-1 which listed the membership unit in partnership f as being owned by an individual and not an ira based on the facts and representations taxpayer a requests a ruling that the internal_revenue_service service waive the 60-day rollover requirement in sec_408 of the code with respect to the distribution of amount and allow taxpayer a to re-title the land investment into the ira sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual received the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code requires that the trustee of an ira be a bank as defined in sec_408 of the code or such other person who demonstrates to the satisfaction of the secretary that the manner in which such other person will administer the ira will be consistent with the requirements of code sec_408 one of the requirements is that an applicant must assure the uninterrupted performance of its fiduciary duties notwithstanding the death or change_of its owners the ongoing business concept this precludes an individual from being a trustee or custodian sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity and good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability or hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information and documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover of amount was caused by the misrepresentation of individual d that partnership f was an ira custodian pursuant to sec_408 of the code the service hereby waives the day rollover requirement with respect to the distribution of amount from ira b taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount to an ira please note that sec_408 and revproc_2003_16 limit relief to a waiver of the 60-day requirement accordingly the service has no authority to allow taxpayer a to retitle the land investment in the ira however provided all other requirements of code sec_408 except the 60-day requirement are met with respect to the contribution of an amount not to exceed amount such contribution will be considered a valid rollover_contribution within the meaning of sec_408 of the code distributed by sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer a who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter is being sent to her authorized representative in accordance with a power_of_attorney form on file with this office if you have any questions please contact phone at correspondence to se t ep ra t1 or fax at d by please address all sincerely yours bh a wath carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc