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 tege eb qp4 plr-t-102477-15 date date internal_revenue_service number release date index number ty calendar_year legend board b system a_trust excess plans plr-t-102477-15 staten statute s dear this letter is in response to your ruling_request submitted by your authorized representative dated date as supplemented by correspondence dated date april17 date date and date with respect to the applicability of sec_415 of the internal_revenue_code code to the excess_benefit plans excess plans and the related federal tax consequences the following facts and representations have been submitted under penalties of perjury in support of your request system a is a statewide system established under statutes sponsored by staten system a administers retirement plans and other funds that provide medical death disability and retirement benefits on behalf of active and former state employees teachers police firefighters judges and volunteer firefighters system a has established qualified_plans qualified_plans which were adopted by employers for benefit of eligible employees and are administered by board b and system a your authorized representatives have represented that the qualified_plans are defined benefit plans and governmental plans as described in sec_414 of the code and are intended to meet the qualification requirements of sec_401 the funding vehicle for the qualified_plans is a master_trust retirement fund which includes the trust funds of the qualified_plans adopted by an employer each of the employers has established an excess_benefit_plan the excess plans are intended to be qualified excess_benefit arrangements within the meaning of sec_415 of the code and will operate in accordance with that section under the excess plans a participant who is receiving a retirement benefit from a qualified_plan retiree or an individual who is receiving a retirement allowance or other benefit under a qualified_plan beneficiary will be paid the amount of retirement income that would otherwise have been payable to such retiree or beneficiary by system a but could not be paid from the qualified_plan because of the limitations of sec_415 of the code the retirement income benefits provided under the excess plans are hereinafter referred to as excess_benefits plr-t-102477-15 employer contributions under the excess plans are held in trust if and only to the extent the employer makes sufficient contributions to trust board b will compute and pay the excess_benefits under the excess plans in the same form at the same time and to the same persons as such benefits would have otherwise been paid as a monthly pension under the qualified_plan except for the limitations of sec_415 of the code under the qualified_plans and therefore under the excess plans retirement benefits are only payable to retirees and beneficiaries upon the occurrence of certain events permitting a distribution under a qualified_plan ie retirement death disability or other termination of employment participants in the excess plans may elect a form of benefit under one or more of the qualified_plans which dictates the form of payment under the excess plans however under the terms of the excess plans participants are not provided an election to defer compensation under the plan either directly or indirectly the excess plans also provides that a participant's interests under the excess plans prior to distribution may not be subject_to execution attachment or garnishment or otherwise subject_to any other process whatsoever trust separate and apart from the retirement fund has been established solely for the purpose of holding employer contributions intended to pay excess_benefits under the excess plans your authorized representative has represented that the trust is a grantor_trust under state law and for federal_income_tax purposes board b is the grantor of trust within the meaning of sec_671 through of the code accordingly the assets of trust which are held for each employer under the excess plans are subject_to the claims of that employer's general creditors under federal and state law in the event of the insolvency of the employer trust will be funded on a pay-as-you-go basis and begin paying benefits as necessary to ensure compliance with the applicable limitations of sec_415 of the code all assets held in trust and all property rights and beneficial interests acquired through the use of the excess plans assets will be held separate and apart from other funds of the employers under the terms of the excess plans participants in the excess plans receive no property rights legal or beneficial in any of the assets held in trust the provisions of the excess plans explicitly provide that contributions to trust will be held separate and apart from the funds comprising the retirement fund and will not be commingled with assets of the retirement fund and must be accounted for separately board b members act as trustees with respect to trust board b will determine the amount necessary to pay the excess_benefit under the excess plans for each calendar plan_year plan_year the required_contribution for each employer will be the aggregate of the excess_benefits payable under the excess plans to all retirees and beneficiaries of that employer for the plan_year and an amount determined by board b to be a necessary and reasonable expense of administering the excess plans and trust no employee contributions are permitted under the excess plans plr-t-102477-15 contributions to the excess plans will not be calculated in a manner designed to pay future excess_benefits any contributions not used to pay the excess_benefit for a current plan_year together with any income accruing to trust will be used as determined by board b to pay the administrative expenses of the excess plans and trust for the plan_year however any contributions not used to pay excess_benefits for the current plan_year that remain after paying administrative expenses of the excess plans and trust for the plan_year will be used to fund administrative expenses or excess_benefits in future plan years all retirees and beneficiaries will automatically participate in the excess plans for a plan_year if their retirement benefits from the qualified_plan for the plan_year would exceed the limitations imposed by sec_415 of the code the administrator will determine for each plan_year which retirees and beneficiaries will participate in the excess plans such retirees and beneficiaries who are entitled to a benefit under the excess plans are hereinafter referred to as a participants participation in the excess plans ends for any plan_year in which the retirement benefit of a participant is not limited by sec_415 and when all benefit obligations under the excess plans to the participant for that plan_year have been satisfied neither the trustees of trust nor system a is responsible for paying excess_benefits other than from contributions from the employers based on the above facts and representations you request the following rulings that the excess plans establishes a qualified_governmental_excess_benefit_arrangement within the meaning of sec_415 of the code that the benefits payable under the excess plans will be includible in gross_income for the taxable_year or years in which such benefits are paid or otherwise made available to a participant or a participant's beneficiary in accordance with the terms of the excess plans and that income accruing to the excess plans is exempt from federal_income_tax under sec_115 and sec_415 of the code as income derived from the exercise of an essential_governmental_function sec_415 of the code and sec_1_415_b_-1 of the income_tax regulations regulations set forth the limitations on annual benefits for participants in defined benefit plans sec_1_415_b_-1 b ii of the regulations provides in part that the annual_benefit does not include the annual_benefit attributable to either employee contributions or rollover_contributions as described in sec_401 a c a b d and e of the code determined pursuant to the rules of plr-t-102477-15 paragraph b of this section this section further states that the treatment of transferred benefits is determined under the rules of paragraph b of this section sec_1_415_b_-1 b ii of the regulations addresses elective transfer of distributable benefits and states in part that the annual_benefit provided by the transferee defined_benefit_plan does not include the annual_benefit attributable to the amount transferred sec_415 of the code provides that in determining whether a governmental_plan as defined in sec_414 meets the benefit limitations of sec_415 benefits provided under a qualified_governmental_excess_benefit_arrangement shall not be taken into account sec_415 also states that income accruing to a governmental_plan or to a_trust that is maintained solely for the purpose of providing benefits under a qualified_governmental_excess_benefit_arrangement shall constitute income derived from the exercise of an essential_governmental_function upon which such governmental_plan or trust shall be exempt from tax under sec_115 sec_415 of the code describes the tax treatment of benefits payable under a qualified_governmental_excess_benefit_arrangement under sec_415 the taxable_year or years for which amounts in respect of a qualified excess_benefit arrangement are includible in gross_income by a participant and the treatment of such amounts when so includible by the participant are determined as if such qualified_governmental_excess_benefit_arrangement were treated as a plan for the deferral of compensation that is maintained by a corporation not exempt from tax and which does not meet the requirements for qualification under sec_401 sec_415 of the code defines a qualified_governmental_excess_benefit_arrangement as a portion of a governmental_plan that meets the following three requirements a such portion is maintained solely for the purpose of providing to participants in the plan that part of each participant's annual_benefit otherwise payable under the terms of the plan that exceeds the limitations on benefits imposed by sec_415 of the code b under such portion no election is provided at any time to the participant directly or indirectly to defer compensation and c such benefits in excess of the limitations under sec_415 of the code are not paid from a_trust forming a part of such governmental_plan unless such trust is maintained solely for the purpose of providing such benefits with respect to your first requested ruling according to the represented facts the qualified_plans are governmental plans as described in sec_414 d of the code furthermore under the represented facts the only purpose of the excess plans is to provide affected employees of state n and its qualifying governmental units who participate in the qualified_plans that portion of their retirement benefits that would otherwise be payable under the terms of the qualified_plans except for the limitations on plr-t-102477-15 benefits imposed by sec_415 b as applicable to governmental plans participation in the excess plans is limited to participants receiving benefits under the qualified_plans that would otherwise exceed the limits of sec_415 consequently we find that the excess plans are portions of the qualified_plans which are governmental plans and are maintained solely for the purpose of providing employees of state n and its qualifying governmental units who participate in the qualified_plans that part of their benefits otherwise payable under the terms of the qualified_plans that exceed the benefit limitations of sec_415 of the code accordingly we conclude that the excess plans meets the requirements of sec_415 your authorized representatives have stated that participation in the excess plans is mandatory and automatic and that there are no employee contributions to the excess plans your representatives also assert that while participants may elect a form of benefit under the qualified_plans which dictates the form of payment under the excess plans no direct or indirect election to defer compensation is provided to any participant in the excess plans therefore because no direct or indirect election is provided at any time to participants to defer compensation under the excess plans the requirements of sec_415 of the code are met sec_415 of the code requires that the trust from which the excess_benefits of a qualified_governmental_excess_benefit_arrangement are paid not form a part of the governmental_plan that contains the excess_benefit arrangement unless such trust is maintained solely for the purpose of providing such benefits under the facts of this case the excess plans will be funded on a pay-as-you-go basis the represented facts indicate that a separate trust fund trust has been established for the segregation of the assets related to the excess plans this trust fund has been established solely for the purpose of holding employer contributions intended to pay excess_benefits to affected participants in the qualified_plans the represented facts further state that contributions to trust will consist only of the amounts required to pay the excess_benefits and related administrative expenses the provisions of the excess plans explicitly provide that contributions to trust will be held separate and apart from the funds comprising the retirement fund and will not be commingled with assets of the retirement fund and must be accounted for separately based on these representations and the provisions of the excess plans we have determined that the requirements of sec_415 are met with respect to your first requested ruling since the excess plans satisfy the requirements of sec_415 b and c of the code we conclude that the excess plans are qualified_governmental_excess_benefit_arrangement within the meaning of sec_415 your second ruling_request asks whether the benefits payable under the excess plans will be includible in gross_income for the taxable_year or years in which such benefits plr-t-102477-15 are paid or otherwise made available to a participant in accordance with the terms of the excess plans in response to your first ruling_request we concluded that the excess plans meets the legal requirements of code sec_415 of the code and therefore constitutes a qualified_governmental_excess_benefit_arrangement accordingly under sec_415 the tax treatment of benefits payable under the excess plans is determined as if the excess plans were plans for the deferral of compensation that is maintained by a corporation not exempt from tax and that does not meet the requirements for qualification under sec_401 sec_83 of the code provides the rules for inclusion in gross_income of the value of property transferred to an employee as compensation_for his or her services the excess of the fair_market_value of property so transferred over the amount_paid for the property is includible in the gross_income of the person who performed services for the first taxable_year in which the property becomes transferable or is not subject_to a substantial_risk_of_forfeiture sec_1_83-3 e of the regulations defines property as including real and personal_property other than money or an unfunded and unsecured promise to pay money or property in the future under sec_1_83-3 property also includes a beneficial_interest in assets including money transferred or set_aside from claims of the transferor's creditors in a_trust or escrow account sec_402 of the code provides that contributions made by an employer to an employee's trust that is not exempt from tax under sec_501 are included in the employee's gross_income in accordance with sec_83 except that the value of the employee's interest in the trust will be substituted for the fair_market_value of the property in applying sec_83 under sec_1_402_b_-1 a of the regulations an employer's contributions to a nonexempt employee's trust are included as compensation in the employee's gross_income for the taxable_year in which the contribution is made but only to the extent the employee's interest in such contribution is substantially_vested as defined in the regulations under sec_83 sec_451 a of the code and sec_1_451-1 a of the regulations provide that an item_of_gross_income is includible in gross_income for the taxable_year in which actually or constructively received by a taxpayer using the cash_receipts_and_disbursements_method of accounting under sec_1_451-2 income is constructively received in the taxable_year during which it is credited to a taxpayer's account set apart or otherwise made available so that the taxpayer may draw on it at any time however sec_1 a further provides that income is not constructively received if the taxpayer's control of its receipt is subject_to substantial limitations or restrictions the service has also addressed the issue of constructive receipt as it applies to nonqualified plans of deferred_compensation including excess_benefit plans in various revenue rulings in revrul_60_31 situation sec_1 -3 the service held that a mere promise to pay not represented by notes or secured in any way does not constitute plr-t-102477-15 receipt of income by a cash_basis taxpayer revrul_60_31 1960_1_cb_174 as modified by revrul_64_279 1964_2_cb_121 and revrul_70_435 1970_2_cb_100 see also revrul_69_650 1969_2_cb_106 revrul_69_649 1969_2_cb_1 and revrul_71_419 1971_2_cb_220 under the economic_benefit_doctrine an employee is taxable in a year in which any economic or financial benefit is conferred upon the employee as compensation 16_tc_244 aff'd per curiam 194_f2d_541 6th cir an economic benefit is conferred on an employee when assets are unconditionally and irrevocably paid into a fund or trust to be used for the employee's sole benefit in revrul_72_25 1972_1_cb_127 and revrul_68_99 1968_1_cb_193 an employee does not receive income as a result of the employer's purchase of an insurance_contract to provide a source of funds for deferred_compensation because the insurance_contract is the employer's asset subject_to the claims of the employer's creditors based on the foregoing with respect to the second ruling_request we conclude that the benefits payable under the excess plans will be includible in gross_income for the taxable_year or years in which such benefits are paid or otherwise made available to a participant or a participant's beneficiary in accordance with the terms of the excess plans with respect to your third requested ruling sec_415 of the code provides that income accruing to a governmental_plan or to a_trust that is maintained solely for the purpose of providing benefits under a qualified_governmental_excess_benefit_arrangement in respect of a qualified_governmental_excess_benefit_arrangement will constitute income derived from the exercise of an essential_governmental_function upon which such governmental_plan or trust will be exempt from tax under sec_115 of the code we have determined in connection with your first ruling_request that the excess plans meets the legal requirements of sec_415 for qualified governmental excess_benefit arrangements therefore under sec_415 with respect to your third requested ruling we conclude that income accruing to the excess plans is exempt from federal_income_tax under sec_115 and sec_415 as income derived from the exercise of an essential government function the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this letter_ruling is directed only to the taxpayer who requested it sec_611 o k of the internal_revenue_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 letter_ruling have not yet been adopted therefore this letter_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 letter_ruling see section dollar_figure of rev_proc plr-t-1 2015_1_irb_1 if the taxpayer can demonstrate that the criteria in sec_11 of revproc_2015_1 are satisfied the revocation or modification of a letter_ruling is generally not applied retroactively this ruling is based on the assumption that the qualified_plans will be governmental plans as described in sec_414 of the code and qualified under sec_401 and that the related trust will be exempt from tax under sec_501 a this ruling letter is based on the assumption that the after-tax contributions rollovers and trustee-to-trustee transfers described above are excluded from the determination of annual_benefit within the meaning of sec_1_415_b_-1 ii of the regulations except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter if the plan is significantly modified this ruling will not necessarily remain applicable no opinion is expressed concerning the timing of the inclusion in income of amounts deferred under any deferred_compensation plan other than the plan described above in addition this ruling applies only to deferrals made after the date of this ruling pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representatives sincerely cheryl e press senior counsel qualified_plans branch employee_benefits tax exempt government entities enclosures deleted copy of ruling letter notice of intention to disclose cc


internal_revenue_service number release date index number ------------------------------ ------------------------- --------------------------- ----------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-157631-05 date date ------------------------- ----------------------- legend x d1 -------------------- d2 dear ------------ ---------------------- this responds to the letter dated date and subsequent the information submitted states that x was incorporated on d1 the correspondence submitted on behalf of x requesting relief under ' b of the internal_revenue_code facts shareholder of x intended that x be treated as an s_corporation effective on d2 but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective d2 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be plr-157631-05 treated as an s_corporation for the year in which the election is made under ' b 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 provides that if no ' a election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and ' b shall not apply x did not timely file an election to be treated as an s_corporation under ' a x has however established reasonable_cause for not making a timely s election and is entitled to relief under ' b 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 d2 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer requesting it sec_6110 pursuant to the power_of_attorney on file with this office a copy of this letter will be sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely audrey ellis audrey ellis senior counsel branch office of associate chief_counsel passthroughs and special industries


t c summary opinion united_states tax_court joseph f lisi petitioner v commissioner of internal revenue respondent docket no 13503-01s filed date james j lombardi iii for petitioner michael j proto for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the taxable_year the issues for decision are whether petitioner is entitled to a dependency_exemption deduction and whether petitioner is entitled to itemized_deductions not claimed on his return some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in coventry rhode island on the date the petition was filed in this case petitioner and his former wife karen a lisi ms lisi were divorced in during the year in issue their son joseph edward lisi resided in massachusetts with ms lisi during that year petitioner paid child_support for joseph in the amount of dollar_figure joseph who turned years of age on date was enrolled as a full-time_student joseph earned wages of approximately dollar_figure to dollar_figure during which he used for his support petitioner filed a federal_income_tax return for as is relevant here on this return petitioner claimed a dependency_exemption deduction for joseph he reported income from gambling of dollar_figure and he claimed the standard_deduction of dollar_figure in lieu of any itemized_deductions in the statutory_notice_of_deficiency respondent disallowed the dependency_exemption deduction for joseph the first issue for decision is whether petitioner is entitled to a dependency_exemption deduction a deduction generally is allowed under sec_151 for each dependent of a taxpayer sec_151 c subject_to exceptions and limitations not relevant here a child of a taxpayer is a dependent of the taxpayer only if the taxpayer provides over half of the child’s support for the taxable_year sec_152 it is clear in this case that petitioner did not provide over half of joseph’s support during petitioner paid only dollar_figure in child_support during that year in addition to any other sources of support joseph received at least dollar_figure per year from his employment which he used for his own support petitioner therefore is not entitled to a dependency_exemption deduction for joseph in id petitioner argues that a separation agreement he entered into with ms lisi prior to their divorce entitles petitioner to the dependency_exemption deduction there is a special rule which applies if a child receives over half of his support during the year from his parents where a the parents are divorced separated or live apart from their spouses for at least the last months of the calendar_year and b the child is in the custody of one or both parents for more than half of the year sec_152 under this rule the parent with custody of the child for the greater portion of the year the custodial_parent generally is treated as having provided over half of the child’s support regardless of which parent actually provided the support id one exception to this special rule exists which provides that the noncustodial_parent is treated as having provided over half of the child’s support sec_152 for the exception to apply the custodial_parent must sign a written declaration releasing his or her claim to the deduction and the noncustodial_parent must attach the declaration to his or her tax_return id assuming that petitioner and ms lisi together provided over half of joseph’s support petitioner is not treated as having provided over half of joseph’s support during because no signed written declaration was attached to petitioner’s return id furthermore we note that the special rules of sec_152 do not apply where a child is emancipated from his parents and is no longer considered to be in the custody of either one sec_152 kaechele v commissioner tcmemo_1992_457 the second issue for decision is whether petitioner is entitled to itemized_deductions not claimed on his return petitioner argues that he paid deductible state income taxes of dollar_figure paid deductible automobile taxes of approximately dollar_figure had gambling_losses of approximately dollar_figure deductible to the extent of his winning sec_1 of dollar_figure and made deductible cash charitable_contributions of dollar_figure expenses of these types are deductible if at all as itemized_deductions sec_62 sec_63 sec_165 sec_165 sec_164 and a a taxpayer must keep records sufficient to establish the amounts of the items required to be shown on his federal_income_tax return sec_6001 sec_1_6001-1 e income_tax regs in the event that a taxpayer establishes that a deductible expense has been paid but is unable to substantiate the precise amount we generally may estimate the amount of the deductible expense bearing heavily against the taxpayer whose inexactitude in substantiating the amount of the expense is of his own making 39_f2d_540 2d cir we cannot estimate a deductible expense however unless the taxpayer presents evidence sufficient to provide some basis upon which an estimate may be made 85_tc_731 deductions for charitable_contribution are subject_to further substantiation requirements sec_170 generally a deduction for charitable_contributions must be substantiated with written records sec_1_170a-13 income_tax regs deductions for contributions of dollar_figure or more are disallowed in 1under sec_165 a taxpayer’s losses from gambling are deductible only to the extent of the taxpayer’s gains from gambling the absence of a contemporaneous written acknowledgment of the contribution by the donee sec_170 sec_1_170a-13 income_tax regs petitioner provided substantiation for his payment of state income taxes by the form_w-2 wage and tax statement which was attached to his return and which reflects state_income_tax withholding in the relevant amount petitioner however failed to provide substantiating documents for any of the other itemized_deductions including the claimed cash charitable_contributions although petitioner’s testimony at trial provided little detail concerning these contributions he did state that he paid approximately dollar_figure to each of two charities--his church and the salvation army these contributions are allowable only in the presence of the required written records sec_170 f sec_1_170a-13 income_tax regs because petitioner has provided no such records we conclude that he has not met the substantiation requirements for the claimed charitable_contributions and that he is not entitled to any deduction therefor the amount of the remaining claimed deductions for gambling_losses and automobile taxes together with the substantiated state_income_tax payment totals dollar_figure because the standard_deduction of dollar_figure exceeds this amount even if the remaining claimed deductions were substantiated the itemized_deductions would be of no benefit to petitioner reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


t c summary opinion united_states tax_court rafael manzueta petitioner v commissioner of internal revenue respondent docket no 23394-04s filed date rafael manzueta pro_se nina p ching for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code as in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the issues for decision are whether petitioner is entitled to deductions for dependency_exemptions is entitled to head_of_household filing_status is entitled to an earned_income_credit and is entitled to an additional_child_tax_credit background the stipulated facts and exhibits received into evidence are incorporated herein by reference at the time the petition in this case was filed petitioner resided in ayer massachusetts petitioner has two sons rm born on date and jm born on date petitioner is married to but separated from estacia ovalle ms ovalle who is the mother of rm petitioner and ms ovalle are in the process of seeking a divorce jm’s mother is yosary manzueta during both rm and jm lived with ms ovalle during petitioner was employed as a driver by trombly motor coach services inc petitioner timely filed a u s individual_income_tax_return form 1040a reporting wages of dollar_figure and adjusted_gross_income of dollar_figure 1the court’s resolution of the issue of petitioner’s filing_status will determine the correct computation of his standard_deduction for in the notice_of_deficiency respondent determined that petitioner’s filing_status was single rather than head_of_household respondent also determined that petitioner was not entitled to deductions for dependency_exemptions an earned_income_credit or an additional_child_tax_credit discussion the commissioner’s determinations are presumed correct and generally taxpayers bear the burden of proving otherwise rule a 290_us_111 dependency_exemption petitioner claimed dependency_exemptions for rm and jm for respondent disallowed the deductions in the notice_of_deficiency sec_151 allows a taxpayer to claim an exemption deduction for each qualifying dependent a child of the taxpayer is considered a dependent so long as the child has not attained the age of at the close of the calendar_year in which the taxable_year of the taxpayer begins and more than half the dependent’s support for the taxable_year was received from the taxpayer sec_151 sec_152 the age limit i sec_2petitioner has not raised the issue of sec_7491 which shifts the burden_of_proof to the commissioner in certain situations this court concludes that sec_7491 does not apply because petitioner has not produced any evidence that establishes the preconditions for its application increased to if the child was a student as defined by sec_151 sec_151 respondent concedes that petitioner is entitled to claim a dependency_exemption for jm on his federal_income_tax return rm attained the age of in petitioner concedes that rm was not a full-time_student in and as such rm is not a student within the meaning of sec_151 therefore petitioner is not entitled to claim rm as a dependent on his federal_income_tax return accordingly respondent’s determination to the extent not conceded is sustained head_of_household petitioner filed as a head_of_household for in the notice_of_deficiency respondent determined petitioner’s filing_status to be single sec_1 imposes a special tax_rate on individuals filing as heads of households head_of_household is defined in sec_2 as an unmarried individual who maintained as his home a household which constitutes for more than one-half of the taxable_year the principal_place_of_abode for specific family members see sec_2 a taxpayer is considered to be maintaining a household only if over half the cost of maintaining the household during the taxable_year is furnished by the taxpayer sec_2 petitioner concedes that rm and jm lived with ms ovalle during at trial petitioner testified that he lived at his mother’s home he further testified that he would drop off and pick up jm from school and that jm would stay with him sometimes petitioner is not entitled to head_of_household filing_status since his sons did not live with him for more than one-half of the year in therefore respondent’s determination on this issue is sustained earned_income_credit petitioner claimed the earned_income_credit for taxable_year for two qualifying children rm and jm respondent determined that petitioner is not entitled to the earned_income_credit for sec_32 allows an eligible_individual an earned_income_credit against the individual’s income_tax_liability sec_32 limits the credit allowed and sec_32 prescribes different percentages and amounts used to calculate the credit based on whether the eligible_individual has no qualifying children one qualifying_child or two or more qualifying children to be eligible to claim an earned_income_credit with respect to a qualifying_child a taxpayer must establish inter alia that the child bears a relationship to the taxpayer prescribed by sec_32 that the child meets the age requirements of sec_32 and that the child shares the same principal_place_of_abode as the taxpayer for more than one-half of the taxable_year as prescribed by sec_32 petitioner conceded that rm and jm lived with ms ovalle during therefore they fail to meet the residence requirement under sec_32 and are not qualifying children for purposes of claiming the earned_income_credit although petitioner is not eligible to claim an earned_income_credit under sec_32 for a qualifying_child he may be an eligible_individual under sec_32 even if he does not have any qualifying children for a taxpayer is eligible under this subsection only if his adjusted_gross_income was less than dollar_figure revproc_2002_70 2002_2_cb_845 petitioner’s adjusted_gross_income was dollar_figure accordingly petitioner is not eligible for an earned_income_credit respondent’s determination on this issue is sustained additional_child_tax_credit for petitioner did not claim a child_tax_credit but he claimed an additional_child_tax_credit of dollar_figure with jm as the qualifying_child respondent determined that petitioner is not entitled to an additional_child_tax_credit for sec_24 authorizes a child_tax_credit with respect to each qualifying_child of the taxpayer the term qualifying_child is defined in sec_24 a qualifying_child means an individual with respect to whom the taxpayer is allowed a deduction under sec_151 who has not attained the age of as of the close of the taxable_year and who bears a relationship to the taxpayer as prescribed by sec_32 sec_24 the child_tax_credit is a nonrefundable personal credit that was added to the internal_revenue_code by the taxpayer_relief_act_of_1997 publaw_105_34 111_stat_796 with a provision for a refundable_credit the additional_child_tax_credit for families with three or more children for taxable years beginning after date the additional_child_tax_credit provision was amended to remove the restriction that only families with three or more children are entitled to claim the credit see sec_24 economic_growth_and_tax_relief_reconciliation_act_of_2001 publaw_107_16 sec c 115_stat_46 in the absence of other nonrefundable personal credits a taxpayer is allowed to claim a child_tax_credit in an amount that is the lesser_of the full child_tax_credit or the taxpayer’s federal_income_tax liability for the taxable_year see sec_26 if the child_tax_credit exceeds the taxpayer’s federal_income_tax liability for the taxable_year a portion of the child_tax_credit may be refundable as an additional_child_tax_credit under sec_24 for the additional_child_tax_credit is allowed in an amount that is the lesser_of the remaining child_tax_credit available or percent of the amount by which the taxpayer’s earned_income exceeds dollar_figure sec_24 and b d revproc_2002_70 sec_3 c b pincite the refundable and nonrefundable portions of the child_tax_credit cannot exceed the total allowable_amount of the credit at trial respondent conceded that petitioner was allowed to claim a dependency_exemption deduction with respect to jm for jm attained the age of in and is petitioner’s son therefore jm is a qualifying_child within the meaning of sec_24 which entitles petitioner to claim a child_tax_credit for the child_tax_credit is dollar_figure per qualifying_child sec_24 jobs and growth tax relief reconciliation act of publaw_108_27 117_stat_753 petitioner’s federal tax_liability for is dollar_figure this is based on the court’s finding that petitioner has adjusted_gross_income of dollar_figure is entitled to exemptions of dollar_figure for himself and his dependent jm and is entitled to a standard_deduction of dollar_figure for single filing_status petitioner’s taxable_income is dollar_figure dollar_figure - dollar_figure - dollar_figure dollar_figure petitioner is allowed to claim a child_tax_credit in the amount of dollar_figure equal to the amount of his federal_income_tax liability for since petitioner’s child_tax_credit exceeds his federal_income_tax liability for he is entitled to a refundable additional_child_tax_credit in an amount that is the lesser_of the remaining child_tax_credit available or percent of the amount by which the taxpayer’s earned_income exceeds dollar_figure therefore petitioner is entitled to claim the lesser_of dollar_figure dollar_figure - dollar_figure or dollar_figure dollar_figure - dollar_figure dollar_figure x dollar_figure dollar_figure the court finds that petitioner is entitled to a child_tax_credit of dollar_figure and an additional_child_tax_credit of dollar_figure reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index no feb dear i apologize for the delay in responding to your inquiry dated date on is concerned because behalf of your constituent his heating bill from his new supplier includes a charge for federal excise_tax that was not included on bills from his previous supplier i responded directly to response which explains the tax on diesel_fuel which can be used as home heating oil and tells he is entitled to a credit or refund of this tax i also explain that he can avoid this tax by locating a supplier of dyed_fuel as requested i am enclosing a copy of my i hope this information is helpful if you have any questions please contact me at sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosure internal_revenue_service index no feb dear this letter responds to your inquiry of date to office for response you asked about the federal excise_tax on diesel_fuel used for home heating forwarded your inquiry to my diesel_fuel is not taxed when it is used for heating a home there are two ways you can purchase diesel_fuel you can purchase diesel_fuel that is dyed red which is exempt from tax you can purchase undyed diesel_fuel which has been taxed and file a claim_for_refund on form_8849 claim_for_refund of excise_taxes for any quarter of your income_tax year if you can claim at least dollar_figure in excise_taxes not previously claimed if you cannot claim a refund of at least dollar_figure by the end of the fourth quarter of your tax_year you can claim a credit for any amount on your income_tax return however to claim the yearly credit on your income_tax return you must file form_1040 u s individual_income_tax_return and attach form_4136 credit for federal tax paid on fuels if you use the short_form you cannot claim this credit your previous supplier may have sold you dyed_fuel while your current supplier is selling you undyed taxed diesel_fuel you may be able to get untaxed dyed home heating oil from a different supplier i hope this information is helpful to you if you have any questions please contact sincerely associate chief_counsel passthroughs and special industries by richard a kocak chief branch


department of the treasury internal_revenue_service te_ge eo examination commerce street dallas texas date date tax_exempt_and_government_entities_division legend org - organization name xx - date address - address number release date org address employer_identification_number person to contact iid number contact numbers voice fax certified mail -- return receipt requested dear this is a final adverse determination_letter as to your exempt status under sec_501 of the internal_revenue_code your exemption from federal_income_tax under sec_501 of the code is hereby revoked effective january 20xx our adverse determination was made for the following reasons internal_revenue_code sec_6001 requires organizations exempt from tax to keep such records and render such statements as are required by rules and regulations as the secretary may prescribe sec_1_6033-2 h requires organizations exempt from tax to submit such additional information as may be required by the internal_revenue_service for the purpose of inquiring into the organization’s exempt status such you failed to meet the records keeping and reporting requirements under sec_6001 and sec_6033 you no longer meet the requirements of sec_501 and sec_1 c -1 d in that you failed to establish that you were operated exclusively for an exempt_purpose contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 those returns should be filed with the appropriate service_center processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit of declaratory_judgment in the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for rules for initiating suits for declaratory_judgment you may write to the tax_court at the following address you also have the right to contact the office_of_the_taxpayer_advocate you can call and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations or extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling if you have any questions in regards to this matter please contact the person whose name and telephone number are shown in the heading of this letter thank you for your cooperation sincerely yours nanette m downing director eo examinations internal_revenue_service date date org address department of the treasury te_ge exempt_organizations examinations division second avenue m s seattle washington taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter rev catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely nanette m downing director eo examinations enclosures publication publication report of examination form_6018 form 4621-a letter rev catalog number 34809f schedule number or exhibit oe ob6 a a0 explanations of items name of taxpayer tax identification_number year period ended org december 20xx ein legend org - organization name city state - state issue ein - ein xx - date address - address city - president - president whether org qualifies for exemption under sec_501 of the internal_revenue_code irc facts org employer_identification_number ein a state non-profit corporation recognized as exempt under sec_501 was requested by mail to provide documents to verify whether the organization ceased to operate or went out of business the information_document_request idr dated july 20xx were issued to the following addresses address city state address city state on august 20xx the request issued to the address of address city state was returned to the internal_revenue_service as undeliverable the information_document_request idr dated august 20xx were issued to the following addresses address city state c o president address city state on august 20xx the request issued to the address of address city state was returned to the internal_revenue_service as undeliverable to date no response has been received from the organization according to the state secretary of state website org was inactive since january 20xx law sec_6001 provides that every person liable for any_tax imposed by the irc or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe form 886-a catalog number 20810w - page_1 publish no irs gov department of the treasury-internal revenue service schedule number or exhibit rov explanations of items tax identification_number year period ended ein december 20xx name of taxpayer org sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe treasury regulation regulation sec_1_6001-1 in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 regulation sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law regulation sec_1_6033-1 provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 taxpayer’s position no response has been received from the organization to any correspondence issued to date government’s position in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax org has not filed form_990 for the tax period ended december 20xx with respect to the forms org has not provided records sufficient to determine whether the organization is operated for purposes as enumerated under sec_501 or to determine whether it is liable for any unrelated_business_income_tax form 886-a catalog number 20810w page__2 publish no irs gov department of the treasury-internal revenue service schedule number or exhibit foor oe explanations of items tax identification_number year period ended ein december 20xx name of taxpayer org org has failed to establish that was and is operated for purposes exempt under sec_501 as such the exempt status of org under sec_501 is to be revoked effective january 20xx conclusion the exempt status of org is to be revoked effective january 20xx for failure to provide documents to establish that the organization is operated for exempt purposes under sec_501 of the internal_revenue_code the organization is liable to file forms for the above mentioned tax periods and for all subsequent periods in accordance with sec_6104 of the internal_revenue_code state charity officials will be notified of the revocation form 886-a catalog number 20810w page_ publish no irs gov department of the treasury-internal revenue service


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa msegal posts-150568-08 uilc date date to john t lortie senior counsel ft lauderdale small_business self-employed from pamela wilson fuller chief branch procedure administration subject professional employment organizations and the tfrp this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issue whether the service can assert the trust fund recovery penalty against an officer of a professional employment organization that failed to remit its clients’ trust_fund_taxes to the irs conclusion the irs can assert the trust fund recovery penalty against an officer of a professional employment organization that failed to remit its clients’ trust_fund_taxes to the internal_revenue_service when the professional employment organization filed the client companies’ employment_tax returns under the professional employment organization’s name facts small businesses often contract with professional employment organizations peos also known as employee_leasing companies to ensure compliance with workplace laws posts-150568-08 and regulations in the typical contract between a peo and a client the peo becomes the ‘co-employer’ of the clients’ employees each week the client companies email fax or mail the peo the number of hours worked by each employee the peo computes the fica medicare withholding_tax workers’ compensation and k contributions of each employee and bills the client for the amount the peo then receives the amount from the client companies and the contract requires the peo to pay the employees and make the clients’ federal tax deposits however some peos do not make the federal tax deposits and instead divert the funds entrusted to them for other purposes some peos file the client companies’ employment_tax returns under the peo’s name and list the peo as the employer of the client companies’ employees when the peo does this it self-assesses the clients’ employment_tax liabilities as the peo’s employment_tax liability and the irs assesses additional_amounts of the client companies’ unpaid employment_tax liabilities against the peo as well law and analysis sec_6672 imposes a penalty on any person required to collect truthfully account for and pay over trust_fund_taxes but who willfully fails to collect truthfully account for or pay over such tax or who willfully attempts to evade the payment of such tax for purposes of the trust fund recovery penalty willful means voluntarily knowingly consciously intentionally or recklessly 956_fsupp_1160 s d n y no evil intent or bad motive is required for there to be a willful failure to pay a_trust fund tax 889_fsupp_1313 d or potentially responsible persons for purposes of the tfrp include employees stockholders surety lenders and other persons or entities outside the delinquent employer_corporation hanes v longley wl n d okla when determining who is a responsible_party the irs looks at who signs and files the employment_tax returns and who makes the federal tax deposits 69_f3d_411 10th cir waychoff v united_states wl s d tex a peo is directly liable for the client companies’ unpaid trust_fund_taxes when the peo files the client companies’ employment_tax returns under the peo’s name and lists itself as the employer of the clients’ employees by doing so the peo self-assessed its clients’ employment_tax liabilities against itself assuming the irs establishes that an officer of a peo was responsible for the remittance of the client companies’ trust although the contract between the peo and the client company makes the peo a ‘co-employer’ of the clients’ companies employees the irs cannot use the contract as a basis for arguing that the peo is the employer or co-employer of the client companies’ employees in order to be a co-employer both employer entities must separately satisfy the common_law employer test revrul_66_162 1966_1_cb_234 citing restatement second of agency a peo does not have the right to direct or control the employees and therefore cannot satisfy the common_law employer test posts-150568-08 fund taxes to the irs then the irs can assert the tfrp against that officer in order to collect the unpaid trust_fund_taxes of the client companies further the court_of_appeals for the eleventh circuit has held the officer of a peo liable under sec_6672 for the failure to remit its clients’ trust_fund_taxes to the irs 331_f3d_1294 11th cir in thosteson the court found the peo to be the employer of the clients’ employees for purposes of payroll processing and payroll_taxes id pincite if courts will hold peos to be the employer of leased employees for payroll purposes and the officers of peos liable for the tfrp in such cases then courts will likely uphold the tfrp against the officer of a peo that self-assessed the its clients’ employment_tax liabilities against itself this is because by self-assessing the clients’ employment_tax liabilities against itself the peo is holding itself out as the employer of the client’s employees case development hazards and other considerations --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- 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--------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions


internal_revenue_service number release date index number --------------------------- ------------------------------------------------------------ -------------- ----------------------------- ---------------------- ---------------------------- in re ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ---------------- ----------------- telephone number ---------------------- refer reply to cc corp plr-103960-18 date august distributing ------------------------------ ----------------------------------------------------------------------------- --------------------------------------------------------------------- controlled ----------------------------------------------------------------------------- --------------------------------------------------------------------- ----------------- sub ----------------------------------------------------------------------------- --------------------------------------------------------------------- ------------------------------------------------ sub --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------- -------------------------------------- sub ----------------------------------------------------------------------------- --------------------------------------------------------------------- ---------------------------------------- sub --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------- ------------------------------------------------ sub ----------------------------------------------------------------------------- --------------------------------------------------------------------- ---------------------------------------------- plr-103960-18 sub ----------------------------------------------------------------------------- --------------------------------------------------------------------- ----------------------------------------------------------------------- sub ----------------------------------------------------------------------------- --------------------------------------------------------------------- -------------------------------------- sub ------------------------------------------------------------------------ --------------------------------------------------------------------- ------------------------------------- sub ----------------------------------------------------------------------------- --------------------------------------------------------------------- ----------------------------------------------------- dre1 -------------------------------- --------------------------------------------------------------------------- ------------------------------------------------ dre2 ---------------------------------------------------------------------------------------------- --------------------------------------------------------------------- -------------------------------- dre3 ---------------------------------------------------------------------------------------------- --------------------------------------------------------------------- -------------------------------- dre4 ------------------------------------------------------ ------------------------------------------------------------------- -------------------------------------------------------------------- dre5 ---------------------------------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------- dre6 ---------------------------------------------------------------------------------------------- --------------------------------------------------------------------- ------------------------------------------- dre7 ---------------------------------------------------------------------------------------------- --------------------------------------------------------------------- ------------------------------------ plr-103960-18 dre8 ---------------------------------------------------------------------------------------------- --------------------------------------------------------------------- -------------------------------------- fsub --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------- fdre1 ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- fdre2 ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- fdre3 --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------- pr sec_1 ---------------------------------------------------------------------------------------------- --------------------------------------------------------------------- ---------------------------------- pr sec_2 ---------------------------------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------- state x country country -------------- ----------------- ---------- business group a -------------------------------------------------------------- ------------------------------------------------------------------------ business group b ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------- busine sec_1 ------------------------------- plr-103960-18 busine sec_2 busine sec_3 busine sec_4 busine sec_5 business -------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------ ------------------------------------- ------------------------------------------------------------------------ business --------------------------------------------------------- ------------------------------------------------------------------------ business property property property property property property property property products services ------------------------------------------- -------------------------------------------- ------------------------------------------------------- ------------ ------------------------------------------ ----------------------------- --------------------------------------- ------------------------------------- -------------------------------------------- ---------------- ------------ dear ----------------- this letter responds to your letter dated date as supplemented by subsequent submissions submitted by your authorized representatives requesting rulings on certain federal_income_tax consequences of a proposed transaction the information submitted is summarized below plr-103960-18 this letter is issued pursuant to revproc_2017_52 2017_41_irb_283 regarding one or more covered transactions under sec_355 and or sec_368 of the internal_revenue_code the code this office expresses no opinion as to any issue not specifically addressed by the rulings below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process this office has made no determination regarding whether the distribution as defined below i satisfies the business_purpose requirement of sec_1 b ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 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 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation or any predecessor or successor of the distributing_corporation or the controlled_corporation within the meaning of sec_1_355-8t see sec_355 and sec_1_355-7 summary of the facts distributing is a state x publicly traded corporation and the common parent of an affiliated_group filing a consolidated_return distributing and entities that it owns directly or indirectly conduct the businesses of business group a and business group b business group a includes busine sec_1 busine sec_2 and busine sec_4 business group b includes busine sec_3 busine sec_5 business business and business distributing is relying on businesse sec_1 and to meet the active business requirement of sec_355 for distributing and busine sec_3 to meet the active business requirement for controlled distributing conducts these businesses through domestic corporate subsidiaries referred to as subs domestic entities that are disregarded as separate from their owners for federal_income_tax purposes referred to as dres one foreign_corporation fsub and foreign entities disregarded as separate from their owners for united_states income_tax purposes referred to as fdres distributing conducts busine sec_1 through among other entities dre1 which is owned by distributing sub which is owned by dre1 fdre3 which is owned by dre1 directly and through another disregarded_entity owned by dre1 and dre5 which is owned by dre1 sub owns property plr-103960-18 distributing conducts busine sec_2 through sub which is owned by distributing and entities owned by sub sub also owns a minority interest in two partnerships pr sec_1 and pr sec_2 unrelated parties own the remaining interests in those partnerships distributing conducts busine sec_3 through among other entities sub sub sub fsub a country corporation dre2 dre3 and dre4 which are owned by distributing fdre1 a country entity owned by fsub directly and through disregarded entities owned by fsub and fdre2 a country entity owned by fdre1 fdre2 owns property property property property and property busine sec_4 is conducted by sub which is owned by distributing and dre8 which is owned by sub sub owns property and dre8 owns property at which dre6 maintains equipment busine sec_5 is conducted by dre6 and dre7 which are owned by dre5 business is conducted by sub which is owned by distributing business is conducted by sub which is owned by distributing business is conducted by sub which is owned by distributing controlled is a domestic_corporation that has been formed for purposes of the proposed transaction financial information has been received indicating that busine sec_1 busine sec_2 and busine sec_3 as conducted by distributing’s separate_affiliated_group dsag as defined in sec_355 have had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for at least the past five years after the proposed transaction the dsag will continue to operate business group a including busine sec_1 and busine sec_2 and members of controlled’s separate_affiliated_group csag as defined in sec_355 will continue to operate business group b including busine sec_3 proposed transactions for what are represented to be valid business purposes distributing proposes to separate business group b from business group a by the following transactions the proposed transactions i dre6 will sell the equipment located at property to dre8 ii dre5 will distribute the membership interests in dre6 and dre7 to dre1 iii dre1 will distribute the membership interests of dre6 and dre7 to distributing plr-103960-18 iv fdre3 will purchase a portion of property all of property all of property and part of property from fdre2 v sub will sell property to dre3 vi distributing will contribute the stock or interests in the following entities to controlled which contribution will include all other entities owned directly or indirectly by these entities the contribution a dre6 and dre7 b sub sub sub sub sub and sub c fsub and d dre2 dre3 and dre4 vii distributing will distribute all the stock of controlled to its shareholders the distribution any distributing shareholder that would otherwise be entitled to a fractional share of controlled stock is expected to receive cash in lieu of a fractional share after the contribution and the distribution distributing will provide transition services to controlled pursuant to a transition services agreement these services may include administrative tax treasury human resources financial reporting cash management payroll information_technology services and other services relating to business group b the transition service agreement will last for no more than two years but any of these services can be provided beyond that period only if the parties mutually agree and the services are provided at prices determined by arms-length negotiations there will also be a tax_matters_agreement between distributing and controlled relating to the tax treatment of the distribution in addition after the contribution and the distribution the following transactions will occur between distributing or entities under distributing and controlled or entities under controlled a entities engaged in busine sec_5 will sell products to distributing or entities under distributing b busine sec_4 under distributing may continue to provide services to entities under controlled c dre7 will continue to lease part of property from sub plr-103960-18 d fdre2 will lease property to fdre3 representations except as set forth below distributing makes all of the representations set forth in sec_3 of the appendix to revproc_2017_52 2017_41_irb_283 in the form set forth therein distributing does not make representations and because they do not apply to the proposed transaction regarding the representations in which revproc_2017_52 provides alternative representations distributing makes the following alternative representations a representation alternative a b representation alternative b c representation alternative a d representation alternative a e representation alternative a f representation alternative a g representation alternative a rulings based solely on the information submitted and the representations referred to above we rule as follows the contribution followed by the distribution will be a reorganization under sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on the contribution no gain_or_loss will be recognized by controlled on the contribution sec_357 and sec_361 sec_1032 plr-103960-18 the basis in each asset received by controlled in the contribution will be the same as the basis of that asset in the hands of distributing immediately before the contribution sec_362 the holding_period in 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 on the distribution of controlled stock to its shareholders in 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 the receipt of controlled stock in the distribution sec_355 the basis of the distributing shares and the controlled shares including any fractional share interest in the hands of each distributee distributing shareholder will be the same as the shareholder’s basis in the distributing stock immediately before the distribution allocated between the distributing shares and the controlled shares in proportion to the fair_market_value of each in accordance with sec_358 and sec_1_358-2 sec_358 and c the holding_period of the controlled shares received by each distributing shareholder in the distribution including any fractional share interest will include the holding_period of the distributing shares with respect to which the distribution will be made provided that such shareholder holds the distributing shares as a capital_asset on the date of the distribution sec_1223 the receipt by a distributing shareholder of cash in lieu of fractional shares of controlled stock will be treated for federal_income_tax purposes as if the fractional shares had been distributed to the shareholder and then sold for that amount of cash in a sale_or_exchange the gain_or_loss recognized determined by the basis of shares determined under ruling allocated to the fractional shares will be treated as a capital_gain or loss to the selling shareholder sec_1001 such gain_or_loss will be short- term or long-term_capital_gain or loss or loss determined under the holding_period provided under ruling as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 and sec_1_1502-33 following the distribution controlled will not be a successor of distributing for purposes of sec_1504 therefore controlled and its direct and indirect subsidiaries that are includible corporations under sec_1504 and satisfy the ownership requirements of sec_1504 will be members of an affiliated_group of plr-103960-18 corporations entitled to file a consolidated federal_income_tax return with controlled as the common parent caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transactions under any provision of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transactions that is not specifically addressed by this letter procedural statements this ruling is directed only to the taxpayer s who requested it sec_6110 of the code 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 plr-116160-16 of this letter_ruling pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely _______________________________ mark s jennings senior technician reviewer branch office of associate chief_counsel corporate cc