internal_revenue_service number release date index number ------------------- -------------------------------------------------------------- ---------------------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-153345-08 date june legend x y ----------------------------------------------------------------------------------------------------- ----------------------- ------------------------------------------------------------------------ state ------------- date -------------------------- dear ------------- we received your letter dated date submitted on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be treated as an association_taxable_as_a_corporation under sec_301_7701-3 this letter responds to your request facts x was formed on date as a state limited_liability_company x is wholly-owned by y y intended that x be treated as an association_taxable_as_a_corporation for federal tax purposes effective date however x inadvertently failed to timely file a form_8832 entity classification election law and analysis plr-153345-08 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with a single owner can elect to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion plr-153345-08 based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of sixty days from the date of this letter to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date the election should be made by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------------ ------------------- ---------------------------- ----------------- ---------------------------------------- - department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc corp plr-105827-07 date date ------------------------------------------------ ------------------------------ legend distributing ----------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------------- holdco ------------------------------------------------------------------------------ ----------------------------------------------------------------------------------- controlled ------------------------------------------------------------------------------ ------------------------------------------------------------------------------------- sponsor c-sub1 ------------------------------------------------------------------------------ ----------------------------------------------------------------------------------- c-sub2 ------------------------------------------------------------------------------ ----------------------------------------------------------------------------------- c-sub3 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------------- c-sub4 -------------------------------------- --------------------------------------------- ------------------------------------------------- -------------------------------------------------- ------------------------------------------------------- --------------------------------------------------------------- --------------------------------------- ---------------------------------------------- --------------------------------------------------- ---------------------------------------------------- plr-105827-07 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------------- d-sub1 ------------------------------------------------------------------------------ ----------------------------------------------------------------------------------- d-sub2 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------------- d-sub3 ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------- business a business b-1 ------------------------------------------------------------------------------------------------------------------ business b-2 ------------------------------------------------------------------ business c ------------------------------------------------------------------------------------------------------------- a b c d e f g h i --------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------- -------------- -------------- -- --------------------------------------------------------------- --------------------------------------------------------------- -- ---- ------------- ----------------- ----------------- plr-105827-07 j k date a date b date c date d state x state y dear ------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of the proposed transaction described below the information submitted in that request and in later correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information and representations may be required as part of the audit process -------------------------- ------------- ---------- moreover no information provided by the taxpayer has been reviewed and no determination has been made regarding whether the distribution described below i satisfies the business_purpose requirement of sec_1_355-2 ii is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 of the internal_revenue_code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest in distributing or controlled see sec_355 and sec_1_355-7 facts distributing is the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return the distributing group the majority of the stock of distributing is owned by various funds managed by sponsor distributing plr-105827-07 through its subsidiaries engages in business a business b-1 business b-2 and business c distributing is a holding_company that owns all of the outstanding_stock of holdco holdco is a holding_company that owns all of the outstanding_stock of several subsidiaries including c-sub1 c-sub2 d-sub1 and d-sub2 c-sub1 owns all of the outstanding_stock of c-sub3 and c-sub4 d-sub2 is a holding_company that owns all of the outstanding_stock of d-sub3 distributing has outstanding approximately dollar_figurea of junior debt to unrelated lenders the junior debt holdco has outstanding approximately dollar_figureb of senior debt to unrelated lenders the senior debt and approximately dollar_figurec of publicly traded senior subordinated notes the notes none of distributing’s or holdco’s borrowings were incurred in anticipation of the proposed transaction c-sub1 is a party to certain contracts in and is the obligor on various liabilities of business b-1 c-sub2 has employees associated with business b-1 c-sub3 and c- sub4 are directly engaged in business b-1 d-sub1 is engaged in business a directly and through its subsidiaries d-sub3 is engaged in business b-2 on date a the distributing group disposed of a majority of the units engaged in business b-2 and business c the taxpayer has submitted financial information indicating that business b-1 as conducted by c-sub3 and business a as conducted by d-sub1 each has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years distributing’s management has determined that the separation of business b-1 from business a business b-2 and business c will serve a number of corporate business purposes as described below proposed transactions through the following transactions collectively the proposed transaction distributing proposes to separate business b-1 from business a business b-2 and business c i holdco will form controlled to facilitate the business objectives to be achieved by separating business b-1 from businesses a b-2 and c in an efficient and cost effective manner plr-105827-07 ii intercompany accounts between i any distributing group member that will be owned directly or indirectly by controlled after the proposed transaction and ii distributing holdco or any distributing group member that will be owned directly or indirectly by distributing after the proposed transaction will be settled a series of transactions will occur that will culminate in c-sub1’s distributing to holdco applicable intercompany receivables and holdco’s assuming applicable intercompany payables iii holdco will merge with and into distributing with distributing surviving the holdco merger in the holdco merger distributing will succeed to holdco’s assets and liabilities including the senior debt and the notes and intercompany notes between distributing and holdco will be cancelled by operation of law iv distributing will borrow approximately dollar_figured from third parties a portion of which will be on a senior basis and a portion of which will be subordinated controlled will borrow approximately dollar_figuree from third parties on a senior basis v vi distributing will transfer the stock of c-sub1 and c-sub2 to controlled in exchange for additional controlled stock senior subordinated controlled debt securities the controlled securities with a principal_amount of approximately dollar_figuref and cash of approximately dollar_figureg an amount not in excess of distributing’s basis in its c-sub1 stock and c-sub2 stock the contribution vii distributing will repay or satisfy all or a portion of its senior debt using all or a portion of the cash received from controlled in step vi distributing will use the remaining portion of such cash if any to repay a portion of its junior debt and or to repay a portion of the notes in step x below distributing also will use a portion of its cash on hand and cash borrowed in step iv to repay or satisfy any remaining amount of distributing’s senior debt its pre-existing junior debt and certain additional liabilities including transaction expenses viii distributing will distribute cash of approximately dollar_figureh pro_rata to its shareholders with respect to their distributing stock the cash distribution ix distributing will distribute all of the controlled stock pro_rata to its shareholders with respect to their distributing stock the distribution x distributing will exchange all of the controlled securities received in step vi and a portion of the cash that it borrowed in step iv and or cash received from controlled in step vi for the notes the debt exchange the debt exchange is intended to be conducted as a direct exchange between distributing and the holders of the distributing notes however it may be necessary or plr-105827-07 appropriate to accomplish the debt exchange through intermediation by a financial_institution the financial_institution in such case the aggregate value of the notes delivered by financial_institution and of the controlled securities delivered by distributing will be determined on a date the valuation_date specified in an exchange_agreement the exchange_agreement the exchange_agreement will be entered into no sooner than i days after financial_institution acquires the distributing notes in the marketplace and at least j days prior to the valuation_date under the terms of the exchange_agreement financial_institution will represent that i the debt delivered to distributing in the debt exchange was acquired by financial_institution for its own account ii no such debt was acquired by financial_institution within k days of the valuation_date iii to the knowledge of financial_institution without independent inquiry all such debt was acquired by financial_institution from third parties sellers and other than as a dealer prior to sales to third parties not from distributing or any affiliate of distributing and iv at or prior to the time of the original issuance of such debt there was no arrangement or understanding between financial_institution and any seller that acquired such debt in connection with its original issuance from financial_institution as dealer or otherwise that the seller would sell the debt to financial_institution under the terms of the exchange_agreement distributing will represent that neither it nor any of its affiliates sold any debt delivered to distributing in the debt exchange to financial_institution other than as a dealer financial_institution will sell to third parties pursuant to a public or private offering any controlled securities received from distributing in conjunction with the transactions described above distributing and controlled will enter into agreements relating to the separation of the businesses and certain continuing transactions between the companies including transitional administrative and other service agreements for a period not to exceed two years a tax_sharing_agreement and possibly a consulting agreement collectively the transition agreements distributing has outstanding certain compensatory stock_options restricted shares of stock and deferred share arrangements collectively the equity-based interests on distributing stock it is anticipated that the terms of the outstanding equity-based interests may be adjusted and that some or all of the equity-based interests on distributing stock will be converted into outstanding distributing stock prior to the distribution or converted into equity-based interests on controlled stock in connection with the distribution the modifications representations the holdco merger the following representations are made with respect to the holdco merger plr-105827-07 a b distributing and holdco will adopt a plan_of_liquidation by merger the plan of merger and the holdco merger will occur pursuant to such plan distributing on the date of adoption of the plan of merger and at all times until the effective date of the merger will be the owner of at least percent of the total combined voting power of all classes of holdco stock entitled to vote and the owner of at least percent of the total value of all classes of holdco stock excluding nonvoting_stock if any that is limited and preferred as to dividends and otherwise meets the requirements of sec_1504 c no shares of holdco stock will have been redeemed during the three years preceding the adoption of the plan of merger of holdco d by operation of law all transfers from holdco to distributing pursuant to the plan of merger will occur on the effective date of the merger e all of the stock of holdco will be redeemed and cancelled and holdco will cease to exist for federal_income_tax purposes at the effective time of the merger holdco will retain no assets following the merger f g other than holdco’s acquisition of the stock of c-sub1 on date b when it formed c-sub1 and the formation of other subsidiaries in the ordinary course holdco will not have acquired assets in any nontaxable_transaction at any time except for acquisitions occurring more than three years prior to the date of adoption of the plan of merger h except as described above in step vi of the proposed transaction the holdco merger will not be preceded or followed by the reincorporation in or transfer or sale to a recipient corporation recipient of any of the businesses or assets of holdco if persons holding directly or indirectly more than percent in value of the holdco stock also hold directly or indirectly more than percent in value of the stock in recipient for purposes of this representation ownership will be determined immediately after the distribution and by application of the constructive_ownership rules of sec_318 of the code as modified by sec_304 i prior to adoption of the plan of merger no assets of holdco will have been distributed in_kind transferred or sold to distributing except for i transactions occurring in the normal course of business ii transactions occurring more than three years prior to adoption of the plan of merger iii a dividend paid_by holdco to distributing on date c which was unrelated to the proposed transaction and iv if the consummation of the distribution is significantly delayed the possible plr-105827-07 payment of a dividend if any to distributing to fund a distribution to distributing’s shareholders holdco will report all earned_income represented by assets that will be distributed to distributing such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc the fair_market_value of the assets of holdco will exceed its liabilities both at the date of the adoption of the plan of merger and immediately before the merger other than in connection with the formation of subsidiaries in the ordinary course no assets of holdco have been or will be disposed of by either holdco or distributing except for dispositions in the ordinary course of business dispositions occurring more than three years prior to the adoption of the plan of merger the disposition on date a of units engaged in business b-2 and business c and transfers occurring as part of the proposed transaction m there is no intercorporate debt existing between distributing and holdco other than indebtedness created in the ordinary course of business and certain intercorporate debt owed by distributing to holdco not created in connection with the holdco merger and none has been cancelled forgiven or discounted except for transactions that occurred more than three years prior to the date of the adoption of the plan of merger distributing is not an organization that is exempt from federal_income_tax under sec_501 or any other provision of the code o the merger is being effected pursuant to the laws of state x and state y and will qualify as a statutory merger under applicable state law pursuant to the plan of merger by operation of law the following will occur simultaneously i all of the assets and liabilities of holdco except to the extent satisfied or discharged in the transaction will become assets and liabilities of distributing and ii holdco will cease its separate legal existence p distributing has no plan or intention to sell or otherwise dispose_of any of the assets of holdco acquired in the merger except for dispositions made in the ordinary course of business and as described above the distribution of business b-1 and the cash distribution the liabilities of holdco assumed within the meaning of sec_357 by distributing and the liabilities to which the transferred assets of holdco are subject were incurred by holdco in the ordinary course of the distributing group’s business j k l n q plr-105827-07 r following the holdco merger distributing will continue the historic_business of holdco or use a significant portion of holdco’s historic_business_assets in a business either directly or through one or more members of distributing's qualified_group within the meaning of sec_1_368-1 s distributing and holdco will pay their respective expenses if any incurred in connection with the transaction t v no two parties to the holdco merger are investment companies as defined in sec_368 and iv u holdco is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 the fair_market_value of the assets of holdco transferred to distributing will equal or exceed the sum of the liabilities assumed within the meaning of sec_357 by distributing plus the amount of the liabilities if any to which the transferred assets are subject w no intercorporate indebtedness exists or will exist between distributing and holdco that was issued acquired or will be settled at a discount x at least percent of the proprietary interest in holdco will be preserved within the meaning of sec_1_368-1 by reason of an exchange of holdco stock held by distributing for a direct interest in the holdco enterprise y no distributing stock will be issued so distributing has no plan or intention to z reacquire any of its stock issued in the merger of holdco into distributing the fair_market_value of the assets of distributing will exceed the amount of its liabilities immediately_after_the_exchange aa all other transactions undertaken contemporaneously with in anticipation of in conjunction with or in any way related to the proposed holdco merger have been fully disclosed the distribution the following representations are made with respect to the distribution a other than the controlled securities to be held by distributing prior to their distribution to distributing’s creditors in the debt exchange the indebtedness if any owed by controlled to distributing after the distribution of the controlled stock will not constitute stock_or_securities plr-105827-07 b the total fair_market_value of the assets transferred to controlled by distributing in the contribution will exceed the sum of i the amount of liabilities if any assumed within the meaning of sec_357 by controlled in connection with the exchange ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange and iii the amount of cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange c the total fair_market_value of the assets transferred to controlled by distributing in the contribution will equal or exceed the aggregate adjusted_basis of the transferred assets d the total adjusted bases of the assets transferred to controlled by distributing in the contribution will equal or exceed the sum of i the total liabilities if any assumed within the meaning of sec_357 by controlled and ii the total of any money and the fair_market_value of any other_property within the meaning of sec_361 received by distributing and transferred to its creditors in connection with the reorganization e with the possible exception of the issuance of controlled shares pursuant to adjustments to distributing’s existing stock_options restricted_stock or deferred share arrangements no part of the controlled shares to be distributed in the distribution or cash to be distributed in the cash distribution by distributing to its shareholders is being received by any of distributing’s shareholders as a creditor employee or in any capacity other than that of a shareholder of distributing no part of the controlled securities to be distributed by distributing will be received by a security holder as an employee or in any capacity other than that of a security holder of distributing g the liabilities assumed if any as determined under sec_357 by controlled in the contribution will have been incurred in the ordinary course of business and will be associated with the assets transferred in applying sec_355 regarding the active_conduct_of_a_trade_or_business distributing and controlled will treat all members of their respective separate affiliated groups as defined in sec_355 hereinafter sags as one corporation f h plr-105827-07 i d-sub1 will be a member of distributing’s sag c-sub3 will be a member of controlled’s sag j k l the five years of financial information submitted on behalf of d-sub1 is representative of d-sub1’s present operations and with regard to such operations there have been no substantial operational changes since the date of the last financial statements submitted the five years of financial information submitted on behalf of c-sub3 is representative of c-sub3’s present operations and with regard to such operations there have been no substantial operational changes since the date of the last financial statements submitted the distribution of the stock and securities of controlled is carried out for the following corporate business purposes i to allow the management of the business a and business b-1 segments to focus on each separate business ii to facilitate the acquisition by controlled of corporations engaged in business b-1 and by distributing of corporations engaged in business a iii to reduce the conflicting interests in business a and business b-1 and iv to provide compensation to the management and executive ranks of employees that relates solely to the management and executives in each separate business segment the distribution of the stock and securities of controlled is motivated in whole or substantial part by one or more of these corporate business purposes m following the distribution d-sub1 and c-sub3 will each continue the active n conduct of its business independently and with its separate employees the proposed transaction is not being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both o other than the retirement of the senior debt the notes and the junior debt as described above as part of the proposed transaction distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the distribution for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the 5-year period determined after applying sec_355 ending on the date of the distribution p plr-105827-07 q for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the 5-year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock that was acquired by purchase as defined in sec_355 and during the 5-year period determined after applying sec_355 ending on the date of the distribution r t the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation s except for the controlled securities which will be transferred in the debt exchange no intercorporate debt will exist between distributing and controlled at the time of the distribution and no intercorporate debt will exist between distributing and controlled subsequent to the distribution except as may arise in the ordinary course of business or with respect to payments pursuant to any continuing transactions between distributing and controlled or the tax separation agreement the controlled securities will constitute securities for purposes of sec_355 and sec_361 u payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length in addition certain administrative and similar services will be performed by distributing for controlled during a transitional period at cost-based pricing although no final decisions have yet been made it is anticipated that there will be some overlap of membership on distributing’s and controlled’s board_of directors and that an individual who will be controlled’s chief_executive_officer will provide management advice to distributing as a consultant v no two parties to the distribution are investment companies as defined in sec_368 and iv immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 in effect w plr-105827-07 before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d furthermore distributing's excess_loss_account if any with respect to controlled will be taken into account as required by the applicable excess_loss_account regulations see sec_1_1502-19 x distributing and controlled and their respective shareholders will each pay their y z own expenses if any incurred in connection with the distribution the payment of cash in lieu of fractional shares if any of controlled stock will be solely for the purpose of avoiding the expense and inconvenience of issuing and maintaining fractional shares and will not represent separately bargained for consideration the total cash consideration that will be paid in connection with the distribution in lieu of fractional shares of controlled stock is not intended to exceed one percent of the total consideration that will be distributed to holders of distributing stock in the distribution any fractional share interests will be aggregated and it is intended that no distributing shareholder will receive cash in lieu of fractional shares in an amount equal to or greater than the value of one full share of controlled stock immediately after the distribution as defined in sec_355 neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 aa the sum of a the aggregate amount of distributing senior debt junior debt and notes retired with cash received from controlled and b the aggregate amount of distributing notes exchanged for the controlled securities in the debt exchange will not exceed the weighted quarterly average of the combined distributing and holdco debt owed to unrelated third parties for the 12-month_period ending upon the close of business on date d the last full business_day before the date on which distributing's board_of directors authorized distributing to pursue actively the distribution of business b-1 rulings based solely on the information submitted and the representations set forth above we rule as follows with respect to the holdco merger no gain_or_loss will be recognized by distributing in the holdco merger no gain_or_loss will be recognized by holdco in the holdco merger plr-105827-07 the basis of each asset received by distributing in the holdco merger will equal the basis of that asset in the hands of holdco immediately before the holdco merger the holding_period of each asset received by distributing in the holdco merger will include the period during which that asset was held by holdco distributing will succeed to and take into account those attributes of holdco described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 of the code and the regulations thereunder sec_381 and sec_1_381_a_-1 based solely on the information submitted and the representations set forth above we rule as follows with respect to the contribution the distribution the cash distribution and the debt exchange the contribution together with the distribution will qualify as a reorganization within the meaning of sec_368 distributing and controlled will each be a party to the reorganization within the meaning of sec_368 to the extent that the cash received by distributing in the contribution does not exceed the aggregate adjusted_basis of the property transferred to controlled in the contribution reduced by any liabilities assumed by controlled no gain_or_loss will be recognized by distributing in connection with the contribution sec_357 and sec_361 and b no gain_or_loss will be recognized by controlled upon the contribution in exchange for controlled stock sec_1032 the basis of each asset received by controlled in the contribution will equal the basis of that asset in the hands of distributing immediately before the contribution sec_362 the holding_period of each asset received by controlled in the contribution will include the period during which distributing held that asset sec_1223 no gain_or_loss will be recognized by distributing in connection with the distribution sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of the distributing shareholders on their receipt solely of controlled stock in the distribution sec_355 plr-105827-07 the cash distribution will be treated as a distribution to the distributing shareholders to which sec_301 applies sec_356 and sec_1_356-2 a distributing shareholder who receives cash in lieu of a fractional share if any of controlled stock will recognize gain_or_loss measured by the difference between the basis of the fractional share received as determined below in ruling and the amount of cash received sec_1001 any gain_or_loss will be treated as capital_gain or loss provided the fractional share of stock is held as a capital_asset on the date of the distribution sec_1221 and sec_1222 each distributing shareholder's basis in a share of distributing stock as adjusted under sec_1_358-1 shall be allocated between the share of distributing stock with respect to which the distribution is made and the share or shares of controlled stock or allocable portions thereof received with respect to the share of distributing stock in proportion to their fair market values if one share of controlled stock is received in respect of more than one share of distributing stock the basis of each share of distributing stock must be allocated to the shares of controlled stock received in a manner that reflects that to the extent possible a share of controlled stock is received in respect of shares of distributing stock acquired on the same date and at the same price if a distributing shareholder that purchased or acquired shares of distributing stock on different dates or at different prices is not able to identify which particular share of controlled stock or portion thereof is received with respect to a particular share of distributing stock the shareholder may designate which particular share of controlled stock or portion thereof is received with respect to a particular share of distributing stock provided the designation is consistent with the terms of the distribution the holding_period of the controlled stock received by a distributing shareholder including any fractional share interest to which the shareholder may be entitled in the distribution will include the holding_period of the distributing stock with respect to which the distribution is made provided that the distributing stock is held as a capital_asset in the hands of the distributing shareholder on the date of distribution sec_1223 earnings_and_profits of distributing if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 after taking into account the decrease resulting from the cash distribution provided that the controlled securities received in the contribution are transferred by distributing on the date of the distribution or shortly thereafter in connection with the debt exchange i any income gain deduction or loss plr-105827-07 recognized by distributing on the deemed satisfaction of the controlled securities described in sec_1_1502-13 immediately prior to the distribution the deemed satisfaction will be redetermined to be excluded from distributing’s gross_income sec_1_1502-13 and c except to the extent of any such income gain_or_loss equal to an offsetting amount of income gain deduction or loss taken into account by controlled from the deemed satisfaction attributable to any difference between the adjusted_issue_price and fair_market_value of the controlled securities at the time of the deemed satisfaction and ii distributing’s basis in its controlled stock will not be reduced as a result of the deemed satisfaction except to the extent controlled takes into account any deduction from the deemed satisfaction eg repurchase premium attributable to any difference between the adjusted_issue_price and fair_market_value of the controlled securities at the time of the deemed satisfaction no gain_or_loss will be recognized by distributing on the distribution of the controlled securities in the debt exchange sec_361 to the extent permitted or required under general tax principles distributing will recognize any i deductions attributable to the fact that the notes may be redeemed at a premium ii income attributable to the fact that the notes may be redeemed at a discount and iii deductions related to costs associated with the redemption of the notes caveats we express no opinion about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular we express no opinion regarding i whether the spin-off satisfies the business_purpose requirement of sec_1_355-2 ii whether the spin-off is being used principally as a device for the distribution of the earnings_and_profits of distributing or controlled see sec_355 and sec_1_355-2 iii whether the spin-off is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest in distributing or controlled see sec_355 and sec_1_355-7 iv the federal_income_tax consequences of the settlement of intercompany accounts between distributing group members and the distribution to and plr-105827-07 assumption by holdco of the intercompany accounts as described in step ii of the proposed transaction v the federal_income_tax consequences of the cancellation of the intercompany notes between distributing and holdco as described in step iii of the proposed transaction vi whether the controlled securities described above in step vi will qualify as securities under sec_361 vii the federal_income_tax consequences of any payments made in connection with the transition agreements viii the federal_income_tax consequences of the modifications of the equity-based interests and ix the federal_income_tax consequences of the possible payment of a dividend to distributing to fund a distribution to distributing’s shareholders as described in representation i with respect to the holdco merger procedural statements this letter is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this letter_ruling in accordance with the power_of_attorney on file in this office a copy of this letter will be sent to the representatives named therein sincerely ___________________________ frances kelly assistant to the branch chief branch office of associate chief_counsel corporate


t c memo united_states tax_court samuel jacobson petitioner v commissioner of internal revenue respondent docket no filed date wallace musoff and michael j coyle for petitioner moira l sullivan timothy v mulvey and vincenza taverna for respondent memorandum findings_of_fact and opinion cohen chief_judge respondent determined deficiencies an addition_to_tax and penalties as follows -- - addition_to_tax and penalties i r c sec sec year deficiency a h dollar_figure dollar_figure dollar_figure big_number -- big_number respondent in the alternative determined a negligence_penalty under sec_6662 unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure the issues for decision are whether petitioner is entitled to certain noncash charitable_contribution deductions in excess of the amounts allowed by respondent whether petitioner is liable for an addition_to_tax for failure_to_file timely his federal_income_tax return and whether petitioner is liable for penalties for gross_valuation_misstatements on his and federal_income_tax returns findings_of_fact some of the facts have been stipulated and the facts set forth in the stipulation are incorporated in our findings by this reference at the time the petition in this case was filed samuel jacobson petitioner was a resident of new york new york he has been in the baked goods distribution business for years and owns operative cake corporation operative cake philately philately is the collection and study of postage stamps stamps and of postal stationery that has passed through the mail when a new u s stamp is issued by the united_states postal service postal service it is released on a specific day at a specific location stamp collectors refer to that day as the first day of issue since about a special cancellation bearing the words first day of issue along with the date and town of issue has been applied to stamped items furnished to the postal service on the first day the stamp is issued this service is undertaken by the postal service at no charge other than the cost of postage one of the modes of collecting first day of issue stamps is the collection of first day covers a first day cover is an envelope that bears a stamp postmarked with a first day of issue cancellation in some instances the envelope includes a decorative design usually related to the subject matter of the applied stamp by the 1940's hundreds of thousands of first day covers were routinely prepared by collectors for every newly issued stamp and first day covers had become an important part of the hobby of stamp collecting there is a primary market and a secondary market for first day covers the primary market refers to current first day covers with newly issued stamps sold directly to customers by q4e- the manufacturer prices in this market are set by the manufacturer and vary widely depending upon the quality of the products and the method of sale the secondary market refers to those first day covers sold by traditional stamp dealers who are not manufacturers or publishers of first day covers the secondary market operates through local shops mail-order catalogs and trade shows this market can be either at the retail level or wholesale level and prices are generally determined by the laws of supply and demand in addition to first day covers there are other first day of issue collectibles including first day pages first day pages are similar to first day covers but vary slightly in size and format for example rather than using the envelope format of a first day cover the format of a first day page might be a photograph a dinner menu a diploma reprint or copies of congressional minutes affixed to the first day page is a first day of issue stamp that is typically related to the subject matter of the page charitable_contribution petitioner acquired big_number first day pages from rita ostrer ostrer of the historic philatelic document company the first day pages the kesslers were created by seymour kessler and included prints photographs and other documentary material depicting various events and scenes of historical significance - - theme-appropriate first day of issue stamps were affixed to each page ostrer also owned an art dealership known as nicolini’s that rented art to movie studios petitioner acquired from nicolini’ sec_62 10-volume sets of figures of the bible a painting entitled st peter as bishop a painting entitled madonna and christ child and a monstrance hereinafter these articles will be referred to collectively as the religious articles and the religious articles and the kesslers will be referred to as the contributed_property during the time that he owned the contributed_property which he estimates as to years petitioner never attempted to obtain insurance on the contributed_property he never attempted to sell the property he stored the contributed_property in boxes on pallets in the operative cake bakery warehouse the warehouse had a rodent problem and was very hot during the summer twelve to fifteen people worked in the warehouse the only security was a guard at the exit of the warehouse in bishop john peter walzer walzer of the anglican catholic church diocese of connecticut southern episcopal church diocese visited petitioner seeking donations petitioner met with walzer several more times to discuss a potential contribution on date gerald malina - - malina prepared a document valuing the religious articles for petitioner malina however provided no methodology or rationale for the values at which he arrived walzer provided to petitioner letters dated date acknowledging receipt of a dollar_figure cash contribution and the religious items each letter contained a sentence stating we welcome the opportunity to work with you to help maximize your charitable_contribution on your schedule a form_1040 and thank you again for your generosity to our diocesan programs in a letter dated date walzer acknowledged receipt of the kesslers stating that the donation of the kesslers was made on date this correspondence also included an inventory of the kesslers that was prepared by donald c brueggemann brueggemann the brueggemann inventory placed a value on each kessler and indicated that the total value of all of the kesslers was dollar_figure the inventory did not contain any valuation methodology any rationale for the prices quoted or any reference to comparable sales it provided only a description of the kesslers on a lot--by-lot basis petitioner filed federal_income_tax returns for and on date and date respectively on his return petitioner reported adjusted_gross_income of dollar_figure he claimed charitable_contributions of dollar_figure in cash and dollar_figure in noncash property to the diocese petitioner - represented that he purchased the kesslers on date at a cost of dollar_figure he stated various as the acquisition_date of each of the religious items and did not state a cost for any of them petitioner listed the fair market values of the contributed_property on form_8283 as follows claimed fair item market_value kesslers dollar_figure biblical books st peter painting big_number madonna painting big_number monstrance total dollar_figure no appraisal was attached to petitioner’s or federal_income_tax returns substantiating the fair market values claimed by petitioner the charitable_contribution_deduction claimed for was limited to dollar_figure with the remaining dollar_figure attributable to noncash items being carried forward and deducted on the federal_income_tax return in the statutory notice respondent allowed only dollar_figure as the fair_market_value of the donated noncash property thus respondent disallowed dollar_figure of petitioner’s charitable_contributions for and all of the dollar_figure charitable_contribution carryover for opinion fair_market_value sec_170 allows a deduction for charitable_contributions made to an organization described in sec_170 in general the amount of a charitable_contribution made in property other than money is the fair_market_value of the property at the time of the contribution see sec_1 170a- l c income_tax regs fair_market_value is defined as on the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts sec_1_170a-1 income_tax regs 411_us_546 fair_market_value is a question of fact to be determined from the entire record see 84_tc_285 petitioner argues that the cumulative fair_market_value of the contributed_property in was dollar_figure petitioner bears the burden of proving a higher value than that determined by respondent see rule a 290_us_111 petitioner was unable to produce canceled checks sales receipts or other documents that substantiated the price that he paid or the date that he purchased the kesslers petitioner was unable to provide records substantiating the price that he paid or the date that he purchased the religious articles at trial --- - petitioner was unable to remember when he purchased the contributed_property how much he paid for it and when he donated it petitioner’s recollection of the amounts paid was vague and unreliable he claimed on his return that he purchased the kesslers in but he testified at trial that the correct year was he asserted in responses to interrogatories that he had purchased property or years earlier an employee of the bakery testified that the boxes were in the warehouse for at least years malina prepared an expert report for trial that purportedly valued the contributed_property and petitioner relies on this report and his own personal experience in valuing the contributed_property respondent relies on the expert report of paul t schmid schmid to support the fair market values determined in the notice_of_deficiency opinion testimony of an expert is admissible if and because it will assist the trier of fact to understand evidence that will determine a fact in issue see fed r evid we evaluate the opinions of experts in light of the demonstrated qualifications of each expert and all other evidence in the record see 86_tc_547 we are not bound by the opinion of an expert witness especially when such opinion is contrary to our conclusions see 97_tc_496 if experts -- - offer divergent estimates of fair_market_value we decide the weight to give these estimates by examining the factors they used in arriving at their conclusions see 38_tc_357 we may reject in its entirety an opinion provided under circumstances that undermine its credibility see eg 86_tc_567 84_tc_722 83_tc_56 malina has been a member of the appraisers association of america inc since with a specialty in oriental art his investigation of the kesslers consisted of telephone conversations with seymour kessler a review of trade periodicals offering kesslers for retail_sale and a review of the brueggemann inventory malina erroneously referred to the kesslers as covers ---unaware of or ignoring the distinction between covers and pages he also claims to have analyzed the market for first day covers in his report he listed the kesslers assigning a value to each lot malina’s analysis was limited to an unsupported assertion that respondent’s examining agent significantly undervalued the kesslers and to his contention that the kesslers were valuable because they were suitable for framing with respect to the religious articles malina adopted the values set forth in his valuation he provided only a limited analysis of his valuation of the stories of the bible book sets and no analysis of his valuation of the religious articles we reject malina’s opinion because he gave no persuasive explanation of his methodology made no reference to comparable sales or a valuation rationale and made no reference to any experience he had that would support the values at which he arrived without any reasoned analysis his report is useless his opinions are so exaggerated that his testimony is not credible see dean v commissioner supra the record is devoid of any evidence of actual sales of any of the kesslers or other objective evidence supporting the values claimed by malina and petitioner or any substantial values for the contributed_property moreover the fair market values at which malina arrived are contradicted by the objective evidence in this case petitioner argues that we should rely on his representations of the value of the kesslers because he examined the market for kesslers he recalled no details of his alleged activity in this regard however we are not required to accept petitioner’s testimony and under all of the circumstances conclude that it is unworthy of belief the contributed_property was stored in boxes on pallets for many years in a bakery warehouse that only had limited security the warehouse had a rodent problem and was described as being extremely hot during the summer the contributed_property was not insured nor was any special precaution taken to preclude loss due to deterioration theft or fire petitioner’s contemporaneous conduct renders implausible his claim that the property had substantial value see chiu v commissioner supra pincite the only evidence of subsequent handling of the contributed_property suggests that it had little value see skripak v commissioner t c pincite if the contributed_property had a value of dollar_figure or anything approaching that value as petitioner claims petitioner would have treated it with more care respondent’s expert schmid has been involved with stamps on a full-time basis for years his experience includes retail and auction sales and he has authored two books on the authentication of u s stamps at the time of the trial schmid was the owner of colorano a major publisher of first day covers in the united_states schmid provided a careful explanation supporting his opinions of value schmid described the pricing structure of first day covers within the primary and secondary markets and indicated that the prices of first day covers were in the following ranges primary market secondary market retail dollar_figure -- dollar_figure dollar_figure - dollar_figure wholesale dollar_figure - dollar_figure dollar_figure - dollar_figure schmid stated that the drop in price from the primary market to the secondary market is attributable to tremendous oversupply schmid indicated however that these prices are not necessarily the most accurate picture of fair_market_value and that many other factors combine to determine fair_market_value including sales history and collector demand schmid attempted but was unable to identify documented sales of the kesslers analyzing the demand for kesslers schmid pointed out that the demand for first day pages was much less than the demand for first day covers because schmid was unable to identify a competitive market for kesslers within which to ascertain an appropriate fair_market_value he estimated fair_market_value using the first day cover market in arriving at fair_market_value schmid took into consideration that the kesslers do not conform to the more popular envelope format they only span a limited number of years there is no established collector following and no past sales history was available he also considered that the kesslers are unique first day products and would have some appeal within the overall market for first day collectibles accordingly he stated that the kesslers would likely trade in secondary markets for first day covers for the same period thus indicating a range of dollar_figure to dollar_figure on an individual basis and dollar_figure to dollar_figure in larger groups he also took into consideration the salability of the kesslers noting that some of the pages would not be sold he proposed the following approach to valuing the kesslers percent sales level price of lot sales high retail dollar_figure sdollar_figure low retail dollar_figure big_number high wholesale dollar_figure big_number low wholesale qodollar_figure big_number unsalable -- total dollar_figure schmid indicated that these estimates are for a competitive market schmid stated that a noncompetitive market would have more high retail sales but would have fewer opportunities overall for sales at all levels resulting ina return in the range of dollar_figure to dollar_figure he suggested that the bottom of this range was more realistic based on his experience with established dealers schmid stated however that the most accurate valuation of the kesslers would be in the wholesale market where the kesslers would likely sell for dollar_figure to dollar_figure per page under this assumption the value of the kesslers would be between dollar_figure and dollar_figure petitioner challenges schmid’s valuation of the kesslers on a wholesale basis because he asserts trade periodicals indicated that a retail market existed for the kesslers petitioner’s reliance on trade periodicals to establish a market -- - for the kesslers is misplaced there is no evidence that any sales took place at the prices listed in those periodicals we are convinced that big_number kesslers would likely be sold if at all only in a wholesale market based on schmid’s experience in stamp collecting and in the first day cover market his valuation of the kesslers is the best evidence we have of fair_market_value and it supports respondent’s determination respondent presented no expert evidence of fair_market_value for the religious articles offering only evidence that they were not treated as valuable by subsequent possessors of the articles petitioner however failed to establish a fair_market_value in excess of dollar_figure for all of the contributed_property accordingly we conclude that petitioner is not entitled to deductions in excess of the amounts allowed by respondent sec_6651 addition_to_tax respondent determined that petitioner is liable for the sec_6651 addition_to_tax for sec_6651 a imposes an addition_to_tax for failure_to_file timely a return unless the taxpayer establishes that the failure did not result from willful neglect and that the failure was due to reasonable_cause petitioner failed to offer any evidence or explanation regarding the late filing of his return thus respondent’s - - determination that petitioner is liable for the sec_6651 addition_to_tax for is sustained sec_6662 h penalty respondent determined that petitioner is liable for the accuracy-related_penalty under sec_6662 for and petitioner argues that he reasonably relied on the brueggemann inventory and malina’s appraisal and that he substantially complied with applicable_requirements taxpayers are liable for a penalty equal to percent of the portion of an underpayment_of_tax attributable to a gross_valuation_misstatement see sec_6662 h sec_6662 h a provides that there is a gross_valuation_misstatement if the value of any property claimed on a tax_return is percent or more of the amount determined to be the correct value see also sec_6662 h a e a in this case the value of the contributed_property that was claimed on petitioner’s federal_income_tax return dollar_figure exceeds percent of the value determined to be correct dollar_figure the accuracy-related_penalty under sec_6662 does not apply to any portion of an underpayment if the taxpayer shows that there was reasonable_cause for such portion and that the taxpayer acted in good_faith see sec_6664 however the good_faith exception applies only to a sec_170 deduction if the claimed value of the property was based on a qualified - appraisal made by a qualified_appraiser and in addition to obtaining such an appraisal the taxpayer made a good_faith investigation of the value of the contributed_property see sec_6664 and qualified appraisers and gualified appraisals are defined under the regulations in sec_170 see sec_6664 c sec_1_170a-13 income_tax regs among the items of information to be included on a qualified_appraisal is the method of valuation used to determine fair_market_value and the specific basis for the valuation such as comparable sales or statistical samples see sec_1_170a-13 j and k income_tax regs as we indicated above neither the brueggemann inventory nor malina’s appraisal set forth a methodology or any meaningful analysis of fair market values expressed in each report moreover we are not persuaded that petitioner acted in good_faith because his conduct with respect to the contributed_property was not consistent with a belief that it had substantial value thus the reasonable_cause exception does not apply and petitioner is liable for the accuracy-related_penalty of sec_6662 h for a gross_valuation_misstatement to reflect the foregoing decision will be entered for respondent


department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ----------------- telephone number --------------------- refer reply to cc intl b02 plr-108516-14 date date internal_revenue_service number release date index number ---------------------------------- --------------------------------------- ------------------------------------ -------------------------------- ty ------ legend shareholder ---------------------------------- ein ---------------- fc ---------------------------------- country ---------- year ------ year ------ year ------ state ------------- vice president ------------------------- controller ------------------------ firm ------------------------- dear ----------------------------- this is in response to a letter dated date submitted by shareholder’s authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for shareholder to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code and sec_1_1295-3 with respect to shareholder’s investment in fc the ruling contained in this letter is based upon information and representations submitted on behalf of shareholder by its authorized representative and accompanied by a penalty of perjury statement executed by an appropriate party while this office plr-108516-14 has not verified any of the material submitted in support of this request_for_ruling such material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts shareholder is a limited_partnership organized under the laws of state in year shareholder purchased shares of fc an entity treated as a corporation for federal tax purposes and organized under the laws of country through an unrelated broker shareholder purchased additional shares of fc in year and year and sold shares of fc in year vice president a vice president of shareholder responsible for investment strategy identified fc as a domestic_corporation based on available information including the listing of fc on a united_states stock exchange the location of fc’s headquarters in the united_states and the location of fc’s assets in the united_states since year firm a competent u s accounting firm has prepared annual tax returns for shareholder firm is competent to render tax_advice with respect to the ownership of shares of a foreign_corporation controller an experienced employee of shareholder responsible for accounting financial reporting and compliance of shareholder was responsible for coordinating with firm controller provided firm with all the relevant information related to shareholder’s investment in foreign_corporations however information on fc was not provided to firm because fc was incorrectly identified as a domestic_corporation firm did not identify fc as a passive_foreign_investment_company pfic within the meaning of sec_1297 and thus did not advise shareholder of the consequences of making or failing to make a qef election at the end of year after communications with a representative from fc on matters unrelated to fc’s country of organization vice president learned that fc was organized in country upon learning this fact vice president immediately updated shareholder’s portfolio record and informed controller controller then immediately notified firm which began the process of gathering and analyzing relevant information to determine whether fc could have been a pfic for any of the years in shareholder’s holding_period firm advised shareholder that fc should be treated as a pfic and the consequences of making or failing to make a qef election shareholder engaged firm to assist in requesting relief to make a retroactive qef election with respect to fc shareholder has submitted affidavits from vice president controller and firm under penalties of perjury that describe the events that led to the failure to make a qef election with respect to fc by the election due_date and the discovery thereof shareholder has submitted pfic annual information statements of fc for year year and year which state that fc had no ordinary_earnings or net capital_gains for plr-108516-14 those years thus the interests of the united_states government will not be prejudiced by granting consent to make the requested retroactive election shareholder represents that as of the date of its request_for_ruling the pfic status of fc had not been raised by the internal_revenue_service on audit for any of the taxable years at issue ruling requested shareholder requests the consent of the commissioner to make a retroactive qef election with respect to fc for year under sec_1_1295-3 law sec_1295 provides that a pfic will be treated as a qef with respect to a shareholder if an election by the shareholder under sec_1295 applies to the pfic for the taxable_year and the pfic complies with the requirements prescribed by the secretary for purposes of determining the ordinary_earnings and net capital_gains of the company under sec_1295 a qef election may be made for a taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for the taxable_year to the extent provided in regulations the election may be made after the due_date if the shareholder failed to make an election by the due_date because the shareholder reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the company for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe plr-108516-14 the events that led to the failure to make a qef election by the election due_date the discovery of the failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on the professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with shareholder’s ruling_request we conclude that shareholder has satisfied sec_1_1295-3 accordingly consent is granted to shareholder to make a retroactive qef election with respect to fc for year provided that shareholder complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this private_letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative a copy of this letter_ruling must be attached to any federal tax_return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely barbara e rasch senior technical reviewer branch office of the associate chief_counsel international cc


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc intl br1-plr-100512-99 date date number release date in re ty a country b date c date d dear a this is in response to a letter dated date submitted by your authorized representative requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that your loss of united_states citizenship did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code 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 you along with a declaration under penalties of perjury executed by you 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 plr-100512-99 a was born on date c in the united_states his spouse were born in and is a citizen of country b a formally renounced his united_states citizenship on date d as of the date of his expatriation a had dual citizenship in country b and the united_states and his net_worth was in excess of the threshold fixed by the statute for a rebuttable_presumption under sec_877 of the code 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 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and 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 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 plr-100512-99 a is eligible to request a ruling pursuant to sec_877 of the code because he became not later than the close of a reasonable period after loss of united_states citizenship a citizen of country b in which his spouse was born see sec_877 on the date of expatriation a’s net_worth exceeded the threshold fixed by sec_877 to be eligible for a ruling a submitted all the information required by notice_98_34 including any additional information requested by the service after review of the submission accordingly 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 and notice_98_34 therefore a will not be presumed to have as one of his principal purposes for expatriating the avoidance of u s taxes however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a’s expatriation had for one of its principal purposes the avoidance of such taxes while this ruling rebuts the presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and sec_2501 based on all the facts and circumstances see sec_877 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to his loss of long-term_resident status or for taxable periods after his loss of long- term resident status under sections of the code other than sec_877 sec_2107 and sec_2501 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 plr-100512-99 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a’s representative sincerely _______________________ allen goldstein reviewer office of the associate chief_counsel international cc assistant_commissioner international op in d international district operations


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b1-plr-141733-01 date date legend x d1 this responds to your letter dated date in which you requested relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 the shareholders of x intended it be treated as an s_corporation effective on d1 however the election to be treated as an s_corporation was not timely filed law and analysis sec_1362 allows a small_business_corporation to elect to be treated as an s_corporation sec_1362 provides the rules as to when such an election will become effective sec_1362 states in relevant part that if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 b provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that year x did not timely file an election to be treated as an s_corporation under cc psi b1-plr-141733-01 sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective d1 within days from the date of the letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si br - plr-107053-00 date date legend x state d1 this responds to your letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x began doing business under state law on d1 the shareholder of x intended that x elect to be treated as an s_corporation effective d1 however the election to be treated as an s_corporation was not timely filed law and analysis sec_1362 provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 provides when an s election becomes effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made if an election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will generally not be treated as an s_corporation until the following taxable_year plr-107053-00 however sec_1362 provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determines reasonable_cause existed for the failure to timely make the election then the secretary can treat such an election as timely made for that taxable_year and effective as of the first day of that taxable_year in the present case x failed to timely elect s_corporation treatment effective d1 however x has established reasonable_cause for not making a timely election and is thus entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely s dianna k miosi dianna k miosi chief branch office of the assistant chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes