internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp - plr-107248-99 date date government insurance_business unit predecessor newco policyholders interests privatization legislation chief elected official contracts constitution date a date b plr-107248-99 date c dear this letter responds to your letter of date as supplemented by letters of date and date requesting rulings on certain federal_income_tax consequences of proposed transactions summary of facts government has conducted the insurance_business through unit or predecessor since date a for purposes of this letter_ruling government includes unit for what are represented to be valid business reasons government proposes to move the insurance_business from public to private ownership after the privatization legislation has been enacted into law and the chief elected official of government determines that certain requirements set forth in the privatization legislation have been satisfied this move will be accomplished through the following transactions the formation transactions i ii as of date b unit will transfer assets relating to the insurance_business the transferred property to newco and newco will assume all of the liabilities related to the transferred property newco will issue all of its interests directly to the policyholders the interests will entitle holders to vote for a board_of directors to receive policyholder dividends if and when declared and to share in the assets of newco on liquidation the contracts issued by unit will by operation of law become contracts issued by newco representations the taxpayer has made the following representations concerning the formation transactions based on the characterization of the formation transactions set forth in ruling a no stock_or_securities will be issued for services rendered to or for the benefit of newco in connection with the exchange as defined in ruling below and no stock_or_securities will be issued for indebtedness of newco that is not evidenced by a security or for interest on indebtedness of newco that accrued on or after the beginning of the holding_period of government for the debt plr-107248-99 b c d e f g h i j k government will not retain any significant_power right or continuing interests within the meaning of sec_1253 of the internal_revenue_code in the trademarks or trade names being transferred the exchange is not the result of the solicitation by a promoter broker or investment house government will not retain any rights in the property transferred to newco other than as a policyholder the fair_market_value of the assets transferred by government to newco will equal or exceed the sum of the liabilities assumed by newco plus any liabilities to which the transferred assets are subject the liabilities of government to be assumed by newco were incurred in the ordinary course of business and are associated with the assets to be transferred there will be no indebtedness created in favor of government as a result of the transaction there may be indebtedness between government and newco as a result of dealings in the ordinary course of business the transfers and exchanges will occur under a plan agreed upon before the exchange in which the rights of the parties are defined all exchanges will occur with an expedition consistent with orderly procedure there is no plan or intention on the part of newco to redeem or otherwise reacquire any stock or indebtedness issued in the proposed transaction taking into account any issuance of additional shares of newco stock any issuance of stock for services the exercise of any newco stock_rights warrants or subscriptions a public offering of newco stock and the sale exchange transfer by gift or other_disposition of any of the stock of newco deemed received by government in the exchange government will be in control of newco under sec_368 immediately_after_the_exchange l in the exchange government will constructively receive equity interests in newco approximately equal to the fair_market_value of the property transferred to newco m newco will remain in existence and retain and use the property transferred plr-107248-99 to it in a trade_or_business n o p q r s t u there is no plan or intention by newco to dispose_of the transferred property other than in the normal course of business operations government and newco each will pay its own expenses if any incurred in connection with the proposed transaction newco will not be an investment_company within the meaning of sec_351 and sec_1_351-1 of the income_tax regulations government is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock_or_securities received in the exchange will not be used to satisfy the indebtedness of such debtor newco will not be a personal_service_corporation within the meaning of sec_269a unit would be permitted under the constitution of government to own all of the stock or other equity ownership interests in newco newco will report its operations on a calendar-year basis using the accrual_method of reporting prescribed by the national association of insurance commissioners newco will adopt as the amount of its date b opening balance of undiscounted_unpaid_losses the amount as of date c of the undiscounted_unpaid_losses of government rulings based solely on the information submitted and the representations made we rule as follows for federal_income_tax purposes the formation transactions will be treated as if a government had transferred the transferred property to newco as of date c in exchange for all of the interests in newco and the assumption by newco of related liabilities the exchange and b government had transferred the interests to the policyholders see 70_tc_121 the interests deemed received by government in the exchange will be treated as stock under sec_351 plr-107248-99 no gain_or_loss will be recognized by government in connection with the exchange sec_351 the requirement of sec_351 that government control newco immediately_after_the_exchange will be satisfied because government has the right in choosing the method of privatizing the insurance_business either to retain the interests or to designate other persons to receive the interests see d’angelo associates inc v commissioner no income gain_or_loss will be recognized by newco as a result of the exchange sec_1032 the basis of each item of transferred property received by newco in the exchange will equal the basis of that item in the hands of government immediately before the exchange sec_362 a the holding_period of each item of transferred property received by newco in the exchange will include the holding_period of that item in the hands of government immediately before the exchange sec_1223 for the taxable_year in which government enters into the formation transactions newco will include in its reserves at the beginning of that year for purposes of sec_832 the ending balances of the reserves determined pursuant to sec_846 on a discounted basis that government held immediately before the transaction in connection with the contracts that were the subject of the transaction and newco will not take into premium income for purposes of sec_832 any amount with respect to the assets transferred to it in consideration of the assumption_of_liabilities in connection with the transaction cf revrul_94_45 1994_2_cb_39 concerning a life_insurance company’s sec_351 transfer of insurance and annuity_contracts and investment_assets to a subsidiary the realization of the value of any insurance in force transferred in the exchange will not be subject_to the provisions of sec_832 nor will newco be entitled to deduct as a deferred expense an amount equal to that value cf rev_rul caveats no opinion is expressed about the tax treatment of the transactions under other provisions of the internal_revenue_code and income_tax regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above rulings in particular no opinion is expressed regarding plr-107248-99 a the characterization for tax purposes of the deemed transfer by government to the policyholders of the interests in newco described above in ruling a and b the tax basis that the policyholders will have in the interests following the deemed transfer described above in ruling a procedural statements this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the transaction should attach a copy of this letter to the taxpayer’s federal_income_tax return for the taxable_year in which the transactions are completed in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer sincerely assistant chief_counsel corporate by wayne t murray senior technician reviewer branch


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 plr-140123-09 date date grantor spouse grantor bank trust trust ------------------------- ------------------------------- ------------------- --------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ------------------------------------------------------------------ ---------------------------------------------------------------- trust trust merged trust a ----------------------------------------------------------------------------- merged trust b ----------------------------------------------------------------------------- merged trust c ---------------------------------------------------------------------------------------- ------------- ---------- date date date date date date date date merger agreement merger agreement merger -------------------------- ---------------------- ----------------------- ---------------------- ---------------------- ------------------ ----------------------- -------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------- ---------------------------------------------------------------------------------------- plr-140123-09 agreement court state state law state law state law beneficiaries individually beneficiary a ---------------------------------------------------------------------------------------- ----------------------------------------------- ---------------------------------------------------------- ----------- ------------------------------------------------ ---------------------------------------------- ---------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- -------------------------------------------------------------------- ----------------------------- dear ---------------------------------------------------------------------------------- this responds to your letter dated date requesting a ruling pertaining to the estate gift and generation-skipping_transfer_tax effects of a proposed merger of trust and trust merged trust a a proposed merger of trust and trust merged trust b and then a proposed merger of merged trust a and merged trust b merged trust c the facts submitted and representations made are as follows grantor is the daughter of grantor spouse is the spouse of grantor grantor and spouse are alive grantor is deceased beneficiaries are the grandchildren of grantor and the great- grandchildren of grantor on date a date prior to date grantor created and funded an irrevocable_trust trust for the benefit of beneficiaries she appointed herself spouse and bank as trustees of trust on date a date prior to date grantor created and funded another irrevocable_trust trust for the benefit of beneficiaries she appointed herself spouse and bank as trustees of trust on date a date after date grantor created and funded an irrevocable_trust trust for the benefit of beneficiaries she appointed grantor and spouse as trustees of trust grantor did not allocate any portion of her dollar_figure generation-skipping_transfer gst_exemption to the transfer she reported the transfer as a direct_skip on form_709 united_states gift and generation-skipping_transfer_tax return and paid the gst tax_liability on date a date after date grantor created and funded another irrevocable_trust trust for the benefit of beneficiaries she appointed grantor and plr-140123-09 spouse as trustees of trust grantor did not allocate any portion of her dollar_figure generation-skipping_transfer gst_exemption to the transfer she reported the transfer as a direct_skip on form_709 united_states gift and generation-skipping_transfer_tax return and paid the gst tax_liability under the terms of trust the trustees may distribute income and principal as necessary and advisable for the education maintenance support health and reasonable comfort and to maintain the respective accustomed standards of living of beneficiaries their spouses and their descendants trustees must accumulate any undistributed_income and add it to principal upon the earlier of i the youngest living child of grantor to attain age fifty ii the death of the last to survive of grantor 1’s children or iii at such sooner time as bank may determine to be in the best interest of the beneficiaries and prospective beneficiaries of trust the trustees will divide trust into separate shares the trustees must create one share for the benefit of each living beneficiary and one share for the benefit of the living descendants per stirpes of each deceased beneficiary who has one or more living descendants after division the trustees have discretion to distribute the income or principal of beneficiary’s share for the education maintenance support health and reasonable comfort and to maintain the respective accustomed standards of living of beneficiary beneficiary’s spouse and beneficiary’s descendants and their respective spouses when beneficiary attains age thirty the trustees must distribute one-third of the trust estate to beneficiary likewise upon attaining age thirty- five the trustees must distribute one-half of the remaining trust estate to beneficiary and upon attaining age forty beneficiary receives the remaining trust estate after the division of trust into separate shares and if a beneficiary dies before age forty beneficiary has the power to appoint his share to any persons excluding his estate creditors creditors of his estate grantor or spouse by will if beneficiary fails to exercise this power_of_appointment the trustees will distribute such beneficiary’s share to his living descendants per stirpes or if such beneficiary has no living descendants to the living descendants of such beneficiary’s parent per stirpes if such beneficiary’s parent has no living descendents then the trustees will distribute such share to grantor 1’s living descendants per stirpes or if grantor has no living descendants then to a if a descendant of beneficiary becomes entitled to a fractional share of the trust estate prior to attaining age thirty other than by reason of the exercise of beneficiary’s power_of_appointment the trustees are required to hold such amounts in trust for the benefit of such descendant the trustees may pay the income and principal to such descendant for the descendant’s education maintenance support health and reasonable comfort and to maintain his accustomed standard of living once such descendant attains age thirty the trustees will distribute the entire trust estate to the descendant if the descendant dies before attaining age thirty the trustees will distribute the trust estate to plr-140123-09 the descendant’s intestate heirs other than grantor and spouse as determined under state law in effect at the time of the distribution if any share passes other than by reason of the exercise of a power_of_appointment to a descendant of grantor for whose benefit a share exists in trust such shares will be combined and administered under the same terms as the original share if trust has not terminated prior to the twenty-first anniversary of the death of the last to survive of grantor 1’s descendants living on date then such share will terminate and the trustees will distribute the trust estate to the beneficiary under the terms of trust sec_2 and the trustees are prohibited from distributing income or principal prior to the division dates of trust sec_2 and the trustees must divide trust sec_2 and into separate shares upon the earlier of the oldest beneficiary attaining the age of thirty-five and the death of grantor 1’s last surviving child upon division the trustees must set_aside one share for the benefit of each living beneficiary and one share for the benefit of the living descendants in sub-shares per stirpes of each deceased beneficiary leaving living descendants once divided into separate shares the trustees have discretion to distribute principal to beneficiary or his descendant for their maintenance and education accidents illness or other emergencies purchasing building or improvement of a home or establishment in a business or profession or any other purpose the trustees deem to be worthwhile and in the best interests of beneficiary or his descendants the trustees may distribute all income to beneficiary or his descendants or may accumulate income and add it to principal the trustees have discretion to distribute the entire trust estate to beneficiary once he attains age thirty-five under trust if a beneficiary dies before distribution of the entire trust estate the trustees will distribute such share to beneficiary’s living descendants per stirpes or if the beneficiary has no living descendants to the trusts established for the other living beneficiaries per stirpes and the descendants per stirpes of any deceased beneficiary if there are no living beneficiaries or their descendants the trustees will distribute the trust estate to grantor 1’s living children or if grantor has no living children then to grantor 1’s intestate heirs as determined under state law at the time of the distribution under trust if a beneficiary dies before distribution of the entire trust estate the trustees will distribute the trust estate to beneficiary’s living descendants per stirpes or if beneficiary has no living descendants then to the trusts established for the other living beneficiaries with a deceased beneficiary’s share passing to his descendants if there are no living beneficiaries or living descendants of beneficiaries the trustees will distribute the trust estate to grantor 1’s living children or if grantor has no living children then to grantor if grantor is no longer living the trustees will distribute the plr-140123-09 trust estate to grantor 2’s intestate heirs as determined under state law at the time of the distribution the trustees of trust sec_2 and are required to hold any amounts for distribution to persons under thirty years of age in trust and are authorized to distribute income or principal to such person for his support and education the trustees must accumulate income and add it to principal the trust will terminate at the earlier of such person attaining age thirty or such person’s death if such person dies before attaining age thirty the trustees must distribute the trust estate such person’s living descendants per stirpes or if such person has no living descendants then the shares will be distributed in the same manner as the trust estates established for the benefit of beneficiaries under trust sec_2 and respectively if trust has not terminated prior to the date that is twenty-one years after the death of the last surviving descendant of grantor who was living on date trust will terminate and the trustees will distribute the trust estate to the beneficiaries if trust has not terminated by the date that is twenty-one years after the death of the last surviving descendant of grantor who was living on date then trust will terminate and the trustees will distribute the trust estate to the beneficiaries in addition under the terms of trust as long as grantor or any descendant is a trustee the trustees’ distribution powers are vested exclusively in the other trustees spouse and bank under the terms of trust the trustees are authorized to distribute principal in their sole discretion to beneficiaries for any necessary or advisable purpose upon the earlier of the oldest beneficiary attaining age thirty-five and the death of the last to die of grantor 1’s children the trustees are instructed to divide trust into separate shares one share for the benefit of each living beneficiary and one share for the living descendants per stirpes of each deceased beneficiary after trust is divided into sub-trusts the trustees may exercise their discretion in distributing income to beneficiary and must accumulate and add to principal any income not distributed beneficiaries or their descendants provided such distributions would be exempt from gst tax or in an emergency situation regardless of whether such distribution would be exempt from gst tax may also receive discretionary distributions of principal for their maintenance and education for accidents illness or other emergencies for purchasing building or improving a home or to become established in a business or profession or for any other purpose that the trustees deem to be worthwhile and in the best interests of beneficiary or any descendant of beneficiary when beneficiary attains thirty-five years of age the trustees are authorized to distribute the entire trust estate to beneficiary subject_to their discretion if beneficiary plr-140123-09 dies before attaining age thirty-five or if any portion of the trust estate remains upon beneficiary’s death the trustees will distribute the remainder to beneficiary’s living descendants per stirpes or if beneficiary has no living descendants then to the other living beneficiaries per stirpes if there are no living beneficiaries then the trustees will distribute the trust assets equally to grantor 1’s living children if grantor has no living children then the trustees will distribute the trust estate to grantor if living or if grantor is not living then to grantor 2’s intestate heirs as determined under state law the trustees are instructed to hold in trust any distributions to a person under the age of thirty such person may receive discretionary distributions of principal for his support and education and will receive the trust assets outright upon attaining age thirty the trustees are required to accumulate income and add it to principal if such person dies before attaining age thirty the trust estate will pass in the same manner as each beneficiary’s trust passes above trust will terminate prior to the twenty-first anniversary of the death of the last to die of the descendants of grantor living on date and the trust estate will be distributed to the beneficiary each of trust sec_1 and authorize the individual trustees to remove the corporate trustee and replace it with another corporate trustee the individual trustees may also appoint replacement individual trustees if no individual trustees are serving then the majority of the living adult children of grantor or if there are no living adult children of grantor then the majority living adult beneficiaries may appoint a successor corporate or individual trustee s provided however if any one or more of the persons appointing a successor trustee to replace a removed trustee is a beneficiary of the trust then the successor trustee may not be a_related_or_subordinate_party as defined in sec_672 determined as if such beneficiary was the grantor with respect to such beneficiary state law provides that the grantor and all beneficiaries of a_trust may consent to modify or terminate an irrevocable_trust without court approval of such modification or termination state law provides that interested persons may enter into a binding nonjudicial settlement agreement with respect to any matter involving a_trust provided that the matters agreed to do not violate a material purpose of the trust and include terms and conditions that could be properly approved by a court state law provides that after notice to the qualified beneficiaries a trustee may combine two or more trusts into a single trust if the result does not impair the rights of any beneficiary or adversely affect achievement of the purposes of the trust two or more trusts may be combined into a single trust if the interests of each beneficiary in the trust resulting from the combination are substantially the same as the combined interests of the beneficiary in the trusts prior to the combination the trustees of trust sec_1 and represent that on date pursuant to state law sec_1 and the parties agreed to administrative modifications to trust sec_1 and one of plr-140123-09 the modified terms authorizes the trustees to merge the assets of a_trust estate into a single trust estate provided that in all respects deemed material by the trustees the trust estates to be combined are held on the same terms and conditions and for the benefit of the same beneficiaries as stated above the trustees of trust sec_1 and propose merging trust and trust to form merged trust a merging trust and trust to form merged trust b and then merging merged trust a and merged trust b to form merged trust c the purpose of the proposed mergers is for administrative convenience and greater efficiency of management and investment of the trust property prior to the mergers after division of each trust sixty sub-trusts will exist after the proposed mergers fifteen sub-trusts will exist the proposed merger will allow each merged trust to be governed by one trust document which will reduce the cost of administrative expenses such as tax compliance accounting costs and management fees accordingly on date pursuant to state law the trustees of trust and trust executed merger agreement which proposes to merge trust and trust creating merged trust a under sec_1 of merger agreement trust is the surviving document except that the fractional share of merged trust a representing the portion of the trust principal attributable to trust is subject_to the following provisions until division of the trust estate under paragraph the trustees have discretion to distribute income or principal for the education maintenance support health and reasonable comfort and to maintain the respective accustomed standards of living of beneficiaries and the spouses and descendants of beneficiaries such fractional share will be divided into sub-trusts one share for the benefit of each living beneficiary and one share for the benefit of the living descendants per stirpes of each deceased beneficiary on the date which is the earlier of i the date grantor 1’s oldest child attains age fifty ii the death of the last to survive of grantor 1’s children or iii sooner if bank determines dividing the trust is in the best interest of the beneficiaries and prospective beneficiaries the trustees have authority to distribute the fractional share of principal or income attributable to trust for the education maintenance support health and reasonable comfort and to maintain the respective accustomed standards of living of beneficiaries beneficiaries’ spouses and beneficiaries’ descendants and their respective spouses any income not distributed must be added to principal the trustees must distribute one-third of such fractional share to beneficiary upon attaining age thirty one-half of such fractional share upon beneficiary attaining age thirty-five and the remainder of such fractional share upon attaining age forty plr-140123-09 if a beneficiary for whose benefit a sub-trust has been established dies before age forty beneficiary may appoint his share to such persons or organizations other than his estate creditors creditors of his estate grantor or spouse by will if beneficiary fails to exercise such limited_power_of_appointment the fractional share will be distributed to beneficiary’s living descendants per stirpes or if beneficiary has no living descendants then to the living descendants per stirpes of the parent of beneficiary or if the parent of beneficiary has no living descendants then to the living descendants per stirpes of grantor or if grantor has no living descendants then to a if any of grantor 1’s descendants other than a beneficiary are entitled to a distribution prior to attaining age thirty the trustees must hold such distribution in trust and may distribute income or principal subject_to their discretion for such descendant’s education maintenance support health and reasonable comfort and to maintain his accustomed standard of living the trustees must accumulate and add any undistributed_income to principal upon attaining age thirty the trustees will distribute such share outright to the beneficiary if the beneficiary predeceases age thirty the trustees will distribute the trust estate to such person’s intestate heirs except grantor and spouse as determined by state law at the time of distribution if any share of the trust of any of grantor 1’s descendants will pass other than by exercise of a limited_power_of_appointment to another of grantor 1’s descendants for whose benefit there is a share then held in trust then the trustees shall hold such share as part of and upon the same terms as the other original share of the other descendant if such fractional share attributable to trust has not terminated prior to the twenty- first anniversary of the death of the last to die of the descendants of grantor living on date then such share shall terminate and the trust estate will be distributed outright to the beneficiaries merger agreement also provides that if any share of merged trust a has not terminated prior to the twenty-first anniversary of the death of the last to die of the descendants of grantor living on date such share shall then terminate also on date the trustees of trust sec_3 and executed merger agreement which proposes to merge trust sec_3 and creating merged trust b under sec_1 of merger agreement trust is the surviving document except for the following provisions until the earlier to occur of the oldest living beneficiary attaining age thirty-five and the death of the last to die of grantor 1’s children living on date the trustees are authorized to distribute to each beneficiary so much of the principal as such trustees deem necessary or advisable for any purpose provided the total amount distributed may not exceed an amount equal to the fractional portion of the trust principal of merged trust b attributable to trust plr-140123-09 the trustees have discretion to distribute principal as necessary or advisable for a beneficiary’s descendant’s maintenance and education for accidents illness or other emergencies to enable such person to purchase build or improve a home or to become established in a business or profession or for any other purpose that the trustees deem worthwhile and in the best interests of such person if such distribution would be exempt from gst taxes or in emergency situations whether or not such distribution would be exempt from gst taxes provided however the total amount distributed may not exceed an amount equal to the fractional portion of merged trust b attributable to trust the fractional share of merged trust b attributable to trust terminates on the date prior to the twenty-first anniversary of the death of the last to die of the descendants of grantor living on date the fractional share of merged trust b attributable to trust terminates on the date prior to the twenty-first anniversary of the death of the last to die of the descendants of grantor living on date finally on date the trustees of merged trusts a and b executed merger agreement which proposes to merge merged trusts a and b creating merged trust c under merger agreement merged trust b is the surviving document the terms of merger agreement sec_1 and are incorporated into merger agreement thereby requiring that the fractional portions of the merged trust c principal attributable to trust sec_1 and continue to be governed by the distributive and perpetuities terms of trust sec_1 and respectively in addition the total amount_paid to beneficiaries from merged trust c prior to its division into separate shares shall not exceed the fractional portion of merged trust c attributable to trust the total amount distributed under paragraph of merger agreement will not exceed an amount equal to the fractional portion of merged trust c attributable to trust merger agreement sec_1 and require the respective trustees to determine the fractional shares of merged trusts a b and c attributable to trust sec_1 and as of the effective date of the respective mergers on date court approved the modifications to trust sec_1 and and merger agreement sec_1 and conditioned on the trustees’ receipt of a favorable ruling by the internal_revenue_service that the proposed mergers will not subject trust sec_1 or to the gst tax on date the oldest beneficiary attained thirty-five years of age the trustees of trust sec_1 and represent that on date pursuant to state law the parties agreed to administrative modifications to trust sec_1 and they also represent that no additions have been made to either trust or trust after date requested rulings plr-140123-09 trust sec_1 and are exempt from the gst tax under sec_2601 of the internal_revenue_code code by reason of grantor 2’s payment of gst tax under sec_2601 upon their creation trust sec_3 and are exempt from the gst tax with respect to distributions upon termination or otherwise from such trusts to beneficiaries the proposed merger of trust and trust will not affect the grandfathered status of these trusts and will not cause any distributions from merged trust a or distributions upon termination of merged trust a to become subject_to gst tax provided there are no post-merger additions to merged trust a the proposed merger of trust and trust will not affect the present gst tax status of such trusts and will not cause any distributions upon termination or otherwise from merged trust b to beneficiaries to become subject_to the gst tax provided there are no post-merger additions to merged trust b the proposed merger of merged trust a and b to create merged trust c will not affect the grandfathered status of merged trust a or the present gst tax status of merged trust b and will not cause any distributions from merged trust c upon termination or otherwise to beneficiaries to become subject_to the gst tax the proposed merger of trust and trust and the proposed merger of trust and trust will not result in a transfer by any of the beneficiaries that is subject_to gift_tax under sec_2501 ruling sec_1 and sec_2601 of the code imposes a tax on each generation-skipping_transfer sec_2611 defines a generation-skipping_transfer as a taxable_distribution a taxable_termination or a direct_skip a direct_skip is defined under sec_2612 as a transfer subject_to the estate or gift_tax of an interest in property to a skip_person sec_26_2612-1 of the generation-skipping_transfer_tax regulations provides that only one direct_skip occurs when a single transfer of property skips two or more generations sec_2613 provides that a skip_person is any person which i sec_2 or more generations below the generation assignment of the transferor sec_2613 provides that a_trust is a skip_person if all interests in the trust are held by skip persons or if there is a person holding an interest in the trust and at no time after such transfer may a distribution be made to a non-skip_person sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2623 provides that the taxable_amount plr-140123-09 in the case of a direct_skip is the value of the property received by the transferee sec_2641 provides that the term applicable_rate means with respect to any generation-skipping_transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator is the value of the property transferred to the trust or involved in the direct_skip under b a of the tax_reform_act_of_1986 and sec_26_2601-1 the gst tax shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that the transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered an irrevocable_trust except as provided in sec_26 b ii b or c relating to property includible in the grantor's gross_estate under sec_2038 and sec_2042 under sec_2653 if there is a generation-skipping_transfer of any property to a_trust in order to determine if a generation-skipping_transfer has occurred with respect to subsequent transfers from the portion of the trust attributable to such property the trust is treated as if the transferor of such property were assigned to the first generation above the highest generation of any person who has an interest in the trust immediately_after_the_transfer in sec_26_2653-1 example t transfers property to an irrevocable_trust for the benefit of t’s grandchild gc and great-grandchild ggc during gc’s life the trustee has discretion to distribute the trust income to gc and ggc at gc’s death the trust property passes to ggc the example explains that both gc and ggc have an interest in the trust for purposes of chapter the transfer by t to the trust is a direct_skip and the property is held in trust immediately_after_the_transfer after the direct_skip the transferor is treated as being one generation above gc the highest generation individual having an interest in the trust the example concludes that gc is no longer a skip_person and distributions to gc are not taxable_distributions however because ggc occupies a generation that is two generations below the deemed generation of t ggc is a skip_person and distributions of trust income to ggc are taxable_distributions trust sec_1 and were in existence and funded prior to date trustee sec_1 and represent that no additions have been made to the principal of either trust after plr-140123-09 date accordingly based on the facts presented and representations made we conclude that trust sec_1 and are exempt from the gst tax under sec_2601 trust sec_3 and were created after date and are skip persons as defined in sec_2613 the instant case is identical to example in sec_26_2653-1 the transfer of assets to trust on date and to trust on date were direct skips subject_to gst tax and the property was held in trust immediately_after_the_transfer after the direct_skip grantor is treated as being one generation above beneficiaries therefore beneficiaries are no longer skip persons and distributions to such persons are not taxable_distributions accordingly based on the facts presented and the representations made we conclude that distributions upon termination or otherwise from trust sec_3 and to beneficiaries are exempt from the gst tax under sec_2601 ruling sec_3 through sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 or will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that the distribution of trust principal from an exempt trust to a new trust or retention of trust principal in a continuing trust will not cause the new or continuing trust to be subject_to the provisions of chapter if - either i the terms of the governing instrument of the exempt trust authorize distributions to the new trust or the retention of trust principal in a continuing trust without the consent or approval of any beneficiary or court or ii at the time the exempt trust became irrevocable state law authorized distributions to the new trust or retention of principal in the continuing trust without the consent or approval of any beneficiary or court and the terms of the governing instrument of the new or continuing trust do not extend the time for vesting of any beneficial_interest in the trust in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date the original trust became irrevocable extending beyond any life in being at the date the original trust became irrevocable plus a period of years plus if necessary a reasonable period of gestation sec_26_2601-1 example considers a situation where in grantor established an irrevocable_trust trust for the benefit of grantor's child a a's spouse and a's issue at the time trust was established a had two children b and c a plr-140123-09 corporate fiduciary was designated as trustee under the terms of trust the trustee has the discretion to distribute all or part of the trust income to one or more of the group consisting of a a's spouse or a's issue the trustee is also authorized to distribute all or part of the trust principal to one or more trusts for the benefit of a a's spouse or a's issue under terms specified by the trustee in the trustee's discretion any trust established under trust however must terminate years after the death of the last child of a to die who was alive at the time trust was executed trust will terminate on the death of a at which time the remaining trust principal will be distributed to a's issue per stirpes in the trustee distributes part of trust's principal to a new trust for the benefit of b and c and their issue the new trust will terminate years after the death of the survivor of b and c at which time the trust principal will be distributed to the issue of b and c per stirpes the terms of the governing instrument of trust authorize the trustee to make the distribution to a new trust without the consent or approval of any beneficiary or court in addition the terms of the governing instrument of the new trust do not extend the time for vesting of any beneficial_interest in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date of creation of trust extending beyond any life in being at the date of creation of trust plus a period of years plus if necessary a reasonable period of gestation therefore neither trust nor the new trust will be subject_to the provisions of chapter sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy b i a b or c by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust furthermore a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered a shift in a beneficial_interest in a_trust sec_26_2601-1 example considers a situation where the grantor in establishes an irrevocable_trust for grantor's child and the child's issue in grantor's spouse also established a separate irrevocable_trust for the benefit of the same child and issue the terms of the spouse's trust and grantor's trust are identical in the appropriate local court approved the merger of the two trusts into one trust to save administrative costs and enhance the management of the investments the merger of the two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the merger in addition the merger does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for plr-140123-09 in the original trust therefore the example concludes that the trust that resulted from the merger will not be subject_to the provisions of chapter the instant case involves facts that are similar to both example sec_1 and in sec_26 b i e except that trust sec_3 and were created and funded after date the rules in sec_26_2601-1 apply in the case of trusts that are exempt from gst tax because the trusts were in existence and irrevocable prior to date no guidance has been issued concerning modifications that may affect the status of gst exempt distributions to the highest generation individual having an interest in a direct_skip trust at a minimum a modification that would not affect the gst status of a grandfathered trust should similarly not affect the exempt status of distributions to the highest generation individual having an interest in a direct_skip trust the terms of the governing instruments of trust sec_1 and allow the trustee to merge the assets of the trust into a single trust estate provided that in all respects deemed material by the trustees the trust estates to be combined are held on the same terms and conditions and for the benefit of the same beneficiaries although the distribution terms and vesting periods of trust sec_1 and differ merger agreement sec_1 and contain provisions to ensure that trusts a b and c do not extend the time for vesting of any beneficial_interest in the trusts based on the facts presented and the representations made we conclude that the distribution of principal from each trust and trust to each trust merged trust a and trust merged trust b respectively and the distribution of principal from merged trust a to merged trust b merged trust c is pursuant to the terms of the governing instruments each of trust sec_1 and authorize distributions of principal to new trusts without the consent or approval of any beneficiary or court the terms of each merged trust a merged trust b and merged trust c will not extend the time for vesting of any beneficial_interest in trust sec_1 or in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date the original trust became irrevocable extending beyond any life in being at the date the original trust became irrevocable plus a period of years plus if necessary a reasonable period of gestation moreover under the terms of merged trust c the beneficiaries’ distribution rights under trust sec_1 and and the perpetuities periods for each original trust are retained furthermore state law prohibits the merger of trust estates if the result impairs the rights of any beneficiary and it requires that the interests of each beneficiary in the resulting trust be substantially the same as the combined interests of the beneficiary in the trusts prior to the merger under these circumstances the merger will not shift a beneficial_interest to a lower generation nor will it extend the time for vesting of any beneficial_interest in the trusts beyond the period provided for in the original trusts based on the facts presented and the representations made we conclude that the plr-140123-09 mergers of trust and trust trust and trust and merged trust a and merged trust b as described above will not shift any beneficial_interest in the trusts to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the merger of trusts will not extend the time for vesting of any beneficial_interest in the trusts beyond the period provided for in trust sec_1 or accordingly based on the information submitted and the representations made we conclude that the proposed merger of trust into trust will not affect the grandfathered status of these trusts and will not cause any distributions from merged trust a or distributions upon termination of merged trust a to become subject_to gst tax provided there are no post-merger additions to merged trust a the proposed merger of trust and trust will not affect the present gst tax status of such trusts and will not cause any distributions upon termination or otherwise from merged trust b to beneficiaries to become subject_to the gst tax provided there are no post-merger additions to merged trust b the proposed merger of merged trust a into merged trust b to create merged trust c will not affect the grandfathered status of merged trust a or the present gst tax status of merged trust b and will not cause any distributions from merged trust c upon termination or otherwise to beneficiaries to become subject_to the gst tax ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by an individual resident or nonresident sec_2511 provides that subject_to certain limitations the gift_tax applies whether the transfer is in trust or otherwise direct or indirect and whether the property transferred is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift will be considered the amount_of_the_gift sec_2512 states that where property is transferred for less than adequate_and_full_consideration in money or money’s worth the amount by which the value of the property exceeds the value of the consideration received shall be deemed a gift based on the facts submitted and the representations made the beneficial interests of the trust beneficiaries will not change as a result of the proposed merger of the trusts as described above accordingly based upon the facts provided and the representations made we rule that the proposed merger of trust and trust the proposed merger of trust and trust and the proposed merger of merged trust a and merged trust b plr-140123-09 will not result in a transfer by any of the beneficiaries that is subject_to federal gift_tax under sec_2501 furthermore 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 the ruling s in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the code are in effect during the period at issue 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 representative 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 james f hogan branch chief office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes 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 ita b01 plr-135699-08 date november dear ---------------------------------------- this is in response to your request for a private_letter_ruling filed by your authorized representative regarding the late filing of an election under sec_165 of the internal_revenue_code you have requested an extension of time for making the disaster_loss election which will enable you to claim the loss for the tax_year preceding the loss under sec_301_9100-3 of the procedure and administration regulations the information submitted indicates that in date your home and surrounding property suffered damage due to wildfires the president of the united_states determined that the area warranted federal assistance under the disaster relief and emergency assistance act the information further shows that you intended to make the election available under sec_165 on a timely basis and engaged a qualified_tax professional in order to assure the making of a proper election however due to an error or misunderstanding on the part of the tax professional the election was not made in a proper manner the error was not due to any lack of due diligence or prompt action on your part sec_165 provides that any loss attributable to a disaster occurring in an area subsequently determined by the president of the united_states to warrant assistance by the federal government under the disaster relief and emergency assistance act may at the election of the taxpayer be taken into account for the taxable_year immediately preceding the taxable_year in which the disaster occurred sec_1_165-11 of the income_tax regulations provides that a sec_165 disaster_loss election must be made on or before the later of the due_date without regard to extensions for filing the income_tax return for the taxable_year in which the disaster actually occurred or the due_date with extensions for filing the income_tax return for the taxable_year immediately preceding the taxable_year in which the disaster actually occurred thus for example an election by a calendar_year taxpayer to deduct plr-135699-08 a disaster_loss for the tax_year must ordinarily be made by the due_date of the return date for individuals sec_301_9100-1 through set forth rules relating to the granting of extensions of time for making certain elections under sec_301_9100-1 the commissioner in his or her discretion may grant a reasonable extension of time to make a regulatory election under subtitle a of the code provided the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government sec_301_9100-2 sets forth rules governing automatic extensions for certain regulatory elections the automatic_extension provisions of sec_301_9100-2 however do not apply in this situation sec_301_9100-3 sets forth standards that the commissioner will employ in determining whether to grant discretionary relief in situations that do not meet the requirements of section the standards set forth in section are whether the taxpayer acted reasonably and in good_faith in the matter and whether the granting of relief will prejudice the interests of the government generally a taxpayer will be deemed to have acted reasonably and in good_faith where the taxpayer reasonably relied on a qualified_tax professional and that professional failed to make or advise the taxpayer to make the election at issue the information submitted and the representations furnished by the taxpayer and its tax professionals establish that the taxpayer acted reasonably and in good_faith in this matter furthermore the granting of relief in this case will not prejudice the interests of the government within the meaning of c accordingly the requirements of for the granting of relief have been satisfied and the taxpayer is granted an extension of time to make the election available under sec_1 for the date disaster_loss this extension shall be for a period of days from the date of this letter_ruling this ruling is limited to the making of the described election except to the extent specifically addressed herein no opinion is expressed regarding the tax treatment of the subject loss_transaction under the provisions of any other sections of the code or regulations that may be applicable thereto this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter_ruling is being sent to the director of compliance in plr-135699-08 accordance with the provisions of a power_of_attorney currently on file with this office a copy of this letter_ruling is also being sent to the taxpayer's representative please attach a copy of this letter_ruling to the amended federal_income_tax return for the taxable_year in which the described disaster_loss will be taken into account sincerely john p moriarty branch chief branch income_tax accounting cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp plr-116279-00 date date legend purchaser purchaser purchaser lossco parent subsidiary subsidiary newco unrelated purchaser group date a date b date c date d date e date f date g date h l m plr-116279-00 company official outside tax professional outside tax professional this responds to your authorized representative’s letter dated date requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election lossco is requesting an extension to file the election under sec_1_382-6 of the income_tax regulations the election for lossco subsidiary and subsidiary with respect to an acquisition of lossco stock on date c the change_date transaction additional information was received in letters dated november november december december and date the material information is summarized below at the time of the change_date transaction lossco was common parent of a group of affiliated corporations filing a consolidated federal_income_tax return the lossco group on date f lossco organized a new subsidiary newco and lossco’s two subsidiaries subsidiary and subsidiary merged into newco on date g newco merged into lossco and lossco changed its name prior to date g lossco was named parent lossco is currently a publicly_held_corporation lossco is a fiscal_year taxpayer and uses the accrual_method of accounting lossco’s tax_year that encompasses the change_date transaction the change_date transaction tax_year ended on date d on date a unrelated purchaser group acquired l percent which is more than percent of the stock of lossco in a private_placement on date b purchaser purchaser and purchaser the acquirors began a series of cash purchases of lossco stock by date c which is within days of date b and less than one year after date a the acquirors had acquired m percent which is more than percent of the stock of lossco these transactions increased the percentage ownership of lossco stock held by the acquirors and unrelated purchaser group by more than percent as a result of the acquirors' and unrelated purchaser group’s acquisition of lossco stock a testing_date as defined in sec_1_382-2 occurred on date c because these transactions resulted in a greater than percent shift in the ownership of lossco during the testing_period an ownership_change as defined in sec_382 occurred on date c the lossco group intended to allocate its consolidated_net_operating_loss between the pre-change period and post-change period as if the books were closed on plr-116279-00 the change_date the election was due on date e the extended due_date for the lossco group’s consolidated federal_income_tax return but for various reasons it was not filed lossco relied on outside tax professional for federal_income_tax advice and tax reporting regarding the change_date transaction and the preparation and filing of lossco’s change_date transaction tax_year federal_income_tax return on date h which is after the due_date for the election outside tax professional discovered the election had not been filed the statute_of_limitations under sec_6501 has not expired for the lossco group's taxable_year for which the election is due or for any years affected by the election the following representations have been made in connection with this request a b c d e f g lossco is the common parent of a loss group as defined in sec_1 91t c as in effect for the change_date transaction tax_year with respect to certain net_operating_loss carryovers as a result of the change_date transaction on date c lossco underwent an ownership_change as defined in sec_382 the lossco group has not accelerated income into the pre-change period or deferred loss to the post-change period for the purpose of avoiding the application of sec_382 lossco is not under the jurisdiction of a court in a title_11_or_similar_case the lossco group will determine its alternative_minimum_taxable_income and adjusted_current_earnings for the pre-change and post-change periods based on a closing of the books as of the change_date and will elect out of ratable allocation since date c lossco has continued the operation of its historic trade_or_business within the meaning of sec_1_1502-93t d as in effect for the change_date transaction tax_year the lossco group has not carried back and will not carry back under sec_172 or any applicable_section of the consolidated_return_regulations any portion of the consolidated_net_operating_loss it incurred in the change_date transaction tax_year to a prior tax_year the lossco group incurred consolidated net operating losses in the tax years that would otherwise have qualified under sec_172 and any applicable_section of the consolidated_return_regulations as carryback years for the consolidated_net_operating_loss it incurred in the change_date transaction tax_year h an election under sec_338 of the internal_revenue_code was not made in connection with the change_date transaction plr-116279-00 sec_1_382-6 provides that except as provided in paragraphs b and d of that section a loss_corporation defined in sec_382 must allocate its net_operating_loss or taxable_income and its net_capital_loss or modified capital_gain_net_income for the change year between the pre-change period and the post-change period by ratably allocating an equal portion to each day in the year sec_1_382-6 provides that a loss_corporation may elect to allocate its net_operating_loss or taxable_income and its net_capital_loss or modified capital_gain_net_income for the change year between the pre-change period and the post-change period as if the loss corporation's books were closed on the change_date sec_1_382-6 provides that a loss_corporation makes the closing-of-the- books election by including the following statement on the information statement required by sec_1_382-2t for the change year the closing-of-the-books election under sec_1_382-6 is hereby made with respect to the ownership_change occurring on insert date the election must be made on or before the due_date including extensions of the loss corporation's income_tax return for the change year sec_1_1502-77 provides that the common parent for all purposes other than for several purposes not relevant here shall be the sole agent for each subsidiary in the group duly authorized to act in its own name in all matters relating to the tax_liability for the consolidated_return_year under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time 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 the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide standards the commissioner uses to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_382-6 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for lossco to file the election provided lossco shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 plr-116279-00 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by lossco company official and outside tax professional explain the circumstances that resulted in the failure to timely file a valid election the information also establishes that tax professionals were responsible for the election that lossco relied on them to timely make the election and that the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that lossco has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of this letter for lossco to file the election by amending its information statement with respect to the transaction described above if a short taxable_year under sec_1_1502-76 is a change year for which the allocation under sec_1_382-6 is made such allocation will apply only to the items allocated to that short taxable_year under sec_1_1502-76 sec_1_382-6 the above extension of time is conditioned on the filing within days of the issuance of this letter_ruling of all returns and amended returns if any necessary to reflect the election and the lossco group's tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayer’s tax_liability for the years involved a determination thereof will be made by the district director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayer’s liability is lower sec_301_9100-3 lossco must file the election in accordance with sec_1_382-6 including filing any applicable amended returns a copy of this letter should be attached to the information statement we express no opinion regarding whether lossco is a loss_corporation as defined in sec_382 or the common parent of a loss group as defined in sec_1 91t c whether a testing_date as defined in sec_1_382-2 occurred on date c and whether an ownership_change as defined in sec_382 occurred on date c in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the district_director s should verify all essential plr-116279-00 facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent copies of this letter will be sent to your authorized representatives pursuant to the power_of_attorney on file in this office sincerely yours associate chief_counsel corporate by chief branch


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 plr-117930-11 date date legend x ----------------------------------------- -------------------------------- state ------------- a -------------------- b ------------------------------------------ ------------------------------- c ------------------------------------------ ---------------------------- trust ------------------------------------- trust -------------------------------------------------------------------- -------------------------------------------------- ------------------------------------------------------------------------- trust ---------------------------------------------------------------- -------------------------------------------------- ------------------------------------------------------------------------ date date ------------------------- ---------------------- plr-117930-11 date date date date date date date ----------------------- ----------------------- -------------------------- ---------------------- -------------------------- ---------------------- ------------------------- a b ---- ------ dear ------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on date under the laws of state x timely elected to be an s_corporation effective date over time a acquired all outstanding shares of x a transferred those shares to trust on date trust was a revocable_trust treated as a wholly-owned grantor_trust under sec_671 and sec_676 until a’s death on date on date a created two irrevocable trusts trust and trust b is the sole beneficiary of trust c is the sole beneficiary of trust on date a transferred a shares of x to trust and a shares of x to trust on date a transferred a shares of x to trust and a shares of x to trust on date a transferred b shares of x to trust and b shares of x to trust on date a transferred b shares of x to trust and b shares of x to trust x represents that trust and trust were eligible at all times to be treated as qualified subchapter_s trusts qssts under sec_1361 b and c failed to make timely qsst elections causing the termination of x’s s_corporation status on date plr-117930-11 x represents that the circumstances resulting in the termination of x’s s_corporation_election were inadvertent and not motivated by tax_avoidance x represents that from date x and its shareholders filed federal_income_tax returns consistent with x’s status as an s_corporation_election x further represents that from date b and c consistently filed their income_tax returns as if trust and trust had valid qsst elections in effect x and its shareholders consent to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary law sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate and other than a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1361 provides that a qsst whose beneficiary makes an election under sec_1362 will be treated as a_trust described in sec_1361 and the qsst’s beneficiary will be treated as the owner for purposes of sec_678 of that portion of the qsst’s s_corporation stock to which the election under sec_1361 applies sec_1361 provides that for purposes of sec_1361 the term qualified_subchapter_s_trust means a_trust the terms of which require that - i during the life of the current income_beneficiary there shall be only income_beneficiary of the trust ii any corpus distributed during the life of the current beneficiary may be distributed only to such beneficiary iii the interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary’s death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary sec_1361 requires the trust to distribute all of its income within the meaning of sec_643 to individual who is a citizen or resident_of_the_united_states sec_1362 provides in relevant part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which it was made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the event resulting in the ineffectiveness of termination plr-117930-11 steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that x’s s_corporation_election terminated on date because trust and trust were not eligible shareholders of x we also conclude that the termination of x’s s election on date was an inadvertent termination within the meaning of sec_1362 therefore x will be treated as an s_corporation effective date and thereafter provided x’s s_corporation_election is not otherwise terminated under sec_1362 this ruling is contingent upon b and c filing qsst elections for trust and trust respectively with an effective date of date with the appropriate service_center within days of the date of this ruling a copy of this letter should be attached to each 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 specifically no opinion is expressed regarding x’s eligibility to be an s_corporation or the validity of its s_corporation_election no opinion is expressed as to whether trust is a permissible s_corporation shareholder or whether trust or trust qualifies as a qsst 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 representative plr-117930-11 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 melissa c liquerman branch chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c oct set ep iat tax_exempt_and_government_entities_division uniform issue list legend taxpayer a cccccccesceessrresersnenessteeeee steer company n cccceceeerreeeererrrnnesseseesess gees reece eee eee re eenesesennesen eres amount p ccccceeceee dear letter dated date as supplemented by correspondence this is in response to a dated date and date in which you request a waiver of the 60-day requirement contained in sec_408 of the internal_revenue_code the you submitted the following facts and representations under penalty of perjury rollover code _ on may taxpayer a represents that amount p has not been used for any purpose in support of your request taxpayer a age represents that she received a distribution from ira x in amount p taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to a misunderstanding with company n other than the intended rollover taxpayer a maintained ira x with bank m distribution from ira x in amount p and on the same date purchased shares of stock in her employer company n the stock of company n is not publicly traded taxpayer a into an ira investing in shares of stock of company n intended to roll over amount p in the absence of clear guidance from bank m and company n taxpayer a mistakenly believed that she had rolled over amount p custodian subscription agreement with company n and the stock certificate issued to taxpayer a by company n specifically referenced an ira as owner of the shares in preparing her mm tax_return in february of that it was not in fact an ira custodian for her shares when taxpayer a located a custodian that would hold the shares of company n in an ira taxpayer a submitted this request for a waiver into an ira with company n as the this misunderstanding was partly due to the fact that both the stock company n informed taxpayer a taxpayer a took a based on the above facts and representations taxpayer a requests that the internal ‘revenue service the service waive the 60-day rollover requirement under sec_408 of the code with respect to the distribution of amount p sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under section sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred _ the information and documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover was caused by a misunderstanding with company n therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount p from ira x taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount p into an ira provided all other requirements of sec_408 except the 60-day requirement are met with respect to such contribution amount p will be considered a rollover_contribution within the meaning of sec_408 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations that may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact sincerely yours carlton a watkins manager employee_plans technical group enclosures deleted copy of letter_ruling notice