internal_revenue_service p o box cincinnati oh number release date department of the treasury employer_identification_number contact person - id number date date contact telephone number uil legend b name c employer d name e number f time period g subject x dollars amount dear you asked for advance approval of your employer-related scholarship 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 you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding employer-related scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding employer-related scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provided in code sec_117 description of your request your letter indicates you will operate an employer-related scholarship program called b for united_states based employees of c as part of your charitable activities you currently operate an academic scholarship program for the children of united_states based employees of c called d which was approved in your determination_letter letter catalog number 58264e is to assist children of united_states based c employees and its the purpose of b affiliates to attend a qualified post-secondary institution of their choice and pursue any course of study they choose the term children includes the natural and adopted children stepchildren and legal wards of the employee for whom the employee is financially responsible the term children also includes those natural and adopted children stepchildren and legal wards of the employee’s spouse or domestic partner for whom the employee is financially responsible you anticipate that the maximum amount of each scholarship for b will be x dollars you will distribute announcements of the scholarships to c employees it is your policy will clearly show you as the that any announcement of the scholarships offered under b grantor of the scholarship awards to be eligible for b applicants must be children of active full-time regular employees of c excluding members of c’s board_of directors its officers and members of your board_of directors or administrator as of the date of the scholarship award applicants for b must also be incoming first year full time post-secondary students in addition the employee must have been employed by c for f prior to the date of the scholarship award you anticipate that there will be a single application_for b and d except applicants for b to be eligible for consideration must answer an additional essay question focusing on g an eligible applicant who responds to the additional essay question will be considered for both b and d assuming that his or her application is otherwise complete although the applicant will only be awarded one scholarship under either of the programs a completed application requires attachments such as an essay standardized test results financial information including relevant tax returns of their parents and the student aid report from fafsa sealed copies of transcripts and recommendations the scholarship review committee which is comprised of individuals totally independent and separate from you and c will choose the recipients of all scholarships under b and d as well as determine the amounts that are awarded to each scholarship recipient the scholarship review committee members are currently selected by an independent third party which is an operating_unit of an organization that has been recognized by the irs as a public charity the scholarship review committee consists of current or former financial aid officers college admission officers and educational professionals if there is a vacancy on the scholarship review committee the third party selects a qualified_individual to fill the vacancy in no event will any employee or former employee of yours or c serve on the scholarship review committee the scholarship review committee will use objective selection criteria including financial need academic promise and qualities of leadership general promise and moral and civic character as well as the additional essay question of g to award scholarships under b an eligible applicant who chooses not to answer the additional essay question will be eligible for only d assuming that his or her application is otherwise complete no letter catalog number 58264e member of the scholarship review committee will be in a position to derive a private benefit directly or indirectly if certain potential grantees are selected over others you will permit the renewal of a scholarship awarded to a student attending a college or university for up to three years after the initial year while you will permit the renewal of a scholarship awarded to a student attending a vocational or technical school for one year after the initial year once awarded a scholarship granted will not be terminated if the recipient's parent or stepparent or guardian as the case may be is no longer employed by c when determining whether to renew a student's scholarship the scholarship review committee will consider the student’s satisfactory progress toward a degree or certification as shown by the student’s transcript and continued display of good moral and civic character and general promise at a minimum a student must maintain a cumulative b average which is a grade point average of on a scale of or an equivalent average on any other scale if a student does not maintain a cumulative b’ average the scholarship review committee may deny renewal of such student's scholarship unless the student petitions the scholarship review committee and presents evidence of severe hardship or extenuating circumstances in such cases the scholarship review committee may in its discretion consider whether this justify renewal of the student’s scholarship you will pay a student’s scholarship in full at the beginning of the school year directly to the educational_institution the student is attending for credit to the student's account provided however that the educational_institution first agrees to only use the funds to defray the student's tuition and fees an applicant must be accepted by the qualified post- secondary institution of his or her choice prior to payment of the grant a scholarship shall be terminated when the scholarship recipient ceases to be an enrolled student at the approved institution any unused portion of a terminated scholarship must be refunded to you by the educational_institution the student is attending according to its normal policy regarding tuition refund you will arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversions of funds from their intended purposes and take all reasonable and appropriate stops to recover diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversions from occurring you will maintain all records relating to individual grants including information obtained to evaluate grantees identify whether a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of grants letter catalog number 58264e concerning revproc_76_47 b will not be used by you or c as an inducement to recruit or retain employees once awarded a scholarship granted will not be terminated if the recipient’s parent or stepparent or guardian as the case may be is no longer employed by c the total number of scholarships awarded in any year will not exceed of the number of employee’s children who were eligible for such scholarships who applied for such scholarships and were considered by the scholarship review committee in selecting the recipients of grants in that year in keeping with the test of section dollar_figure of revproc_76_47 1976_2_cb_670 the test you anticipate that up to e scholarships will be awarded each year under b and that the balance of the scholarships permitted under the test will be awarded under d 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 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 a scholarship or fellowship subject_to code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 a ii revproc_76_47 1976_2_cb_670 provides guidelines to determine whether grants a private_foundation makes under an employer-related program to employees or children of employees are scholarship or fellowship grants subject_to the provisions of code sec_117 if the program satisfies the seven conditions in sections dollar_figure through dollar_figure of revproc_76_47 and meets the applicable_percentage tests described in section dollar_figure of revproc_76_47 we will assume the grants are subject_to the provisions of code sec_117 you represented that your grant program will meet the requirements of either the percent or percent percentage_test in revproc_76_47 these tests require that e e e the number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants were applicants for grants and were considered by the selection committee for grants or the number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants whether or not they submitted an application or the number of grants awarded to employees in any year won't exceed percent of the number of employees who were eligible for grants were applicants for grants and were considered by the selection committee for grants letter catalog number 58264e you further represented that you will include only children who meet the eligibility standards described in revproc_85_51 1985_2_cb_717 when applying the percent test applicable to employees’ children in determining how many employee children are eligible for a scholarship under the percent test a private_foundation may include only those children who submit a written_statement or who meet the foundation's eligibility requirements they must also satisfy certain enrollment conditions you represented that your procedures for awarding grants under this program will meet the requirements of revproc_76_47 in particular an independent selection committee whose members are separate from you your creator and the employer will select individual grant recipients you will not use grants to recruit employees nor will you end a grant if the employee leaves the employer you will not limit the recipient to a course of study that would particularly benefit you or the employer other conditions that apply to this determination this determination only covers 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 is in effect as long as your procedures comply with sections dollar_figure through dollar_figure of revproc_76_47 and with either of the percentage tests of sec_4 if you establish another program covering the same individuals that program must also meet the percentage_test this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives letter cataiog number 58264e e e all funds distributed to individuals must be made on a charitable basis and 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 if you have questions please contact the person listed at the top of this letter sincerely jeffrey cooper director exempt_organizations rulings and agreements letter catalog number 58264e


department of the treasury internal_revenue_service washington d c commissioner tax_exempt_and_government_entities_division jul uniform issue list legend taxpayera irab account c financial_institution d amount dear this letter is in response to a request for a letter_ruling dated april17 as supplemented by correspondence dated date from your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations were submitted under penalty of perjury in support of your request for a waiver taxpayer a maintained ira an individual_retirement_account as defined in sec_408 of the code with financial_institution d taxpayer a represents that on date financial_institution d mistakenly made a duplicate distribution equal to amount from ira b taxpayer a asserts that his failure to accomplish a rollover of amount within the 60-day rollover period prescribed by sec_408 was because he was not aware that financial_institution d had made the unauthorized distribution taxpayer a represents that in he began receiving substantially_equal_periodic_payments within the meaning of sec_72 of the code from his ira accounts at this time taxpayer a instructed financial_institution d to annually distribute amount from ira b with additional_amounts to be distributed from taxpayer a's other iras beginning in financial_institution d distributed_amount in october of each year via electronic transfer from ira b to account c a non-ira checking account that was also maintained by financial_institution d however on date financial_institution d distributed an additional_amount equal to amount due to a computer systems error that caused the duplicate payment to be made one month after the regularly scheduled payment during october of while reviewing hi sec_2012 federal_income_tax return as prepared by his accountant taxpayer a discovered the distribution of the duplicate payment the request for relief is accompanied by a letter from financial_institution d acknowledging its mistake based on the above facts and representations you request that the service waive the 60-day rollover requirement with respect to the distribution of amount from ira bon date and that taxpayer a be given days following the issuance of a letter granting a waiver to roll over amount into an ira sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 sec_408 of the code provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money or any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary_of_the_treasury may waive the 60-day requirement under sec_408 and d where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 revproc_2003_16 i r s provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information and documentation submitted by taxpayer a support his ssertion that the failure to timely roll over amount into ira b was because he was not aware that on date financial_institution d erroneously made a duplicate distribution equal to amount from ira b therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira bon date taxpayer a is granted a period of days from the issuance of this letter_ruling to contribute amount into an ira provided all other requirements of sec_408 except the 60-day rollover requirement are met with respect to such contribution the contribution will be considered a rollover_contribution within the meaning of sec_408 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code this ruling is limited to a request for a waiver of the 60-day rollover period no opinion is expressed as to whether the payments from ira band taxpayer a's other iras constitute a series of substantially_equal_periodic_payments within the meaning of sec_72 of the code further no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations that may be applicable hereto this letter_ruling is directed solely to the taxpc tyer who requested it sec_611 o k of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you have any questions regarding this ruling you may contact at sincerely yours to w carlton a watkins manager employee_plans technical group enclosures notice of intention to disclose deleted copy of this letter cc


department of the treasury internal_revenue_service washington d c date cc el gl br3 blshoemaker gl-508812-98 uilc number release date memorandum for john d steele jr district_counsel upstate district cc ner uny buf from subject lawrence h schattner chief branch cc el gl br3 the effect of sec_7811 on the discharge provisions of the bankruptcy code this is in response to your memorandum dated date this document is not to be cited as precedent issues whether the filing of an application_for a taxpayer_assistance_order tao under i r c sec_7811 suspends the periods for dischargeability of taxes in bankruptcy if so whether the service has a requirement to track such extensions on idrs whether the request for a hearing under sec_6330 suspends the periods for dischargeability of taxes in bankruptcy conclusion it is within the bankruptcy court’s equitable authority under bankruptcy code sec_105 to suspend the priority and corresponding dischargeability periods based on the debtor’s having filed an application_for a tao under sec_7811 there is no law requiring the service to track the extensions gl-508812-98 it is also within the court’s equitable authority under b c sec_105 to suspend the priority and dischargeability periods based on the debtor’s having requested a hearing under sec_6330 facts your memorandum does not present facts particular to a given case but seeks general advice on whether the filing of an application_for a tao or the request for a hearing under sec_6330 affect the priority and dischargeability periods for taxes in bankruptcy law and analysis issue relevant here b c a a provides an exception from discharge for taxes of the kind and for the periods specified in sec_507 which provides an eighth priority for a a tax on or measured by income or gross receipts-- i for a taxable_year ending on or before the date of the filing of the petition for which a return if required is last due including extensions after three years before the date of the filing of the petition ii assessed within days plus any time plu sec_30 days during which an offer_in_compromise with respect to such tax that was made within days after such assessment was pending before the date of the filing of the petition or iii other than a tax of a kind specified in section a b or a c of this title not assessed before but assessable under applicable law or by agreement after the commencement of the case there is no statutory provision in the bankruptcy code or elsewhere that expressly tolls or suspends the running of the three year priority period in b c sec_507 the day period in sec_507 or the corresponding dischargeability periods in a a matter of 19_f3d_163 5th cir despite this lack of statutory authority the government has argued that the periods are suspended during the pendency of a debtor’s previous bankruptcies currently the government’s position in this regard is based on two theories it is implicit within b c sec_507 that the priority periods and thus the dischargeability periods are suspended by a debtor’s previous gl-508812-98 bankruptcies the priority and dischargeability periods may be suspended during previous bankruptcies by virtue of the bankruptcy court’s equitable powers under b c sec_105 the first of these theories which relies heavily on legislative_history in interpreting the statutory scheme involving b c sec_108 a and sec_6503 is unique to cases involving previous bankruptcies for the reasons set forth below however the second theory under certain circumstances may be applied to suspend the periods in cases where a taxpayer has applied for a tao bankruptcy code sec_105 provides the court may issue any order process or judgement that i sec_1b c sec_108 provides except as provided in section of this title if applicable nonbankruptcy law an order entered in a nonbankruptcy proceeding or an agreement fixes a period for commencing or continuing a civil_action in a court other than a bankruptcy court on a claim against the debtor or against an individual with respect to which such individual is protected under sec_1201 or sec_1301 of this title and such period has not expired before the date of the filing of the petition then such period does not expire until the later of-- the end of such period including any suspension of such period occurring on or after the commencement of the case or days after notice of the termination or expiration of the stay under sec_362 sec_922 sec_1201 or sec_1301 of this title as the case may be with respect to such claim emphasis added as is clear from its plain language b c sec_108 does not apply to periods established under bankruptcy law and thus cannot be used to suspend the priority or dischargeability periods of the bankruptcy code matter of quenzer supra sec_6503 suspends the running of the statute_of_limitations on collection or assessment of federal taxes for the period in which collection or assessment is prohibited by reason of a bankruptcy proceeding plus an additional days for assessment or six months for collection gl-508812-98 necessary or appropriate to carry out the provisions of this title no provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from sua sponte taking any_action or making any determination necessary or appropriate to enforce or implement court order or rules or to prevent an abuse of process as previously indicated herein the bankruptcy court’s equitable authority under b c sec_105 has been found broad enough to permit the tolling of the priority periods in cases of serial bankruptcy filings see in re richards 994_f2d_763 10th cir in re 199_br_631 bankr s d tex in re 184_br_728 bankr n d tex however even in the case of serial bankruptices the tolling under b c sec_105 is not automatic but is based on equitable considerations which are largely fact driven quenzer supra pincite in re nolan ustc aftr2d m d tenn 198_br_686 bankr e d tex factors the courts may look to in determining whether the priority or dischargeability periods should be suspended include whether the service had sufficient collection opportunity and whether there was an abuse of process by the debtor thus these factors should be considered in determining whether an application under sec_7811 tolls the priority and dsichargeability periods pursuant to b c sec_105 under sec_7811 the running of any period of limitation with respect to any_action described in sec_7811 shall be suspended for -- the period beginning on the date of the taxpayer's application_for a tao under sec_7811 and ending on the dated of the national taxpayer advocate's decision and any period specified by the national_taxpayer_advocate in a tao issued pursuant to the taxpayer’s application the actions described in sec_7811 include those relating to collection under chapter of the internal_revenue_code thus the statute_of_limitations on collection is suspended from the time the application_for a tao is filed until a decision is rendered notably an application merely suspends the running of the period of limitations on collection it does not immediately suspend collection activity 899_fsupp_767 d mass we find that this significantly distinguishes this type of case from those involving previous bankruptcies where the government is prohibited as a matter of law by the automatic_stay or confirmed plan from collection activity however there where the service’s only grounds for asserting that a tax was not discharged and therefore is still collectible is that due to an application under sec_7811 the dischargeability period was suspended the service should have a court determination to that effect before proceeding to collect as stated the tolling is not automatic but depends on the equities which should be determined by the court moreover as of this writing the position taken herein has not been explored in the courts gl-508812-98 nevertheless may be instances where the government may argue that b c sec_105 tolls the priority period for the time period under sec_7811 this conclusion is based largely on the fact that internal_revenue_manual sec_3_5 provides that the service will suspend all enforcement actions until a final_decision is made however given that the same section provides for situations where the service may need to take enforcement action in order to protect the government’s interests the service may rely on sec_7811 and b c sec_105 to toll the periods only where pursuant to its own internal procedures the service was prohibited from collecting the taxes it seeks to have declared priority or nondischargeable and actually made no attempt to collect those taxes additionally courts may well require evidence of abuse of the system by the debtor eg that the application was filed as a delaying tactic issue as concluded above the priority and dischargeability periods are not automatically suspended by the filing of an application_for a tao accordingly there should be no entry on idrs that would show those periods to be suspended unless and until a court has made that determination however it is clear from sec_7811 that an application suspends the collection statute and of course the correct date should be so indicated on idrs regardless of whether or not the taxes are nondischargeable issue newly enacted sec_6330 suspends collection action and the statute_of_limitations on collection when a taxpayer requests a due process hearing regarding a proposed levy action whether the priority and dischargeability periods should be suspended during the time period set forth in this provision also may be analyzed under the b c sec_105 theory under sec_6330 the collection action itself is prohibited during the pendency of the due process hearing and the appeals therefrom generally this should make the equities more favorable to the service however collection only as to the levy action at issue in the hearing is suspended thus for the tax_year s at issue in the bankruptcy the service may have had other modes of collecting the tax_liability this is simply a factor to be considered when determining the equities like the sec_7811 situation suspension is not automatic and the service should not assume it has the right to collect otherwise dischargeable taxes on this ground unless and until a court has rendered a determination to that effect see footnote supra gl-508812-98 case development hazards and other considerations we see no significant risks or hazards in asserting the positions stated above the matter may need to be reconsidered however if our position is not well received by the bankruptcy courts if you have any further questions please call us at cc assistant regional_counsel gl northeast region


department of the treasury internal_revenue_service washington d c of f i c e of c h i e f c ou n s e l date number release date tl-n-4478-01 cc tege eoeg teb uilc internal_revenue_service national_office field_service_advice memorandum for deputy area_counsel tege pacific coast central mountain area from mary oppenheimer assistant chief_counsel cc tege eoeg subject tl-n-4478-01 this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent legend issuer company bonds facility date metal waste material issue sec_1 was the bond-financed facility a qualified_hazardous_waste_facility as defined in sec_142 of the internal_revenue_code tl-n-4478-01 can a facility which processes solid hazardous waste qualify as a solid_waste_disposal_facility as defined in sec_142 did the conduit borrower spend bond proceeds on a qualified exempt facility pursuant to sec_142 conclusion sec_1 the facility is not a qualified_hazardous_waste_facility within the meaning of sec_142 a solid hazardous waste treatment facility can qualify as a solid_waste_disposal_facility within the meaning of sec_142 assuming the requirements under sec_142 not specifically addressed in this field_service_advice are met the facility is an exempt solid_waste_disposal_facility within the meaning of sec_142 facts the company manufactures metal in a process that produces waste material that must be disposed of the united_states environmental protection agency has designated the waste material as hazardous waste the waste material is solid it is not liquid gaseous or radioactive material the waste material has no market_value the issuer issued the bonds on date and loaned the proceeds to the company to finance the acquisition construction and equipping of the facility the bonds were issued as solid_waste facility bonds under sec_142 of the internal_revenue_code_of_1986 the facility was built and equipped and is used for the transportation treatment and storage of the waste material from the company’s various metal production facilities around the united_states the treatment produces a hazardous powdery residue that is placed in a landfill intended for hazardous material disposal law and analysis generally interest on a private_activity_bond is not excludable from gross_income under sec_103 unless the bond is a qualified_bond sec_141 provides that a qualified_bond includes any private_activity_bond that is an exempt_facility_bond sec_142 provides that the term exempt_facility_bond means any bond issued as part of an issue percent or more of the net_proceeds of which are used to provide certain exempt facilities sec_142 describes tl-n-4478-01 solid_waste disposal facilities as exempt facilities sec_142 describes qualified_hazardous_waste_facilities as exempt facilities the above statutory scheme was enacted by the tax_reform_act_of_1986 the act see sec_1301 et seq of pub_l_no c b vol was the facility a qualified_hazardous_waste_facility as defined in sec_142 sec_142 provides in part that the term qualified_hazardous_waste_facility means any facility for the disposal of hazardous waste by incineration or entombment - but only if the portion of such facility which is to be provided by the issue does not exceed the portion of the facility which is to be used by persons other than the owner or operator of such facility and any related_person within the meaning of sec_144 to such owner or operator from the facts given it appears that the company is the source of all of the waste material treated at the facility we thus conclude that the facility is not a qualified_hazardous_waste_facility within the meaning of sec_142 can the facility which processes solid hazardous waste qualify as a solid_waste_disposal_facility as defined in sec_142 tax-exempt_financing was permitted for solid_waste disposal facilities under sec_103 of the code regulations were issued under the code providing definitions of solid_waste_disposal_facility and solid_waste sec_1 f ii the legislative_history accompanying the act imports these definitions to sec_142 the house report incorporates all of the present law to the extent not amended while characterizing the present law definition of solid_waste disposal facilities by reference to the regulatory rules found in sec_1 f ii h_r rep no pincite 1986_3_cb_497 the conference_report states that solid_waste disposal facilities are generally defined as under present law h_r conf_rep no at ii-704 1986_3_cb_704 sec_1_103-8 of the income_tax regulations generally defines the term solid_waste_disposal_facility as meaning any property or portion thereof used for the collection storage treatment utilization processing or final disposal of solid_waste the term generally does not include facilities for collection storage or disposal of liquid or gaseous waste sec_1_103-8 provides in part that the term solid_waste means garbage refuse and other discarded solid materials including solid-waste materials resulting from industrial commercial and agricultural operations material will not qualify as solid_waste unless on the date_of_issue of the obligations issued to provide the disposal facility it is property which is useless tl-n-4478-01 unused unwanted or discarded solid material which has no market or other value at the place where it is located in its discussion of solid_waste_disposal_facility bonds the conference_report to the1986 act clarifies that solid_waste does not include most hazardous waste h_r conf_rep no at ii-704 1986_3_cb_704 in its discussion of qualified_hazardous_waste_facility bonds the conference_report states that the law prior to the act had no provision allowing tax-exempt industrial_development_bonds to be issued to finance hazardous waste treatment or disposal facilities the conference_report notes that under then current law solid_waste disposal facilities do not include facilities disposing of liquid or gaseous wastes including most hazardous waste h_r conf_rep no at ii-706 1986_3_cb_706 the conference agreement then states that the act permits exempt facility bonds to be issued to finance qualified_hazardous_waste_facilities h_r conf_rep no at ii-707 c b vol the waste material treated at the facility is solid in form but is also classified as a hazardous material we conclude that the fact that the waste is hazardous does not prevent the facility from qualifying as an exempt solid_waste_disposal_facility sec_1_103-8 does not exclude hazardous waste from the definition of solid_waste moreover sec_142 does not contain any language indicating that a facility that treats a waste material that is both solid and hazardous cannot be financed with solid_waste_disposal_facility bonds if the facility otherwise meets the code requirements for solid_waste_disposal_facility bonds further there is no language in sec_142 or the regulations thereunder stating that any exempt facility bonds issued to provide a facility that treats a waste material that is both solid and hazardous must be issued as qualified_hazardous_waste_facility bonds the legislative_history to the act supports our conclusion as noted above the conference_report to the act states that solid_waste disposal facilities do not include facilities disposing of liquid or gaseous wastes including most hazardous wastes it appears that congress in enacting sec_142 was operating from the premise that most hazardous waste is liquid or gaseous so that most hazardous waste processing facilities could not be financed as solid_waste facility bonds by addition of the provision allowing for tax-exempt_financing of qualified_hazardous_waste_facilities congress apparently meant to expand the types of hazardous waste disposal facilities that can be financed with tax-exempt_bonds but not to change current law governing solid_waste_disposal_facility bonds did the conduit borrower spend bond proceeds on a qualified exempt facility pursuant to sec_142 assuming compliance with the requirements of sec_142 not specifically addressed in this field_service_advice the bonds were spent on a qualified exempt facility tl-n-4478-01 case development hazards and other considerations we recognize that our conclusion that the bonds are solid_waste exempt facility bonds under sec_142 is not without doubt in arriving at our conclusion we suggested that congress in expanding the list of exempt facilities to include hazardous waste facilities meant to correct a deficiency in the law which allowed facilities for solid hazardous waste but not facilities for gaseous or liquid hazardous waste to be financed as exempt facilities if congress was merely filling a gap it is unclear why it chose to impose a limitation on liquid or gaseous hazardous waste that it did not impose on solid hazardous waste as noted above the code imposes a limitation upon the source of the hazardous waste to be processed at the bond-financed portion of the facility no similar requirement exists for solid_waste facility bonds we have not been able to find an explanation nevertheless we believe that the better reading of the code is as discussed above this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please call me at or david white at if you have any further questions mary oppenheimer assistant chief_counsel by rebecca l harrigal branch chief cc tege eoeg teb


t c memo united_states tax_court marjorie cathey miller petitioner v commissioner of internal revenue respondent docket no filed date charles h hammer for petitioner gregory m hahn for respondent memorandum opinion cohen judge on date respondent issued a notice of final_determination denying petitioner’s claim_for_abatement of interest petitioner filed a petition under sec_6404 and rule the case is before the court on respondent’s motion for summary_judgment the issue for decision is whether respondent has the authority to abate interest on employment_taxes under sec_6404 a unless otherwise - - indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure background at the time the petition in this case was filed petitioner resided in deer park washington during and the taxable years in issue marjorie cathey miller petitioner operated a beauty salon known as about face and employed several individuals petitioner treated these individuals as independent contractors for tax purposes and did not file employment_tax returns form employer’s annual federal unemployment tax_return and form_941 employee’s quarterly federal tax_return or issue forms w-2 for the taxable years in issue in respondent initiated a tax examination of petitioner’s and business activities and at the conclusion of this examination in date concluded that petitioner should have treated the individuals as employees rather than as independent contractors on date respondent prepared form_4666 summary of employment_tax examination indicating that the following employment_taxes and penalties were owed by petitioner sec_6651 year form tax penalty total sdollar_figure sdollar_figure sdollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure total dollar_figure dollar_figure dollar_figure on date petitioner signed two form sec_2504 agreement to assessment and collection of additional tax and acceptance of overassessment---excise or employment_tax agreeing to the assessment and collection of the above tax_liabilities the liabilities listed on the form sec_2504 totaled dollar_figure on date petitioner submitted a check to respondent in the amount of dollar_figure and respondent applied this payment to the employment_taxes penalties and interest due from petitioner for failure_to_file employment_tax returns leaving the following amounts owed by petitioner year form tax penalty total s dollar_figure s dollar_figure sdollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure w-2 dollar_figure dollar_figure total dollar_figure dollar_figure dollar_figure in petitioner was contacted by respondent who claimed that petitioner had unpaid liabilities flowing from the examination after extensive discussions with respondent q4e- petitioner was informed that to pursue the matter further she had to pay the balance due and submit a claim_for_refund on form_843 claim_for_refund and request for abatement on or about date petitioner submitted a check to respondent for dollar_figure paying the full amount of tax penalty and interest owing on the unpaid employment_tax liabilities on date petitioner submitted eight separate form sec_843 seeking abatement of interest assessed on the employment_tax liabilities on date respondent mailed to petitioner a final_determination denying petitioner’s claim for interest abatement petitioner filed a petition to contest respondent’s determination not to abate interest under sec_6404 for the taxable years in issue claiming that respondent’s denial was an abuse_of_discretion discussion respondent argues that there was no abuse_of_discretion under sec_6404 because respondent is not authorized under sec_6404 to abate interest assessed with respect to employment_taxes respondent relies on our holding in 112_tc_19 petitioner argues that woodral was incorrectly decided that respondent has the authority to abate interest on employment_taxes and that respondent’s failure to abate the interest in this case under sec_6404 was an abuse_of_discretion - - under rule a summary adjudication may be made if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b no material facts are in dispute in this case thus whether respondent has authority to abate interest on employment_taxes may be decided as a matter of law sec_6404 provides in pertinent part in general --in the case of any assessment of interest on-- a any deficiency attributable in whole or in part to any unreasonable error or delay by an officer_or_employee of the internal_revenue_service acting in his official capacity in performing a ministerial or managerial act or b any payment of any_tax described in sec_6212 to the extent that any unreasonable error or delay in such payment is attributable to such officer_or_employee being erroneous or dilatory in performing a ministerial or managerial act the secretary may abate the assessment of all or any part of such interest for any period in woodral v commissioner supra this court held that respondent is authorized under sec_6404 to abate interest only on any deficiency or payment of tax relating to income estate gift generation skipping or certain excise_taxes see id pincite this court stated based on our review of sec_6404 and the code sections it references we hold that the commissioner lacks the authority to abate assessments of interest on employment_taxes under sec_6404 as the commissioner has no authority to abate assessments of interest on employment_taxes under sec_6404 the commissioner could not have committed an abuse of discretion--a person with no discretion simply cannot abuse it id petitioner does not distinguish this case from woodral rather she asks us to overrule a recent decision of this court we decline to do so petitioner contends that woodral intermingled and combined the wording of subsection a and b and tampered with the clear and unambiguous language of sec_6404 e a in contravention of 102_tc_721 courts are forbidden to tamper with the plain meaning of the words employed unless they are clearly ambiguous or nonsensical id pincite petitioner also argues that sec_6404 was enacted to provide taxpayer relief and that there is absolutely no reason to believe that congress intended to limit sec_6404 e a as set forth in woodral as we stated in woodral if a statute is clear we focus on the language of the statute in determining congressional intent particular phrases are construed in consideration of the overall statutory scheme see woodral v commissioner supra pincite deficiency is a term of art and according to sec_6211 deficiency does not deal with the realm of employment_taxes - thus we must conclude that in using the term deficiency in sec_6404 a congress intended only that respondent have authority to abate interest with respect to income estate gift generation skipping and certain excise_taxes and not with respect to employment_taxes see sec_6211 in this case petitioner seeks to have interest relating to employment_tax liabilities abated under sec_6404 following the precedent established in woodral v commissioner supra we conclude that respondent did not commit an abuse_of_discretion in this case by denying petitioner’s claim_for_abatement because respondent does not have the authority under sec_6404 to abate interest on employment_taxes see woodral v commissioner supra pincite to reflect the foregoing respondent’s motion will be granted and decision will be entered for respondent


department of the treasury internal_revenue_service washington d c date number release date cc el gl br2 gl-703678-97 uilc memorandum for arkansas-oklahoma district_counsel from subject kathryn a zuba chief branch general litigation collection of employment_tax liabilities from members of single-member limited_liability companies issue is the sole owner of a single-member limited_liability_company llc personally liable for employment_taxes incurred by the llc conclusion the general_rule that members of llcs are not personally liable for employment_taxes incurred by the llc does not apply to single-member llcs unless the llc elects association status under the check-the-box_regulations because absent such election the llc entity is disregarded for federal tax purposes thus the single member is the statutory employer and is liable for the employment_tax background the office_of_chief_counsel has taken the position that where under the state llc statutes a member is not personally liable for the debts of the llc the employment_tax liability of the llc cannot be collected from the property of the member under the federal tax collection provisions unless the member has trust fund liability under sec_6672 the question has arisen whether the same reasoning applies to single-member llcs where the llc is disregarded for federal tax purposes law and analysis the check-the-box_regulations determine how a business_entity is to be classified for federal tax purposes a business_entity with a single owner that is not classified as a corporation under the regulations may elect to be classified as an association and thus taxed like a corporation or to be disregarded as an entity separate from its owner sec_301_7701-3 if no election is made the entity is disregarded as an entity separate from its owner sec_301_7701-3 thus if the owner is an individual all income is reported on the individual's returns and the individual is the employer for purposes of liability for employment_taxes the service has announced in temporary procedures that it will generally accept reporting and payment of employment_taxes with respect to the employees of an entitiy disregarded as an entity separate from its owner in one of two ways calculation reporting and payment of all employment_tax obligations with respect to employees of a disregarded_entity by its owner as though the employees of the disregarded_entity are employed directly by the owner and under the owner’s name and taxpayer_identification_number or separate calculation reporting and payment of all employment_tax obligations by each state law entity with respect to its employees under its own name and taxpayer_identification_number notice_99_6 1999_3_irb_1 the notice cautions however that if the second method is chosen the owner retains ultimate responsibility for the employment_tax obligations incurred with respect to employees of the disregarded_entity in other words although the service will consider the employment_tax obligations of the owner to be fulfilled through the second method the owner remains the liable employer pursuant to notice_99_6 the owner of a single-member llc where association status is not elected is the statutory employer for purposes of liability for employment_taxes because the llc entity is disregarded for federal tax purposes any delinquent employment_taxes should be collected from the owner our general advice that llc members are not responsible for the employment_taxes of llcs except for trust fund liability only applies where the llc is the statutory employer if in the case of a single- member llc the member is the statutory employer due to the disregard of the llc entity then such member is liable for the employment_tax and the employment_tax can be collected from such member pursuant to the federal tax collection provisions please contact this office at if you have any questions or comments concerning this memorandum cc district_counsel pacific-northwest portland assistant chief_counsel p si in certain cases of abuse there may be grounds for collecting the sole member’s liability from the llc based on the theory that the llc is an alter ego or that it would be appropriate to pierce the llc veil for application of such approaches with respect to corporations see 798_f2d_1241 9th cir avco delta corp canada ltd v united_states 7th cir 629_f2d_162 d c cir cert_denied 451_us_1018


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uil numbers date oct employer_identification_number contact person identification_number telephone number legends corporation life trust nonrepresented health trust represented health trust retiree medical plan retiree dental plan life plan prior private_letter_ruling b corporation x corporation y corporation m n a u o w a u o a o h dear sir or madam this is in reference to your ruling_request dated date as supplemented by letter dated date concerning issues under sec_61 sec_419 sec_419a sec_420 sec_501 sec_512 and sec_4976 of the internal_revenue_code code facts corporation was formed from communication systems formerly part of b corporation corporation became independent of b corporation as part of a tax-free reorganization the life trust is a voluntary employees’ beneficiary association veba trust recognized as exempt under sec_501 that currently provides certain postretirement life_insurance benefits to corporation’s eligible retired employees the life trust holds a single asset a group term life_insurance_contract the life_insurance_policy pursuant to the life_insurance_policy the insurance_company maintains a retired_lives_reserve retired_lives_reserve for the purpose of funding postretirement life_insurance benefits for both represented and nonrepresented employees as of date the amount of assets in the life trust in excess of the amount necessary to fully fund the present_value of postretirement life_insurance benefits under the corporation’s life_insurance plan was approximately dollar_figure billion the nonrepresented health trust is a veba recognized as exempt under sec_501 of the code that covers nonrepresented active and retired employees the represented health trust is a veba under sec_501 that covers represented active and retired employees represented employees are those covered by a collective bargaining agreement and nonrepresented employees are those not covered by a collected bargaining agreement both trusts provide medical benefits the life trust the nonrepresented health trust and the represented health trust were established in connection with a spin-off of assets and liabilities from the corresponding b corporation welfare_benefit funds as part of the corporation spin-off corporation has not made any contributions to the life trust since its establishment thus the source of all funds within the life trust are contributions originally made and presumably deducted by b corporation x corporation was formed as a result of the tax-free spin-off of the m business of corporation in y corporation comprises corporation’s former n group currently y corporation and corporation are members of the same controlled_group corporation anticipates subsequently distributing all of the remaining y corporation shares in a tax-free transaction the corporation received a private_letter_ruling that the spin-off of x corporation constituted a tax-free reorganization however the corporation has received no ruling concerning the proposed spin- off of y corporation prior to the spin-offs of x corporation and y corporation corporation entered into certain agreements the employee benefit agreements with x corporation and y corporation for the purpose of governing the employee_benefits aspects of the spin-offs of the respective companies the employee benefit agreements require that all assets transferred from corporation’s postretirement veba trusts will be transferred to corresponding postretirement veba trusts established by x corporation and y corporation on a pro_rata basis under fa sec_106 assumptions proposed transactions corporation first proposed transaction is to apportion the life trust into two separate vebas the represented welfare trust and the nonrepresented welfare trust collectively the new vebas’ the former providing postretirement life_insurance benefits to represented employees and the latter proving postretirement life_insurance benefits to nonrepresented employees in accordance with this division the life_insurance_policy will be apportioned into life_insurance policies established to provide benefits to nonrepresented and represented employees the represented life_insurance_policy and the nonrepresented life_insurance_policy as part of the division the retired lives reserves will be apportioned into two retired lives reserves the nonrepresented retired_lives_reserve and the represented retired lives reserve’ the allocation of assets between the nonrepresented retired_lives_reserve and the represented retired_lives_reserve will be on a pro_rata allocation on the basis of the present values of the future benefit obligations of the represented life_insurance_policy and the nonrepresented life_insurance_policy the actuarial assumptions that will be applied for purposes of calculating the present_value of future benefit obligations will be the actuarial assumptions utilized by the corporation for its financial_accounting purposes pursuant to fa sec_87 once the corporation apportions the life trust into the new vebas the corporation proposes to use the excess pre-defra reserves available in the new vebas to fund postretirement health care benefits the corporation will determine the amount of excess pre- defra reserves in the new vebas by first using the methodology set forth in section of the regulations substituting the term pre-defra reserve for existing a -5t q a reserve for post-retirement medical or life_insurance benefits and the date date for the date date appearing in those regulations to determine the amount of pre- defra reserves in the veba thus to determine the pre-defra reserves the corporation will begin with the date life_insurance_reserve decrease it by subsequent benefit payments and increase it with proportional between pre-defra and other reserves investment_income the corporation will then allocate the pre-defra reserves in the life trust to the new vebas in proportion to the assets within each of the new vebas the corporation will then determine the excess pre-defra reserve within each new veba as the lesser_of the pre-defra reserve and the excess_assets held by that new veba the excess_assets of each new veba will be determined as the excess of the fair_market_value of assets held within each new veba over the present_value of that veba’s adjusted as described in the following sentence benefit obligations for the purposes of determining each veba’s adjusted benefit obligations life_insurance benefits will not be taken into account to the extent that the aggregate amount for any employee exceeds dollar_figure the actuarial assumptions that will be applied for purposes of calculating the present_value of future benefit obligations will be the actuarial assumptions utilized by the corporation pursuant to fa sec_87 the amount of excess pre-defra reserves that will be released to fund postretirement health benefits will be determined each year by corporation’s human resources and financial staff members it is contemplated that the formal letter of instruction will be issued by the corporation’s senior vice president of human resources the corporation has requested the following rulings the proposed transactions will not cause the life trust or any of the other veba trusts involved in the proposed transactions to fail to be exempt from tax under sec_501 of the code as organizations described in sec_501 the proposed transactions will not cause corporation to include any amount in gross_income the proposed transactions will not result in the provision of any disqualified_benefit within the meaning of sec_4976 of the code and consequently will not cause corporation to be liable for the tax imposed by sec_4976 the proposed transaction will not cause any of the vebas involved in the proposed transactions to recognize unrelated_business_taxable_income as of the end of a plan_year with respect to any plan included under the vebas the assets then held in the retired lives reserves by the vebas will not be treated as assets set_aside to pay for the qualified current retiree health liability for purposes of sec_420 of the code the proposed transaction will not be deemed inconsistent with or violative of any representations made by the corporation for the purpose of obtaining the prior private_letter_ruling and will not adversely affect such ruling law and analysis ruling_request sec_501 of the code provides an exemption from federal_income_tax for organizations described in sec_501 sec_501 of the code describes a voluntary employees’ beneficiary association as an organization which provides for the payment of life sick accident or other_benefits to the members of such association or their dependents or designated beneficiaries if no part of the net_earnings of such association inures other than through such payments to the benefit of any private_shareholder_or_individual sec_1_501_c_9_-2 of regulations provides that in part that eligibility for membership in a veba may be restricted by geographic proximity or by objective conditions or limitations reasonably related to employment such as a limitation to a reasonable classification of workers sec_1_501_c_9_-2 of the regulations provides in the case of an employer funded-organization a provision that excludes from membership or limits the type or amount of benefits provided to individuals who are included in a unit of employees covered by an agreement which the secretary of labor finds to be a collective bargaining agreement between employee_representatives and one or more employers if there is evidence that the benefit or benefits provided by the organization were the subject of good_faith bargaining between such employee_representatives and such employer or employers sec_1_501_c_9_-3 of the regulations provides in part that life sickness accident or other similar benefits may be provided by a veba so long as each type of benefit is a permissible veba benefit sec_1_501_c_9_-4 of the regulations provides in part that no part of the net_earnings of an employees’ association may inure to the benefit of any private_shareholder_or_individual other than through the payment of benefits permitted by sec_1_501_c_9_-3 sec_1_501_c_9_-2 of the regulations permits the coverage of a veba to be restricted to a specified class of employees in particular it is permissible to exclude from coverage groups of employees that are no longer employed within the veba sponsor's controlled_group thus corporation may amend its vebas to exclude coverage of employees transferred to x corporation or y corporation additionally x corporation and y corporation may establish and maintain vebas covering employees who have transferred from the corporation the coverage of the represented welfare trust and y corporation represented welfare trust to represented employees and to restrict the coverage of the nonrepresented welfare trust and y corporation nonrepresented welfare trust to nonrepresented employees additionally the sec_501 requirements are not violated by the adoption of an amendment to an existing veba or the establishment of a new veba to provide health benefits in addition to life_insurance benefits also the transfer of assets from one veba to another eg from the current life trust to the corresponding life_insurance_trust established for x corporation from the current life trust to the nonrepresented welfare trust or from the represented welfare trust or nonrepresented welfare trust to the corresponding welfare trust established for y corporation will not result in prohibited inurement of the net_earnings of any of the vebas involved in the transaction coverage for all of the employees currently covered by the life trust represented health trust or nonrepresented health trust will be retained by such vebas or assumed by one or more of the other vebas involved in the transactions as applicable and all current_assets and liabilities of the life trust represented health trust or nonrepresented health trust will either be retained or transferred to another veba involved in the transaction therefore there is no prohibited inurement therefore the proposed transactions will not cause the life trust or any of the other veba trusts involved in the proposed transactions to fail to be exempt from tax under sec_501 of the code as organizations described in sec_501 ruling_request sec_61 of the code provides that unless otherwise excepted gross_income includes all income from whatever source derived sec_111 of the code provides that gross_income does not include income attributable to the recovery during the taxable_year of any amount deducted in any prior taxable_year to the extent such amount did not reduce the amount of tax_imposed_by_chapter_1 of the code that section in part codifies the tax_benefit_rule generally the tax_benefit_rule requires the inclusion in income of certain amounts that were deducted in a prior year and that generated a tax_benefit through a reduction in the amount of tax_liability in the prior tax_year 39_bta_338 affd sub nom 111_f2d_60 7th cir cert_denied 311_us_658 revrul_85_186 1985_2_cb_84 in 460_us_370 the supreme court held in part that income may arise under the tax_benefit_rule even though there is no actual recovery_of funds that were previously deducted if an event occurs that is fundamentally inconsistent with the premise on which a deduction was taken in a prior year contributions to a welfare_benefit_fund are deductible when paid but only if they qualify as ordinary and necessary business_expenses under sec_162 of the code and only to the extent allowable under sec_419 and sec_419a those sections impose strict limits on the amount of tax-deductible prefunding permitted for contributions to a welfare_benefit_fund the deduction limitations imposed by sec_419 and sec_419a apply to contributions paid_or_accrued with respect to a welfare_benefit_fund after date prior to this date deductions for contributions paid to a welfare_benefit funds were controlled by sec_162 sec_1_162-10 of the regulations provides in part that amounts paid_or_accrued within the taxable_year for a sickness accident hospitalization medical expense or similar benefit plan are deductible under sec_162 of the code if they are ordinary and necessary expenses of the trade_or_business revrul_69_478 1969_2_cb_29 holds that a corporation's nonrefundable contribution to an employee's trust to provide group health and life_insurance for both active and retired employees is deductible under sec_162 of the code when contributions are actuarially determined and made by the employer on a level basis so that at the time of an employee's retirement there is enough money in the fund to enable the trustee to continue to make the premium payments on the contracted insurance revrul_69_382 1969_2_cb_28 holds that for taxable years ending on or before date premiums_paid or incurred by an employer policyholder under contracts providing group term life and health and accident coverage for its active and retired employees are deductible in full even though a portion of the premium is credited to a retired_lives_reserve if the balance in the reserve is held by the insurance_company solely for the purpose of providing insurance coverage on active or retired lives so long as any active or retired employees remain alive and the amount added to the retired_lives_reserve is not greater than an amount which would be required to fairly allocate the cost of the insurance coverage provided over the working lives of the employees involved this revenue_ruling also stated that for taxable years ending after date such premiums_paid or incurred are deductible if in addition to the two requirements the insurance_contract states that the employer policyholder has no right to recapture any portion of the reserve so long as any active or retired employee remains alive revrul_73_599 1973_2_cb_40 holds that the annual contributions by the taxpayer to the fund maintained by the trustee for retired lives are business_expenses deductible under sec_162 of the code in the taxable_year paid_or_incurred but only to the extent that such contributions are actuarially determined and made on a level basis one proposed transaction involves funding postretirement health benefits for corporation employees from amounts originally attributable to contributions made to fund postretirement life benefits for which deductions were previously taken pursuant to sec_162 of the code also corporation plans to transfer assets relating to nonrepresented employees from the insurance_policy within the life trust which will cover only represented employees once the transaction occurs to a new substantially identical policy within the new veba providing benefits to the corporation’s nonrepresented employees additionally the corporation will transfer assets to new welfare_benefit plans established to provide life_insurance benefits by the two spun-off corporations x corporation and y corporation in an amount proportionate to the accumulated postretirement benefit obligations of employees transferred to x corporation and y corporation respectively when amounts were originally contributed to the life trust or the trust that previously held the assets deductions were taken in accordance with sec_162 and sec_419 as stated above the tax_benefit_rule is implicated when a taxpayer has taken a deduction in a prior year and in a subsequent year an event occurs that is fundamentally inconsistent with the premise of the deduction the rule protects the government and taxpayers from the adverse effects of reporting a transaction on the basis of assumptions that an unforeseen event in a subsequent year proves to have been erroneous however not every unforeseen event will require the taxpayer to report income in the amount of the prior deduction rather the tax_benefit_rule will cancel out a prior deduction only when the subsequent event is indeed fundamentally inconsistent with the premise on which the deduction was based that is if that event had occurred within the same taxable_year as the deduction it would have foreclosed the deduction hillsboro u s pincite footnote omitted the facts and circumstances of each case must be considered in light of the purpose and function of the provisions granting the deductions id pincite the corporation represents that all of the excess pre-defra reserves are amounts contributed or accruing prior to the enactment and applicability of sec_419 of the code as such all deductions for these contributions would have been taken under sec_162 for ordinary and necessary business_expenses limited by the rules set out in revrul_69_382 and rev_rul the transfer of funds from the corporation's retired life reserves to the separate postretirement health account within the veba results in a transfer of assets from an account that provides welfare benefits to another that provides welfare benefits for the deduction taken under sec_162 for a contribution to a welfare_benefit_fund prior to the enactment of sec_419 no distinction was made between the type of welfare_benefit provided under the fund however the deduction taken under sec_162 was not unlimited rather when originally taken the deduction under sec_162 for contributions to b corporation's retired life reserves was limited to an amount actuarially determined to allocate the cost of the postretirement life_insurance coverage provided over the working lives of the employees involved if the amounts in the b corporation's retired life reserves that were set_aside to fund postretirement life_insurance benefits had been released to fund postretirement health benefits in the same years in which b corporation took deductions under sec_162 of the code for contributions to the retired life reserves that release would not have in and of itself foreclosed the deductions however because the limit on the amount of the deduction in each of those years would have been different depending on whether the contributions were applied to fund postretirement life_insurance benefits or postretirement health benefits more information is needed from the corporation in order to determine whether the application of the tax_benefit_rule results in gross_income to the corporation in this case specifically the amount of the contribution in each year that would have been deductible for funding postretirement life benefits ie up to the amount that would fairly aliocate the cost of postretirement life_insurance over the working lives of the employees involved may have exceeded the amount that would have been deductible for funding postretirement health benefits over the working lives of the employees involved if excess pre-defra reserves are attributable to amounts deducted by b corporation for contributions that did not exceed the amount that would have been deductible if used to fund postretirement health benefits over the working lives of the employees involved for the years in which the respective deductions were taken the release to the separate_accounts within each of the new vebas to provide postretirement health benefits is not fundamentally inconsistent with the deductions taken under sec_162 and therefore the application of the tax_benefit_rule would not result in gross_income to the corporation the corporation has represented that it appears reasonable to conclude that all of the contributions toward the life_insurance_reserve would have been fully deductible under sec_162 of the code if the contributions to the postretirement life_insurance_reserve had in fact been made to the postretirement health reserve with regard to the transfer of assets from the life trust to the life_insurance_policy in the new veba covering only the nonrepresented employees the life_insurance benefits in the new vebas will maintain the provision that trust amounts will only be used to provide postretirement life_insurance benefits and to pay related administrative expenses with the exception of the amendment to allow the release of excess pre-defra amounts to pay for retiree health benefits as discussed above additionally these trusts and the life_insurance policies thereunder contain provisions prohibiting the reversion of any amount held in the retirement funding account to the corporation as long as any employee or retiree of the corporation remains alive these provisions are effective to preserve the integrity of the assets transferred to the new veba covering nonrepresented employees accordingly this transaction will not be fundamentally inconsistent with the deductions taken in previous years with respect to those assets and the application of the tax_benefit_rule would not result in gross_income to the corporation similarly the transfer of the proportionate assets to the new veba that provides retiree life benefits to nonrepresented employees from the life trust subject_to the limitation that funds in those trusts be used exclusively to provide postretirement life_insurance benefits and to pay related administrative expenses except to the extent that excess pre-defra reserves are released to pay postretirement health benefits and related administrative expenses will not result in a reversion to the benefit of the corporation that is subject_to the excise_tax imposed by sec_4976 in the case of the transfer of assets to the x corporation and y corporation vebas a similar analysis as that described in the previous paragraph is appropriate to determine the applicability of the tax_benefit_rule and any inclusion in gross_income the employee_benefits agreements require certain assets to be transferred from the represented health trust to corresponding postretirement health benefit veba trusts established by x corporation and y corporation neither the terms of these agreements nor the events that have occurred subsequent to the effectuation of these agreements give us any reason to believe that these transferred assets will in fact be utilized for any purpose other than providing postretirement health benefits and paying related expenses ruling_request sec_4976 of the code imposes a excise_tax if an employer maintains a welfare_benefit_fund and there is a disqualified_benefit provided during any taxable_year sec_4976 of the code provides that for purposes of subsection a the term disqualified_benefit means any portion of a welfare_benefit_fund reverting to the benefit of the employer sec_4976 of the code provides that that paragraph c shall not apply to any amount attributable to a contribution to the fund which is not allowable as a deduction under sec_419 for the taxable_year or any prior taxable_year corporation represents that only amounts attributable to the pre-defra reserve will be used to pay postretirement health benefits under the proposed transactions the pre-defra reserve is solely attributable to contributions that were not allowable as deductions under sec_419 of the code therefore the transferred amounts are not subject_to the sec_4976 excise_tax corporation represents that it has no right to any transferred funds and all of the assets held by the various welfare_benefit funds will be used for the exclusive purpose of providing welfare benefits to corporation's retired employees and eligible beneficiaries as applicable therefore the proposed transactions will not result in the provision of any disqualified_benefit within the meaning of sec_4976 of the code and consequently will not cause corporation to be liable for the tax imposed by sec_4976 ruling_request sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations exempt from federal_income_tax under sec_501 of the code sec_512 of the code provides that in the case of an organization described in sec_501 the term unrelated_business_income means the gross_income excluding any exempt_function_income less the deductions allowed by chapter which are directly connected with the production of the gross_income excluding exempt_function_income both computed with the modifications set forth in certain paragraphs of sec_512 sec_512 of the code provides that for purposes of subparagraph a the term exempt_function_income means the gross_income from dues fees charges or similar amounts paid_by members of the organization as consideration for providing such members or their dependents or guests goods facilities or services in furtherance of the purposes for which the organization is tax exempt such term also means all income other than an amount equal to the gross_income derived from any related trade_or_business regularly carried on by such organization computed as if the organization were subject_to sec_512 which is set_aside in the case of a sec_501 organization to provide for the payment of life sick accident or other_benefits if during the taxable_year an amount which is attributable to income so set_aside is used for a purpose other than that just described such amount shail be included under subparagraph a in unrelated_business_taxable_income for the taxable_year sec_512 of the code provides that in the case of an organization described in sec_501 a set_aside for the payment of life sick accident or other_benefits may be taken in account under sec_512 only to the extent that such set-aside does not result in an amount of assets set_aside for such purpose in excess of the account limit determined under sec_419a for the taxable_year not taking into account any reserve described in sec_419a for post-retirement medical bills sec_1_512_a_-5t q a-3 a of the regulations provides in part that the amounts set_aside in a veba as of the close of a taxable_year of the veba to provide for payment of life sick accident or other_benefits may not be taken into account for purposes of determining exempt_function_income to the extent that such amounts exceed the qualified_asset_account limit determined under code sec_419a and sec_419a f for such taxable_year of the veba sec_1_512_a_-5t q a-3 b of the regulations provides in part that the unrelated_business_taxable_income of a veba for a taxable_year of such organization generally will equal the lesser_of two amounts the income of the veba for the taxable_year excluding member contributions or the excess of the total amount set_aside as of the close of the taxable_year including member contributions and excluding certain assets with a useful_life extending beyond the end of the taxable_year to the extent they are used in provision of welfare benefits over the qualified_asset_account limit calculated without regard to the otherwise permitted reserve for post-retirement medical benefits for the taxable_year the proposed transactions will not create unrelated_business_taxable_income the transfer of excess pre-defra reserves from a retired iives reserve to the veba that is the policyholder of the life_insurance_contract is simply a transfer from one welfare_benefit_fund to another welfare_benefit_fund the transfer of excess pre-defra reserves will instead represent merely a reallocation of assets between different welfare_benefit funds -11- therefore the proposed transaction will not cause any of the vebas involved in the proposed transactions to recognize unrelated_business_taxable_income however no opinion is expressed about the implications of past computation of the account limit under sec_419a of the code for purposes of computing the unrelated_business_income under sec_512 of the life trusts or any prior trusts to which assets now in the life trust were originally contributed for purposes of calculating the amount of unrelated_business_taxable_income of the new vebas for any taxable_year an existing reserve for post-retirement medical and life_insurance benefits described in sec_512 of the code must be calculated using the greater of two amounts as set forth in sec_512 both of these amounts are keyed to the date date and not to date consequently for purposes of calculating ubti the relevant reserve shall be the reserve attributable to amounts set_aside as of date and not as of date ruling_request sec_420 of the code permits subject_to specified conditions and limitations a qualified_transfer of excess_pension_assets of a defined_benefit_plan other than a multiemployer_plan to a health_benefits_account under sec_401 that is part of the plan sec_420 limits the amount that may be transferred to the amount that is reasonably estimated to be the amount the employer maintaining the plan will pay whether directly or through reimbursement out of the account during the taxable_year of the transfer for qualified_current_retiree_health_liabilities sec_420 of the code provides that generally the term qualified_current_retiree_health_liabilities means with respect to any taxable_year the aggregate amounts including administrative expenses that would have been allowable as a deduction to the employer for the taxable_year with respect to applicable_health_benefits provided during the taxable_year if those benefits were provided directly by the employer and the employer used the cash_receipts_and_disbursements_method of accounting sec_420 of the code provides that the amount determined under sec_420 shall be reduced by amounts in health benefits accounts or welfare_benefit funds set_aside to pay for the qualified current retiree health liability this reduction is based on the ratio of i the value as of the close of the plan_year preceding the sec_420 transfer of the assets in all health benefits accounts or welfare_benefit funds set_aside to pay for qualified_current_retiree_health_liabilities to ji the present_value of the qualified_current_retiree_health_liabilities for all plan years during any taxable_year once the corporation has determined an amount of excess pre- defra reserves in the new vebas that may be released to be applied to fund postretirement health benefits and related expenses in a taxable_year those amounts are committed to pay current retiree health liabilities for that year accordingly once the corporation determines an amount of excess pre-defra reserves is to be released to be applied to fund postretirement health benefits the amounts so designated become assets set_aside to pay the qualified it is the determination to release the amounts and not the actual current retiree health liability release and deposit of these amounts in separate_accounts within the new vebas that is the relevant event for purposes of sec_420 when the corporation makes a determination whether by board action or other managerial decision making process that certain funds will be released to fund postretirement health benefits the amounts are committed to fund such benefits thus as of the end of any plan_year assets set_aside to pay the qualified current retiree health liability under sec_420 includes any portion of the excess pre-defra reserves that the corporation has determined will be released in that plan_year to pay postretirement health benefits whether or not the funds have actually been set_aside into a separate retiree health account in contrast however the ruling_request indicates that any amount of the excess pre-defra reserve the corporation does not determine it will release for postretirement health benefits remaining in the retired_lives_reserve will be applied only to pay retiree life_insurance liabilities thus those remaining assets are not assets set_aside to pay the qualified current retiree health liability under sec_420 ruling_request sec_4976 of the code imposes an excise_tax in the amount of percent of the amount of any disqualified_benefit provided by a welfare_benefit_plan sec_4976 of the code indicates that the term disqualified_benefit includes any portion of a welfare_benefit_fund reverting to the benefit of the employer sec_4976 of the code provides that sec_4976 does not apply to any amount attributable to a contribution to the fund that is not allowable as a deduction under sec_419 for the taxable_year or any prior taxable_year the issue of whether the use of funds set_aside to fund postretirement life benefits under sec_419 of the code to provide postretirement health benefits is a disqualified_benefit under sec_4976 thus triggering the excise_tax is not being addressed in this ruling sec_1_419-1t q a-2 of the regulations provides that sec_419 applies only to contributions paid_or_accrued with respect to a welfare_benefit_fund such as the b corporation and the corporation retired life reserves and vebas after date in taxable years of employers ending after that date assuming the corporation is correct in its statement that all the entire excess_amount represents contributions made and accruals occurring prior to date only excess pre-defra reserves will be applied to provide postretirement health benefits the excess pre-defra reserves are attributable only to contributions that were not allowable as a deduction under sec_419 for the taxable_year or any prior taxable_year within the meaning of sec_4976 of the code accordingly pursuant to sec_4976 sec_4976 does not apply with respect to the use of the excess pre-defra reserves the service previously issued the prior private_letter_ruling regarding the transfer of amounts from b corporation’s welfare_benefit funds to similar welfare_benefit funds established by the corporation the rulings in that prior private_letter_ruling were based in part upon representations by the corporation that the amounts transferred to the retired life reserves would be used exclusively to provide postretirement life_insurance benefits and to pay related administrative expenses the corporation now represents that the life_insurance policies held by the new vebas will provide that the retired life reserve assets will be used exclusively to provide postretirement life_insurance benefits and to pay related administrative expenses except to the extent that excess pre-defra reserves are released to pay postretirement health insurance benefits and related administrative expenses as described above because as indicated above sec_4976 is not applicable with respect to the use of excess pre-defra reserves we conclude that the proposed transactions will not adversely affect the determinations in the prior private_letter_ruling this ruling is based on the understanding that there will be no material changes in the facts upon which it is based this ruling is directed only to the organization that requested it sec_6110 of the code provides that this ruling may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed robert c harper be robert c harper jr manager exempt_organizations technical group