t c memo united_states tax_court alfred c heston petitioner v commissioner of internal revenue respondent docket no filed date alfred c heston pro_se christal w hillstead for respondent memorandum opinion dinan special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined a deficiency in petitioner's unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue all rule references are to the tax_court rules_of_practice and procedure federal_income_tax in the amount of dollar_figure after petitioner's concession sec_2 the sole issue for decision is whether petitioner is entitled to deduct an ordinary_loss in the amount of dollar_figure as a result of his investment in geotech energy corporation some of the facts have been stipulated and are so found the stipulations of fact and attached exhibits are incorporated herein by this reference petitioner resided in spokane washington on the date the petition was filed in this case petitioner was married during the year in issue and filed a joint federal_income_tax return with his wife a statutory_notice_of_deficiency was mailed to petitioner and his wife however only petitioner alfred c heston has filed a petition with this court according to his testimony in date petitioner invested dollar_figure in geotech energy corporation hereinafter geotech to purchase a percent overriding_royalty interest in the rio blanco county colorado oil gas and other mineral lease that had been procured by geotech hereinafter rio blanco lease petitioner testified that geotech obtained oil leases and sold overriding_royalty interests in those oil leases to individual in her notice_of_deficiency respondent determined that petitioner's employee business_expenses should be disallowed to the extent of dollar_figure and a dollar_figure long-term_capital_loss should be recharacterized as a nonbusiness_bad_debt and therefore deducted as a short-term_capital_loss petitioner concedes these issues investors geotech decided not to drill on the rio blanco lease after a seismographic test on an adjacent lease provided negative results in date after the decision by geotech not to drill on the rio blanco lease petitioner testified that he corresponded with geotech regarding said decision and requested a return of his investment with interest a corresponding interest in a similar project or stock in geotech petitioner testified that as a result of his request he was made a general manager of an entity petitioner referred to as royalty partners royalty petitioner further testified that he received a few small dividend checks from royalty before it went out of business other than his own testimony petitioner submitted no evidence that he received any interest in royalty petitioner testified that after royalty went out of business he had a conversation with a representative from geotech who promised petitioner stock in geotech petitioner never received the geotech stock petitioner testified that geotech went out of business in on his joint federal_income_tax return petitioner claimed an dollar_figure ordinary_loss and attached form_4797 sales of business property which reflected said loss the dollar_figure ordinary_loss was the result of petitioner's investment in geotech the issue for decision is whether petitioner is entitled to an ordinary_loss as a result of his investment in geotech petitioner presents three arguments in support of his claim that he is entitled to an dollar_figure loss resulting from his purchase of a percent overriding_royalty interest in any oil or gas produced on the rio blanco lease sec_1244 stock petitioner alleges that after geotech decided not to drill on the rio blanco lease he asked geotech for a transfer of his interest to another lease or his money back he testified that geotech then made him a general_partner in royalty partners he further alleges that royalty partners successfully drilled a well and that he received three dividend checks from royalty partners but that a problem developed with the wells and he received no more money from the operation petitioner next informs us that he asked geotech to issue to him founder's stock in geotech but that he never received any shares in geotech in his trial memorandum petitioner states when i asked for stock in the corporation i asked for founder's stock i do not have the stock but it was promised to me by oral agreement geotech met all of the qualifications of a small_business_corporation i believe that the substance if not the form of this agreement justifies my deduction as a stock loss passive_activity_loss under section 469-1t income_tax regs fed reg date again in his trial memorandum petitioner states there is an exclusion from passive_activity limitations for oil_and_gas explorations if the general_partner even though he does not engage in management of the day to day business of the partnership assumes the liabilities of the operation he is entitled to deduct the intangible drilling costs against ordinary and non- passive_income i have a copy of the filling sic with the sec naming me general_partner in royalty partners and other correspondence made from me as general_partner to the limited partners i also have check vouchers for the money i received i received dollar_figure in income from royalty partners and should be entitled to deduct dollar_figure against ordinary_income under this regulation dollar_figure - dollar_figure a loss under section c income_tax regs finally in his trial memorandum petitioner states losses of a lessee from abandonment of worthless leases are deductible in a finston 15_tcm_1048 the judgement sic allowed deduction of worthless royalty interests in the sense that it was improbable that the royalty area would ever produce oil_and_gas in commercial quantities i have the document where geotech abandoned the lease on the rio blanco property my loss of dollar_figure in this instance should be deductible against ordinary_income under this regulation respondent contends that petitioner is not entitled to an dollar_figure ordinary_loss on small_business stock pursuant to sec_1244 respondent did however allow petitioner a short-term_capital_loss of dollar_figure incurred from a deductible non-business bad_debt for the taxable_year we begin by noting that petitioner has the burden of proving that respondent's determination is in error rule a 290_us_111 we further observe that the dollar_figure as a nonbusiness_bad_debt we make no comment as to the propriety of allowing the court is not bound to accept the unverified undocumented testimony of petitioner 65_tc_87 affd per curiam 540_f2d_821 5th cir more is required by the court than petitioner's unsubstantiated unverified undocumented testimony 338_f2d_602 9th cir affg 41_tc_593 in general sec_165 provides that if any security including stock that is a capital_asset becomes worthless during the taxable_year the loss resulting therefrom shall be treated as a loss from the sale_or_exchange on the last day of the taxable_year of a capital_asset the allowable_amount of the loss is the adjusted_basis of the security provided in sec_1011 for purposes of determining the loss from the sale_or_other_disposition of property sec_165 furthermore losses from the sale_or_exchange of a capital_asset shall be allowed only to the extent allowed in sec_1211 and sec_1212 pursuant to sec_1211 and sec_1212 losses in excess of gains from the sale_or_exchange of capital assets shall be allowed only to the extent of dollar_figure per year dollar_figure per year in the case of a married individual filing a separate_return with any excess capital_loss being carried forward to subsequent tax years sec_1211 sec_1212 sec_1244 however allows an individual taxpayer to treat a loss on sec_1244 stock as an ordinary_loss where it would otherwise be treated as a loss from the sale_or_exchange of a capital_asset the aggregate amount of the loss that may be treated as an ordinary_loss pursuant to sec_1244 cannot exceed dollar_figure in the case of a husband and wife filing a joint_return sec_1244 the term sec_1244 stock is defined to mean stock of a domestic_corporation where at the time of the stock's issuance the corporation had not received money or other_property in excess of dollar_figure million for its stock as a contribution_to_capital or as paid-in_surplus the stock was issued for money or other_property other than stock_or_securities and the corporation during its most recent taxable years or if less the period during which the corporation has been in existence derived more than percent of its aggregate gross_income from sources other than royalties rents dividends interest annuities and sales or exchanges of stocks or securities the third test however does not apply where the amount_of_deductions allowed exceeds the amount of the corporation's gross_income sec_1244 the commissioner is authorized to prescribe the regulations necessary to carry out the purposes of sec_1244 sec_1244 pursuant to that authority the commissioner has issued regulations requiring a taxpayer to have records sufficient to establish that the taxpayer is entitled to the loss claimed and satisfies the requirements of sec_1244 sec_1_1244_e_-1 income_tax the commissioner's regulations previously required continued regs we have held that strict compliance with the requirements of sec_1244 and the regulations issued pursuant to it is necessary to obtain the benefits of the section 70_tc_208 46_tc_878 gubbini v commissioner tcmemo_1996_ petitioner testified that he was orally promised stock in geotech as a result of the failures of the rio blanco lease and royalty however petitioner never received stock in geotech in order to be entitled to the more favorable ordinary_loss treatment under sec_1244 petitioner must first prove he had an investment in stock and secondly that the small_business stock requirements pursuant to sec_1244 have been satisfied continued taxpayers claiming a loss pursuant to sec_1244 to attach an information report to the return in which the loss was claimed showing the address of the corporation issuing the stock the manner in which the stock was acquired the nature and amount of the consideration paid and if the stock was acquired in a nontaxable_transaction in exchange for property other than money the type of property transferred its fair_market_value on the date of transfer to the corporation and its adjusted_basis on that date sec_1_1244_e_-1 and income_tax regs amended by t d 1995_1_cb_146 petitioners did not file such an information report with their federal_income_tax return however in the commissioner eliminated the requirement of an information report amending the regulation to require only that taxpayers maintain adequate_records to establish their entitlement to claim a loss pursuant to that section t d c b pincite see also notice_94_89 1994_2_cb_560 the amendment is effective for all open taxable years beginning after december t d c b pincite consequently petitioner's failure_to_file an information report is not fatal to his claim of entitlement to a loss pursuant to sec_1244 it is unclear from the record that petitioner's dollar_figure investment constituted an investment in stock furthermore there is no evidence in the record other than petitioner's unconvincing and self-serving testimony that if his investment in geotech was in stock that said stock satisfied any of the requirements of sec_1244 sec_1244 petitioner's testimony was that his initial investment was in an overriding_royalty in the oil to be produced from the rio blanco lease and that it was not until the failure of both the rio blanco lease and royalty that petitioner even requested geotech stock which he never received we find that petitioner has failed to prove that he satisfies the requirements necessary to entitle him to ordinary_loss treatment pursuant to sec_1244 on the loss of his investment rule a petitioner alternatively contends that he should be entitled to an ordinary_loss because his investment in royalty was excluded from the passive_loss_rules under sec_469 the passive_loss_rules of sec_469 place limitations on the deduction of losses related to passive activities namely from business activities in which a taxpayer does not materially participate sec_469 however a working_interest in oil_and_gas_properties is treated as per se nonpassive provided that the taxpayer's form of ownership does not limit his liability sec_469 petitioner contends that his alleged interest in royalty constituted an interest that was excepted from the passive_activity rules under sec_469 however there is no evidence in the record that petitioner had an interest in royalty since we find that petitioner presented no evidence of an interest in royalty we need not consider whether or not such investment was excepted from the passive_activity_loss rules of sec_469 finally petitioner contends that he is entitled to an ordinary_loss as a result of the abandonment of a worthless lease sec_165 allows for the deduction of a loss incurred_in_a_trade_or_business or in a transaction undertaken for profit a loss may arise from a permanent withdrawal of property used in a trade_or_business or for the production_of_income sec_1_165-2 income_tax regs in order to be entitled to an abandonment_loss a taxpayer must show an intention on the part of the owner to abandon the asset and an affirmative act of abandonment 97_tc_200 in determining a taxpayer's intent to abandon the subjective judgment of the taxpayer is entitled to great weight and the court is not justified in substituting its business judgment for that of the taxpayer id pincite citing a j indus inc v united st503_f2d_660 9th cir whether an affirmative act to abandon has taken place is determined from all the facts and surrounding circumstances 41_tc_437 affd per curiam 340_f2d_320 9th cir in this case the record is not clear as to when or even if geotech abandoned its investment from the record it appears that geotech may have abandoned its investment in when petitioner demanded a return of his investment a similar investment or stock in geotech if this is the situation petitioner should have taken a deduction if any was allowable in not in based on the record in this case we hold that petitioner has not proved he is entitled in to a deduction resulting from an abandonment of the rio blanco lease accordingly we hold that petitioner is not entitled to an ordinary_loss in the amount of dollar_figure in connection with his investment in geotech to reflect the foregoing and concessions decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 9-plr-111150-02 date date in re legend date date decedent son daughter-in-law granddaughter grandson trust year year year year w x y z dear this is in response to your letter dated date requesting on behalf of decedent’s estate an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make allocations of decedent’s generation-skipping_transfer gst tax exemption to decedent’s lifetime transfers to a_trust a summary of the facts and representations submitted are as follows decedent died on date survived by son and daughter-in-law and their two children grandson and granddaughter prior to her death on date decedent created an irrevocable_trust trust with the plr-111150-02 intent that the trustees purchase a second-to-die life_insurance_policy on the lives of son and daughter-in-law grandchildren are the co-trustees of trust article i of the trust provides that net_income after payment of insurance premiums is to be paid_by the trustees to either or both son and daughter-in-law during their lifetimes as the trustees in their discretion consider advisable trustees may also distribute principal to either or both son and daughter-in-law for their maintenance in health and reasonable comfort or support in their accustomed manner of living as the trustees in their discretion consider advisable upon the death of the survivor of son and daughter-in-law the trust is to be divided into two equal shares one for grandson and one for granddaughter and each share is to be administered under the provisions of article ii of the trust if either grandchild is not then living his or her share is to be distributed to his or her living descendants per stirpes if any descendant of a deceased grandchild is then under years of age his or her share is to be held in further trust and administered under the provisions of article iii of the trust article ii of the trust provides that the share of each grandchild is to be held as a separate trust during the lives of the grandchildren the income from their respective trusts may be distributed to the grandchild and that grandchild’s descendants in the discretion of the trustees and principal may be distributed to that grandchild and that grandchild’s descendants for their maintenance in health and reasonable comfort complete education or support in their accustomed manner of living as the trustees in their discretion consider advisable upon the death of a grandchild his or her trust is to be distributed to his or her living descendants per stirpes article iii of the trust provides that a share of a grandchild’s trust that is distributed to a descendant of a deceased grandchild upon the death of the survivor of son and daughter-in-law is to be held in further trust if the descendant is under years of age at the time of distribution the net_income of the trust is to be paid or applied to or for the benefit of such descendant together with all or any part of the principal that the trustees in their discretion consider advisable for such descendant’s maintenance in health and reasonable comfort complete education or support in such descendant’s accustomed manner of living after reaching age such descendant may withdraw all or any part of the trust principal any principal remaining at such descendant’s death shall be distributed to such descendant’s living descendants per stirpes article iv of the trust provides that the trustees may in their discretion terminate the trust for any reason under article vii paragraph j no trustee may participate in any decision regarding any discretionary payment application or allocation of principal or income to or for the benefit of such trustee or any beneficiary whom he or she is legally obligated to support nor may any trustee participate in any discretionary termination of a_trust of which he or she is a beneficiary or an eligible_beneficiary plr-111150-02 article v also provides that the trustee may divide any trust into two separate trusts so that the inclusion_ratio for each trust shall be either zero or one for generation-skipping_transfer_tax purposes in year decedent funded the trust with cash and securities in the sum of dollar_figurew as authorized by the terms of the trust toward the end of year grandchildren as co- trustees purchased an insurance_policy with a face value of dollar_figurex on the lives of son and daughter-in-law decedent retained the services of an accounting firm to prepare a federal gift_tax_return for her year transfers to the trust in preparing the gift_tax_return the tax professional failed to effectively allocate decedent’s gst_exemption to the trust in year decedent transferred an additional dollar_figurey to the trust decedent again relied upon the same tax professional to file a gift_tax_return reporting the transfer the tax professional failed to file a gift_tax_return reporting the transfer and allocating a portion of decedent’s gst_exemption to the transfer decedent transferred dollar_figurez to the trust in year and dollar_figurez to the trust in year by that time the tax professional whom decedent had previously retained for purposes of preparing her year and year gift_tax returns had died decedent asked son to prepare gift_tax returns for her year and year transfers to the trust using the year gift_tax_return prepared by the deceased tax professional as a model son prepared gift_tax returns for both year and year and relying on the year return as a model failed to allocate any of decedent’s gst_exemption to the transfers it has been represented that decedent did not retain any incidents_of_ownership over any assets transferred to or owned by the trust you have requested the following rulings that decedent’s estate be allowed an extension of time under sec_2642 and sec_301_9100-3 to allocate decedent’s gst_exemption to decedent’s transfers to the trust in year sec_1 and and that such allocations shall be made based on the value of the property transferred to the trust as of the date of the original transfers law and analysis sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer plr-111150-02 sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst tax exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 as applicable during the years at issue sec_2642 provided that except as provided in sec_2642 if the allocation of the gst_exemption to any property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 deemed allocations to certain lifetime direct skips - a the value of such property for purposes of determining the inclusion_ratio shall be its value for purposes of chapter and b such allocation shall be effective on and after the date of such transfer as amended by sec_536 of the economic_growth_and_tax_relief_reconciliation_act_of_2001 egtrra publaw_107_16 and applicable to transfers subject_to the estate or gift_tax made after date sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 deemed_allocation to certain lifetime direct skips or sec_2632 deemed_allocation to certain lifetime transfers to gst trusts - a the value of such property for purposes of determining the inclusion_ratio shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and b such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides that the secretary shall by regulation prescribe such plr-111150-02 circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted on date sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant sec_2642 further provides that for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute sec_301_9100-1 of the procedure and administration regulations provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 the time for allocating the gst_exemption to lifetime transfers is to be treated as if not expressly prescribed by statute accordingly taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301 see notice_2001_50 2001_34_irb_189 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer will not be considered to have reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was not i competent to render advice on the regulatory election or ii aware of all relevant facts sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate plr-111150-02 for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore decedent’s estate is granted an extension of time of sixty days from the date of this letter to make allocations of decedent’s available gst_exemption to decedent’s transfers to the trust in year year year and year the allocations once made will be effective as of the date of the transfers to the trust and the gift_tax value of the transfers to the trust will be used in determining the amount of gst_exemption to be allocated to the trust the allocation for each year at issue should be made on a separate supplemental form_709 united_states gift and generation-skipping_transfer_tax return and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to each supplemental form_709 copies are enclosed for this purpose 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 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purpose sec_4 copies of this letter


internal_revenue_service number release date index number 468a cc psi - plr-105450-00 date in re revised schedule of ruling amounts for legend taxpayer plant location commission a commission b commission c commission d state x state y states director order a plr-105450-00 order b order c settlement dear this letter responds to your request dated and subsequent submissions submitted on behalf of taxpayer the request is for a revised schedule of ruling amounts under the review provisions of sec_1_468a-3 of the income_tax regulations for taxpayer’s nuclear decommissioning fund the fund under the jurisdiction of commission a commission b commission c commission d state x and commission d state y the commissions the required information was submitted on behalf of taxpayer pursuant to sec_1_468a-3 taxpayer has represented the following facts and information taxpayer is subject_to the audit jurisdiction of the district taxpayer is an investor-owned electric utility incorporated in state x serving the states taxpayer is the sole owner of the plant at location taxpayer’s nuclear decommissioning costs that are included in taxpayer’s cost of service for ratemaking purposes for the plant are subject_to the jurisdiction of commission a which currently represents percent of total electric energy sales commission b which currently represents percent of total sales commission c which currently represents percent of total sales commission d state x which currently represents the percent of total sales and commission d state y which currently represents the remaining percent of total sales the commissions have authorized nuclear decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes the plant began sustained and substantial generation of electricity for sale to customers in and the operating for purposes of this ruling commission d state x and commission d state y are treated as separate public_utilities commissions plr-105450-00 license issued by the nuclear regulatory commission nrc for the plant is scheduled to expire on midnight on the internal_revenue_service approved taxpayer’s initial schedule of ruling amounts under sec_468a of the code for the plant a subsequent schedule of ruling amounts was approved in a letter dated and corrected in a letter dated taxpayer has submitted this request for a revised schedule of ruling amounts for through with respect to commission b commission c and commission d state y because the service did not provide a schedule of ruling amounts for these jurisdictions beyond the taxable_year in the prior letters in addition taxpayer has requested a revised schedule of ruling amounts with respect to commission a for taxable years beginning with because the commission has changed the estimated cost of decommissioning the plant and therefore has changed the amount of decommissioning costs to be collected in taxpayer’s cost of service effective for the year forward taxpayer is not requesting any changes to its prior schedule for commission d state x there are no pending proceedings before the commissions that may result in an increase or decrease in the amount of decommissioning costs included in taxpayer's cost of service for ratemaking purposes as of the balance of the fund was dollar_figure the after-tax rate of return expected to be earned by the assets of the fund is percent for commission a and percent for commission b commission c and commission d state y commission a conducted new rate proceedings during calendar_year resulting in order a in order a commission a based the amount of decommissioning costs included in taxpayer’s cost of service upon the review of nuclear plant decommissioning prepared by taxpayer’s capital_asset accounting department based on this report the estimated cost of decommissioning the plant is dollar_figure escalating the commission a’s jurisdictional portion of this figure at percent per year yields an estimated future decommissioning cost of dollar_figure commission b has not conducted rate proceedings resulting in changes to the amount of nuclear decommissioning costs collected from customers by commission b since the service issued its plr-105450-00 previous letter in order b commission b based the amount of decommissioning costs included in taxpayer’s cost of service upon the review of nuclear plant decommissioning prepared in date by taxpayer’s capital_asset accounting department formerly known as the corporate economic and depreciation department the department report based on the department report the estimated cost of decommissioning the plant is dollar_figure escalated at percent per year results in an estimated future decommissioning cost of dollar_figure of which the commission b jurisdictional amount is dollar_figure commission c has not conducted rate proceedings resulting in changes to the amount of nuclear decommissioning costs collected from customers by commission c since the service issued its previous letter commission c in order c approved a settlement agreement between taxpayer and the commission c staff the amount of decommissioning costs in order c was based on the department report however commission c disallowed recovery_of amounts relating to the percent contingency factor that had been incorporated in the department report the estimated cost of decommissioning the plant is dollar_figure escalating commission c’s jurisdictional amount by percent per year results in an estimated future decommissioning cost of dollar_figure commission d state y has not conducted rate proceedings resulting in changes to the amount of nuclear decommissioning costs collected from customers by commission d state y since the service issued its previous letter commission d state y in settlement based the amount of decommissioning costs to be included in taxpayer’s cost of service on the department report however commission d state y incorporated approximately percent of the estimated decommissioning costs of the plant set forth in the department report the estimated cost of decommissioning the plant is dollar_figure escalating commission d state y ’s jurisdictional amount by percent per year results in an estimated future decommissioning cost of dollar_figure the estimated date on which the plant will no longer be included in taxpayer’s rate bases for ratemaking purposes is for commission b commission c and commission d state y the estimated_useful_life of the plant was not adjusted by the commissions before plr-105450-00 the funding_period and level_funding limitation period for the plant extend from for commission a and from for commission b commission c and commission d state y the estimated period for which the fund will be in effect is for commission a and commission b and for commission c and commission d state y the estimated_useful_life of the plant is for commission a and commission b and for commission c and commission d state y thus taxpayer has calculated its qualifying percentages to be percent for commission a and commission b and percent for commission c and commission d state y sec_468a of the code provides that a taxpayer may elect to deduct the amount of payments made to a qualified nuclear decommissioning fund however sec_468a limits the amount_paid into the fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to the fund that is included in the taxpayer’s cost of service for ratemaking purposes for the taxable_year or the ruling_amount applicable to that year sec_468a of the code 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 taxable_year is defined under sec_468a 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 nuclear power plant as the period for which the 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 of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the taxable_year if the payment is made on account of the taxable_year within 2½ months after the close of the taxable_year sec_1_468a-1 of the regulations provides in part that an eligible_taxpayer may elect to deduct nuclear plr-105450-00 decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 is a taxpayer that has a qualifying interest in a nuclear power plant as defined under sec_1_468a-1 a qualifying interest is among other things a direct ownership_interest including an interest held as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides in part that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any taxable_year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such taxable_year ii or the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year sec_1_468a-3 of the regulations generally provides in part that a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the taxable 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 of the regulations provides that to the extent consistent with the principles and provisions of sec_1_468a-3 each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission s in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes taking into account amounts that are otherwise required to be included in the taxpayer’s income under sec_88 of the code and the regulations thereunder thus for example each schedule of ruling amounts shall be based on the public_utility commission’s reasonable assumptions concerning i the after-tax rate of return to be earned by the amounts collected for decommissioning ii the total estimated cost of decommissioning the nuclear power plant and iii the frequency of contributions to the nuclear decommissioning fund for a taxable_year under sec_1_468a-3 of the regulations the internal_revenue_service shall provide a schedule of ruling amounts that is identical to the schedule proposed by the taxpayer but no such schedule shall be provided unless the plr-105450-00 taxpayer’s proposed schedule is consistent with the principles and provisions of sec_1_468a-3 sec_1_468a-3 of the regulations provides that the ruling_amount specified in a schedule of ruling amounts for any taxable_year in the level_funding limitation period shall not be less than the ruling_amount specified in such schedule for any earlier taxable_year under sec_1_468a-3 and ii the level_funding limitation period begins on the first day of the first taxable_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 estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes sec_1_468a-3 and ii of the regulations provides that the funding_period for a nuclear decommissioning fund is the period that begins on the first day of the first taxable_year for which a deductible payment is made or deemed to be made to such nuclear decommissioning fund and ends the later of the last day of the taxable_year that includes the estimated date on which decommissioning costs of the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer’s cost of service for ratemaking purposes or the last day of the taxable_year that includes the estimated date on which the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer’s rate base for ratemaking purposes sec_1_468a-3 of the regulations 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 of the regulations provides in part that 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 of the regulations provides that a taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of plr-105450-00 decommissioning the plant multiplied by the taxpayer’s qualifying interest in the plant sec_1_468a-3 of the regulations provides that the qualifying percentage for any nuclear decommissioning fund is equal to the fraction the numerator of which is the number of taxable 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 taxable years in the estimated_useful_life of the applicable nuclear power plant under sec_1_468a-3 of the regulations 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 under sec_1_468a-3 of the regulations 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 sec_1_468a-3 of the regulations provides that for purposes of sec_1_468a-3 and iii the estimated date on which the nuclear power plant to which the nuclear decommissioning fund relates 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 of the regulations provides that if two or more public_utility commissions establish or approve rates plr-105450-00 for electric energy generated by a single nuclear power plant then the schedule of ruling amounts shall be separately determined pursuant to the rules of sec_1_468a-3 through e for each public_utility commission that has determined the amount of decommissioning costs to be included in the cost of service for ratemaking purposes for this plant under sec_1_468a-3 this separate determination shall be based on the reasonable assumptions and determinations used by the relevant public_utility commission and shall take into account only that portion of the total estimated cost of decommissioning that is properly allocable to the ratepayer whose rates are established or approved by the public_utility commission according to sec_1_468a-3 the ruling amounts for any taxable_year is the sum of the ruling amounts for such taxable_year determined under the separate schedules of ruling amounts sec_1_468a-3 of the regulations provides that the 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 to which the nuclear decommissioning fund relates 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 of the regulations enumerates the information required to be submitted by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 of the regulations provides that a taxpayer is required to request a revised schedule of ruling amounts for a nuclear decommissioning fund if a 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 the nuclear decommissioning fund relates increases the proposed period over which decommissioning costs of the nuclear power plant will be included in cost of service for ratemaking purposes adjusts the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes or reduces the amount of decommissioning costs to be included in cost of service for any taxable_year and b the taxpayer’s most recent request for a schedule of ruling amounts did not provide notice to the service of the action by the public_utility commission plr-105450-00 sec_1_468a-3 of the regulations provides that any taxpayer that has obtained a schedule of ruling amounts pursuant to sec_1_468a-3 can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 thus the service shall not provide a revised 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 deadline date for such taxable_year sec_1_468a-7 of the regulations provides in general that an eligible_taxpayer is allowed a deduction for the taxable_year in which the taxpayer makes a cash payment or is deemed to make a cash payment to a nuclear decommissioning fund only if the taxpayer elects the application of sec_468a a separate election is required for each nuclear decommissioning fund and for each taxable_year with respect to which payments are to be deducted under sec_468a in the case of an affiliated_group_of_corporations that join in filing a consolidated_return for a taxable_year the common parent must make a separate election on behalf of each member whose payments to a nuclear decommissioning fund during such taxable_year are to be deducted under sec_468a the election under sec_468a for any taxable_year is irrevocable and must be made by attaching a statement election statement and a copy of the schedule of ruling amounts provided pursuant to the rules of sec_1_468a-3 to the taxpayer’s federal_income_tax return or in the case of an affiliated_group_of_corporations that join in filing a consolidated_return the consolidated_return for such taxable_year the return to which the election statement and a copy of the schedule of ruling amounts is attached must be filed on or before the time prescribed by law including extensions for filing the return for the taxable_year with respect to which payments are to be deducted under sec_468a section a and c of the energy act eliminated for taxable years beginning after date the investment restrictions contained in sec_468a of the code section b and c of the energy act revised sec_468a 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 taxpayer in relation to the requirements set forth in the sec_468a of the code and the regulations thereunder plr-105450-00 based solely on these representations we reach the following conclusions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 and of the regulations the commissions have authorized decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations taxpayer has determined that the qualifying percentages under sec_1_468a-3 to be percent for commission a and commission b and percent for commission c and commission d state y the maximum amount of cash payments made or deemed made to the fund during any taxable_year is restricted to the lesser amount of the decommissioning cost applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations as required under sec_1_468a-3 of the regulations taxpayer is proposing a total ruling_amount for each taxable_year that is the sum of the separate amounts for the commissions taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and plr-105450-00 determinations used by the commissions and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund based on the above determinations we conclude that taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code the following schedule of ruling amounts is specifically approved for the commissions approved revised schedule of ruling amounts year commission a commission b commission c commission d totals state x state y the ruling amounts for commission a only and commission d state x were approved in a prior schedule of ruling amounts the ruling amounts for commission d state x are to continue through for purposes of the mandatory review required under sec_1_468a-3 of the regulations the date of that prior ruling shall govern the review period for the jurisdiction of commission d state x plr-105450-00 with agreement of taxpayer this revised schedule of ruling amounts is limited to a 5-year period for the portion of the schedule of ruling amounts for commission b commission c and commission d state y because these commissions have not taken into account the statutory changes made to sec_468a of the code by the energy act the elimination of the investment restrictions and the reduction of the tax_rate applicable to income earned by the fund may result in a greater after-tax of return than was estimated prior to the enactment of the energy act by these commissions this increased after-tax rate of return could over the life of the fund result in a balance in the fund on the last day of the funding_period that could exceed the amount of decommissioning costs allocable to the fund thus in order to prevent the excess accumulation in the fund this schedule of ruling amounts is being limited to a 5-year period except the amounts for commission a and commission d state x which took into account the amendments made by the energy act to sec_468a of the code approval of a revised schedule of ruling amounts may be granted after a determination by commission b commission c and commission d state y of an after-tax rate of return that accounts for the reduced_tax_rate and unrestricted investments 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 this ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years taxpayer must request a review and revision of the schedule of ruling amounts under sec_1_468a-3 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 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 sec_468a of the code as stated above payments made to the fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to the fund or the ruling amounts applicable to the fund in the taxable_year except as specifically set forth above no opinion is expressed concerning the federal_income_tax consequences of the plr-105450-00 above-described facts under any other provision of the code or regulations this letter_ruling is directed only to taxpayer who requested it sec_6110 of the code provides that this ruling may not be used or cited as precedent in accordance with the power_of_attorney on file a copy of this letter is being sent to your authorized legal representatives pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to taxpayer’s federal_income_tax return for each taxable_year in which taxpayer claims a deduction for payments made to the fund sincerely yours peter c friedman assistant to the branch chief branch office of associate chief_counsel passthroughs and special industries


department of the treasury washington b c ze qdool4ato57 tax exempt and lintfirrr levu live government entities nnn division gf4r contact person identification_number telephone number t eo b4 date aid mg ay co0 employer tdentification number legend m n o p qa x dear sir or madam we have considered m's ruling_request dated date m requests a ruling that a proposed set-aside of funds as described in detail below will qualify as an appropriate set- aside under sec_4942 of the internal_revenue_code and sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations on the basis that the proposed set-aside satisfies the suitability test of sec_53 a -3 b m is a_trust that was formed in september it is exempt from federal_income_tax as an organization described in sec_501 of the code and is classified as a private_foundation within the meaning of sec_509 z m requests approval to set_aside an amount up to approximately dollar_figurex in its taxable_year ending date and an amount up to the lesser_of approximately dollar_figurex or its minimum distributable_amount for its taxable_year ending date in the taxable_year ending date so that these amounts will be treated as qualifying distributions within the meaning of code sec_4942 for m’s taxable years ending date and date m has been making payments directly for its charitable purposes and may make grants to recipients in each case solely for charitable purposes in a rural medically underserved region since its formation m has undertaken a program n to provide health care services to residents go located in the area through the n program m has been involved in two separate projects the p program project and the pediatric dental and child advocacy project project in a ruling issued by this office on date we approved a proposed set-aside of funds by m for its taxable years ending date and date with respect to project pursuant thereto m paid grants totally approximately dollar_figurex to an identified graduate school of medicine to fund its p program in o county this program was developed to evaluate the cost and quality of at-home care provided to individuals with chronic lung disease or chest cancer m's grants enabled the number of patients enrolled in this particular program to increase from to and helped the identified school to prove the viability of the program and its efficaty in reducing the incidence of hospitalization for enrolled patients m has now focused its activities on project which it is currently establishing in certain counties to address two areas of health care concern the dental hygiene of children and the counseling and treatment of sexually physically and mentally abused children concerning the former area m is working with q and local school districts in o county to provide dental care services to children in o county at a new state of the art dental clinic with respect to the latter area m is working with q to open a child advocacy center which will provide counseling and treatment services to sexually physically and mentally abused children in the o area m requests approval to set_aside a maximum of approximately dollar_figurex specifically m requests approval to set_aside an amount up to approximately dollar_figurex in the taxable_year ending date and an amount up to the lesser_of approximately dollar_figurex or its minimum distributable_amount for the taxable_year ending date in the taxable_year ending date so that these amounts will be treated as qualifying distributions under sec_4942 of the code in the taxable years ending date and date the set-asides will be used to fund the current phase of project in county and the expansion of project to other identified counties in the region m plans to fund project by direct payment of expenses as they are incurred these expenses will be incurred throughout the planning and implementation phases of project m is not sure that these expenses will be incurred prior to the end of the and taxable years it needs to have the flexibility to set_aside the amounts stated above inasmuch as m will needa lepgthy period of time to plan and implement project as was the case with the successful project project requires extensive coordination with community leaders and government officials as well as significant long-term planning m needs to solicit the support of local community leaders and government officials hire staff including medical personnel identify suitable locations for the dental clinics and or child advocacy centers and order and install the appropriate equipment participants in project including local community leaders and government officials dentists and other medical personnel and various other local community organizations require assurance that funding will be available to complete project over the past months m has been pianning and implementing project in o county and recently assisted in opening a state of the art dental clinic to provide dental care services to _3- children enrolled in the o county school system in order to implement project in o county m first identified key local community leaders and government officials and then over time established working relationships with these leaders and officials to generate support for project once this support was generated m provided the necessary funds to q to permit it to recruit and hire medical and administrative staff identify a suitable location for the dental clinic purchase equipment furniture and supplies and coordinate implementation of the program with the local school district inasmuch as this initial planning and implementation required a lengthy amount of time m requests a set-aside because it anticipates that it will need a lengthy period of time to plan and implement project in its entirety ofte project has been successfully established in o county m plans on extending project to other counties initial planning meetings between the trustees of m and volunteers from q on the one hand and local community leaders on the other have been held in two of the other counties to establish pediatric clinics in addition q is compiling procedure manuals and business plan models to be use as a guide by the other counties in implementing project you report that low-income persons rarely or ever visit a dentist therefore m has undertaken project an effort to provide dental care services to children from low-income families in the identified counties in per capita income in o county was dollar_figure and of the work force was unemployed over of the children living in o county rely on a program of health insurance provided by the particular state as their primary source of health insurance but no dentist in o county will treat such patients o county has been named a federal primary care shortage health personnel site project will involve an active partnership between m and the local school districts and government agencies in each participating county project will require that each local school district make an investment either financial or in-kind in project for example o county officials have provided the building space and utilities for the dental clinic free of charge m will then fund the purchase of the necessary medical equipment furniture and supplies for the dental clinics and will also provide the funds to transport the children from school to the clinics in addition project will involve the local school districts obtaining parental consent to allow the children jo visit the dental clinic - participating children will be eligible to visit the dental clinic five times per year through these regular dental visits these children will be provided with dental records and the experience of receiving on-going health care services pursuant to your stated assumption that big_number children participate in project in each county for a total of big_number enrollees the proposed budget for project is approximately dollar_figurex per dental clinic resulting in an aggregate estimated budget of dollar_figurex in each county approximately dollar_figurex will be allocated to salary and benefits for personnel including dentists dental hygienists and administrative staff and approximately dollar_figurex will allocated to medical equipment furniture and supplies the remainder of the budget in each county approximately dollar_figurex will be allocated to miscellaneous expenses such as printing promotional and educational items and insurance in the future project may involve the opening of child advocacy centers in each of the identified counties to provide counseling and treatment services to sexually physically and mentally abused children sec_4942 of the internal_revenue_code imposes on the undistributed_income_of_a_private_foundation for any taxable_year which has not been distributed before the first day of the second or any succeeding taxable_year following such taxable_year if such first day falls within the taxable_period a tax equal to percent of the amount of such income remaining undistributed at the beginning of such second or succeeding taxable_year sec_4942 defines the term undistributed_income as the amount by which the distributable_amount for such table year exceeds the qualifying distributions made before such time out of such distributable_amount sec_4942 of the code provides that the term distributable_amount means with respect to any foundation for any taxable_year an amount equal to the sum of the minimum_investment_return plus the amounts described in subsection f c reduced by the sum of the taxes imposed on such private_foundation for the taxable_year under subtitle a and sec_4940 sec_4942 of the code defines a qualifying_distribution as a any amount_paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled by the foundation or one or more disqualified persons or ii a private_foundation which is not an operating_foundation except as otherwise provided or b any amount_paid to acquire an asset used directly in carrying out one or more purposes described in sec_170 sec_4942 of the code provides that for all taxable years beginning on or after date an amount set_aside for a specific project which comes within one or more purposes described in sec_170 may be treated as a qualifying_distribution if it meets the requirements of subparagraph b of sec_4942 sec_4942 of the code provides that an amount set_aside for a specific project may be treated as a qualifying_distribution if at the time of the set-aside the foundation establishes to the satisfaction of the secretary that the amount will be paid for the specific project within five years and the project is one which can be better accomplished by such set- aside rather than by immediate payment of funds the suitability test sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations provides that an amount set_aside for a specific project that is for one or more of the purposes described in sec_170 or b of the code may be treated as a qualifying_distribution in the year in which set_aside if the requirements of that section and sec_4942 are satisfied the foundation must establish that the amount set_aside will be paid for the specific project within months after it is set_aside and the set-aside satisfies the suitability test or the foundation satisfies the cash distribution test lot sec_53_4942_a_-3 of the regulations provides that the suitability test is satisfied if the foundation establishes that the specific project is one in which relatively long-term grants or expenditures must be made in order to assure the continuity of particular charitable projects or program-related investments the regulation cites as one example of a suitable project a plan to erect a building to house the direct charitable educational or similar exempt activity of the foundation such as a museum building in which paintings are to be hung even though the exact location and architectural plans have not been finalized the proposed set-aside for m's taxable_year ending date and date is in furtherance of m's charitable purposes as described above the funds to be set_aside will be used to promote the dental health of low-income children in rural medically underserved counties in the region initially project will focus on o county and you have described the progress made to date in establishing a dental clinic including the cooperation of local school and government authorities and community leaders once fully established in o county m plans to extend project to the remaining identified counties it is clear that the proposed set-aside will be used to accomplish a purpose described in sec_170 as required by sec_4942 you have also established to our satisfaction that project can be better accomplished by such set-aside rather than by the immediate payment of funds you have submitted a sworn statement from a trustee of m stating that the funds to be set_aside on date and date will actually be paid prior to the expiration of months from the date of the set-aside based on the foregoing we rule that the set-aside of an amount up to dollar_figurex approximately on m's books_and_records for m’s taxable_year ending date and the set-aside of an amount up to the lesser_of approximately dollar_figurex or m’s minimum distributable_amount for the taxable_year ending date in the taxable_year ending date satisfies the requirements of code sec_4942 and sec_53_4942_a_-3 of the regulations the suitability test accordingly these set-asides may be treated as qualifying distributions for m's taxable years ending date1 and date we direct your attention to sec_53_4942_a_-3 of the regulations entitled evidence of set-aside this section provides that a set-aside approved by the internal_revenue_service shall be evidenced by the entry of a dollar amount on the books_and_records of a private foundatign as a pledge or obligation to be paid at a future date or dates further anyamount which is set_aside shall be taken into account for purposes of determining the foundation's minimum_investment_return see sec_53_4942_a_-2 and any income attributable to such set-aside shall be taken into account in computing adjusted_net_income see sec_53_4942_a_-2 this ruling is based on the understanding that there will be no material changes in the facts upon which it is based any changes that may have a bearing upon your tax status should be reported to the ohio tax exempt and government entities te_ge customer service office which deals with exempt_organizations matters the mailing address is internal_revenue_service te_ge customer service p o box cincinnati oh your authorized representative pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to we are also sending a copy of this ruling to the ohio te_ge office because this letter could help resoive any questions about your tax status you should keep it with your permanent records telephone number are shown in the heading of this letter if you have any questions about this ruling please contact the person whose name and thig ruling is directed only to the organization that requested it sec_61 k of the thank you for your cooperation code provides that it may not be used or cited as precedent - s_r a o b sincerely erate v sast gerald v sack manager exempt_organizations technical group o2


internal_revenue_service number release date index number 860d --------------------------- ------------------- ------------------------------- ----------------------------------- ----------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------- id no ------------- telephone number --------------------- refer reply to cc fip plr-114011-08 date date legend trust ----------------------------------------------------------------------- ------------------------- --------------------------------------------------------------------- trust ----------------------------------------------------------------------- -------------------- --------------------------------------------------------------------- issuer originator and master servicer ------------------------ -------------------------------------------------- depositor --------------------------------------------------------------------- ----------------------------------- owner trustee --------------------------------------------------------------------- ------------------------------------ indenture trustee --------------------------------------------------------------------- ------------------------------- date date ------------------ -------------------------- plr-114011-08 date date year -------------------------- ----------------------- --------- dear ------------------- this responds to a letter requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an election under sec_860d of the internal_revenue_code to treat trust and trust collectively the trusts as real_estate mortgage investment conduits remics facts trusts were formed on date pursuant to a_trust agreement between issuer originator and master servicer depositor owner trustee and indenture trustee they were established to facilitate the securitization of five classes of offered notes created upon the transfer of mortgage loans from issuer to depositor the transaction entailed the creation of one portion of an owner trust that qualified as a disregarded_entity for tax purposes and a second portion of the owner trust that qualified as two remics consisting of a lower tier remic trust and an upper tier remic trust trust issued uncertificated remic regular_interest classes to trust and a residual class trust then issued five remic regular_interest classes as well as a residual class the trust agreement states that indenture trustee would make the remic elections with respect to the regular_interest classes issued by trust indenture trustee was responsible for the tax reporting of trusts prior transactions by issuer for which indenture trustee served as tax preparer involved an owner trust structure that issued notes and were in their entirety disregarded for tax purposes in the experience of the indenture trustee an owner trust structure that includes both a portion disregarded for tax purposes and a portion treated as a remic is extremely rare the first and only time indenture trustee encountered such a structure the deal issuer contacted indenture trustee to make certain they were aware of the unique nature of the transaction there was no such communication with respect to the transaction involving trusts the rare nature of the owner trust structure here and the fact that issuer’s previous structures have been classified as owner trusts disregarded for tax purposes contributed to indenture trustee missing the remic classifications in the trust agreement furthermore once the classification as a remic was missed at the plr-114011-08 beginning of the process there was minimal chance the oversight would be detected the oversight was discovered on date when the residual holder called to request the form_1066 schedule q quarterly notice to residual holder of remic taxable_income or net_loss allocation indenture trustee promptly prepared the remic tax returns forms and mailed the form_1066 schedule q to the investors on date the forms were filed with the internal_revenue_service on date trusts make the following additional representations the request for relief was filed before the failure to make regulatory elections was discovered by the service granting the relief requested will not result in trusts having a lower tax_liability in the aggregate for all years to which the regulatory election applies than trusts would have had if the election had been timely made taking into account the time_value_of_money trusts did not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the time trusts requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences trusts did not choose to not file the election law and analysis sec_860d of the code provides that an entity which meets the requirements of a remic under sec_860d may elect to be treated as a remic on the return for its first taxable_year once elected sec_860d provides that the entity will be treated as a remic for the first taxable_year in which the election is made and all subsequent taxable years until such status is terminated under sec_860d sec_1_860d-1 of the income_tax regulations provides that a qualified_entity makes a remic election by timely filing for its first taxable_year a form_1066 u s real_estate_mortgage_investment_conduit income_tax return signed by a person authorized to sign that return this regulation also provides a reference to sec_301_9100-1 for rules regarding extensions of time for making elections sec_1_860f-4 provides that the due_date and any extensions for filing a remic’s annual tax_return are determined as if the remic were a partnership therefore pursuant to sec_1 e a remic’s annual return must be filed on or before the fifteenth day of the fourth month following the close of the taxable_year unless an extension is granted sec_301_9100-3 sets forth parameters for determining whether under particular facts and circumstances the commissioner will grant an extension of time for regulatory elections that do not meet the requirements for an automatic_extension under section plr-114011-08 sec_301_9100-3 provides that when a taxpayer does not meet the requirements for an automatic_extension under sec_301_9100-2 the taxpayer must provide evidence satisfactorily establishing that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the government sec_301_9100-3 provides that subject_to sec_301_9100-3 a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer satisfies at least one of the following five criteria i the request for relief was made before the service discovered the failure to make the regulatory election ii the failure to make the election was due to intervening events beyond the taxpayer’s control iii after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied on the written advice of the service or v the taxpayer reasonably relied upon a qualified_tax professional including a tax professional employed by the taxpayer and that tax professional failed to make or failed to advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer has not reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was either i not competent to render advice on the regulatory election or ii not aware of all relevant facts sec_301_9100-3 provides that a taxpayer will not be deemed to have acted reasonably and in good_faith if taxpayer does one of the following i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed of the required election and the subsequent tax consequences but chose not to make the election or iii uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money in the instant case trusts represent that the request for relief was made prior to the service discovering the failure to make the regulatory election thereby satisfying the reasonable and in good_faith requirement of sec_301_9100-3 trusts also assert that none of the exceptions under sec_301_9100-3 apply and thus taxpayer is not precluded from being deemed to have acted reasonably and in good_faith additionally trusts represent that the government will not be prejudiced under sec_301_9100-3 since granting relief will not result in lower tax_liability in the aggregate for all applicable years conclusion plr-114011-08 based on the information submitted and representations made we conclude that trusts have satisfied the requirements for granting a reasonable extension of time to allow them to make elections under sec_860d to be treated as remics for year and subsequent taxable years therefore the forms filed on date on behalf of trusts electing remic status for year will be deemed to have been timely filed this ruling is limited to the timeliness of the remic election of trusts this ruling does not relieve trusts from any penalty that they may owe as a result of the failure to timely file forms this ruling’s application is limited to the facts representations code sections and regulations cited herein while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination no opinion is expressed with regard to whether trusts qualify as remics under subchapter_m part of the code no opinion is expressed with regard to whether trusts’ tax_liability is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect a copy of this letter is being forwarded to the service_center where trusts file their return with instructions that although their forms were not timely filed trusts are treated as having made timely elections under sec_860d except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely elizabeth a handler elizabeth a handler chief branch office of associate chief_counsel financial institutions products