estate of edward s redstone deceased madeline m redstone executrix petitioner v commissioner of internal revenue respondent docket no filed date r determined a gift_tax deficiency against e the estate of d a deceased individual d worked in a family business with his father and his brother this business was reorganized in as national amusements inc nai upon nai’s incor- poration d’s father contributed a disproportionate amount of capital but the three were each listed as registered owners of of nai’s shares d was eventually forced out of the busi- ness upon departure he demanded all of his stock which his united_states tax_court reports father refused to deliver citing the disproportionate capital contributions in his father insisted that a portion of d’s stock had been held since nai’s inception in an oral trust for the benefit of d’s children after lengthy negotiations and the filing of two lawsuits the parties in reached a settle- ment on advice of their respective counsel pursuant to the settlement d transferred of the disputed shares into a_trust for his children in consideration of which d was acknowledged as outright owner of of the disputed shares which nai redeemed for dollar_figure million r determined that d’s transfer of stock for the benefit of his children was a taxable gift while agreeing that d transferred the stock in settlement of a bona_fide dispute r contends that the transfer was not made in the ordinary course of business or for a full and adequate_consideration in money or money’s worth sec_25_2511-1 gift_tax regs because no consideration was furnished by d’s children the transferees of the stock held d’s transfer of stock was made in the ordinary course of business and for a full and adequate_consideration in money or money’s worth namely recognition by d’s father and brother that he was the outright owner of of the dis- puted shares held further d received adequate_consideration even though that consideration was not furnished by his children held further d did not make a taxable gift and is not liable for any gift_tax for the period at issue howard j castleman and loretta r richard for peti- tioner carina j campobasso and janet f appel for respondent lauber judge respondent determined a deficiency of dollar_figure in the federal gift_tax of the estate of edward s redstone deceased estate for the calendar_quarter ended date respondent also determined an addition_to_tax of dollar_figure under sec_6653 for fraud and alter- natively an addition_to_tax of dollar_figure under sec_6653 for negligence and an addition_to_tax of dollar_figure under sec_6651 for failure_to_file a timely gift_tax_return the deficiency stems from the settlement in of a family dispute concerning edward redstone’s ownership of shares in national amusements inc nai a family-owned all statutory references are to the internal_revenue_code in effect for the tax period at issue and all rule references are to the tax_court rules_of_practice and procedure we round all dollar amounts to the nearest dol- lar during the tax period at issue what are now penalties for fraud and negligence were denominated additions to tax estate of redstone v commissioner corporation this dispute was settled by a compromise whereby edward released his claim to nai shares which at his father’s insistence were placed in trusts for edward’s children in exchange for this release edward’s father and brother acknowledged edward’s ownership of nai shares which nai immediately redeemed for cash the focus of the parties’ dispute is whether edward’s transfer of stock in trust for his children was made for an adequate_and_full_consideration in money or money’s worth see sec_2512 we find that it was we accordingly hold that the transfer was not a gift_for federal gift_tax purposes findings_of_fact some of the facts have been stipulated and are so found the stipulations of facts and the attached exhibits are incor- porated by this reference edward redstone died on date edward married madeline redstone in and she is his surviving_spouse and the executrix of the estate madeline was a california resident at the time the petition was filed family and business background michael mickey redstone was born on date he married belle redstone and the couple had two children sumner and edward edward attended college and business school before joining the family business in he married leila his first wife who died in they had two children michael and ruth ann sumner graduated from harvard college in and har- vard law school in he practiced law for several years including a stint in the tax_division of the u s department of justice before starting work in for the family busi- ness sumner married phyllis and they had two children brent and shari sumner is the petitioner in a companion case redstone v commis- sioner t c dkt no filed date that case has not been consolidated with the instant case while the cases share a common factual background they present different issues the resolution of which depends to a large degree on different evidence united_states tax_court reports mickey entered the drive-in movie theater business in between and mickey bought real_estate throughout the northeast and built numerous drive-in thea- ters he incorporated northeast theatre corporation north- east in and it became the management company for the redstone family business for each drive-in theater mickey typically incorporated three separate corporations one to own the real_estate one to operate the theater and one to manage refreshments mickey edward and sumner eventually came to own various percentages of these various corporations with mickey’s aggregate share being the largest as the family business grew this complex corporate struc- ture made it cumbersome to obtain financing to solve this problem and to consolidate the interests of mickey edward and sumner in a single entity nai was incorporated as a holding_company on date its articles of incorpo- ration named mickey edward and sumner as the original directors mickey was elected president sumner vice presi- dent and edward secretary-treasurer to this date nai is a closely held in norwood massachusetts corporation headquartered upon nai’s incorporation mickey edward and sumner each contributed to it their stock in the pre-existing movie companies the book_value of the stock that each contributed was dollar_figure dollar_figure and dollar_figure respectively mickey also contributed dollar_figure in cash according to the minutes of the first meeting of directors dated date a total of shares of class a voting common_stock were to be issued shares each to mickey edward and sumner it was mickey’s decision to divide the shares evenly consistently with these decisions the stock certificates indicated that mickey edward and sumner were each registered owners of unrestricted shares of nai common_stock all of the physical stock certificates were retained in nai’s corporate office the decisions taken at nai’s organizational meeting con- tained the seeds of the problem that would blossom into the tax dispute now before us whereas mickey edward and sumner were each registered owners of of nai’s stock the values of their contributions to nai were dis- proportionate to their shareholdings as follows estate of redstone v commissioner item mickey sumner edward total cash contributed_property contributed total percentage dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure mickey gave sumner his elder son the more public and glamorous job of working with movie studios and acquiring new theaters edward had principal responsibility for oper- ational and back-office included maintaining existing properties and developing new prop- erties the redemption functions his duties as he approached age mickey developed a plan to retire gradually from active involvement in nai’s operations to implement this plan he decided to transfer a portion of his common_stock to his grandchildren and to exchange the bal- ance of his shares for preferred_stock on date mickey as settlor executed an agreement of trust for the benefit of his four grandchildren grand- children’s trust the three trustees were belle edward and sumner that same day mickey transferred shares of nai common_stock to the grandchildren’s trust he filed a timely federal gift_tax_return valuing these shares at dollar_figure and paying gift_tax accordingly belle likewise filed a federal gift_tax_return consenting to have mickey’s gift treated as having been made one-half by her mickey then exchanged his remaining shares of nai common_stock for preferred_stock in date nai’s charter was amended to provide for a class of preferred_stock and in date mickey’ sec_50 shares of common_stock were redeemed in exchange for big_number shares of nai preferred_stock thus as of date nai had outstanding shares of voting common_stock that were owned by sumner shares edward shares and the grandchildren’s trust shares dispute toward the end of the 1960s the first of many conflicts developed within the redstone family edward’s son michael began to manifest serious psychiatric problems after strug- united_states tax_court reports gling with these problems for several years edward and leila decided that they had no alternative but to have their son admitted as a resident psychiatric patient at mclean hospital in boston mickey belle and sumner strongly dis- agreed with this course of action in part because they feared it reflected badly on the redstone family name mickey and sumner insisted that edward remove michael from the facility and restore him to the family edward eventually acquiesced but he greatly resented this intrusion into his and leila’s personal lives for his part mickey began to doubt whether edward had michael’s best interests at heart about this time edward began to feel marginalized not only within his extended family but also within the family business he became dissatisfied with his role at nai with certain business decisions that mickey and sumner had made and with what he regarded as a lack of respect for his views he began to discuss in general terms the possibility that he might leave the family business this possibility became more concrete when sumner without first discussing the matter with edward hired jerry swedrow to take over edward’s responsibilities for nai operations when edward learned of this he became incensed in date he abruptly quit the family business upon leaving edward demanded but did not receive possession of the shares of common_stock registered in his name to help secure possession of these shares edward hired attorney james r degiacomo edward took the posi- tion that he was legally entitled to and had an unrestricted right to sell the shares registered in his name he threat- ened to sell the shares to an outsider if nai did not redeem them at an appropriate price edward’s threat to sell his shares to an outsider was anathema to mickey and sumner because they wished to keep control of the redstone business within the family mickey refused to give edward his stock certificates con- tending that nai had a right_of_first_refusal to repurchase the shares mickey and his attorneys also developed an argu- ment that a portion of edward’s stock though registered in his name had actually been held since nai’s inception in an oral trust for the benefit of edward’s children this argu- ment built on the fact that mickey in had contributed of nai’s capital yet had received only of its estate of redstone v commissioner stock in effect mickey contended that he had gratuitously accorded edward more stock than he was entitled to and that to effectuate mickey’s intent in the extra shares should be regarded as being held in trust for edward’s chil- dren mickey initially insisted that at least half of edward’s shares were covered by this alleged oral trust the parties negotiated for six months in search of a resolu- tion they explored without success various options whereby edward would remain in the business as an employee or consultant edward offered to sell his shares back to nai and the parties explored various pricing scenarios under which this might occur as the family patriarch how- ever mickey had most of the leverage and he insisted that edward acknowledge the existence of an oral trust for the benefit of edward’s children mickey’s insistence on an oral trust was a line in the sand and a deal breaker upon reaching an impasse edward authorized mr degiacomo to file in massachusetts superior court two law- suits against mickey sumner and the redstone family companies redstone v nat’l amusements inc no eq nai action and redstone v northeast theatre com no eq northeast action the nai action filed in date alleged that edward owned shares of voting common_stock that these shares were unencumbered and unrestricted as to their transferability and that the shares should be delivered immediately to edward mickey answered that he had possession of all the stock registered in edward’s name and that a portion of the shares so reg- istered were held in trust for the benefit of edward’s children this litigation became quite adversarial and its public nature was extremely distressing to the redstone family especially to mickey’s wife and edward’s mother belle she implored edward to reach some accommodation with his father in the course of negotiations it became apparent to mr degiacomo that edward had to separate completely from nai and that mickey would not be placated unless edward acknowledged the supposed oral trust and placed some of the disputed shares in trust for his children michael and ruth ann a settlement was ultimately reached along these lines notwithstanding that shares of nai voting common united_states tax_court reports stock were registered in edward’s name the parties agreed that edward was the owner free and clear of all trusts restrictions and encumbrances of only shares of such stock they further agreed that the remaining shares of nai stock registered in edward’s name were then held and had always been held by edward for the benefit of his chil- dren in trust and not as beneficial_owner this settle- ment was a compromise of the parties’ respective positions it reflected on the one hand mickey’s desire to ensure the financial security of edward’s children and on the other hand edward’s desire to conclude the litigation by securing payment for at least a portion of his shares the parties agreed that nai would purchase from edward the shares of stock that he was deemed to own they further agreed that ed’ sec_2 stock interest was to be valued at five million dollars for purposes of a settlement agree- ment dated date settlement agreement edward executed an assignment transferring to nai in exchange for dollar_figure million shares of nai voting common_stock the settlement agreement further required edward to execute irrevocable declarations of trust likewise dated date for the benefit of his children these trusts were styled the ruth ann redstone trust ruth ann trust and the michael david redstone trust michael trust sumner was named the sole trustee of each trust edward executed two assignments each transferring shares of nai stock to sumner as trustee of the respective trusts finally the settlement agreement required the parties to execute various releases all parties executed mutual releases respecting claims concerning edward’s ownership interests in nai and northeast edward resigned from all positions he had held in the redstone family businesses and resigned as trustee or relinquished the right to serve as suc- cessor trustee of all redstone family trusts the settlement agreement also resolved certain disputes in the northeast action that are not relevant here on date the parties filed with the massachusetts superior court a stipulation in the nai action setting forth the terms of this settlement that same day the massachu- setts superior court issued a final decree incorporating the terms of the settlement agreement estate of redstone v commissioner o’connor litigation litigation commenced in sheds further light on the events involved in this case see o’connor v redstone n e 2d mass michael redstone and the trustees of certain redstone family trusts sued sumner edward and nai arguing among other things that additional stock should have been transferred to the various trusts in based on the purported existence of a prior oral trust the oral trust issue was the subject of extensive deposition and trial testimony at the conclusion of trial the massachusetts superior court ruled that the plaintiffs had failed to prove that an oral trust was ever created edward testified during the o’connor trial about the back- ground and resolution of the dispute he testified that he firmly believed he was entitled to all shares of nai stock that were originally registered in his name how- ever he ultimately accepted mr degiacomo’s advice that it was in his best interest to compromise and settle the litiga- tion he explained that he paid no gift_tax in upon transferring stock to the michael and ruth ann trusts because he made no gift rather he stated that he had been in the shares in order to obtain payment for the remaining shares forced to renounce his ownership_interest the edward testified that mickey and sumner had developed the concept of an oral trust as a means of justifying their position in edward’s view he had never held any nai shares under an oral trust for his children notwithstanding the provision in the settlement agreement reciting that of his shares had always been so held he testified that he had been forced to acknowledge the existence of an oral trust in order to placate his father and settle the litigation as he stated i was forced to do this i had to accept the writing in order to settle the matter indicate that there was an oral trust the trial transcript of the o’connor litigation and the transcripts of certain depositions taken in that case are included among the exhibits to the parties’ stipulation of facts in the instant case united_states tax_court reports notice_of_deficiency edward did not file a federal gift_tax_return for the second quarter of in his and his accountants’ view the nai shares that he transferred to the michael and ruth ann trusts did not constitute a taxable gift in apparently as a result of the o’connor litigation edward’s transfer of stock came to the attention of the internal_revenue_service irs on date after an examination the irs issued the estate a notice_of_deficiency determining a deficiency of dollar_figure in federal gift_tax for the calendar_quarter ended date respondent also determined an addition_to_tax for fraud of dollar_figure under sec_6653 and as an alternative to fraud an addition_to_tax for neg- ligence of dollar_figure under sec_6653 and an addition_to_tax of dollar_figure under sec_6651 the estate timely petitioned this court i burden_of_proof opinion the commissioner’s determinations in a notice of defi- ciency are generally presumed correct and the taxpayer bears the burden of proving those determinations erroneous rule a 290_us_111 the estate does not contend that the burden_of_proof shifts to respondent under sec_7491 as to any issue of fact ii application of gift_tax a governing legal principles during the federal gift_tax was imposed for each cal- endar quarter on the transfer of property by gift during according to respondent’s theory-that edward made a taxable gift and was required to file a return reporting the transfer-the notice of de- ficiency was timely sec_6501 provides that i n the case of fail- ure to file a return the tax may be assessed or a proceeding in court for the collection of such tax may be begun without assessment at any time the estate does not contend that edward filed a gift_tax_return reporting the transfer or that the period of limitations has expired for any other reason the estate has thus waived any affirmative defense see rule in any event because we rule for the estate on the merits any issue regarding the period of limitations is moot cf estate of brown v commis- sioner tcmemo_2013_50 estate of redstone v commissioner that quarter sec_2501 where property is transferred for less than an adequate_and_full_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift sec_2512 a necessary corollary of this provision is that a transfer of property in exchange for an adequate_and_full_consideration does not constitute a gift_for federal gift_tax purposes see eg 324_us_303 the treasury regulations confirm that t he gift_tax is not applicable to a transfer for a full and adequate_consideration in money or money’s worth or to ordinary business trans- actions sec_25_2511-1 gift_tax regs the application of the gift_tax depends on the objective facts of the transfer and the circumstances under which it is made rather than on the subjective motives of the donor ibid thus d onative intent on the part of the transferor is not an essential element in the application of the gift_tax ibid the regulations define a transfer of property made in the ordinary course of business as a transaction which is bona_fide at arm’s length and free from any donative_intent sec_25_2512-8 gift_tax regs see 38_tc_790 a transaction meeting this standard will be considered as made for an adequate and full consid- eration in money or money’s worth sec_25_2512-8 gift_tax regs that is so even if one party to the transaction later concludes that the consideration he received was inadequate see 8_tc_706 bad bargains are made every day in the busi- ness world but no one would think for a moment that any gift is involved a transfer of property within a family group normally receives close scrutiny see eg 98_tc_554 however a transfer of property between family members may be treated as one in the ordi- nary course of business if it meets the criteria set forth above see 436_f2d_1327 5th cir 205_f2d_505 2d cir rev’g 17_tc_1047 estate of anderson t c pincite in 340_us_106 for example the supreme court found no taxable gift where a divorcing couple voluntarily unravelled their busi- united_states tax_court reports ness interests on the basis of a compromise as the court explained id pincite this transaction was not in the ordinary course of business in any conventional sense few transactions between husband and wife ever would be but if two partners on dissolution of the firm entered into a transaction of this character or if chancery did it for them there would seem to be no doubt that the unscrambling of the business interests would satisfy the spirit of the regulations no reason is apparent why husband and wife should be under a heavier handicap on numerous occasions this court has held that a transfer of property between family members in settlement of bona_fide unliquidated claims was made for a full and adequate_consideration because it was a transaction in the ordinary course of business for example in 10_tc_915 acq 1949_1_cb_1 the taxpayer had transferred certain property as a gift to her daughter then unmarried the daughter later decided to marry a man to whom the taxpayer objected causing a complete estrange- ment between the two and the daughter reluctantly returned the property to the taxpayer several years after the marriage the daughter made demand for the property alleging that she had returned the property under duress and threatening suit after lengthy negotiations and upon advice of her attorneys the taxpayer agreed to and did place dollar_figure in trust for her daughter thereby securing from her daughter a release of all claims the irs determined that the dollar_figure transfer was a tax- able gift because it was made to secure the release of unproven claims which had no ascertainable value t c pincite we disagreed finding that the taxpayer had received in exchange for the transfer a release from unliqui- dated claims and that this release had recognizable mone- tary value id pincite t he settlement to which she agreed on her attorneys’ advice was that which they and she regarded as advantageous economically under the circumstances perhaps she could have successfully resisted the daugh- ter’s threatened suit but her attorneys were not certain of the outcome of the litigation and so advised her the value of the property defended was substantial and by accepting that settlement she avoided addi- tional legal expense she acted in our opinion as one would act in the settlement of differences with a stranger estate of redstone v commissioner we accordingly ruled in beveridge that the taxpayer’s dollar_figure transfer to her daughter was not a gift but was for an adequate_and_full_consideration in money or money’s worth t c pincite we have ruled similarly in other cases involving arm’s-length transfers of property in settle- ment of genuine disputes between family members see eg 40_tc_714 estate of natkanski v commissioner tcmemo_1992_380 64_tcm_55 estate of noland v commissioner tcmemo_1984_209 47_tcm_1640 lampert v commissioner tcmemo_1956_226 15_tcm_1184 chase nat’l bank v commissioner 12_tcm_455 b analysis a transfer of property will be regarded as occurring in the ordinary course of business and thus will be considered to have been made for an adequate_and_full_consideration in money or money’s worth only if it satisfies the three ele- ments specified in sec_25_2512-8 gift_tax regs to meet this standard the transfer must have been bona_fide trans- acted at arm’s length and free of donative_intent in applying this regulation to settlements of family disputes we have identified certain subsidiary factors that may also be relevant we have considered for example whether a gen- uine controversy existed between the parties whether the parties were represented by and acted upon the advice of counsel whether the parties engaged in adversarial negotia- tions whether the value of the property involved was substantial whether the settlement was motivated by the parties’ desire to avoid the uncertainty and expense of litiga- tion and whether the settlement was finalized under judicial supervision and incorporated in a judicial decree see eg estate of natkanski t c m cch pincite estate of noland t c m cch pincite5 bona_fide the requirement that the transfer be bona_fide considers whether the parties were settling a genuine dispute as opposed to engaging in a collusive attempt to make the transaction appear to be something it was not see black’s law dictionary 9th ed defining bona_fide a sec_145 united_states tax_court reports m ade in good_faith without fraud or deceit there is no indication that the dispute within the redstone family was a sham designed to disguise a gratuitous transfer to edward’s children all the evidence points in the opposite direction edward was not working in concert with mickey or sumner in any sense of the word to the contrary edward was genuinely estranged from his father and his brother during and this estrangement grew worse as time went on on both the business and family fronts edward had legitimate grievances against mickey and sumner and they had or thought they had legitimate griev- ances against him edward’s agreement to release his claim to shares of nai stock represented a bona_fide settlement of this dispute although edward had a reasonable claim to all shares registered in his name mickey had possession of these shares and refused to disgorge them forcing edward to com- mence litigation the oral trust theory on which mickey relied was evidently a theory in which he passionately believed and it had some link to historical fact at nai’s inception edward was listed as a registered owner of of nai’s shares even though he had contributed only of its assets ‘extremely the massachusetts courts years later ultimately found insufficient evidence that an oral trust was ever created but this theory had sufficient plausibility to generate a great deal of litigation over the course of many years see lampert t c m cch pincite finding that settlement was not a gift where the various claims of petitioner’s children were not so in nature’ that the agreement settling such claims was without adequate_consideration edward testified during the o’connor trial that he had been forced to acknowledge the existence of an oral trust and to relinquish his claim to shares in order to placate his father and receive payment for the remaining shares this testimony comports with the evidence at trial and convinces us that edward’s transfer of stock in trust for his children represented the bona_fide settlement of a genuine dispute tenuous estate of redstone v commissioner arm’s length the requirement that the transfer be arm’s length is satisfied so long as the taxpayer acts as one would act in the settlement of differences with a stranger beveridge t c pincite edward was genuinely estranged from mickey and sumner in the evidence establishes that they settled their differences as such edward hired a lawyer mr degiacomo who testified convincingly at trial he commenced two lawsuits against mickey sumner and nai the lawyers for all parties nego- tiated for many months as genuine adversaries in search of a compromise they eventually reached a settlement that edward accepted on his lawyer’s advice both evidently regarded this compromise as ‘advantageous economically ’ estate of friedman t c pincite quoting beveridge t c pincite the presence of counsel at the conference table for the purpose of advising and representing the respective parties as to their rights and obligations together with other relevant facts and circumstances dispels any rational theory that a payment made in connection with such settlement was intended for or could have been a gift 138_f2d_989 7th cir all the elements of arm’s-length bargaining existed here there was a genuine controversy among edward mickey and sumner they were represented by and acted upon the advice of counsel they engaged in adversarial negotiations for a protracted period the compromise they reached was motivated by their desire to avoid the uncertainty and embarrassment of public litigation and their settlement was incorporated in a judicial decree that terminated the law- suits because edward acted as one would act in the settle- ment of differences with a stranger his transfer of shares in trust for his children was an arm’s-length transaction see beveridge t c pincite estate of natkanski t c m cch pincite estate of noland t c m cch pincite- lampert t c m cch pincite0 absence of donative_intent although donative_intent is not prerequisite to a gift commissioner v wemyss u s pincite the absence of donative_intent is essential for a transfer to be treated a sec_145 united_states tax_court reports made in the ordinary course of business sec_25_2512-8 gift_tax regs see weller t c pincite generally dona- tive intent will be found lacking when a transfer is not actuated by love and affection or other motives which nor- mally prompt the making of a gift beveridge t c pincite see estate of noland t c m cch pincite5 edward transferred nai shares in trust for his chil- dren michael and ruth ann although his relations with michael may have been strained at this time we assume that both children remained objects of his affection a transfer of stock to one’s children however is not necessarily imbued with donative_intent the transferees in most of the cases discussed above were the transferor’s children but these transfers were nevertheless held to have been made in the ordinary course of business edward’s objective throughout the dispute was to obtain for himself ownership of or full payment for the nai shares originally registered in his name mickey floated in late the concept that edward had held a por- tion of these shares since in trust for his children if edward had been motivated by donative_intent toward his children he could have embraced mickey’s concept at once and resolved the dispute without the expense and family disharmony generated by filing two lawsuits edward filed these lawsuits because he refused to embrace the oral trust theory and wished to obtain possession in his own name of all shares the evidence clearly established that edward transferred stock to his children not because he wished to do it but because mickey demanded that he do it mickey disagreed with how edward was raising his children especially michael whom edward had institutionalized against mickey’s wishes the transfer of stock in trust for michael and ruth ann was prompted by mickey’s twin desires to ensure his grandchildren’s financial security and to keep the redstone family business within the redstone family at the time of the settlement edward had no desire to transfer both economic and family reasons may have motivated edward to in- sist on securing outright ownership of or payment for all shares having abruptly quit the family business he was likely concerned about his own financial security and he may have been reluctant to transfer wealth to his son whom he had recently placed in a mental hospital estate of redstone v commissioner stock to his children he was forced to accept this transfer in order to placate mickey settle the family dispute and obtain a dollar_figure million payment for the remaining shares we find that edward acquiesced in the notion of an oral trust because he had no other alternative this was a deal breaker for mickey there is no evidence that edward in making this transfer was motivated by love and affection or other feelings that normally prompt the making of a gift because edward’s transfer of stock to his children rep- resented the settlement of a bona_fide dispute was made at arm’s length and was free from any donative_intent it meets the three criteria for a transaction in the ordinary course of business specified in sec_25_2512-8 gift_tax regs source of the consideration respondent does not seriously challenge any of the conclu- sions set forth above instead he emphasizes that ruth ann and michael were not parties to the litigation or settlement of the dispute as a result they did not provide and could not have provided any consideration to edward for the transfer of the shares because no consideration flowed from the transferees respondent contends that edward’s transfer was necessarily a gift respondent’s argument derives no support from the text of the governing regulations sec_25_2511-1 gift_tax regs provides unequivocally that t he gift_tax is not applicable to a transfer for a full and adequate_consideration in money or money’s worth sec_25_2512-8 gift_tax regs provides that a transfer of property made in the ordi- nary course of business will be considered as made for an adequate_and_full_consideration in money or money’s worth sec_25_2512-8 gift_tax regs specifies three ele- ments that an ordinary business transaction must meet and we have found that edward’s transfer met all three ele- ments the consequence of that determination is that t he gift_tax is not applicable to the transfer sec_25_2511-1 gift_tax regs respondent’s argument focuses on whether the transferees provided consideration but that is not the question the regu- lation asks it asks whether the transferor received consider- ation that is whether he made the transfer for a full and united_states tax_court reports adequate_consideration in money or money’s worth sec_25_2511-1 gift_tax regs emphasis added we have determined that edward received a full and adequate_consideration for his transfer-namely the recognition by mickey and sumner that edward was the outright owner of nai shares and nai’s agreement to pay edward dollar_figure mil- lion in exchange for those shares sec_2512 and its implementing regulations require that the donor receive an adequate_and_full_consideration they make no reference to the source of that consideration the parties have not brought to our attention and our research has not discovered any_tax court precedent addressing the source of consideration question that respondent presents for decision however the result we reach accords with that reached by the u s district_court in 154_fsupp_244 w d mo the taxpayer there an osage indian applied for a certificate of competency from the bureau of indian affairs bia this certificate would have afforded her among other things the unrestricted right to own and dispose_of dollar_figure in property that the bia held on her behalf in her application she stated that she would make a portion of this property available to her children when they reached the age of fearing that the property might be dissipated before then the bia replied that it would issue her a certificate of com- petency only if she first placed in trust irrevocably for her children dollar_figure of the property that the bia held she rejected that demand and counsel for the parties commenced negotiations ultimately the taxpayer agreed to place dollar_figure of the disputed property into a_trust for her chil- dren the bia then issued her a certificate of competency affording her unrestricted rights to the rest of the property then worth dollar_figure the irs contended that the taxpayer’s transfer in trust for her children was a taxable gift the district_court disagreed ruling that the transfer qualified as a transaction in the ordinary course of business under sec_25_2512-8 gift_tax regs the court found it irrelevant that the taxpayer’s children were not parties to the dispute or its settlement in essence this transaction simply represents a business venture between mrs shelton and the bia it was the result of negotia- tions extending over a period of many months the fact that in her estate of redstone v commissioner original application she indicated that one of the purposes of the applica- tion was to be in position to make adequate trust provisions for her chil- dren after they reached majority does not in any way negative the unalterable conclusion that the result here-a trust she did not want made at a time she did not want to make it and for an amount she was unwilling to pay at the time-was the completion of a cold business bar- gain as bona_fide as any business bargain could be negotiated at arm’s length and obviously free from any donative_intent shelton f_supp pincite concluding that the transfer satisfied all three elements req- uisite to the ordinary course of business exception the court held that the transfer was not subject_to the federal gift_tax ibid the facts of shelton are remarkably similar to those here in both cases the assets in dispute were held by a third party edward like mrs shelton initially demanded of the disputed assets when the party in actual possession of those assets demurred lengthy negotiations ensued in which both sides were represented by counsel eventually a com- promise was reached whereby the taxpayer obtained unre- stricted ownership rights over of the assets in exchange for transferring of the assets in trust for the children in both cases the consideration received by the taxpayer flowed not from the transferee children but from the third party who had possession of the disputed assets the district_court in shelton found the source of the consideration irrelevant and concluded that the taxpayer’s transfer resulted from a cold business bargain we reach the same conclusion here respondent contends that the children in shelton provided consider- ation because they assertedly gave up claims to a greater percentage of the disputed assets but mrs shelton’s children did not and could not re- linquish anything because they were not parties to the dispute or its set- tlement the bia was negotiating on their behalf just as mickey was ne- gotiating on behalf of michael and ruth ann in both cases the party ne- gotiating on the children’s behalf was in possession of the disputed prop- erty the dispute was settled by the taxpayer’s transferring a portion of the disputed property to the children in consideration of receiving the balance of the disputed property in his or her own right in shelton the bia was the sole source of the consideration received by mrs shelton just as mickey and sumner were the source of the consideration received by ed- ward in neither case is it material that no consideration was furnished directly by the transferees united_states tax_court reports c conclusion we conclude that edward’s transfer of shares of nai stock to the michael and ruth ann trusts constituted a bona_fide arm’s-length transaction that was free from donative_intent and was thus made in the ordinary course of busi- ness see sec_25_2512-8 gift_tax regs we find that edward made this transfer for a full and adequate consider- ation in money or money’s worth namely the recognition by mickey and sumner that edward was the outright owner of nai shares and nai’s payment of dollar_figure million in exchange for those shares because t he gift_tax is not applicable to a transfer for a full and adequate_consideration in money or money’s worth or to ordinary business trans- actions sec_25_2511-1 gift_tax regs we find no defi- ciency in federal gift_tax for the period at issue and because we have ruled for the estate on the gift_tax issue it is not liable for any addition_to_tax to reflect the foregoing decision will be entered for petitioner f


internal_revenue_service department of the significant index no washington oc treasury contact person telephone number in reference to opie epia date aug in re company weekly plan unions weekly trust this letter is tax treatment of contributions to the weekly trust which is benefit fund established by the company in response to your ruling_request concerning the a welfare the company generally provides health insurance and post-retirement medical benefits for its employees represented by the unions health_insurance_coverage for these union employees js provided pursuant to the terms of the collective bargaining agreements with the unions the most recent ones being reached in the company provides health benefits to active employees and retirees the post-retirement medical benefits for union retirees are provided pursuant to the above- referenced collective bargaining agreements the collective bargaining agreements do not require the company to establish a welfare_benefit_fund to provide the post-retirement medical benefits the the company is funding retiree health benefit obligations through a_trust under which union and non-union employee_benefits are paid company proposes to spin-off the proportionate share of the unton obligations from the combined trust into the weekly trust the company proposes to establish and adopt the weekly trust the proposed weekly trust is to fund post-retirement accident and health benefits for union retirees ie retirees who were members of the unions immediately prior to retirement the proposed weekly trust will have separate_accounting for assets of the weekly plan and any other plan that may use the weekly trust as a funding vehicle for benefits the op based upon the above you have requested rulings on seven issues we are responding to issue whether the weekly plan is maintained under a collective bargaining agreement within the meaning of sec_419a of the internal_revenue_code issue whether the portion of the weekly trust that holds assets for the weekly plan is a separate welfare_benefit_fund under a collective bargaining agreement within the meaning of sec_419acf and issue whether the company's contributions to the trust to fund post-retirement medical benefits for retirees under the weekly plan will be treated as not exceeding the weekly trust’s qualified_cost under sec_419 and c and are deductible without regard to the limits of sec_419a and c we are forwarding a copy of our file to the exempt_organizations division office of the assistant_commissioner ep eo to reply to issue whether the weekly trust is subject_to the nondiscrimination requirements of sec_505 of the code issue dollar_figure whether the company will be subject_to the excise_tax imposed on reversions under sec_4976 as a result of the transfer of assets comprising the pecportionate share of the weekly program in the combined trust to the weekly trust issue whether upon the transfer of assets any ‘realization of appreciation in capital occurring in the taxable_year in which the transfer occurs whether before or after the transfer and set_aside to fund post-retirement medical benefits will be considered exempt_function_income and not be treated as unrelated_business_taxable_income under sec_512 and issue whether the gross_income of the trust that is set_aside to fund post-retirement medical benefits will constitute exempt_function_income under sec_512 a issue sec_1 and paid sec_419 of the code provides that contributions paid or would otherwise be deductible accrued by an employer to a welfare benefit_fund shal not be deductible under chapter of the code but if they such contributions shall subject_to the be deductible under sec_419 of the code for the taxable_year in which allowable under subsection a for any taxable_year shall not exceed the welfare_benefit fund's qualified_cost for the taxable c provides that the term qualified_cost means the sum of_ a the qualified_direct_cost for such taxable_year and b subject_to the limitation of sec_419a any addition to a qualified_asset_account for the taxable_year minus c after-tax_income sec_419 provides that the amount of the deduction section year imi i i sec_419a of the code provides that no account limits shall apply in the case of any qualified_asset_account under a separate welfare_benefit_fund under a collective bargaining agreement sec_7701 of the code states that in determining whether a collective bargaining agreement between employee there is representatives and one or more employers the term empto ee representatives shall not include any organization more than one-half of the members of which are employees who are owners officers or executives of the employer an agreement shall not be treated as collective bargaining agreement unless it a bona_fide agreement between bona_fide employee_representatives and one or more employers is a _ sec_1 4194-2t q a-2 of the temporary income_tax regulations defines a welfare_benefit_fund maintained pursuant to bargaining agreement and states a collective for purposes of q a-1 a collectively bargained welfare fund is a welfare_benefit_fund that is maintained pursuant to an agreement which the secretary of labor determines to be a collective bargaining agreement and which meets the requirements of the secretary_of_the_treasury as set forth in paragraph elow a collective bargaining agreement a notwithstanding a determination by the secretary of labor that an agreement is welfare_benefit_fund is considered to be maintained pursuant to collective bargaining agreement only if the benefits provided through the fund were the subject of arm's-length negotiations between the employee_representatives and one or more employers and if such agreement between employee_representatives and one or more employers satisfies sec_7701 of the code moreover the circumstances surrounding a collective bargaining agreement must evidence good_faith bargaining between adverse parties over the welfare benefits to be provided through the fund finally a welfare_benefit_fund is not considered to be maintained pursuant to a collective bargaining agreement unless at teast percent of the employees eligible to receive benefits under the fund are covered by the collective bargaining agreement in the case of a collectively bargained welfare_benefit fund only the portion of the fund cas determined under allocation rules to attributable to employees covered by a collective bargaining agreement and from which employees are provided is considered to pursuant to a collective bargained agreement be provided by the commissioner benefits for such be maintained - notwithstanding the preceding paragraphs and pending the issuance of regulations setting account limits for collectively bargained welfare_benefit funds a welfare_benefit_fund will not be treated as a collectively bargained welfare_benefit_fund for purposes of q a-1 if and when after date the number of employees who are not covered by a collective bargaining agreement and are eligible to receive benefits under the fund increases by reason of an amendment merger or other action of the employer or the fund in addition pending the issuance of such regulations for purposes of applying the percent test of paragraph existence on date percent shall be substituted for so percent the collective bargaining agreements with the unions mandate that the em loyees who will receive benefits from the company provide the post-retirement benefits that will be funded through the weekly trust the account in the weekly trust that will hold assets for the weekly plan will consist only of former union employees of the company none of the company's union employees are owners other than of a da minimis number of shares of the company executives or officers of the company to a welfare_benefit_fund that is not in the information provided concerning the negotiations between the company and the unions evidences the arm's-length nature of the collective bargaining process believes that the secretary of labor would hold that the agreements are collective bargaining agreements the company has represented that it prior to the proposed transfer of assets the assets of the combined trust have been commingled for investment purposes there has been and will continue to be separate_accounting for the union and non- union assets in the combined trust the trust document for the weekly trust permits contributions for other union welfare_benefit the weekly trust provides for separate_accounting of assets for under the wee ly plan and any other plan that may use the weekly trust as a funding vehicle for benefits the funds transferred to the weekly trust for benefits provided under the weekly plan will be available to provide only benefits under the weekly plan similarly contributions to the weekly trust for benefits provided for in the weekly plan will be available to provide benefits only to those retirees who were members of the union immediately prior to retirement plans benefits based on the information furnished the weekly plan is maintained pursuant to a collective bargaining agreement under sec_419a of the code hold assets for the weekly plan will constitute a separate welfare in addition the portion of the weekly trust that will issue sec_419 of the code provides that contributions paid_or_accrued by an employer to a welfare_benefit_fund shall not be deductible under chapter contributions shal subject_to the limitations of subsection b be deductible under sec_419 of the for the taxable_year in which paid but if they would otherwise be deductible such sec_1 q a-10 d of the regulations provides that in determining the extent to which contributions paid_or_accrued with respect to a welfare_benefit_fund are deductible under sec_419 the rules of sec_263 sec_446 and sec_461 will be treated as having been satisfied to the extent that such contributions satisfy the otherwise applicable rules of sec_419 thus for example contributions to a welfare_benefit_fund will not fail to be deductible under sec_419 merely because they create an asset with a useful_life extending substantially beyond the close of the taxable_year if such contributions satisfy the otherwise applicable_requirements of sec_419 sec_1_419-1t q a-10 e of the regulations provides that in determining the extent to which contributions with respect to a welfare_benefit_fund satisfy the requirements of sec_461 for any taxable_year for which sec_461 is effective pursuant to the authority under section nei ch economic_performance occurs as contributions to the welfare_benefit_fund are made revrul_69_382 1969_2_cb_28 revenue_ruling c b and revrul_73_599 1973_2_cb_40 held in effect that employer contributions to a reserve for post-retirement benefits were deductible under sec_162 of the code if the reserve was held for the sole purpose of providing benefits to covered employees the employer had no contractual right to recapture any part of the reserve as long as any active or retired employee remains alive and the contribution did not exceed the amount necessary to fairly allocate che cost of post-retirement benefits over the working lives of covered employees - sec_419 of the code limits the deduction that may be taken for contributions to a welfare_benefit_fund to the qualified_cost for the year one element of the qualified_cost is the amount that may be added to the qualified_asset_account of the fund to the extent the limits of sec_419a are not exceeded in general in order for an amount to be deductible under sec_419 the rules of sec_162 and sec_263 among other requirements must be satisfied qualified sec_162 and sec_263 asset account would be required to satisfy the requirements of therefore the addition to a to whether an amount the three enumerated revenue rulings are concerned with the amount of deduction that meets the requirements of sec_162 of the code but do not necessarily provide the exclusive rule as satisfies the requirements of sec_162 sec_263 is also concerned with the amount of the deduction allowable for a year sec_1_419-1t q a-10 d of the regulations provides however that sec_263 of the code will be treated as having been satisfied to the extent that the contributions to a welfare_benefit_fund satisfy the otherwise applicable rules of sec_419 of the code thus if the amount of contribution to a welfare_benefit_fund does not exceed the limits of sec_419 the deduction of such amount is not limited by sec_263 thus if the amount of the contribution satisfies the requirements of sec_419 the deduction of such amount is generally not limited by sec_162 note however that if the contribution ts such that the assets exceed the amount needed to provide post-retirement benefits to all current and future retirees from current active employees ie the present_value of future_benefits then the cpateteution would fail the code to satisfy the requirements of sec_162 of except as specifically ruled above no opinion is expressed as to the federal tax consequences of the contributions to the weekly trust under any other provision of the code specifically no opinion is expressed pegarding whether part or all of the contributions to the weekly trust must costs because they are allocable to the cost of property produced_by_the_taxpayer to which sec_263a applies be capitalized or included in inventory _this ruling sec_6110 of the code provides that it may not be used or cited by others as precedent is directed only to the taxpayer that requested it this ruling is being given with the understanding that the proposed trust agreement as provided to us proposed trust as stated would cause the retroactive revocation of this ruling letter this request are not accurate the company may not rely upon this ruling etter failure to adopt the in addition if the representations made pursuant to is adopted sincerely yours - khiph james e holland jr chief actuarial branch of


internal_revenue_service number release date index number 468a ---------------------- -------------------------- ---------------------------------- --------------------------- --------------------------------- 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 b06 plr-112721-07 date date ---------------------------------------------------------- re revised schedule of ruling amounts under 468a taxpayer --------------------------------------- ----------------------- ------------------------------------------------------------ ---------------------------------------------------- ------------------------------------------------ -------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- plant commission x commission y commission z director dear -------------- this letter responds to a letter submitted date requesting a revised schedule of ruling amounts pursuant to sec_1_468a-3 of the income_tax regulations following a reduction by commission y as of ------------------- of the amount of decommissioning costs to be included in cost of service this request was held in abeyance pending the request dated date that the service extend the time to request this amended schedule pursuant to ' of the procedure and administration regulations the request to extend the time was granted on date and consideration of your request for a revised schedule of ruling amounts followed taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows plr-112721-07 taxpayer is a subsidiary of parent taxpayer has a direct ownership_interest in plant the estimated base cost for decommissioning plant is based on an independent study and the proposed method of decommissioning the plant is method taxpayer is subject_to the jurisdiction of commission x commission y and commission z as well as two cooperatives which are not relevant for these purposes the service issued to taxpayer a revised schedule of ruling amounts on -------------------- ------- amounts for commission x and commission z are not specifically reviewed herein the schedule of ruling amounts approved by the service on ---------------------- governs the review period for the commission x and commission z ruling amounts these amounts are reproduced in the approved schedule of ruling amounts below in order to reflect the total annual ruling_amount which remains in effect for commission x and commission z taxpayer and commission y entered into an agreement under which taxpayer no longer collected decommissioning amounts from the customers of commission y as of ------------------- taxpayer seeks a revised schedule of ruling amounts as required by sec_1_468a-3 to reflect that agreement payments made to a qualified decommissioning fund however ' 468a b limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a provides that a taxpayer may elect to deduct the amount of sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under ' 468a d as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within months after the close of the tax_year plr-112721-07 sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under ' 468a-1 b of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest sec_1_468a-1 provides that the term qualifying interest means a leasehold interest in any portion of a nuclear power plant if a the holder of the leasehold interest is subject_to the jurisdiction of a public_utility commission with respect to such portion of the nuclear power plant b the holder of the leasehold interest is primarily liable under federal or state law for decommissioning such portion of the nuclear power plant and c no other person establishes a nuclear decommissioning fund with respect to such portion of the nuclear power plant sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or the ruling_amount applicable to the nuclear decommissioning fund for such tax_year sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under ' 468a-3 a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under ' 468a-3 b the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes plr-112721-07 sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under ' 468a-3 d the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear plr-112721-07 power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of ' 468a-3 h the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sec_1_468a-3 provides that a taxpayer is required to request a revised schedule of ruling amounts if any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by a nuclear power plant to which a nuclear decommissioning fund relates reduces the amount of decommissioning costs to be included in the cost of service for any taxable_year sec_1_468a-3 provides that any taxpayer that is required to request a revised schedule of ruling amounts by reason of any of the actions described in sec_1_468a-3 must file such request on or before the deemed payment deadline date for the first taxable_year in which the rates that reflect the action become effective sections a and c of the energy act of eliminated for taxable years after date the investment restrictions contained in ' 468a e c sections b and c of the energy act of revised ' 468a e by lowering the tax_rate applicable to a nuclear decommissioning fund for taxable years beginning after date we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in ' 468a and the regulations plr-112721-07 thereunder based solely upon these representations of the facts we reach the following conclusions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under ' 468a-1 b of the regulations commission y has decreased the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes taxpayer has timely requested a revised schedule of ruling amounts as required under ' 468a-3 i iii a of the regulations taxpayer has proposed a schedule of ruling amounts which meets the requirements of 468a-3 a and of the regulations the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the decommissioning costs applicable to the fund or the ruling applicable to the fund as set forth under ' 468a- b of the regulations based solely on the determinations above we conclude that the taxpayer's proposed schedule of ruling amounts satisfies the requirements of ' 468a of the code approved schedule of ruling amounts for taxable years ------- through ------- - commission x commission y and commission z1 year ------------ -- ------------ -- ------------ comm x -------------------- ----- -------------------- ----- -------------------- comm y ------------------- -- -------------- comm z --------------------- --------------------- -------------- --------------------- total ---------------------- --- ---------------------- --- ---------------------- amounts for commissions x and z are not specifically reviewed herein and are merely reprinted to arrive at the amount for the total ruling_amount for purposes of the review and revision under sec_1 468a- i the date of the schedule of ruling amounts approved by the service on ---------------------- governs the review period for the commission x and commission z ruling amounts plr-112721-07 -- ------------ -- ------------ -- ------------ -- ------------ -- ------------ -- ------------ -- ------------ -- ------------ -- ------------ -- ------------ -- ------ -------------------- ------ -------------------- ------ -------------------- ------ -------------------- ------ -------------------- ------ -------------------- ------ -------------------- ------ -------------------- ------ ----------------- -------------------- ------ -------------- -------------- -------------- -------------- ------ ------ ------ ------ ------ ------ -------------- -------------- -------------- -------------- ------ ------ ------ ------ ------ ------ ---- ---------------------- ---- ---------------------- ---- ---------------------- ---- ---------------------- ---- ---------------------- ---- ---------------------- ---- ---------------------- ---- ---------------------- ---- ----------------- ---------------------- ---- approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in ' 468a-3 i iii occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above plr-112721-07 the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of ' 468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives we are also sending a copy of this letter_ruling to the director pursuant to ' 468a-7 a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund enclosures sincerely peter c friedman senior technician reviewer branch associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c date number release date index number the honorable xxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx dear xxxxxxxxxxxxxxxx thank you for your letter dated date concerning xxxxxxxxxxxxxx xxxxxxx your constituent xxxxxxxxxx asks whether that organization continues to qualify for tax exemption under sec_501 of the internal_revenue_code to be recognized as exempt from federal tax under sec_501 of the code an organization must among other things operate exclusively to promote social welfare an organization operates exclusively to promote social welfare if it primarily engages in promoting in some way the common good and general welfare of the people of the community promoting social welfare does not include participating in political campaigns either for or against any political_candidate an organization that is exempt under sec_501 may engage in political activity if its primary activity is to promote social welfare if the organization does intervene in a political campaign it may be subject_to the tax imposed by sec_527 an organization whose primary activity is rating candidates for public_office is not exempt under sec_501 in revrul_67_368 this rev_rul considers the rating of candidates even on a nonpartisan basis as participation on behalf of the candidates favorably rated because rating was the organization’s primary activity the organization was not operated exclusively for the promotion of social welfare in contrast an organization primarily engaged in social welfare activities may participate in campaign activities involving the nomination or election of public officials without adversely affecting its exempt status under sec_501 see revrul_81_95 the office of the irs with jurisdiction over xxxxxxxxxxxxxxxxxxxxxxxxx is exempt_organizations examination programs review we have forwarded your information to that office for appropriate action we appreciate xxxxxxxxxxxxx advising us of a possible violation of the internal_revenue_code by a tax-exempt_organization the code includes taxpayer privacy provisions which were enacted by congress to protect the privacy of tax returns and tax_return information of all taxpayers we cannot disclose what action if any the irs has taken or may take using the information you provided i can tell you however we maintain an ongoing examination program to ensure that tax-exempt organizations continue to meet the legal requirements for tax exemption and comply with tax laws when an examination shows an organization is not complying with the tax laws we take appropriate action please tell your constituent that if at a later date she has more information relevant to this matter she can send it directly to eo examination programs review t eo e pr internal_revenue_service commerce street dallas tx i appreciate your bringing this matter to our attention if you have any questions please call steven grodnitzky id of this office at steven t miller director exempt_organizations s by gerald v sack sincerely


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-122985-14 date date legend -------------------------------- -------------------------------- -------------- ---------------------- ------------------- ------- x state date decedent year dear ----------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to make an election under sec_754 of the internal_revenue_code the information submitted states that x was formed as a limited_liability_company taxed as a partnership for federal_income_tax purposes in state on date decedent was a partner in x decedent died in year however at that time x's tax advisors did not advise x of the availability of an election under sec_754 accordingly x inadvertently failed to timely file a sec_754 election for year sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of the partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in plr-122985-14 sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 b of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions therefore for filing the return for the taxable_year sec_301_9100-1 c provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 b defines the item regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant and extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-3 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election under sec_754 effective for the year taxable_year and thereafter x must calculate the adjustments under sec_734 and c and sec_1_755-1 as if x had timely made the sec_754 election and allocated the increase in basis among the properties held by x at that time the election should be made in a written_statement filed with the appropriate service_center for association with x's year return a copy of this letter should be attached to the election plr-122985-14 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code and the regulations thereunder 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 copy of this letter is being sent to x's authorized representative sincerely associate chief_counsel passthroughs special industries by david r haglund david r haglund branch chief branch office of the associate chief_counsel passthroughs special industries


internal_revenue_service number info release date index number -------------------------------------- ---------------------- ------------------------------- department of the treasury washington dc person to contact ------------------------- id no telephone number --------------------- refer reply to cc psi b1 - genin-151277-04 date nov taxpayer -------------------------------------- dear taxpayer this responds to your letter dated date in which it was requested that we recognize taxpayer’s election to be an s_corporation effective date the information submitted explains that the corporation submitted a valid revocation of its s election to the irs service_center effective date although we are unable to respond to your request as submitted this letter provides useful information relating to your request the law provides if an s_corporation_election has been terminated the corporation is not eligible to make another s_corporation_election for any taxable_year before its fifth taxable_year that begins after the first taxable_year for which the termination is effective unless the secretary consents to the election sec_1362 the regulations provide the commissioner may permit a corporation to make a new election before the 5-year period expires reg sec_1_1362-5 the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should consent to a new election the fact that more than percent of the stock in the corporation is owned by persons who did not own any stock in the corporation on the date of the termination tends to establish that consent should be granted permission to elect to be an s_corporation before the expiration of the 5-year period must be done through a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2004_1 copy enclosed in addition revproc_2004_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their tax_return for the most recent 12-month taxable_year qualify for a reduced user_fee in the amount of dollar_figure if you qualify for the reduced fee you must include a statement certifying your gross_income for the last 12-month taxable_year otherwise the higher fee will apply if you decide to submit a formal request for a private_letter_ruling please review appendix b of revproc_2004_1 and be certain to include all required procedural statements also include the proper user_fee and any documents that substantiate your intent to be an s_corporation from inception please refer your request to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi room please contact ------------------------- at -------------------- not a toll-free call we hope that this information is helpful to you if you have additional questions s dianna k miosi sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosure revproc_2004_1


internal_revenue_service number release date ---------------------------------- ----------------------------- --------------------------------------------- ---------------------------------- in re --------------------------------------------- ----------------------------- -------------------------- ------------------------ - department of the treasury washington dc person to contact ---------------- id no ------------- cc ita telephone number --------------------- refer reply to plr-120254-05 date date legend a ----------------------------------------------------------------- ------------------------------------------------- dates -------------------------- -------------------------- ----------------------------- groups taxpayers and on attachment taxpayers and on attachment all other taxpayers on attachment dear -------------------- this letter responds to your letter and submissions of date supplementing a previous submission of march in which you requested on behalf of a above and forty other related parties the taxpayers - see attachment certain private letter rulings relating to the late-filing of forms election to have a tax_year other than a required tax_year specifically you requested that the taxpayers’ late-filed forms be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations we are pleased to address your concerns the information submitted indicates that each of the forty-one taxpayers on whose behalf rulings are requested is a partnership employing an overall accrual_method of accounting taxpayers are members of a tiered_structure as defined in sec_1_444-2t of the temporary income_tax regulations under sec_706 of the internal_revenue_code a partnership’s taxable_year must be its required_taxable_year unless among other exceptions not relevant here the partnership elects under sec_444 of the code to use a taxable_year other than its required_taxable_year sec_444 and permit an eligible_partnership to elect or change to a taxable_year only if the deferral_period of the taxable_year elected is not longer than the shorter of three months or the deferral_period of the taxable_year being changed the term deferral_period generally refers to the number of months between the beginning of the entity’s taxable_year and the close of the first required_taxable_year ending within such taxable_year in the instant circumstances taxpayers desired to elect a taxable_year ending november for their initial taxable_year which is a permitted taxable_year under sec_444 sec_444 of the code and sec_1_444-2t of the regulations provide in relevant part that entities that are part of a tiered_structure that consists only of partnerships all of which have the same taxable_year may make or continue an election under sec_444 of the code sec_1_444-3t of the regulations provides among other requirements that form_8716 must be filed by the earlier of i the 15th day of the fifth month following the month that includes the first day of the tax_year for which the election will first be effective or ii the due_date without regard to extensions of the income_tax return resulting from the sec_444 election sec_301_9100-1 of the regulations set forth rules respecting the granting of extensions of time for making certain elections under these rules the commissioner in his discretion may grant a reasonable extension of time to make a regulatory election under subtitle a 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 regulatory elections including elections to use other than the required tax_year under sec_444 if the provisions of section' do not apply to the taxpayer's situation as in the instant case the provisions of sec_301_9100-3 other extensions may apply 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 sec_301_9100-2 the standards applied 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 for example 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 in the instant circumstances group taxpayers’ forms electing to use a taxable_year ending november were due on or before date group taxpayers’ forms electing to use a taxable_year ending november were due on or before date and group taxpayers’ forms electing to use a taxable_year ending november were due on or before date due to an error or misunderstanding none of the forms was timely filed however the error was not due to any lack of due diligence or prompt action on the part of any taxpayer the information submitted and representations furnished by the taxpayers and their tax professionals establish that taxpayers acted reasonably and in good_faith in respect of this matter furthermore we have determined that the granting of relief in this case will not prejudice the interests of the government within the intendment of sec_301_9100-3 accordingly the requirements of sec_301_9100-3 for the granting of relief have been satisfied within days of the date of this ruling each taxpayer should file with the irs cincinnati service_center attn entity control a form_8716 electing to use a tax_year ending november effective for its first taxable_year ending either date date or date as appropriate a copy of this letter_ruling should accompany such submission and each taxpayer should type or print at the top of the form filed under sec_301_9100-3 of the regulations this ruling is further conditioned on taxpayers complying with sec_1 1t a which provides in relevant part that for each taxable_year that a partnership has an election under sec_444 in effect the partnership must i file a return as provided in sec_1_7519-2t and ii make any required_payment as provided in sec_1_7519-2t except for the specific ruling above which is restricted to the filing of forms we express or imply no opinion concerning the federal_income_tax consequences of the facts of this case under any other provision of the code or regulations that may be applicable thereto this letter_ruling is based on facts and representations provided by the taxpayers and their authorized representatives and is limited to the matters specifically addressed no opinion is expressed as to the tax treatment of the transactions considered herein under the provisions of any other sections of the code or regulations which may be applicable thereto or the tax treatment of any conditions existing at the time of or effects resulting from such transactions which are not specifically addressed herein because it could help resolve federal tax issues a copy of this letter should be maintained with the taxpayers’ permanent records pursuant to a power_of_attorney currently on file with this office the original of this letter_ruling is being sent to the taxpayers’ authorized representative and copies are being furnished to the taxpayers and their second-designated authorized representatives a copy of this letter is also being sent to the taxpayers’ appropriate irs industry director this ruling is directed only to the taxpayers who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent associate chief_counsel income_tax accounting s william a jackson by _________________________ william a jackson chief branch attachment enclosures copy of this letter copy for sec_6110 purposes attachment plr-119941-05 -------------------------------------------------------------------- -------------------------------------------------------------- plr- -------------------------------- plr-119947-05 ------------------------------------------------------------------------------- plr-119950-05 ------------------------------------------------------------- plr-119955-05 ------------------------------------------ plr- ---------------------------------------- plr-120150-05 ----------------------------------------- plr-120154-05 ------------------------------------------------------ plr-120199-05 ------------------------------------------------------- plr- --------------------------------------------- plr-120212-05 ------------------------------------------------------ plr-120219-05 --------------------------------------------- plr-120220-05 ---------------------------------------- plr-120218-05 ------------------------------------------- plr-120222-05 -------------------------------- plr-120231-05 ---------------------------------------------- plr-120233-05 ------------------------------------------------------- ------------------------------------------------------ plr-120235-05 ---------------------------------------- plr-120236-05 ------------------------------------------------------ plr-120237-05 --------------------------------------------------------------- plr-120239-05 -------------------------------------------------- plr-120248-05 --------------------------------------- plr-120249-05 ------------------------------------------ plr-120252-05 ------------------------------------------------ plr-120254-05 -------------------------------------------------------------- plr-120258-05 --------------------------------------------- plr-120263-05 -------------------------------------------------- plr-120268-05 ------------------------------------------- plr-120270-05 ------------------------------------------------------------------ plr-120507-05 ----------------------------------------------- plr-120514-05 ----------------------------- plr-120512-05 ---------------------------- plr-120517-05 ----------------------------------------------------- plr-120519-05 --------------------------------------------- plr-120526-05 ------------------------------------ plr-120527-05 -------------------------------------------------------------- plr-120566-05 ----------------------------------------------------- plr-120528-05 --------------------------------------------------- plr-120548-05 ----------------------------------------------------- plr-120550-05 ----------------------------------------- -------------------------------------------- plr-120552-05