internal_revenue_service number release date index number ----------------------------------------------------------- ------------------------------ ------------------------------------ in re ---------------------- ------------------------ department of the treasury washington dc third party communication date of communication not applicable_person to contact --------------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-149409-05 date june ------------------------------ ------------------------------------------ ------------------- ---------------- ------------------------- legend decedent spouse date date date date ----------------- date date date date date date date date date date date year court child child child child independent_trustee -------------------- child trust child trust child trust child trust ----------------------------------------- ---------------------- ----------------------- ------------------- ------- ------------------------------------------------------------ -------------------------------- ----------------------- --------------------------- --------------------------- --------------------- ------------------- -------------------------- --------------------------- ------------------------- --------------------------- ------------------- ---------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- ---------------------------------------------- ------------------------------------------------------- ---------------------------------------------- --------------------- -------------------- ---------------- ------------------ ---------------------------- --------------- ------------------ -------------- plr-149409-05 trust a_trust b remaining trust grandchild grandchild grandchild grandchild grandchild grandchild grandchild grandchild grandchild trust ------------------------------------------------------------- grandchild trust ------------------------------------------------------------ grandchild trust ------------------------------------------------------------ grandchild trust ------------------------------------------------------------ grandchild trust ------------------------------------------------------------- grandchild trust ------------------------------------------------------------ grandchild trust ------------------------------------------------------------ grandchild trust ------------------------------------------------------------- w x y dear -------------- and prior correspondence in which rulings were requested on the federal gift estate and generation-skipping_transfer gst tax consequences of proposed distributions from certain trusts --- --- --- this is in response to your authorized representative’s letter dated september according to the facts submitted decedent died on date leaving a will dated date the will was submitted for probate to court on date an order for final distribution was entered by court after certain distributions of real and personal_property outright to spouse and the devise of certain assets to trust a a marital trust for the benefit of spouse the remaining property of decedent’s estate was allocated to trust b a testamentary_trust with spouse as trustee trust b was funded in year under the terms of trust b during spouse’s lifetime the independent_trustee in his sole discretion may pay the entire net_income in the following priority first to spouse for her maintenance and support giving due consideration to other resources available to spouse second to decedent and spouse’s children for their maintenance and support third to decedent and spouse’s grandchildren for their maintenance support or education and fourth the balance of the income if any is to be accumulated and added to the principal of the trust the independent_trustee in his under trust b upon the death of spouse the balance of trust b is to be divided plr-149409-05 sole discretion may pay principal to or for the benefit of spouse for her maintenance health and support and to or for the benefit of each child and each grandchild for their maintenance support education health and emergencies into four shares - x for child x for child x for child and y for child each share is to be distributed absolutely free and clear of all trusts to the respective child if such child is living and i sec_50 years old or older to date spouse is alive and child and are over years old decedent and spouse have eight grandchildren grandchild through individually grandchild grandchild and are child 1’s children grandchild and are child 2’s children grandchild and are child 3’s children part on the day twenty-one years after the death of the last to survive of all the beneficiaries in this will named or described who are living at the date of decedent’s death shall forthwith terminate at the time of decedent’s death spouse child child child grandchild and were alive trust b provides that each and every trust if any still in existence in whole or in it is represented that the beneficiaries of trust b had different personal and financial situations and disagreed on the proper investments for trust b’s assets and its management pursuant to court order dated date child trust was established for child and his issue and was allocated y of the value of trust b remaining trust was established for the benefit of spouse child child and child and their issue and was allocated w of the value of trust b remaining trust is the subject of this letter_ruling the dispositive terms of remaining trust are the same as trust b except that child and child 4’s issue have no interest in the trust the trustee of remaining trust is spouse the independent_trustee of remaining trust is not related to child or or spouse on date spouse petitioned court for a construction of the language to or for the benefit of in trust b which gave the independent_trustee the discretion to pay principal to or for the benefit of each child and each grandchild on date court issued an order providing that this language encompasses discretionary distributions during spouse’s lifetime to trusts for the benefit of each child and each grandchild on date trustee of remaining trust advanced funds to all eight grandchildren on date the internal_revenue_service issued a private_letter_ruling to the trustee of remaining trust the ruling concluded that the language to or for the benefit of would include discretionary distributions by the independent_trustee of remaining trust to trusts for each grandchild for purposes of chapter and ruled that such distributions would not cause remaining trust or any grandchild’s trust to lose their gst exempt status as long as the requirements under sec_26_2601-1 and were satisfied plr-149409-05 the following trusts were established for decedent’s children and grandchildren on date child and as the nominal settlors established grandchild trust through individually grandchild’s trust to benefit each of the eight grandchildren grandchild through respectively and his or her issue child is the nominal settlor and trustee of grandchild trust and grandchild trust child is the nominal settlor and trustee of grandchild trust grandchild trust and grandchild trust child is the nominal settlor of grandchild trust grandchild trust and grandchild trust grandchild is the trustee of grandchild trust grandchild is the trustee of grandchild trust grandchild is the trustee of grandchild trust the provisions of each grandchild’s trust are substantially identical on dates and trustee of remaining trust advanced funds to all eight grandchild’s trusts on date trustee of remaining trust advanced funds to seven of the eight grandchild’s trusts on date independent_trustee of remaining trust commuted such advances and caused them to be treated as distributions made by the independent_trustee on date child and as the nominal settlors established child trust child trust and child trust individually child’s trust respectively to benefit each child and his or her issue each child is the nominal settlor because decedent is deceased each child is the trustee of his or her own trust the provisions of each child’s trust are substantially identical it is represented that each child’s trust has not been funded to date the assets to be transferred into each child’s trust will come directly from remaining trust pursuant to the exercise of the independent trustee’s discretionary authority to make such distributions it is represented that child and have not made and will not make any transfers of property to his or her trust the provisions of each child’s trust are as follows article provides that child’s trust may receive additional property only by distributions from remaining trust article paragraph sec_2_1 and provide for the trustee to pay to or apply for the benefit of the child as much of the net_income and or principal as the trustee in its discretion deems necessary for the child’s support health and maintenance any income that is not distributed is to be added to principal article paragraph provides that the best interest trustee has the power at any time to pay to or apply for the benefit of the child such amounts including the entire principal as the best interest trustee deems to be in the beneficiary’s best interests if all of the child’s trust assets are distributed the trust will terminate the plr-149409-05 best interest trustee is a person who is not related or subordinate to the child trustee within the meaning of sec_672 of the internal_revenue_code article paragraph provides that the best interest trustee in his or her article paragraph provides that upon child’s death child has a limited sole discretion may make distributions of income and or principal from child’s trust to child’s issue grandchildren or to trusts grandchild’s trusts for the benefit of child’s issue as the best interest trustee deems desirable for the best interests of child’s issue power_of_appointment over his or her child’s trust exercisable by child in favor of his or her issue either outright or in trust as child may appoint paragraph provides that upon child’s death and subject_to the exercise of child’s limited_power_of_appointment set forth in paragraph the trustee shall divide the remaining balance of the trust estate into equal shares one share for each child of child grandchild article provides that child’s trust is irrevocable and may not be altered or article paragraph provides that each trust being administered hereunder amended in any respect and may not be terminated except through distributions permitted by the trust instrument and each trust to which distributions have been made herefrom and or to which property has been appointed pursuant to the exercise of child’s testamentary limited_power_of_appointment over child’s trust will terminate on the earlier of a the exhaustion of all of its assets by distributions authorized hereunder b the end of the rule_against_perpetuities period determined under the law of the state where the trust is being administered from time-to-time applicable to the trusts created hereunder if any and c the end of the rule_against_perpetuities period that would apply to remaining trust article paragraph in child trust and child trust provides that child article paragraph provides that child has the power to remove the best interest trustee paragraph provides that in no event may a vacancy in the office of the best interest trustee of the respective child’s trust be filled with a successor best interest trustee who is a_related_or_subordinate_party to child within the meaning of sec_672 and child have the power to designate a successor trustee other than the best interest trustee of his or her child’s trust however in no event may child or child fill a vacancy in the office of the trustee of child trust and child trust respectively with a successor trustee who is a_related_or_subordinate_party within the meaning of sec_672 to child and child the provisions of each grandchild’s trust are as follows plr-149409-05 distributions from remaining trust and by distributions from the respective child’s trust for example grandchild trust and grandchild trust may only receive distributions from remaining trust and child trust article provides that grandchild’s trust may receive property only by article paragraph and provide that the trustee will pay to or for the benefit of grandchild as much of the net_income and principal of grandchild’s trust as the trustee in the trustee’s discretion deems necessary for grandchild’s support health maintenance and education article paragraph provides that the best interest trustee is authorized in the sole discretion of the best interest trustee at any time to direct the trustee to distribute in whole or any part of the principal of grandchild’s trust to grandchild as the best interest trustee deems desirable for grandchild’s best interests and the best interest trustee may be as liberal as possible in the distributions to or on behalf of grandchild even to the extent of fully exhausting grandchild’s trust and terminating the interests of the remaindermen article paragraph provides that grandchild’s trust shall be subject_to a limited_power_of_appointment exercisable by grandchild upon his or her death in favor of grandchild’s then living issue grandchild’s spouse and or grandchild’s registered domestic partner grandchild may exercise this power in favor of his or her issue either outright or in trust if grandchild exercises this power in favor of his or her spouse or registered domestic partner grandchild may only do so to direct that assets are retained in trust for the benefit of such spouse or registered domestic partner upon the death of such spouse or registered domestic partner the trustee shall retain any assets remaining in trust for the benefit of the group composed of grandchild’s living issue or if none the assets will be distributed to the issue of child by right of representation and if none the assets will be distributed to the nieces and nephews of child if or to the extent grandchild fails to exercise the power_of_appointment paragraph provides that the trustee will divide the remaining balance of the trust estate into as many equal shares as there are children of grandchild then living and children of grandchild then deceased leaving issue then living and retain in trust any shares allocated to living children of grandchild and distribute by right of representation any shares allocated to the living issue of deceased children of grandchild article provides that grandchild’s trust is irrevocable and may not be altered or amended in any respect and may not be terminated except through distributions permitted by the trust plr-149409-05 article paragraph provides that each trust being administered hereunder and each trust to which distributions have been made herefrom will terminate on the earlier of a the exhaustion of all of its assets by distributions authorized hereunder b the end of the rule_against_perpetuities period determined under the law of the state where the trust is being administered from time-to-time applicable to the trusts created hereunder if any and c the end of the rule_against_perpetuities period that would apply to the remaining trust article paragraph b provides that the nominal settlor has the power to designate a successor trustee subject_to the restriction that the successor trustee may not be a_related_or_subordinate_party as the term is defined in sec_672 to child or grandchild paragraph provides that the nominal settlor has the power to remove and replace any trustee subject_to the restriction that the successor trustee may not be a_related_or_subordinate_party as the term is defined in sec_672 paragraph provides that grandchild has the power to remove the best interest trustee however in no event may the successor best interest trustee be a_related_or_subordinate_party as the term is defined in sec_672 to grandchild or the nominal settlor at this time under the authority granted under trust b and remaining trust the independent_trustee proposes to make distributions of principal from remaining trust to child trust child trust and child trust for each beneficiary’s maintenance support education health and emergencies in addition the best interest trustee of each child’s trust proposes to make distributions from each child’s trust to each child’s issue grandchild and or to a_trust for the benefit of a grandchild grandchild’s trust the following rulings are requested trust b and remaining trust are exempt from gst tax under chapter distributions from remaining trust by the independent_trustee to a child or to a child’s trust and distributions from a child's trust by the best interest trustee to a grandchild or to a grandchild’s trust will not be subject_to chapter if the only assets held in a child's trust are assets distributed to it from the remaining trust and the terms of such child’s trust and grandchild’s trust are as outlined herein the release of a child's testamentary limited_power_of_appointment over that child’s trust during child’s lifetime or the release of a grandchild’s testamentary limited_power_of_appointment over that grandchild's trust during grandchild's lifetime will not be subject_to gift_tax plr-149409-05 the exercise lapse or release of a child’s testamentary limited_power_of_appointment and the exercise lapse or release of a grandchild’s testamentary limited_power_of_appointment will not cause the assets of that child’s trust or grandchild’s trust to be included in that child’s or grandchild’s gross_estate under sec_2041 the exercise release or lapse of a child’s testamentary limited_power_of_appointment and the exercise release or lapse of a grandchild’s testamentary limited_power_of_appointment will not cause a child’s trust grandchild’s trust or any appointed property held in further trust to be subject_to chapter distributions from remaining trust by the independent_trustee to a child or to a child's trust pursuant to the independent trustee's discretionary authority to make such distributions and distributions from child’s trust by the best interest trustee to a grandchild or to a grandchild's trust pursuant to the best interest trustee's discretionary authority to make such distributions will not be subject_to gift_tax the assets of a child's trust or a grandchild’s trust will not be includible in that child’s or grandchild’s gross_estate under sec_2033 through if the only assets held in the child's trust are assets distributed to it from remaining trust and the terms of such child’s trust are as outlined herein and the only assets held in the grandchild’s trust are assets distributed to it from remaining trust or child’s trust and the terms of such grandchild’s trust are as outlined herein a child's power to remove the best interest trustee and child 1’s and child 2's powers to remove and replace the trustee other than the best interest trustee of his or her respective child's trust with a trustee who is not a_related_or_subordinate_party within the meaning of sec_672 to that child will not cause the assets of that child’s trust to be included in the gross_estate of the child under sec_2041 a child’s power to designate a successor trustee and power to remove and replace any trustee of the grandchild’s trust with a trustee who is not a_related_or_subordinate_party within the meaning of sec_672 to child or grandchild will not cause the assets of the grandchild’s trust to be included in the gross_estate of that child under sec_2041 law and analysis ruling sec_2601 imposes a tax on every generation-skipping_transfer gst which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under the tax_reform_act_of_1986 and sec_26_2601-1 of the generation- skipping transfer_tax regulations the gst tax is generally applicable to any generation-skipping_transfer made after date sec_26_2601-1 provides that the provisions of chapter do not apply to any generation-skipping plr-149409-05 transfer under a_trust as defined in sec_2652 that was irrevocable on date except where property is includible in a grantor’s estate under sec_2038 or sec_2042 any trust in existence on date is considered an irrevocable_trust under sec_26_2601-1 under state law trust b came into existence on the date of decedent’s death date which is prior to date and no one had the power to amend or revoke the terms of trust b after decedent’s death under sec_26_2601-1 the provisions of chapter do not apply to any generation-skipping_transfer under a will executed before date provided that the will is not amended at any time after date and the decedent dies before date property was transferred to trust b after date however in this case the will was executed on date a date prior to date and was not amended any time after date decedent died on date which is a date prior to date it is represented that no additions have been made to trust b or remaining trust since the date trust b was funded based upon the facts provided and the representations made we conclude that trust b is exempt from the provisions of chapter sec_26_2601-1 provides rules for determining when a modification 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 will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust in example of sec_26_2601-1 in grantor established an irrevocable_trust for the benefit of his two children a and b and their issue under the terms of the trust the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a’s issue and one for the benefit of b and b’s issue the trust for a and a’s issue provides that the trustee has the discretion to distribute income and principal to a and a’s issue in such amounts as the trustee deems appropriate on a’s death the trust principal is to be distributed equally to a’s issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b’s issue the trust for b and b’s issue is identical except for the plr-149409-05 beneficiaries and terminates at b’s death at which time the trust principal is to be distributed equally to b’s issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a’s issue the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter trust b was divided into child trust and remaining trust pursuant to court under sec_26_2601-1 the distribution of trust principal from a gst order the dispositive terms of remaining trust are the same as trust b except that child and child 4’s issue have no interest in remaining trust the division of trust b into remaining trust and child trust does not shift any beneficial_interest in remaining trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in remaining trust beyond the period provided for in the original trust based upon the facts provided and the representations made we conclude that remaining trust is exempt from the the provisions of chapter ruling exempt trust to a new trust will not cause the new trust to be subject_to the provisions of chapter if the terms of the governing instrument of the exempt trust authorize distributions to the new trust without the consent or approval of any beneficiary or court and the terms of the governing instrument of the new 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 extending beyond any life in being at the date the original trust became irrevocable plus a period of years plus if necessary a reasonable period of gestation 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 irrevocable_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 in example of sec_26_2601-1 in grantor established an remaining trust authorizes independent_trustee to make distributions to new plr-149409-05 however must terminate years after the death of the last child of 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 trusts to or for the benefit of each child and each grandchild trust b does not require the consent or approval of any beneficiary or court for such distributions accordingly the independent_trustee is authorized to make distributions to or for the benefit of a child’s trust and a grandchild’s trust at child’s death the balance of child’s trust will either be appointed to trusts for child’s issue or in default of child’s exercise of his or her limited testamentary_power_of_appointment will be distributed to grandchild’s trust in no event however will the term of child’s trust or trusts created pursuant to the exercise of child’s testamentary limited_power_of_appointment extend beyond a period of years after the death of all of the beneficiaries named in decedent’s will who were living at the time of decedent’s death at grandchild’s death the balance of grandchild’s trust will either be appointed to grandchild’s issue or trusts for the benefit of grandchild’s issue or in default of grandchild’s exercise of his or her testamentary limited_power_of_appointment will be distributed to trusts for the benefit of grandchild’s issue in no event however will the term of grandchild’s trust trusts created under grandchild’s trust or trusts established pursuant to the exercise of grandchild’s testamentary limited_power_of_appointment extend beyond a period of years after the death of all of the beneficiaries named in decedent’s will who were living at the time of decedent’s death testamentary limited_power_of_appointment under the regulations trustee’s distributive power is deemed to be exercised to whatever extent child’s testamentary limited_power_of_appointment may be exercised in this case child’s trust provides that any trust established pursuant to child’s exercise of his or her power must terminate within the same termination period as provided in remaining trust accordingly the terms of child’s trust will 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 trustee’s distributive power will be exercised by creating another power child’s each grandchild’s trust funded pursuant to the exercise of best interest therefore based upon the facts provided and representations made we plr-149409-05 alienation of an interest in property for a period measured from the date remaining trust became irrevocable extending beyond any life in being at the date remaining trust became irrevocable plus a period of years trustee’s distributive powers exercisable over the applicable child’s trust grants grandchild a testamentary limited_power_of_appointment therefore the exercise of the best interest trustee’s distributive power is deemed to be exercised to whatever extent grandchild’s testamentary limited_power_of_appointment may be exercised as in child’s trust grandchild’s trust and any trusts established pursuant to the exercise of grandchild’s testamentary limited_power_of_appointment must terminate on the same date as provided for in trust b and remaining trust accordingly the terms of grandchild’s trust will 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 remaining trust became irrevocable extending beyond any life in being at the date remaining trust became irrevocable plus a period of years conclude that distributions from remaining trust by the independent_trustee to a child’s trust will not be subject_to chapter if such distributions are made by the independent_trustee under the terms outlined herein further we conclude that distributions from a child’s trust by the best interest trustee to a grandchild’s trust will not be subject_to chapter if the only assets held in the child’s trust are assets distributed to it from remaining trust and the terms of such child’s trust are as outlined herein remaining trust and each child’s trust are exempt from gst tax accordingly we conclude that distributions from remaining trust directed by the independent_trustee to a child or a child’s trust and distributions from a child’s trust by the best interest trustee to a grandchild or a grandchild’s trust will not be subject_to gst tax under chapter ruling appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power hereinafter the possessor 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 possessor which is limited to an ascertainable_standard relating to the health education support or maintenance of the possessor shall not be deemed a general_power_of_appointment sec_2514 provides that the exercise or release of a general power of grandchild grandchild and grandchild are the trustees of his or her in each case the child’s trustee’s and the grandchild’s trustee’s powers to child and are the beneficiaries and the trustees of his or her respective in this case each child possesses a testamentary limited_power_of_appointment plr-149409-05 in favor of his or her issue each grandchild possesses a testamentary limited_power_of_appointment in favor of his or her issue spouse and or registered domestic partner these powers are not exercisable in favor of the possessor his estate his creditors or the creditors of his estate accordingly these powers are not general powers of appointment as described in sec_2514 trust each child’s trust provides that the trustee may pay to or apply for the benefit of the child as much of the net_income and or principal as the trustee in its discretion deems necessary for the child’s support health and maintenance grandchild’s trust grandchild trust grandchild trust and grandchild trust provide that the trustee may pay to or for the benefit of grandchild as much of the net_income and principal of grandchild’s trust as the trustee in the trustee’s discretion deems necessary for grandchild’s support health maintenance and education distribute income and principal are limited to an ascertainable_standard accordingly we conclude that the child’s trustee’s and grandchild’s trustee’s powers do not result in the child or grandchild having a general_power_of_appointment for purposes of sec_2514 child and and grandchild and have the power to remove and replace trustees subject_to the restriction that the successor trustee must not be a_related_or_subordinate_party within the meaning of sec_672 accordingly child and and grandchild and the beneficiaries of their respective trusts will not be treated as holding a general_power_of_appointment for purposes of sec_2514 by reason of the authority to participate in the removal of a trustee and the appointment of a successor trustee conclude that the release of a child’s testamentary limited_power_of_appointment over that child’s trust during child’s lifetime and the release of a grandchild’s testamentary limited_power_of_appointment over that grandchild’s trust during grandchild’s lifetime will not be subject_to gift_tax ruling value of all property to the extent of any property with respect to which the decedent has at the time of his or her death a general_power_of_appointment created 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 sec_2041 provides that the value of the gross_estate shall include the therefore based upon the facts provided and the representations made we sec_2041 provides that the decedent’s gross_estate includes any sec_2041 provides that the term general_power_of_appointment means in this case each child has a testamentary limited_power_of_appointment over his plr-149409-05 of property owned by the decedent such property would be includible in the decedent’s gross_estate under inclusive a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate or her trust exercisable only in favor of his or her issue each grandchild has a testamentary_power_of_appointment over his or her trust exercisable only in favor of his or her issue spouse and or registered domestic partner each power_of_appointment is not exercisable in favor of him or her his or her estate his or her creditors or the creditors of his or her estate accordingly the powers of appointment are not general powers of appointment as described in sec_2041 property with respect to which the decedent by will or by a disposition that is of such nature that if it were a transfer of property owned by the decedent will be includible in the decedent’s gross_estate under sec_2035 sec_2036 or sec_2037 exercises a power_of_appointment created after date by creating another power_of_appointment that under the applicable law can be validly exercised so as to postpone the vesting of any estate or interest in such property or suspend the absolute ownership or power of alienation of such property for a period ascertainable without regard to the date of the creation of the first power sec_20_2041-3 of the estate_tax regulations provides that property subject_to a power_of_appointment created after date which is not a general power is includible in the holder’s gross_estate under sec_2041 only if i its exercise is by will or by disposition that is of such a 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 through and ii if the power is exercised by creating another power_of_appointment which under the applicable local law can be validly exercised so as to postpone vesting of any estate or interest in such property or suspend the absolute ownership or power of alienation of such property for a period ascertainable without regard to the date of the creation of the first power each child’s and each grandchild’s power_of_appointment cannot be exercised to create any further powers of appointment that under local law can be validly exercised so as to postpone the vesting of an interest in the trust property or suspend the absolute ownership or power of alienation of the trust property for a period ascertainable without regard to the date of the creation of the first power as a result the trust property subject_to each child’s and each grandchild’s power_of_appointment will not be includible in each child’s or each grandchild’s gross_estate under sec_2041 in this case pursuant to the terms of the child’s trust and grandchild’s trust therefore based upon the facts given and the representations made we plr-149409-05 conclude that the exercise lapse or release of a child’s testamentary limited_power_of_appointment and the exercise lapse or release of a grandchild’s testamentary limited_power_of_appointment will not cause the assets of that child’s trust or grandchild’s trust to be included in that child’s or grandchild’s gross_estate under sec_2041 ruling sec_2652 provides that for purposes of chapter the term transferor means in the case of any property subject_to the tax imposed by chapter the decedent sec_26_2652-1 provides that the individual with respect to whom property was most recently subject_to federal estate_tax is the transferor of that property for purposes of chapter sec_26_2652-1 provides that for purposes of chapter a transfer is subject_to federal estate_tax if the value of the property is includible in the decedent’s gross_estate in this case each child’s testamentary_power_of_appointment is limited to appointment of the trust estate to child’s issue either outright or in trust and is not exercisable in favor of child child’s estate child’s creditors or the creditors of child’s estate grandchild’s testamentary_power_of_appointment is limited to appointment of the trust estate to grandchild’s issue either outright or in trust grandchild’s spouse and or grandchild’s registered domestic partner and is not exercisable in favor of grandchild grandchild’s estate creditors of grandchild or the creditors of grandchild’s estate accordingly we concluded above that child’s testamentary limited_power_of_appointment and grandchild’s testamentary limited_power_of_appointment are not general powers of appointment the exercise lapse or release of these powers is not a transfer for purposes of the gift_tax and does not cause inclusion in the gross_estate of the powerholder for purposes of sec_2041 therefore each child and grandchild will not be a transferor of any property subject_to these powers for purposes of chapter accordingly based upon the facts presented and representations made we conclude that the exercise lapse or release of child’s testamentary limited_power_of_appointment or a grandchild’s testamentary limited_power_of_appointment will not cause child’s trust grandchild’s trust or any appointed property held in further trust to be subject_to the provisions of chapter ruling individual resident or nonresident or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations sec_2511 provides that the gift_tax is imposed whether the transfer is in trust sec_2501 imposes a tax on the transfer of property by gift by any plr-149409-05 provides that a transfer by a trustee of trust property in which the trustee has no beneficial_interest does not constitute a gift by the trustee in this case the independent_trustee of remaining trust and the best interest trustee of child’s trust may direct distribution of assets of each trust pursuant to their discretionary authority under the terms of remaining trust and the child’s trust respectively the independent_trustee of remaining trust and the best interest trustee of each child’s trust are not authorized to make distributions in favor of himself or herself his or her estate his or her creditors or the creditors of his or her estate accordingly independent_trustee and best interest trustee do not have any beneficial_interest in the respective trusts further upon the distributions from remaining trust to the child’s trust and from child’s trust to grandchild’s trust child and and grandchild through will have the same beneficial_interest as they have under remaining trust accordingly no transfer of property will be deemed to occur for purposes of sec_2511 therefore based upon the facts provided and the representations made we conclude that distributions directed by the independent_trustee from remaining trust to a child or a child’s trust and distributions directed by the best interest trustee to a grandchild or a grandchild’s trust will not be subject_to gift_tax ruling decedent who is a citizen or resident_of_the_united_states the extent of the interest therein of the decedent at the time of his death property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the sec_2033 provides that the gross_estate includes the value of all property to sec_2038 provides that the value of the gross_estate includes the value of all sec_2036 provides that the value of the gross_estate includes the value of all sec_2001 imposes a tax on the transfer of the taxable_estate of every child and are not the grantors of the child’s trusts similarly no plr-149409-05 decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent’s death grandchild is the grantor of his or her grandchild’s trust child and are the nominal settlors for purposes of establishing their respective child’s trust and the grandchild’s trust established for their respective issue it is represented that each child and each grandchild has not made and will not make any transfers to his or her respective child’s trust and grandchild’s trust further only the independent_trustee of remaining trust will direct distributions to child’s trust and grandchild’s trust from remaining trust child and and grandchild through will not exercise or participate in the exercise of any of these discretionary distributions accordingly based upon the facts provided and representations made we conclude that the assets of a child’s trust and grandchild’s trust will not be subject_to estate_tax under sec_2036 and sec_2038 upon the death of the child or grandchild if the only assets held in the child’s trust or grandchild’s trust are assets distributed to it from remaining trust and the terms of such child’s trust and grandchild’s trust are as outlined herein ruling an unqualified power to remove a trustee and appoint a new trustee other than the grantor will not be considered the reservation by the grantor of the trustee’s discretionary powers of distribution for estate_tax purposes under sec_2036 and sec_2038 if the grantor can only appoint an individual or corporate successor trustee that is not related or subordinate to the grantor within the meaning of sec_672 and child have the power to remove and replace the trustee other than the best interest trustee however in each case the best interest trustee and the other trustees must be replaced with a trustee that is not related or subordinate to the child within the meaning of sec_672 further each child is the nominal settlor not the grantor of his or her child’s trust child is the nominal settlor of the grandchild trust grandchild trust and grandchild trust child is the nominal settlor of the grandchild trust grandchild trust and grandchild trust however child and are not the grantors of those trusts further each child’s power to designate a successor trustee and power to remove and replace any trustee is limited by the restriction that the new trustee not be related or subordinate as the term is defined in sec_672 to child or grandchild child and each have the power to remove the best interest trustee child revrul_95_58 1995_2_cb_191 states that the grantor’s reservation of child is the nominal settlor of grandchild trust and grandchild trust accordingly based upon the facts provided and representations made each plr-149409-05 child’s power to remove the best interest trustee and child 1’s and 2’s power to remove and replace the trustee other than the best interest trustee of his or her respective child’s trust with a trustee that is not a_related_or_subordinate_party within the meaning of sec_672 to the child will not cause the assets of a child’s trust to be included in the child’s gross_estate under sec_2041 further each child’s power to designate a successor trustee and power to remove and replace a trustee of a grandchild’s trust with a trustee that is not a_related_or_subordinate_party within the meaning of sec_672 to child or grandchild will not cause the assets of the grandchild’s trust to be included in the child’s gross_estate under sec_2041 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 the rulings contained in this letter are based upon information and except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of the transaction referenced in this letter this letter_ruling is directed only to the taxpayer who requested 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 lorraine e gardner senior counsel branch office of passthroughs and special industries sincerely _________________ enclosure copy for sec_6110 purpose


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc intl br1-plr-100888-98 date date ty a country b date c date d date e this is in response to your letter dated date requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of u s citizenship expatriation did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code additional information was submitted in letters dated october october october and date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 a was born in country b on date c a is a citizen of country b a became a naturalized citizen_of_the_united_states on date d a renounced his u s citizenship on plr-100888-98 date e on the date of a’s expatriation his net_worth exceeded the applicable_amount set forth in sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual's average income_tax_liability or the individual's net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary's determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_30 modifying notice_97_19 1997_1_cb_394 an eligible former citizen will not be presumed to have a principal purpose of tax_avoidance if that former citizen submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling under sec_877 because he was not present in the united_states for more than days a year during each year of the 10-year period ending on the date of his expatriation notice_98_34 requires that certain information be submitted with a request for a ruling that an individual‘s expatriation did not have for one of its principal purposes the avoidance of u s taxes a submitted all the information required by notice_98_34 including any additional information requested by the service after review of the submission based solely on the information submitted and the representations made it is held that a has made a complete and good_faith submission in accordance with sec_877 however it is further held that a will nevertheless be treated under plr-100888-98 sec_877 as having as one of his principal purposes for expatriating the avoidance of u s taxes because the information submitted clearly establishes a principal purpose to avoid taxes under subtitle a or b of the code accordingly a will be subject_to the provisions of sec_877 and the applicable provisions of sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a sincerely ________________ w edward williams senior technical reviewer cc intl br1


internal_revenue_service number release date index number -------------------------------------- ------------------------------------- ----------------------- ---------------------- ----------------------------- in re ------------------------------------------ ------------------- department of the treasury washington dc person to contact --------------------- id no ------------ telephone number -------------------- refer reply to cc fip - plr-121703-04 date date legend trustee trust annuity_contract --------------------------------------------------------------------------------------------------------------------- -------------------------- ----------------------------------------- ----------------------- ------------------------------------------------- --------------------- ----------------------------------------------------------------------- -------------------------------- ---------------------------- -------------------------- -------------------------------------------- ------------------------ settlor beneficiary life insurer life insurer life insurer ----------------------------------------------------------------------------------------------------------------- dear ---------------- this is in reply to the letters dated date and date submitted on your behalf requesting a ruling concerning the taxability of the annuity_contract held by trustee on behalf of trust under sec_72 of the internal_revenue_code ------------------------------------------------------------------------ ------------------------------------------------- the annuity_contract names trust as the owner of the annuity_contract and on november ------- trustee invested the entire dollar_figure----------- that the settlor the terms of trust provide further that if beneficiary attains age beneficiary plr-121703-04 the information submitted states that on june ------- the settlor established trust for the sole benefit of his grandchild beneficiary the settlor made a single gift of dollar_figure----------- to trust upon its creation as represented below the settlor is not considered the owner of trust for purposes of sec_672 through of the code contributed to trust in a single premium annuity issued by life insurer in ------- trustee in a sec_1035 transaction exchanged the life insurer annuity for an annuity_contract issued by life insurer in ------- trustee in another sec_1035 transaction exchanged the life insurer annuity_contract for an annuity_contract issued by life insurer names beneficiary as the annuitant the annuity_contract is the only asset that trust owns may request that trustee distribute percent of the principal of trust to beneficiary outright when beneficiary attains the ages of and beneficiary may request that trustee distribute percent and percent respectively of the principal of trust to beneficiary outright the terms of trust provide further that if beneficiary elects not to request any of the distributions of principal mentioned above from trust upon attaining a designated age or trustee is required to hold the portion of the principal over which beneficiary has a power_of_withdrawal in a separate trust for the sole benefit of beneficiary beneficiary may direct trustee to distribute any portion of the principal of such separate trust to beneficiary outright and such separate trust may continue beyond the date on which beneficiary attains age any distributions from trust to beneficiary or to a separate trust for beneficiary will be in the form of distributions of an annuity_contract or annuity_contracts in_kind or entity in exchange for any distributions of the annuity_contract person who is not a natural_person then such contract shall not be treated as an annuity_contract for purposes of subtitle a other than subchapter_l and the income_on_the_contract for any taxable_year of the policyholder shall be treated as ordinary_income received or accrued by the owner during such taxable_year sec_72 further provides that if an annuity_contract is held by a_trust or other entity as an agent for a natural_person then sec_72 shall not apply trust will not receive any consideration from beneficiary or any other individual sec_72 of the code provides that if an annuity_contract is held by a c beneficiary is not employed by trust b settlor as the grantor of trust will not be considered the owner of trust for the following representations were made in connection with this ruling_request the legislative_history to sec_72 of the code states that if an annuity_contract a beneficiary is a natural_person as that term is defined in sec_72 of the code plr-121703-04 is held by a person who is not a natural_person such as a corporation then the contract is not treated as an annuity_contract for federal_income_tax purposes and the income_on_the_contract for any taxable_year is treated as ordinary_income received or accrued by the owner of the contract during the taxable_year however the legislative_history further provides that in the case of an annuity_contract the nominal owner of which is not a natural_person eg a corporation or a_trust but the beneficial_owner of which is a natural_person the contract is treated as held by a natural_person h_r conf_rep no 99th cong 2d sess vol ii vol c b although trustee is the contract owner of the annuity its ownership_interest is nominal beneficiary is the beneficial_owner of the annuity_contract purposes of of the code described in this request to anyone other than beneficiary or other than to the separate trust described above for beneficiary’s sole benefit if beneficiary is living if beneficiary dies prior to attaining age the distribution will be made to beneficiary’s issue or if beneficiary dies without issue the distribution will be made to or for the benefit of persons related to beneficiary made we conclude as follows sec_72 of the code treatment of the annuity_contract trust or separate trust under the provisions of any other section of the code or the income_tax regulations specifically no opinion is expressed as to whether or not the annuity_contract is in fact an annuity_contract under sec_72 of the code no opinion is expressed as to whether the annuity_contract meets the requirements of sec_72 furthermore no opinion is expressed as to any_tax consequences under sec_72 if any distributions from trust are cash the annuity_contract is considered owned by a natural_person for purposes of accordingly based solely on the information submitted and the representations except as specifically set forth above no opinion is expressed as to the tax e under no circumstance will trust distribute any of the annuity_contracts d any annuity_contracts involved satisfy the terms of sec_72 a copy of this letter should be attached to any federal_income_tax return to which this ruling letter is directed only to the taxpayer who requested it section plr-121703-04 j of the code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the ruling it is relevant copy of this letter to your authorized representative sincerely yours donald j drees jr senior technician reviewer branch office of associate chief_counsel financial institutions products in accordance with the power_of_attorney on file in this office we are sending a s


kraatz craig surveying inc petitioner v commissioner of internal revenue respondent docket no filed date p’s only activity is land surveying in tennessee p does not employ any licensed engineers is not associated with any firm that employs licensed engineers and does not provide any services that state law requires to be performed only by a licensed engineer pursuant to sec_1_448-1t tem- porary income_tax regs fed reg date the temporary_regulation engineering includes surveying and mapping r determined that p’s land surveying con- stitutes the performance of services in the field of engineering pursuant to the temporary_regulation and that therefore p is a qualified_personal_service_corporation as defined in sec verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila united_states tax_court reports d i r c subject_to a flat 35-percent income_tax rate under sec_11 i r c p asserts that the temporary regu- lation is invalid or if valid means that surveying and map- ping services if performed by an engineer would qualify as services in the qualifying field of engineering and does not apply in p’s situation p asserts citing grutman-mazler engg inc v commissioner tcmemo_2008_140 and alron engg testing corp v commissioner tcmemo_2000_335 that the court should look to state law to decide whether surveying is in the field of engineering p contends that land surveying in tennessee can be performed only by a licensed land surveyor and that p is not licensed to perform any activity which state law requires to be performed by a licensed engineer held whether a service is performed in a qualifying field under sec_448 i r c is to be decided by examining all relevant indicia and is not controlled by state licensing laws see 128_tc_42 held further the temporary_regulation is supported by the legislative_history by the ordinary meaning of the term civil engineering which encompasses surveying webster’s third new international dictionary and by other indicia that surveying is regarded as within the field of engineering it is valid under natl muffler dealers associa- tion v united_states 440_us_472 it implements the congressional mandate in a reasonable manner and under 467_us_837 it is not arbitrary capricious or manifestly contrary to the statute held further p’s land surveying is a service performed in the field of engineering under sec_448 i r c and p is subject_to the flat 35-percent income_tax rate under sec_11 i r c maurice w gerard for petitioner caroline r krivacka for respondent opinion dawson judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for its tax_year ending date in the notice_of_deficiency respondent determined that petitioner is a qualified_personal_service_corporation under sec_448 subject_to a flat 35-per- cent income_tax rate under sec_11 whether peti- unless otherwise indicated section references are to the internal_revenue_code in effect for and rule references are to the tax_court rules_of_practice and procedure verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila kraatz craig surveying inc v commissioner tioner is a qualified_personal_service_corporation depends upon whether petitioner’s sole activity of land surveying con- stitutes the performance of services field of engineering for purposes of sec_448 in the background this case was submitted fully stipulated under rule and the stipulated facts are incorporated as our findings by this reference petitioner was incorporated under the laws of the state of tennessee its principal_place_of_business is seymour ten- nessee petitioner timely filed form_1120 u s_corporation income_tax return for reporting taxable_income of dollar_figure and tax of dollar_figure petitioner is in the business of surveying land and land surveying is the only service petitioner provides petitioner does not have any employees who are licensed engineers is not associated with any firm that employs licensed engineers and does not provide any services that state law requires to be performed only by a licensed engineer discussion i applicable sections of the internal_revenue_code and regulations sec_11 imposes a tax on the taxable_income of every corporation although for federal_income_tax purposes cor- porations generally are taxed at graduated income_tax rates under sec_11 qualified personal_service_corporations as defined in sec_448 are taxed at a flat 35-percent income_tax rate sec_11 a qualified_personal_service_corporation is any corporation that satisfies a function test and an ownership test sec_448 petitioner argues that it is not a qualified_personal_service_corporation because it does not meet the function test respondent previously filed a motion for summary_judgment pursuant to rule the par- ties’ submission of the case fully stipulated renders that motion moot petitioner has not asserted that it does not satisfy the ownership test and is deemed there- fore to have conceded that the ownership test is satisfied if its land surveying is in the field of engineering verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila united_states tax_court reports fields of the function test requires that substantially_all of the cor- poration’s activities involve the performance of services in the law engineering architecture accounting actuarial science performing arts or consulting qualifying field sec_448 sec_1_448-1t temporary income_tax regs fed reg date sometimes the temporary_regulation provides health function test - i in general -a corporation meets the function test if substantially_all the corporation’s activities for a taxable_year involve the performance of services in one or more of the following fields- a health b law c engineering including surveying and mapping d architecture e accounting f actuarial science g performing arts or h consulting substantially_all of the activities of a corporation are involved in the performance of services in any field described in the preceding sentence a qualifying field only if percent or more of the time spent by employees of the corporation serving in their capacity as such is devoted to the performance of services in a qualifying field for purposes of determining whether this percent test is satisfied the performance of any activity incident to the actual performance of services in a qualifying field is considered the performance of services in that field activities incident to the performance of services in a qualifying field include the supervision of employees engaged in directly providing services to clients and the performance of administrative and support services incident to such activi- ties ii positions of the parties respondent determined that petitioner’s land surveying constitutes the performance of services in the field of engineering pursuant to sec_1_448-1t temporary income_tax regs supra respondent asserts that the regula- tion is supported by the legislative_history and reflects the congressional intent petitioner asserts that the temporary_regulation as inter- preted and applied by respondent is invalid in that it expands the meaning of engineering beyond the ordinary meaning and brings into the definition of engineering the entirely separate profession of land surveying citing grutman-mazler engg inc v commissioner t c memo verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila kraatz craig surveying inc v commissioner and alron engg testing corp v commissioner tcmemo_2000_335 petitioner asserts that the court should look to state law to determine whether an activity is the performance of a service in the field of engineering petitioner asserts that its land surveying is not performed in the field of engineering because the activities of engineering and land surveying are separately licensed and administered under tennessee law for completeness we briefly summa- rize the relevant state law provisions iii tennessee registration requirements for engineers and land surveyors it is unlawful for any person to practice either land sur- veying or engineering in tennessee unless the person has been duly registered or is exempted from registration under tennessee law tenn code ann secs b land surveying and engineering require separate registration and are governed by separate boards and stat- utes the practice of land surveying is governed by tenn code ann secs to and regulated by the state board_of examiners for land surveyors the prac- tice of engineering is governed by the applicable provisions of tenn code ann secs to and and regulated by the state board_of examiners for architects and engineers a person who has not practiced surveying for at least years and who wishes to practice land surveying in ten- nessee must pass the fundamentals of land surveying exam- ination prepared by the national council of examiners for engineering and surveying ncees tenn code ann sec a person wishing to practice engineering in ten- nessee must pass two examinations prepared by ncees-the fundamentals of engineering examination not required with undergraduate engineering degree and or more years of progressive engineering experience and the principles and practice of engineering examination id secs the ncees prepares separate fundamentals of engineering exams for the seven major engi- neering disciplines chemical civil electrical environmental industrial mechanical and other disciplines two-thirds of the questions cover all disciplines breadth part and one-third covers continued verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila united_states tax_court reports tennessee statutes and regulations do not define the prac- tice of engineering however tenn code ann sec defines the practice of land surveying as follows practice of land surveying means any service of work the adequate performance of which involves the application of special knowledge of the principles of mathematics the related physical and applied sciences and the relevant requirements of law for adequate evidence to the act of meas- uring and locating lines angles elevations natural and man-made fea- tures in the air on the surface of the earth within underground workings and on the beds of bodies of water for the purpose of determining areas and volumes for the monumenting of property boundaries and for the plat- ting and layout of lands and subdivisions of land including the topog- raphy drainage alignment and grades of streets and for the preparation and perpetuation of maps records plats field notes records and property descriptions that represent these surveys there is some overlap between the functions of a licensed engineer and those of a licensed land surveyor eg either a registered engineer or a registered land surveyor may pre- pare a detailed topographic map to accompany an application_for a coal surface mining operations permit pursuant to tenn code ann sec the tennessee state board_of examiners for architects and engineers has adopted the following delineation of engineering and sur- veying land surveying measurement and calculation of areas boundaries property lines the subdivision of property and the plotting thereof must be done by a surveyor and his drawing must bear his seal subdivision road alignment road grades cutting and filling of subdivi- sion lots and changes to the topography which involves a final grading plan may be performed by either an engineer or a surveyor the designer’s seal must be applied to the drawing in localities where instability of final grades and slopes requires analysis of soils to prevent conditions haz- ardous to life and property design of roads slopes ditches and building sites must be done by an engineer culverts storm drainage pipes water lines sewer lines electric power lines or other utilities not existing prior to development shall not be shown the specific discipline depth part eleven percent of the questions in the depth part of the fun- damentals of engineering examination for civil engineering are questions on surveying ncees prepares separate principles and practice of engineering examinations in engineer- ing disciplines or subdisciplines the civil engineering exam covers five subdisciplines-construc- tion geotechnical structural transportation and water resources and environmental-and con- sists of a breadth part and a depth part the breadth part contains questions from all five sub- disciplines of civil engineering the depth exams focus more closely on a single subdiscipline of civil engineering verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila kraatz craig surveying inc v commissioner on a subdivision drawing unless that drawing bears the seal of the engi- neer who designed them the issue of whether or not the design of storm water drainage systems may be conducted by a licensed land surveyor was addressed in an opinion by the attorney general’s office on date opinion no that opinion answers the question does the statute tenn code ann defining the practice of land surveying allow land surveyors to conduct and perform drainage design and calculations required for the construction of subdivisions including determining the detention and retention of storm water as well as determining the size of ponds basins pipes and culverts which hold and through which storm water will flow the opinion concludes based on its analysis and past authorities that a licensed land surveyor who is not a registered engineer may not conduct drainage design and calculations of this kind tennessee state board_of architectural and engineering examiners reference manual for building officials and design professionals app h design and practice policies iv delineation of engineering and surveying adopted date rev and adopted date rev and adopted date iv caselaw petitioner asserts that because land surveying in ten- nessee cannot be performed by a licensed engineer who is not also a licensed land surveyor land surveying in tennessee is not in the field of engineering petitioner concludes that con- sistent with grutman-mazler engg inc v commissioner tcmemo_2008_140 and alron engg testing corp v commissioner tcmemo_2000_335 its land surveying is not in the field of engineering but cf 128_tc_42 whether serv- ices were within the field of accounting under sec_448 not controlled by state licensing laws in alron engg testing corp v commissioner supra the taxpayer a wisconsin corporation performed both engineering services and geotechnical testing services at issue was whether the geotechnical testing was within the field of engineering under sec_448 we observed that under wisconsin law an engineer licensed with the state must meet certain minimum education experience and examining board requirements but that there are no standard minimum requirements for technicians who per- form geotechnical testing services under the laws of wis- consin we concluded that geotechnical testing did not verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila united_states tax_court reports require the same education training and mastery as engineering and held that it did not constitute engineering in rainbow tax serv inc v commissioner supra we held that tax_return preparation and bookkeeping services provided by a nevada corporation were within the qualifying field of accounting under sec_448 in that case although we examined state law we noted that sec_448 requires only that the services be in the field of accounting and is not limited to public accounting id pincite we declined to limit services performed in the field of accounting to those requiring state licensure rather we applied the regulations promulgated under sec_448 and the ordinary meaning of the words accounting and book- keeping defined as a branch of accounting noted that under nevada law public accounting includes the prepara- tion of tax returns and considered that the field of accounting historically included tax_return preparation and bookkeeping services id pincite thus although neither tax_return preparation nor bookkeeping requires the same education training and mastery as accounting we held that those activities were services in the field of accounting cf alron engg testing corp v commissioner supra in alron engg testing corp we looked primarily to state law in holding that geotechnical testing was not in the field of engineering we did not consider other indicia that might indicate that geotechnical engineering is a branch of civil engineering that historically includes geotechnical testing see supra note however rainbow tax serv inc instructs us to consider other indicia in deciding whether a service is performed in a qualifying field under sec_448 we shall do so here in deciding whether sec_1_448-1t temporary income_tax regs supra prop- erly includes surveying in the field of engineering for pur- poses of sec_448 the ncees principles and practice of engineering breadth examination for civil engineering includes questions on material testing eg concrete soil asphalt and subsurface exploration and sampling soil classification and boring log interpretation the depth exam for geotechnical civil engineering includes questions on subsurface exploration and sampling covering drilling and sampling procedures soil classification general rock characterization boring log interpreta- tion and in situ testing verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila kraatz craig surveying inc v commissioner v field of engineering when a court reviews an agency’s construction of the statute which it administers if the statute is silent or ambiguous with respect to the specific issue the question for the court is whether the agency’s answer is based on a permissible construction of the statute 467_us_837 a regulation adopting a permissible construction of a statute is due deference if the statute is silent or ambig- uous with respect to the specific issue id pincite see also 394_us_741 regulation was valid where definitions of terms in the regulation com- ported with the ordinary understanding of the terms thus we first must decide whether the temporary regula- tion’s inclusion of surveying in the field of engineering is a permissible construction of sec_448 the words of a statute should be given their normal meaning and effect in the absence of a showing that some other meaning was intended 543_us_1 if the intent of congress is clearly and unambig- uously expressed by the statutory language at issue the court must apply the statute according to its terms 550_us_81 normally neither the legislative_history nor the reasonableness of the secretary’s method would be deter- minative if the plain language of the statute unambiguously indicated that congress sought to foreclose the secretary’s interpretation sec_448 lists eight qualifying fields but does not define any of them when interpreting the text of a statute courts frequently begin by looking to the common and ordinary meaning of a word set forth in a dictionary see eg 129_sct_1058 544_us_320 116_tc_87 however analyses of the legislative_history and purpose of a statute are also traditional tools of statutory construction if a court employing tools of statutory construction ascertains that congress had an intention on the precise question at issue that intention is the law and must be given effect chevron u s a inc v natural res def council inc traditional verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila united_states tax_court reports supra pincite n we begin our analysis with the legislative_history because it provides evidence of congressional intent with respect to the precise point at issue see zuni pub sch dist no v dept of educ supra pincite stevens j concurring a legislative_history and purpose frequently congress enacted sec_448 which generally prohibits c corporations partnerships that have a c_corporation as a partner and tax_shelters from using the cash_method_of_accounting as part of the tax_reform_act_of_1986 publaw_99_514 100_stat_2345 before the enactment of sec_448 taxpayers whose businesses did not involve inven- tories generally could elect to use any method_of_accounting that clearly reflected income and that was regularly used in keeping the taxpayer’s books_and_records under sec_446 congress enacted sec_448 because it believed that the cash_method_of_accounting fails to reflect accurately the economic results of a taxpayers’s trade_or_business over a taxable_year h rept pincite 1986_3_cb_1 however congress recognized that the simplicity of the cash_method justified its continued use by certain types of taxpayers and for certain types of activities id congress recognized that individuals especially those engaged in professional activities personal service cor- porations and entities where the income is taxed at the indi- vidual level such as partnerships_and_s_corporations traditionally had used the cash_method_of_accounting in the operation of their trades_or_businesses and should be able to continue to use that method id thus in sec_448 con- gress provided exceptions to sec_448 including the exception for qualified personal_service_corporations defined in sec_448 the conference_report on the tax_reform_act_of_1986 publaw_99_514 100_stat_2345 states a qualified_personal_service_corporation is a corporation that meets both a function test and an ownership test the function test is met if substan- tially all the activities of the corporation are the performance of services in the field of health law engineering including surveying and mapping architecture accounting actuarial science performing arts or consulting h conf rept vol ii at ii-285 1986_3_cb_1 emphasis added verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila kraatz craig surveying inc v commissioner the conference_report shows that congress intended sur- veying and mapping to be treated as services performed in the field of engineering for purposes of the function test the temporary_regulation reflects that intent b definitions of engineering and civil engineering webster’s third new international dictionary defines engineering as the science by which the properties of matter and the sources of energy in nature are made useful to man in structures machines and products- see chemical engineering civil engineering electrical engineering hydraulic engineering industrial engineering mechanical engineering municipal engineering sanitary engineering the field of engineering includes any branch of engineering see rainbow tax serv inc v commissioner t c pincite the field of accounting includes bookkeeping defined in webster’s third new international dictionary as a branch of accounting webster’s third new international dictionary defines civil engineering as a branch of engineering con- cerned primarily with public works as land surveying the building of highways bridges waterways or harbors but also embracing private enterprises as railroad and air- port building private building construction and farm drain- age emphasis added thus land surveying is within the ordinary meaning of engineering c other indicia the traditional concept of civil engineering is the integrated practice of engineering embracing a number of related specialty areas including but not limited to construc- tion transportation structures water resources and environ- mental and geotechnical engineering american society of the year after the enactment of sec_448 in the omnibus budget reconciliation act of publaw_100_203 sec stat congress amended sec_11 making qualified personal_service_corporations defined in sec_448 ineligible for the graduated income_tax rates contained in sec_11 and imposing tax on them at the highest_rate percent at that time the house ways_and_means_committee explained the personal_service_income of corporations owned by its employees is taxed to the employee- owners at the individual graduated rates as it is paid out as salary the committee believes that it is inappropriate to allow the retained earnings to be taxed at the lower corporate graduated rates h rept part pincite verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila united_states tax_court reports civil engineers asce policy statement first approved adopted date asce recently adopted policy statement adopted date in response to some confusion with respect to the role of civil engineers in the practice of surveying and the lack of understanding on the part of certain engineering dis- ciplines other than civil of the importance of surveying to the practice of civil aeronautical mechanical and mining engineering among others id policy statement defines engineering surveying as follows policy engineering surveying is defined as those activities involved in the plan- ning and execution of surveys for the location design construction oper- ation and maintenance of civil and other engineered projects such activities include the preparation of survey and related mapping specifications execution of photogrammetric and field surveys for the collection of required data including topographic and hydrographic data calculation reduction and plotting of survey data for use in engineering design design and provision of horizontal and vertical control survey networks provision of line and grade and other layout work for construction and mining activities execution and certification of quality control spatial measurements during construction monitoring of ground and structural stability observations settlement levels and related reports and certifications measurement of material and other quantities for inventory economic assessment and cost accounting purposes execution of as built surveys and preparation of related maps and plans and profiles upon completion of construction and analysis of errors and tolerances associated with the measurement field layout and mapping or other plots of survey measurement required in sup- port of engineering projects including alignment engineering surveying may be regarded as a specialty within the broader professional practice of engineering and with the exception of boundary right of way or other cadastral surveying includes all sur- the american society of civil engineers founded in is america’s oldest national engi- neering society representing more than big_number members of the civil engineering profession worldwide see http www asce org inside webster’s third new international dictionary defines cadastral as of or re- lating to the records of a cadastre concerned with assembling or keeping the records necessary to the cadastre of a map or survey showing or recording property boundaries subdivision verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila kraatz craig surveying inc v commissioner veying and mapping activities required to support the sound conception planning design construction maintenance and operation of engineered projects engineering surveying does not for the retracement of existing land ownership boundaries or the creation of new boundaries include surveys rationale engineering surveying is one of the necessary skills of a civil engineer a civil engineer may specialize in engineering surveying thereby devel- oping the necessary expertise in the execution and analysis of measure- ments to the highest level practicable the engineering surveyor as a spe- cialist supports and serves other civil engineers in their task of designing and constructing manmade works for the benefit of mankind while a civil engineer may not engage full time in engineering surveying and may not be considered an expert on all aspects of engineering surveying they must be well qualified to perform those aspects of surveying relevant to their professional activities preparation of a detailed topographic map to accompany an application_for a coal surface mining operations permit and subdivision road alignment road grades cutting and filling of subdivision lots and changes to the topography which involves a final grading plan falls within the asce definition of surveying engineering in tennessee those activities may be performed by a licensed land surveyor as well as a licensed engineer asce publishes various journals that provide technical information for the civil engineering profession including the journal of surveying engineering an article on the history of engineering surveying by william e kreisle published in the journal of surveying engineering traces the development of the engineering surveyor his equipment and his methods kreisle history of engineering surveying j surv engg in the abstract of the article kreisle observes that the engineering surveyor who evolved from the land surveyor was the forerunner of all civil engineers including the founders of the american society of civil engi- neers id pincite lines buildings and other details black’s law dictionary 8th ed defines cadastre also spelled cadaster as a survey and valuation of real_estate in a county or region compiled for tax purposes verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila united_states tax_court reports d state licensing laws not controlling the inclusion of surveying in the field of engineering is supported by the legislative_history civil engineering is a branch of engineering and land surveying falls within the ordinary meaning of engineering and historically is regarded as within the field of engineering the fact that land sur- veying may be performed by an individual who is not a licensed engineer does not remove those services from the field of engineering see rainbow tax serv inc v commissioner t c pincite tax preparation and book- keeping services are within the field of accounting even when performed by a corporation that employs no licensed c p a ’s the meaning of the words or the legal status of cir- cumstances for federal tax purposes need not be identical to their meaning or their legal effect under state law estate of steffke v commissioner 538_f2d_730 7th cir citing 327_us_280 and 305_us_188 in interpreting a federal taxing statute the supreme court said here we are concerned only with the meaning and application of a statute enacted by congress in the exercise of its plenary power under the constitution to tax income the exertion of that power is not subject_to state control it is the will of congress which controls and the expression of its will in legislation in the absence of language evidencing a different purpose is to be interpreted so as to give a uniform application to a nation-wide scheme of taxation state law may control only when the federal taxing act by express language or necessary implication makes its own operation dependent upon state law 287_us_103 see also 312_us_399 lyeth v hoey supra pincite thus the provisions of the revenue laws ‘are not to be taken as subject_to state control or limitation unless the language or necessary implication of the section involved makes its application dependent on state law ’ 511_us_224 quoting united_states v pelzer supra pincite we can find no basis in the text of sec_448 or its legislative_history to conclude that congress intended to condition the meaning of services in the field of engineering or any other qualifying field on state law in nlrb v verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila kraatz craig surveying inc v commissioner hearst publns inc 322_us_111 the supreme court rejected an argument that the term employee as used in a federal statute should be defined by state law explaining both the terms and the purposes of the statute as well as the legislative_history show that congress had in mind no patchwork plan nothing in the statute’s background history terms or purposes indicates its scope is to be limited by varying local conceptions either statutory or judicial or that it is to be administered in accordance with whatever different standards the respective states may see fit to adopt for the disposition of unrelated local problems similarly nothing in the backgrounds histories terms or purposes of sec_11 and sec_448 indicates that they are to be administered in accordance with different licensing standards states may adopt because state licensing laws governing engineering and other qualifying fields differ from state to state defining a qualifying field by state licensing laws would mean that conduct in one state might constitute the performance of services in a qualifying field whereas identical conduct in a neighboring state would not congress has given no indication it intended the criminality of official conduct under federal_law to depend on geography 548_f3d_1237 9th cir whether a service is performed in one of the qualifying fields under sec_448 is to be decided by all relevant indicia including the text of the statute its legislative his- tory and regulations application of the normal meaning of the term architecture accounting actuarial science performing arts or con- sulting and examination of services historically regarded as within the qualifying field see 128_tc_42 engineering health law vi conclusion we hold that sec_1_448-1t temporary income_tax regs supra is a reasonable interpretation of the statute supported by the legislative_history by the ordinary meaning of the word engineering which encompasses sur- veying and by other indicia that surveying is regarded as within the field of engineering it implements the congres- verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila united_states tax_court reports sional mandate in a reasonable manner and is not arbitrary capricious or manifestly contrary to the statute accordingly it is valid under both natl muffler dealers association v united_states 440_us_472 and 467_us_837 we hold further that petitioner’s land surveying is within the field of civil engineering which in turn is within the field of engineering and that petitioner is a qualified_personal_service_corporation defined in sec_448 and subject_to the flat 35-percent income_tax rate under sec_11 to reflect the foregoing an appropriate order and decision for respondent will be entered f under natl muffler dealers association v united_states 440_us_472 an interpreta- tive regulation is valid if it implements a congressional mandate in a reasonable manner by contrast under 467_us_837 a legislative_regulation is upheld unless arbitrary capricious or manifestly contrary to the stat- ute verdate 0ct date jkt po frm fmt sfmt v files kraatz sheila