t c memo united_states tax_court bruce and jeanne korson et al petitioners v commissioner of internal revenue respondent docket nos filed date r determined deficiencies in income_tax on account of r's revaluation of certain numismatic materials contributed to charity ps claim an overpayment on account of their own subsequent revaluation held deficiencies sustained in part held further no overpayments made sidney d rosoff and paula g a ryan for petitioners mark a ericson and laurence d ziegler for respondent the following cases are consolidated for trial briefing and opinion armin b allen docket no john h allen and susan n allen docket no memorandum findings_of_fact and opinion halpern judge respondent determined deficiencies in income_tax and additions to tax as follows bruce and jean korson armin b allen john h and susan n allen additions to tax_year deficiency sec_6651 dollar_figure dollar_figure big_number big_number -- -- petitioners have assigned error to respondent’s determinations and in addition have claimed overpayments in tax petitioners bruce and jeanne korson concede the sec_6651 addition_to_tax and the only other issue for decision common to all petitioners is the fair_market_value of certain property contributed to charity unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure introduction findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts with accompanying exhibits is incorporated herein by this reference at the time the petitions in these cases were filed petitioners bruce and jeanne korson resided in oyster bay cove new york petitioner armin b allen resided in newport rhode island and petitioners john h and susan n allen resided in new york new york virgil m brand virgil m brand virgil brand was a coin collector who during the late 19th and early 20th century amassed the largest and one of the most significant private coin collections in the united_states the coin collection virgil brand died intestate in and his brothers armin brand armin and horace brand horace succeeded to his estate armin and horace each received half of virgil brand's original bound coin ledgers the coin ledgers which to a large extent recorded virgil brand's coin acquisitions additionally each received a reverse white on black photocopy of reduced size of the coin ledgers received by the other brother collectively the photocopy armin also inherited certain papers relating to the chicago coin co the chicago coin co papers a company that was either owned or co- owned by virgil brand and that was engaged in the coin business and certain coin envelopes jane brand allen armin died in his only child jane brand allen jane allen inherited armin's half of the coin ledgers and photocopy the chicago coin co papers the coin envelopes papers relating to virgil brand's estate the virgil brand estate papers along with papers relating in part to armin's dispersal of some of the coin collection armin's papers jane allen died testate in and her children petitioners jeanne korson armin b allen and john h allen collectively the children received those ledgers items and papers by devise the children also received papers that their mother compiled some of which relate to her dispersal of some of the coin collection the jane allen papers each of the children was a co-executor of jane allen's estate the estate a federal estate_tax_return was filed on behalf of the estate and each of the children signed that tax_return that return did not include armin's half of the coin ledgers armin's half of the photocopy the chicago coin co papers the coin envelopes the virgil brand estate papers armin's papers or the jane allen papers as assets of the estate because none of the children believed that those items had any market_value jane allen's estate also included part of the coin collection the executors of the estate devised a marketing plan in an attempt to maximize the value of those coins they decided to promote virgil brand's name in order to develop his identity as a unique numismatic collector and to publicize his life as well as the coin collection to that end the executors arranged to have a book published in that profiled virgil brand and the coin collection the brand archive on date petitioners bought horace's half of the coin ledgers horace's half of the photocopy and a reverse photocopy of the chicago coin co papers at a public auction for dollar_figure the coin ledgers the photocopy the chicago coin co papers the virgil brand estate papers armin's papers the jane allen papers and various coin envelopes collectively constitute the brand archive brand archive the contribution petitioners contributed the brand archive the contribution to the american numismatic society on date the contribution date on their respective federal_income_tax returns each of the children claimed a dollar_figure charitable_contribution_deduction on account of the contribution which represented one-third of the claimed value of the brand archives dollar_figure respondent determined that the fair_market_value of the brand archive on the contribution date did not exceed dollar_figure and disallowed each of the claimed deductions to the extent that it exceeded dollar_figure ultimate finding of fact on the contribution date the fair_market_value of the brand archive was dollar_figure opinion i introduction these consolidated cases involve income_tax deductions claimed on account of charitable_contributions the particular question before us is the value of certain numismatic materials the brand archive contributed to the american numismatic society on date petitioners claim that the fair_market_value of the brand archive on the contribution date was dollar_figure while respondent claims that its fair_market_value did not exceed dollar_figure value is a question of fact and petitioners bear the burden_of_proof rule a we have found that the fair_market_value of the brand archive on the contribution date was dollar_figure ii code and regulations sec_170 allows a deduction for any contribution made to a qualified donee organization it is undisputed that the american numismatic society is a qualified donee organization and the only question before the court is the amount of the contribution on the contribution date the parties agree that each of the children was entitled to deduct one-third of the fair_market_value of the brand archive on the contribution date with exceptions not here relevant if a charitable_contribution is made in property other than money the amount of the contribution is the fair_market_value of the property at the time of the contribution sec_1_170a-1 income_tax regs the fair_market_value is the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts sec_1_170a-1 income_tax regs iii value of the contribution a introduction to support their respective valuations the parties rely principally on the testimony of expert witnesses we have considered that testimony and in part have relied on it in making our finding b petitioners’ expert gabriel austin’s testimony gabriel austin austin petitioners’ expert witness is an appraiser and cataloguer who was accepted by the court as an expert in the valuation of archives books and manuscripts austin prepared a written report for submission to the court as his expert testimony the austin report in the austin report austin expresses separate opinions as to the values on the contribution date of the coin ledgers the chicago coin co papers the virgil brand estate papers armin's papers and the jane allen papers based on austin’s failure to comply fully with the standards of rule f with respect to expert witness reports those portions of the austin report expressing opinions as to the values of the virgil brand estate papers armin's papers and the jane allen papers were excluded from evidence the remaining portion of the austin report was received into evidence as austin’s expert testimony austin is of the opinion that on the contribution date the coin ledgers and the chicago coin co papers had fair market values of dollar_figure and dollar_figure respectively to value the coin ledgers and the chicago coin co papers austin looked for sales of comparable items to use in estimating both items' fair_market_value austin found two sales at auction of items that he asserts were only quasi-comparables austin prefers not to rely on auction sales to value archival material because he believes auction prices are not necessarily good indicators of value he prefers to rely instead on private sales but since records of such sales were not available to him and due to the uniqueness of the brand archives he could not do so austin finds that the most useful public record in arriving at a value of the brand archive is the price paid_by petitioners for horace’s half of the coin ledgers and accompanying half of the photocopy petitioners purchased those items at public auction in for dollar_figure austin believes that the amount that would have been realized at that auction had the lot contained the full set of coin ledgers would have been triple he also believes that dollar_figure was an insufficient representation of a fair_market_value for half of the coin ledgers because of the inadequacy of the auction process in general the inadequacy of the particular auction at which petitioners bought horace's half of the coin ledgers and because the nature of the brand archive was not fully understood in he believes that in the full set of the coin ledgers had a conservative value of dollar_figure to reach his opinion austin testified in the rapidly rising serious numismatic market from to and later an extrapolation of three times the value is highly conservative all other parts of the archive aside i believe a figure of dollar_figure for the ledgers alone to be a fair_market_value as to the chicago coin co papers austin based his valuation on a comparison to the new netherlands coin co auctioneer's books which were sold at auction in for dollar_figure analysis of gabriel austin’s testimony we do not find gabriel austin’s testimony helpful in determining the fair_market_value of the coin ledgers on the contribution date austin failed to convince us that the value of the coin ledgers was dollar_figure austin’s testimony was vague and he did not make it clear to us how he arrived at many of the figures he used in the various stages of his analysis where we do understand his analysis it is for the most part unpersuasive austin starts with dollar_figure the price petitioners paid in for horace’s half of the coin ledgers with the accompanying half of the photocopy and a photocopy of the chicago coin co papers he attributes that price to horace’s half of the coin ledgers alone without accounting for the value if any of the two photocopies that accompanied horace’s half of the coin ledgers to find the value of the complete set of coin ledgers he tripled the dollar_figure and somehow arrived at dollar_figure he doubles that figure to account for the inadequacy of the auction process in general the unknown importance of the coin ledgers and the inadequacy of the specific auction at which petitioners bought horace's half of the coin ledgers we can understand but do not necessarily agree with his adjustment for the general and specific alleged inadequacies of the auction see eg 104_tc_584 prices obtained at forced sales at public auctions or in restricted markets may not be the best criteria of value but do not understand his adjustment for the unknown importance of the coin ledgers reasonable knowledge of relevant facts is part of the applicable definition of fair_market_value see sec_1 170a- c income_tax regs if austin’s adjustment to take account of the unknown importance of the coin ledgers simply reflects the fact that the coin ledgers might turn out to be more valuable once their importance became known we do not see how it affects their fair_market_value before their importance became known austin did not apportion the relative influence of the concerns that gave rise to his adjustment leading to the dollar_figure figure nor can we finally austin multiplied the dollar_figure figure by three to arrive at a value of dollar_figure during his oral testimony he explained his highly conservative extrapolation of the value of the coin ledgers from to as follows i’m not sure if i’ve made that point clear the calculated figure that i worked up to the dollar_figure at that point having arrived at the well then you know that i took the three times figure which i took to tell the truth without very much investigating but it was from what i understood in the -- the talk that had been going on the talk for a settlement in the meeting and so on it was a figure already on the table well i didn’t want to start that up again he further describes the appreciation factor 3x which he asserts he borrowed from respondent's expert as not really a very solid one and states that although it is a figure he could argue with he does not tell us whether he would argue up or down he accepted it because of time pressure and not to argue over every comma opinion testimony of experts is useful to the trier of fact precisely because it provides the informed and unbiased opinion of a qualified expert arriving at a reasoned conclusion it would be absurd to rely on a purported expert’s opinion that was with respect to important conclusions arrived at without very much investigation considered by the expert himself as not really solid and merely a concession so as not to argue over every comma therefore we find major portions of austin’s testimony as to the value of the coin ledgers unpersuasive he has failed to aid us in determining the value of the coin ledgers on the contribution date and we accord his testimony no weight austin’s total analysis leading to his opinion that the chicago coin co papers were worth dollar_figure in date is as follows these ledgers are comparable in value to the new netherlands coin company auctioneer's books they differ in being a record of an earlier period and a record of the activities of a private company we fail to see the alleged correlation between the amount_realized for the auctioneer's books and the fair_market_value of the chicago coin co papers and therefore attach little weight to austin’s opinion with respect to the value of the chicago coin co papers c respondent’s expert michael f robinson’s testimony michael f robinson robinson respondent’s expert witness is an appraiser and dealer in manuscripts autographs and rare books who was accepted by the court as an expert in the valuation of manuscripts and rare books robinson prepared a written report that was received into evidence as his expert testimony the robinson report robinson is of the opinion that the value of the brand archive on the contribution date was dollar_figure robinson explains that dollar_figure is three times the price paid for horace’s half of both the coin ledgers and the photocopy dollar_figure x dollar_figure plus dollar_figure for the remaining papers we need discuss only a few significant aspects of robinson’s testimony robinson started with the price paid for horace’s half of both the coin ledgers and the photocopy the horace ledger set determined that much of the value of the brand archive rests in its content and took into account that the price for book_inventories with substantial manuscript annotations approximately tripled between and by his oral testimony robinson made clear that although he believed that the assembled value of the coin ledgers was more than the value of either half he did not believe that the assembled value was double or more than double the value of either half indeed he testified that the value was very far from double taking into account the photocopy he explained that conclusion as follows what you have here i think is two copies of a text two complete copies of the text and you put them together and instead of having--and you still have two complete copies of the text but one is in the large volumes and one is in the small photocopies analysis of michael f robinson’s testimony robinson’s testimony was also vague he did not explain the weight accorded to the components of his analysis that led him to triple the value of the horace ledger set to arrive at his valuation of dollar_figure for the coin ledgers and photocopy in we suspect that the tripling reflects primarily if not exclusively the data he had with respect to the appreciation in the price of book_inventories between and we believe that he was wrong in concluding that the assembled value of the coin ledgers could not have been double the value of either half assuming that the value of the brand archive is attributable principally to its content as robinson asserted there were at least two sets of the information constituting the content of the coin ledgers in existence in both the purchased set the horace ledger set and the set petitioners already owned before the purchase were mixed sets each being one-half of the original ledgers and photocopies nevertheless petitioners paid dollar_figure for the horace ledger set and robinson accepts that value as being its fair_market_value in if a third party had purchased the horace ledger set for dollar_figure at a public auction we believe that the fair_market_value of petitioners' set immediately after the auction would also have been dollar_figure based on the recent sales_price of a comparable item thus petitioners had two equivalent mixed sets of information that together by the evidence available to us and based on robinson’s analysis could be worth double d discussion in petitioners believed that armin’s half of the coin ledgers and photocopy the chicago coin co papers the virgil brand estate papers armin's papers and the jane allen papers had no market_value and on that basis they did not report them on the estate_tax_return two years later they paid dollar_figure for the horace ledger set we accept the implicit conclusion of the experts that dollar_figure reflects the fair_market_value of that purchase for reasons we have explained we conclude that the value in of the complete set of coin ledgers and the photocopy was twice the then value of the horace set viz dollar_figure we agree with what we take to be robinson’s conclusion that that value should be tripled to determine the value of the sets on the contribution date viz dollar_figure to that we add dollar_figure robinson’s value for the remaining papers to arrive at dollar_figure as the total fair_market_value of the contribution on the contribution date petitioners argue that we must take into account the disability of the auction sale of the horace set and any increase in value that resulted from the enhancement of virgil brand’s reputation that may be so but petitioners have failed to provide us with any basis to quantify such factors we find that the value of the contribution on the contribution date was dollar_figure iii conclusion we redetermine deficiencies in tax based on our finding as to the value of the contribution on the contribution date we determine no overpayments decisions will be entered under rule


internal_revenue_service number release date index no department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi -- plr-124336-03 date date legend taxpayer generator project plant dear this letter responds to your letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting letter rulings under sec_61 and sec_118 of the internal_revenue_code taxpayer represents that the facts are as follows facts generator is building project project will provide electricity and steam for plant project will produce electricity in excess of plant’s needs generator has entered into an interconnection agreement with taxpayer that provides for the interconnection of project with taxpayer’s grid the interconnection agreement has an indefinite term the interconnection agreement will continue until a plr-124336-03 mutually agreed termination_date not to exceed the date on which project ceases commercial operation generator will build a portion of the intertie and transfer it to taxpayer taxpayer will build the remainder of the intertie generator will reimburse taxpayer for its cost of the intertie taxpayer will own all of the intertie generator will sell the excess electricity from project to third parties in the wholesale power market title to all power that is wheeled from project will transfer to the third parties prior to its transmission on taxpayer’s grid taxpayer represents that generator will treat the cost reimbursements as basis in an intangible asset and recover its basis using the straight-line method over years taxpayer also represents that the amount of power flowing back over the intertie to generator will be less than five percent of the projected power flows in both directions over the intertie during taxpayer’s first ten tax years after the intertie is placed_in_service taxpayer will not put the intertie into its rate base rulings requested taxpayer requests a ruling by the service that the transfer of the above- described intertie property by generator to taxpayer is not a contribution_in_aid_of_construction ciac under sec_118 and is excludable from taxpayer’s gross_income as a nonshareholder contribution_to_capital under sec_118 taxpayer also requests a ruling that payments by generator to taxpayer for system upgrades to taxpayer’s grid constitue a loan or a refundable deposit not includable in taxpayer’s gross_income under sec_61 as discussed with you on date the service is declining to issue a ruling on this request law and analysis sec_61 and sec_1_61-1 of the income_tax regulations provide that gross_income means all income from whatever source derived unless excluded by law sec_118 provides that in the case of a corporation gross_income does not include any contribution_to_the_capital_of_the_taxpayer sec_118 as amended by a of the tax_reform_act_of_1986 the act and a of the small_business job protection act of provides that for purposes of subsection a except as provided in subsection c the term contribution to the capital of taxpayer does not include any ciac or any other contribution as a customer or potential customer sec_1_118-1 provides in part that sec_118 also applies to contributions to capital made by persons other than shareholders for example the exclusion applies plr-124336-03 to the value of land or other_property contributed to a corporation by a governmental_unit or by a civic group for the purpose of enabling the corporation to expand its operating facilities however the exclusion does not apply to any money or property transferred to the corporation in consideration for goods or services rendered or to subsidies paid to induce the taxpayer to limit production the legislative_history to sec_118 indicates that the exclusion_from_gross_income for nonshareholder contributions to capital of a corporation was intended to apply to those contributions that are neither gifts because the contributor expects to derive indirect benefits nor payments for future services because the anticipated future_benefits are too intangible the legislative_history also indicates that the provision was intended to codify the existing law that had developed through administrative and court decisions on the subject h_r rep no 83rd cong 2d sess s rep no 83d cong 2d sess notice_88_129 1988_2_cb_541 as modified and amended by notice_90_60 1990_2_cb_345 and notice_2001_82 2001_2_cb_619 provides specific guidance with respect to the treatment of transfers of property to regulated public_utilities by qualifying small power producers and qualifying cogenerators collectively qualifying facilities as defined in sec_3 of the federal power act as amended by section of the public_utilities regulatory policies act of purpa the amendment of sec_118 by the act was intended to require utilities to include in income the value of any ciac made to encourage the provision of services by a utility to a customer see h_r rep no 99th cong 2d sess conference_report in a ciac transaction the purpose of the contribution of property to the utility is to facilitate the sale of power by the utility to a customer in contrast the purpose of the contribution by a qualifying_facility to a utility is to permit the sale of power by the qualifying_facility to the utility accordingly the fact that the amendments to sec_118 render ciac transactions taxable to the utility does not require a similar conclusion with respect to transfers from qualifying facilities to utilities notice_88_129 provides in part that with respect to transfers made by a qualifying_facility to a utility exclusively in connection with the sale of electricity by the qualifying_facility to the utility a utility will not realize income upon transfer of an intertie by a qualifying_facility an intertie may include new connecting and transmission facilities or modifications upgrades or relocations of a utility’s existing transmission network the possibility that an intertie may be used to transmit power to a utility that will in turn transmit the power across its transmission network for sale by the qualifying_facility to another utility wheeling will not cause the contribution to be treated as a ciac further the notice provides in part that a transfer from a qualifying_facility to a utility will not be treated as a qualifying_facility transfer qf transfer under this notice to the extent the intertie is included in the utility’s rate base moreover a transfer of an plr-124336-03 intertie to a utility will not be treated as a qf transfer under this notice if the term of the power purchase contract is less than ten years notice_88_129 also provides in part that a utility that constructs an intertie in exchange for a cash payment from a qualifying_facility pursuant to a purpa contract will be deemed to construct the property under contract and will recognize income from the construction in the same manner as any other taxpayer constructing similar_property under contract subsequent to the construction of the property the qualifying_facility will be deemed to transfer the property to the utility in a qf transfer that will be treated in exactly the same manner as an in-kind qf transfer in addition the notice provides in part that the contribution of a dual-use intertie to a utility will be treated as a qf transfer and therefore nontaxable if in light of all information available to the utility at the time of transfer it is reasonably projected that during the first ten taxable years of the utility beginning with the year in which the transferred property is placed_in_service no more than five percent of the projected total power flows over the intertie will flow to the qualifying_facility notice_2001_82 amplifies and modifies notice_88_129 notice_2001_82 extends the safe_harbor provisions of notice_88_129 to include transfers of interties from non- qualifying facilities and transfers of interties used exclusively or in part to transmit power over the utility’s transmission grid for sale to consumers or intermediaries wheeling the notice requires that ownership of the electricity wheeled passes to the purchaser prior to its transmission on the utility’s transmission grid this ownership requirement is deemed satisfied if title passes at the busbar on the generator’s end of the intertie further notice_2001_82 provides that a long-term interconnection agreement in lieu of a long-term power purchase contract may be used to satisfy the safe_harbor provisions of notice_88_129 in wheeling transactions finally notice_2001_82 requires that the generator must capitalize the cost of the property transferred as an intangible asset and recovered using the straight-line method over a useful_life of years in the instant case the transfer of the intertie is subject_to the guidance set forth in notice_88_129 notice_90_60 and notice_2001_82 for the following reasons the project is a qualifying_facility as contemplated by notice_88_129 generator and taxpayer have entered into a long-term interconnection agreement the intertie will be used in connection with generator’s sale of electricity wheeled over taxpayer’s transmission grid to third parties the cost of the intertie will not be included in taxpayer’s rate base the intertie is a dual-use intertie however based on all available information during the ten taxable years beginning with the year in which the intertie was placed_in_service no more than five percent of the total power flows over the intertie will flow to generator ownership of the electricity wheeled will not be with generator prior to its transmission on the grid and the cost of the intertie will be capitalized by generator as an intangible asset and recovered using the straight-line method over a useful_life of years thus we conclude that the transfer of the intertie plr-124336-03 by generator to taxpayer meets the safe_harbor requirements of notice_88_129 as amended and modified by notice_90_60 and notice_2001_82 next we must decide whether the contribution qualifies as a contribution_to_capital under sec_118 the legislative_history of sec_118 provides in part as follows this sec_118 in effect places in the code the court decisions on the subject it deals with cases where a contribution is made to a corporation by a governmental_unit chamber of commerce or other association of individuals having no proprietary interest in the corporation in many such cases because the contributor expects to derive indirect benefits the contribution cannot be called a gift yet the anticipated future_benefits may also be so intangible as to not warrant treating the contribution as a payment for future services s rep no 83d cong 2d sess in 319_us_98 the court held that payments by prospective customers to an electric utility company to cover the cost of extending the utility’s facilities to their homes were part of the price of service rather than contributions to capital the case concerned customers’ payments to a utility company for the estimated cost of constructing service facilities primary power lines that the utility company otherwise was not obligated to provide the customers intended no contribution to the company’s capital later in 339_us_583 the court held that money and property contributions by community groups to induce a shoe company to locate or expand its factory operations in the contributing communities were nonshareholder contributions to capital the court reasoned that when the motivation of the contributors is to benefit the community at large and the contributors do not anticipate any direct benefit from their contributions the contributions are nonshareholder contributions to capital id pincite finally in 412_us_401 the court in determining whether a taxpayer was entitled to depreciate the cost of certain facilities that had been funded by the federal government held that the governmental subsidies were not contributions to the taxpayer’s capital the court recognized that the holding in detroit edison co had been qualified by its decision in brown shoe co the court in chicago burlington quincy railroad co found that the distinguishing characteristic between those two cases was the differing purpose motivating the respective transfers in brown shoe co the only expectation of the contributors was that such contributions might prove advantageous to the community at large thus in brown shoe co since the transfers were made with the plr-124336-03 purpose not of receiving direct services or recompense but only of obtaining advantage for the general community the result was a contribution_to_capital the court in chicago burlington quincy railroad co also stated that there were other characteristics of a nonshareholder contribution_to_capital implicit in detroit edison co and brown shoe co from these two cases the court distilled some of the characteristics of a nonshareholder contribution_to_capital under both the and codes first the payment must become a permanent part of the transferee’s working_capital structure second it may not be compensation such as a direct payment for a specific quantifiable service provided for the transferor by the transferee third it must be bargained for fourth the asset transferred foreseeably must benefit the transferee in an amount commensurate with its value fifth the asset ordinarily if not always will be employed in or contribute to the production of additional income and its value assured in that respect chicago burlington quincy railroad co u s pincite based on the facts represented we conclude that the transfer of the intertie by generator to taxpayer possesses the characteristics of a nonshareholder contribution_to_capital as described in chicago burlington quincy railroad co therefore the transfer of the intertie by generator to taxpayer will be a contribution_to_capital under sec_118 accordingly based solely on the foregoing analysis and the representations made by taxpayer and generator we rule that the transfer of the intertie by generator to taxpayer will not constitute a contribution_in_aid_of_construction under sec_118 and will be excludable from the gross_income of taxpayer as a nonshareholder contribution_to_capital under sec_118 except as specifically set forth above no opinion is expressed or implied concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations specifically no opinion is expressed or implied as to the following whether taxpayer’s representation that less than five percent of the total projected power flows over the dual-use intertie from taxpayer to generator is a reasonable projection for purposes of the five percent test in notice_88_129 and whether the payments by generator to taxpayer for system upgrades to taxpayer’s grid are in substance a loan or a refundable deposit plr-124336-03 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely walter h woo senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy


number release date internal_revenue_service 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 corp b02 plr-106472-06 date august -------------------------------------------- ------------------ ------------------------------- ------------ ---------------------------- ----------------------- ----------------------- ---------------- ---------------- ------------------------------------------------------- ----------------------- ------------------------- -------------------------- ------------------------------------- --------------------------------------- ----------------------------- distributing state x business an individuals a b c controlled qsub1 qsub2 qsub3 qsub4 qsub5 busine sec_1 busine sec_2 busine sec_3 dear -------------- this letter responds to your date request for rulings on certain federal_income_tax consequences of a proposed transaction the relevant information provided in your request and in correspondence of date date date and date is summarized below the rulings contained in this letter are based upon facts and representations submitted by the taxpayer and accompanied by penalties of perjury statements executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process plr-106472-06 in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the transaction described below satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations whether the distribution described below is used principally as a device for the distribution of earnings_and_profits of distributing or controlled or both see sec_355 of the i r c and sec_1_355-2 or whether any distribution described below is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in distributing or controlled see sec_355 and sec_1_355-7 statement of facts distributing is a state x subchapter_s_corporation that uses the accrual_method of accounting and has been engaged in business an in three locations through wholly owned qsubs in state x for more than five years qsub means a corporation intended to be a qualified_subchapter_s_subsidiary individuals a b and c each own one-third of distributing’s voting common_stock which is the only stock of distributing that is issued and outstanding distributing owns all of the stock of qsub1 qsub2 and qsub3 qsub1 and qsub2 each own one-half of qsub4 qsub2 owns qsub5 the financial information submitted by distributing indicates that business an has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years qsub1 qsub2 and qsub3 are each engaged in businesse sec_1 and respectively at different locations qsub4 owns realty used in busine sec_1 and qsub5 owns realty used in businesse sec_2 and a b and c desire to provide for continuity in the management and operation of businesse sec_1 and and qsub4 proposed transaction in order to achieve that goal the following transaction has been proposed to separate the ownership and conduct of busine sec_1 from distributing i qsub4 will distribute its assets leased to and used in busine sec_3 to a new corporation x which will become a qsub qsub6 of qsub3 ii qsub2 will contribute fifty percent of the issued and outstanding_stock in qsub4 to qsub4 which will then retire such stock leaving qsub1 as the sole stockholder of qsub4 iii distributing will distribute all of the stock of qsub1 controlled to a in exchange for all of a’s stock of distributing the distribution or split-off within one year of the issuance of this letter plr-106472-06 iv ownership of the stock of controlled by a will result in the disqualification of controlled and its subsidiary controlled sub formerly qsub4 as qsubs and a deemed contribution contribution of their assets and liabilities to a new corporation controlled followed by a deemed contribution from controlled to a new corporation controlled sub of qsub4’s assets and liabilities representations the parties have made the following representations concerning the proposed transaction a distributing controlled a b and c each will pay its his or her own expenses if any incurred in the transaction b no part of the consideration to be distributed by distributing will be received by a as a creditor employee or in any capacity other than that of a shareholder of distributing c following the transaction distributing and controlled will each continue the active_conduct of its business independently and with its separate employees d the split-off is being carried out for the following business_purpose to retain management in respect of busine sec_1 and qsub4 to facilitate the attraction of new management to busine sec_1 and to avoid management operational and business issues caused by the admission to management of new owners within the same s_corporation group the distribution of the controlled stock in the split-off is motivated in whole or substantial part by that business_purpose e the split-off will not be used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both f the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing each equal or exceed the sum of any liabilities assumed as determined under sec_357 by controlled and any liabilities assumed as determined under sec_357 in the transaction were incurred in the ordinary course of business and are associated with the assets being transferred g the total adjusted_basis and the fair_market_value of the assets transferred to controlled sub by controlled each equal or exceed the sum of any liabilities plr-106472-06 assumed as determined under sec_357 by controlled sub and any liabilities assumed as determined under sec_357 in the transaction were incurred in the ordinary course of business and are associated with the assets being transferred h no two parties to the transaction are investment companies as defined in sec_368 and iv i the five years of financial information submitted on behalf of distributing and its qualified subchapter_s subsidiaries represent present operations and there have been no substantial operational changes since the date of the last financial statements submitted j there is no plan or intention to liquidate distributing controlled or controlled sub to merge any such corporation with any other corporation or to sell or otherwise dispose_of the assets of any such corporation after the transaction except in the ordinary course of business k payments made in all continuing transactions between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length l the distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing fifty percent or more of the total combined voting power of all classes of either distributing’s or controlled’s stock entitled to vote or stock possessing fifty percent or more of the total value of all classes of stock of either distributing or controlled m for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing fifty percent or more of the total combined voting power of all classes of distributing stock entitled to vote or fifty percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and d during the five year period determined after applying sec_355 ending on the distribution date n for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing fifty percent or more of the total combined voting power of all classes of controlled stock entitled to vote or fifty percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and d during the five year period determined after applying sec_355 ending on the distribution date plr-106472-06 or ii attributable to distributions on distributing stock that was acquired by purchase as defined in sec_355 and d during the five year period determined after applying sec_355 ending on the distribution date o the fair_market_value of the controlled stock and other consideration to be received by a a shareholder of distributing will be approximately equal to the fair_market_value of distributing stock surrendered by a in the exchange p after the distribution controlled will elect to be an s_corporation within the meaning of sec_1361 and controlled sub formerly qsub4 will seek approval as a qsub pursuant to sec_1361 rulings based solely on the information submitted and the representations set forth above we rule as follows with respect to the proposed contribution and distribution the contribution followed by the distribution will be a reorganization within the meaning of sec_368 distributing and controlled will each be a party to the reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing upon the contribution sec_357 and sec_361 no gain_or_loss will be recognized by controlled upon the contribution in exchange for controlled stock sec_1032 the distribution by qsub4 of the assets leased to and used by qsub3 to qsub6 will be disregarded for federal tax purposes sec_1361 and reg sec_1_1361-4 the contribution by qsub2 of fifty percent of the issued and outstanding_stock in qsub4 to qsub4 and its retirement will be disregarded for federal tax purposes sec_1361 and reg sec_1_1361-4 the basis of each asset received by controlled will equal the basis of such asset in the hands of distributing immediately prior to the contribution sec_362 controlled’s holding_period for each asset received in the contribution will include the period during which such asset was held by distributing sec_1223 distributing will recognize no gain_or_loss on the distribution sec_361 plr-106472-06 a will recognize no gain_or_loss and no amount will be included in a’s income upon the receipt of the controlled stock in the split-off sec_355 the aggregate basis of the controlled stock in the hands of a will equal the aggregate basis in the distributing stock surrendered by a in the exchange sec_358 the holding_period of controlled stock received by a in the distribution will include the holding_period of the distributing stock exchanged therefor provided that such distributing stock is held as a capital_asset on the date of the distribution sec_1223 distributing’s distribution of all its controlled stock to a will cause a termination of the qsub election of controlled because controlled will cease to be a wholly owned subsidiary of an s_corporation as a result controlled will be treated as a new corporation acquiring all of its assets and assuming all of its liabilities immediately before the termination from distributing in exchange for the stock of controlled reg sec_1_1361-5 distributing’s distribution of all its controlled stock to a will cause a termination of the qsub election of qsub4 because it will cease to be a wholly owned subsidiary of an s_corporation as a result controlled sub formerly qsub4 will be treated as a new corporation acquiring all of its assets and assuming all of its liabilities immediately before the termination from controlled in exchange for stock of controlled sub sec_1_1361-5 controlled sub’s formation and its acquisition of assets and assumption_of_liabilities from controlled will be deemed to have occurred after the termination of controlled’s qsub election controlled’s formation and controlled’s acquisition of assets and assumption_of_liabilities from distributing reg sec_1_1361-5 no gain_or_loss will be recognized by controlled on the deemed transfer of property and liabilities to controlled sub in exchange for controlled sub stock sec_351 and sec_357 the aggregate basis in controlled sub stock received by controlled will be the same as its aggregate basis in the property transferred sec_358 the holding_period in the controlled sub stock received by controlled will include the period during which controlled the property transferred provided that such property was held as a capital_asset at the time of the transfer sec_1223 plr-106472-06 no gain_or_loss will be recognized by controlled sub on the deemed receipt of property in exchange for its stock sec_1032 the basis in property received by controlled sub will be the same as the basis of such property in the hands of controlled sec_362 the holding_period of the property received by controlled sub will include the holding_period during which such property was held by controlled sec_1223 distributing’s momentary ownership of the stock of controlled as part of the reorganization under sec_368 will not cause controlled to have an ineligible shareholder for any portion of its first taxable_year under sec_1361 if controlled otherwise meets the requirements of a small_business_corporation under sec_1361 controlled will be eligible to make a subchapter_s_election under sec_1362 for its first taxable_year provided such election is made effective immediately following the termination of controlled’s original qsub election distributing’s momentary ownership of the stock of controlled as part of the reorganization under sec_368 will not cause controlled sub to be ineligible for a qsub election if controlled sub otherwise meets the requirements of a qualified_subchapter_s_subsidiary under sec_1361 controlled may make a qsub election with respect to controlled sub for controlled sub’s first taxable_year provided that such election is made effective immediately following the termination of qsub4’s original qsub election the accumulated_adjustments_account of distributing will be allocated between distributing and controlled in a manner similar to the manner in which the earnings_and_profits of distributing will be allocated under sec_312 see sec_1_312-10 reg sec_1_1368-2 distributing’s earnings_and_profits will be allocated among distributing and controlled in accordance with sec_312 and sec_1_312-10 caveats the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-106472-06 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter moreover as stated above this office has not reviewed any information pertaining to and has made no determination regarding whether the transaction described below satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations whether the distribution described below is used principally as a device for the distribution of earnings_and_profits of distributing or controlled or both see sec_355 of the i r c and sec_1_355-2 or whether any distribution described below is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in distributing or controlled see sec_355 and sec_1_355-7 procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely gerald b fleming senior technician reviewer branch corporate


of f i c e of c h i ef c ou n sel department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date number info release date uil conex-114893-08 ------------------------- ------------------------- -------------------------- dear ------------------- social_security_benefits you are concerned that the income level that determines what portion of your social_security_benefits are subject_to tax is not indexed for inflation this is in response to your recent letter concerning the taxation of a portion of the income_tax treatment of social_security_benefits is governed by sec_86 of the internal_revenue_code code under sec_86 as enacted by congress a portion of an individual’s social_security_benefits is subject_to taxation depending on the income level of the person receiving the social_security_benefits the income level above which social_security_benefits are to be taxed is contained in legislation that congress passed this level was not indexed for inflation the taxes paid on social_security_benefits are credited to the social_security trust fund this measure keeps the social_security trust fund solvent in order to increase the dollar levels above which a portion of social_security_benefits are taxed or to index those amounts for inflation congress must change the code any such legislative change however would result in a diminution of the amount of tax revenues that are credited to the social_security trust fund it should be noted that social_security_benefits themselves are indexed for inflation even though the income level at which the benefits are taxed is not the change you recommend to sec_86 is a change in the law because the office of the tax_legislative_counsel in treasury makes the recommendations for tax law changes we have forwarded a copy of your letter to that office conex-114893-08 i hope that you will find the background of this tax and what must be done to change the law helpful if we can be of any further assistance please contact me or ---- ------------------- of my staff at --------------------- sincerely lynne camillo branch chief employment_tax branch exempt_organizations employment_tax government entities tax exempt government entities


internal_revenue_service number release date index number 468a ------------------ ------------------------------------------------------------ ----------- --------------------------------------- ------------------------ ------------------------------------- re ------------------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ----------------------------------------------------- telephone number -------------------- refer reply to cc psi b06 plr-106811-16 date date legend taxpayer parent state director electric company plant location commission order independent study independent study method date date a b c d e f g h year year year year ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- -------- ----------------------------------------------- --------------------------------------------------- ----------------------------------------------------------------------------- ------------------------------------------------- --------------------------------------------------------- ------------------------------------------ ----------------------------------------------------------------------------- ---------------- ----------------------------------------------------------------------------- --------------- ----------- --------------------------- ------------------------ ------- ------- ---------------- ------ ------------------- ------------- --------------- ------------- ------ ------ ------ ------ plr-106811-16 year year fund dear ---------------- ------ ------ ------------------------------------------ this letter responds to your request dated date for a mandatory revised schedule of ruling amounts under sec_468a of the internal_revenue_code code and sec_1_468a-3 of the income_tax regulations taxpayer was previously granted revised schedules of ruling amounts most recently on date taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer is a limited_liability_company that is indirectly and wholly-owned by parent taxpayer is incorporated in and engaged in the generation and sale of electric energy in state taxpayer files a consolidated federal_income_tax return with its parent on a calendar-year basis using the accrual_method of accounting taxpayer is under the audit jurisdiction of director although taxpayer is not a regulated utility electric company an affiliate of taxpayer is subject_to the rate-of-return ratemaking jurisdiction of commission and the cost of decommissioning plant is included in electric company’s cost of service by commission electric company collects an amount intended to fund the cost of decommissioning the plant through its commission-approved tariff which is a non- bypassable charge upon electric company’s retail customers that must be paid over to taxpayer taxpayer deposits these amounts into the qualified nuclear decommissioning fund maintained by taxpayer with respect to the plant taxpayer is the sole owner of the plant which is situated at location the plant’s operating license expires in year with respect to the decommissioning costs related to the plant which are included in the taxpayer’s cost of service for ratemaking purposes the taxpayer is subject_to regulation by commission commission in order effective date modified the amount of decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes the order relies upon assumptions provided in independent study and independent study the proposed method of decommissioning the plant is method based on the assumptions adopted by commission in order it is estimated that fund assets will earn an after-tax rate of return between a percent and b percent for year through year commission approved rates for taxpayer containing a decommissioning cost component based upon an estimated cost of dollar_figurec in year dollars as a base cost for decommissioning the plant this base cost for plr-106811-16 decommissioning the plant was escalated at the rate of d percent annually to the year that costs are incurred resulting in total estimated future decommissioning costs for the plant of approximately dollar_figuree in year to year dollars it is estimated that substantial decommissioning costs will first be incurred in year and that decommissioning will be substantially complete at the end of year sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund 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 sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over 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 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest 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 ruling_amount applicable to the nuclear decommissioning fund for such taxable_year plr-106811-16 the limitation on the amount of cash payments for purposes of sec_1_468a-2 does not apply to any special transfer permitted under sec_1_468a-8 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 reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3 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 the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer the use of other industry standards such as the assumptions underlying the taxpayer’s most recent financial assurance filing with the nrc are described by the regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3 further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3 provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year plr-106811-16 under sec_1_468a-3 the funding_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 of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3 provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3 if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3 provides that if the nuclear plant is not described in sec_1_468a-3 the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3 any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3 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 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 sec_1_468a-3 provides the rules regarding the manner of requesting a schedule of ruling amounts sec_1_468a-3 provides that the service will not provide or revise a ruling_amount applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment_date as defined in sec_1_468a-2 for such taxable_year 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 the service may prescribe administrative procedures that supplement the provisions of sec_1_468a-3 and in addition that section provides that the service may in its discretion waive the requirements of sec_1_468a-3 and under appropriate circumstances sec_1_468a-3 describes the circumstances in which a taxpayer must request a revised schedule of ruling amounts sec_1_468a-3 requires that a taxpayer request a revised schedule of ruling amounts for the fund if the operating license of the nuclear plant to which the fund relates is extended the request for the revised schedule of ruling amounts must be submitted on or before the deemed payment plr-106811-16 deadline for the taxable_year that includes the date on which the license extension is granted sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts may request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 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 we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3 taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations taxpayer as owner of an interest in the plant has calculated its decommissioning costs under sec_1_468a-3 of the regulations the proposed schedule of ruling amounts was derived by following the assumptions contained in independent study and independent study that taxpayer has represented is a standard type study used in the industry in addition the same underlying assumptions were used by commission in order to calculate the amount of decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes thus taxpayer has demonstrated pursuant to sec_1_468a-3 that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts approved schedule of ruling amounts years commission plr-106811-16 year year sec_3 - year dollar_figuref dollar_figureg dollar_figureh if any of the events described in sec_1_468a-3 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 this schedule of ruling amounts is received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above in particular while we have approved the proposed schedule of ruling amounts based on cost estimates contained in independent study we make no ruling express or implied whether any particular item contained in that study constitutes a nuclear decommissioning cost within the meaning of sec_1_468a-1 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 a copy of this letter is being sent to your authorized representatives we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7 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 sincerely yours peter c friedman senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries cc


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date legend b name c city d name e name f number g number h number x dollars amount y dollars amount z dollars amount dear you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request your letter indicates that you will operate an educational grant program called b the purpose of b is to support and promote public-minded art performances and projects by providing direct financial support in the form of small grants to artists and performers to defray the expenses associated with such performances and projects so that they may engage the public and promote the arts by using a wide range of creative mediums b will support projects in both the fine and the performing arts including those focused on music dance theater story-telling spoken-word poetry film and video as well as those using painting sculpture drawing printmaking traditional crafts and other similar creative undertakings the initial geographical focus of b will be the d and e counties of the c area however this may expand as you discover where your support has the greatest impact and as your resources permit your hope is that b will strengthen the connections between c residents and artists which you believe will ultimately lead to a more diverse vibrant and attractive community you plan to have in the range of f grant cycles per year and anticipate making in the range of f grants per grant cycle for a maximum amount of x dollars per grant depending on the quality and number of eligible applicants there will be approximately g recipients each year as your resources permit you may adjust over time the number and frequency of grants made and the maximum amount per grant to be eligible to receive a grant under b applicants will not have to show any predetermined educational or professional credentials but each applicant must have a tangible plan to create an art project or performance that will engage and impact the community in d and e counties of the c area your officers directors substantial contributors selection committee members and the children or close relatives of such persons are not eligible for grants made under b you plan to promote b on your website on other social media outlets at art openings of local art organizations and through press releases to local media and news outlets you also anticipate meeting with the leaders of local arts organizations to promote b as well as use the resources of local art councils to disseminate information about b in addition you hope past grant recipients will help in publicizing b your website will have information regarding the application process to apply applicants must provide a detailed description of a proposed project with a proposed budget and detailed timeline moreover the applicants must explain how their proposed project will impact the community specifically the impact on public engagement as well as provide a proposed public engagement date you will also encourage applicants to provide references and or recommendations although this is not a requirement a selection committee generally consisting of in the range of h individuals and comprised of past grant recipients museum curators business leaders and leaders from arts organizations will select the recipients on an objective and nondiscriminatory basis specifically in awarding the grants there will be no discrimination on the basis of race national origin religion sexual orientation or gender you will appoint selection committee members by considering each person’s knowledge of and experience in their relevant fields and the person’s ability to carry out their responsibilities you will initially appoint selection committee members for a one-year term however these terms are renewable at your discretion furthermore you may add or remove members and will replace members upon their resignation removal or inability to serve selection committee members will be volunteers but in the future you may pay an in addition letter catalog number 58222y honorarium to selection committee members and only in connection with the grant cycle during which they actively have reviewed grant applications each selection member is obligated to disclose the existence of a relationship that they have with any potential grantee under consideration furthermore members will abstain from participation in the recommendation process if such member could derive directly or indirectly a tangible private benefit from any potential grantee’s selection over that of other potential grantees or if any such potential grantee is a relative of a member although you do not expect your officers and directors to serve on the selection committee you will maintain a final veto power over the selection of candidates selection committee members will evaluate all candidates based on the merit of their proposed projects in addition the specific criteria that the selection committee members will use in order of priority include the impact of the proposed art project for public engagement the quality of the proposed art project a well-conceived project location timeline partners and budget the past achievement or work in the applicant's career recipients must agree to use the funds towards the following projects that they have not yet started projects that can be started within six months of their selection projects with public engagement ticket prices not to exceed y dollars projects with transportation_expenses not to exceed z dollars or of the proposed budget furthermore recipients must agree that the proposed public engagement described in the project plan must occur within ninety days of the proposed date initially indicated in their project plan vary from the timeline and project described in their application each grant recipient must also agree to allow you to publicize their name photos of the project and other information related to the project grants are not subject_to renewal moreover grant recipients will be ineligible to apply for another grant for a twelve-month period in addition a grant recipient must get express permission from you to if a project spans more than one calendar_year the recipient must provide a narrative and financial report at the end of the grant year as well as a final report in the following year on the other hand if a project is completed in the same calendar_year in which it is funded the recipient will be required to provide a single narrative and financial report upon failure to submit the required reports or where such reports indicate that all or any part of the grant is not being used in furtherance of the grant’s intended purpose you will withhold future payment to the extent possible during the course of investigation in the event of the misuse of funds you will determine if the situation is a mistake and whether it can be corrected if you discover that grant funds have been misappropriated all reasonable steps will be taken to recover any diverted funds and to ensure that any letter catalog number 58222y unused portion is either returned or used for the intended purpose of the grant furthermore in any situation where you determine that grant funds have been misused you will refrain from making any additional disbursements and take further action as necessary you will maintain detailed case histories which will include documenting the name and address of each applicant and the amount of the grant additionally the case histories will record the criteria relied upon by the selection committee when selecting the grant recipients furthermore the case histories will include any application forms reports budgets or other documentation submitted by the recipients the case histories will document confirmation that the applicant bears no relationship to your officers directors and substantial contributors or members of the selection committee you expect to maintain these case history records for a period of at least four years after the time each grant recipient has completed their project or otherwise ceased to participate in b you will not make a grant to an individual if doing so would violate the patriot act of or executive_order to accomplish this you will check the name of each individual against a consolidated terror watch list using a specific software application that is updated daily and aggregates numerous terror and watch lists including the specially designated nationals and blocked persons database maintained by the office of foreign assets control ofac - - e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or aprize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or toachieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show the grant procedure includes an objective and nondiscriminatory selection process letter catalog number 58222y - e e e the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination e e e e e e this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records letter catalog number 58222y lf you have any questions please contact the person listed at the top of this letter sincerely stephen a martin director exempt_organizations rulings and agreements letter catalog number 58222y