t c summary opinion united_states tax_court carl raisig petitioner v commissioner of internal revenue respondent docket no 14698-11s filed date carl raisig pro_se marissa j savit for respondent summary opinion carluzzo special_trial_judge the petition in this case was filed pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be unless otherwise indicated section references are to the internal revenue continued entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case in a notice_of_deficiency dated date notice respondent determined a deficiency in petitioner’s federal_income_tax and imposed a sec_6651 addition_to_tax and a sec_6662 accuracy-related_penalty the case is before the court on respondent’s motion for summary_judgment the issues for decision are whether petitioner is entitled to an alimony deduction in excess of the amount respondent allowed whether petitioner is liable for a sec_6651 addition_to_tax and whether petitioner is liable for a sec_6662 accuracy-related_penalty summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials see fla peach corp v commissioner 90_tc_678 summary_judgment may be granted with respect to all or any part of the legal issues in controversy if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits or declarations if any show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law rule b continued code of as amended in effect for the year at issue rule references are to the tax_court rules_of_practice and procedure 98_tc_518 aff’d 17_f3d_965 7th cir 90_tc_753 85_tc_527 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read in a manner most favorable to the party opposing summary_judgment see 85_tc_812 79_tc_340 there are obvious disputes over material facts with respect to petitioner’s liability for the sec_6651 addition_to_tax and the sec_6662 accuracy-related_penalty imposed in the notice so much of respondent’s motion as relates to these items will be denied because there are no factual disputes with respect to petitioner’s entitlement to the alimony deduction here in dispute and for the reasons discussed below respondent is entitled to decision on that issue as a matter of law and respondent’s motion with respect to that issue will be granted petitioner resided in new york at the time the petition was filed undisputed factual background petitioner and eileen fisher petitioner’s former spouse were married on date on date they separated pursuant to a written_separation_agreement separation agreement and remained separated until their divorce on date they have three children g r t r and e r the separation agreement awarded sole legal custody of the three children to petitioner’s former spouse pursuant to the separation agreement petitioner was obligated to pay dollar_figure biweekly to petitioner’s former spouse for support of the three unemancipated issue of their marriage child_support for each child shall cease upon the occurrence of an emancipation event as set forth herein the separation agreement further obligated petitioner to pay for the benefit of his children some or all of the following expenses life_insurance clothing medical_expenses and child care including summer camp and after-school activities with respect to the aforementioned expenses the separation agreement provides support and maintenance of the wife and child article viii a t he husband during his lifetime shall pay to the wife as and for support of the three unemancipated issue of their marriage the sum of five hundred thirteen dollar_figure dollars per week which sum shall be paid to the wife bi-weekly in the amount of dollar_figure child_support for each child shall cease upon the occurrence of an emancipation event as set forth herein we refer to minor children by their initials see rule a e the husband agrees to provide a minimum life_insurance_policy of one hundred fifty thousand dollar_figure dollars for the benefit of the infant issue of the marriage such sum payable to the wife as irrevocable trustee ii in the event the husband fails to pay the premium on said insurance_policy then in that event the husband shall be responsible to reimburse the wife for said payments the monies due and owing the wife for the payment of the aforementioned insurance premiums shall be considered as additional child_support the husband shall pay to the wife the sum of two hundred fifty dollar_figure dollars on or before august 15th each year and on or before march 15th each year as a clothing allowance for t r and e r upon the emancipation of one child said sum shall be reduced to one hundred fifty dollar_figure dollars to be paid twice a year article x medical_expenses the parties agree that the children’s unreimbursed medical and dental expenses will be paid one-third by the wife and two-third by the husband the husband agrees to maintain health insurance and major medical coverage for the infant children until the emancipation of the children article xi child care the husband shall pay for of summer camp expenses for e r and the wife shall pay of same the husband’s obligation shall not exceed seven hundred fifty dollar_figure dollars unless otherwise agreed in writing the husband shall be responsible to pay for two thirds of any after school activities and tutoring for e r and the wife shall pay one third of same on date the family court of the state of new york issued an order modifying an order of support on consent modifying order reducing petitioner’s biweekly child_support obligation to dollar_figure effective date for the support of his child e r biweekly child_support payments pursuant to the modifying order during petitioner made biweekly child_support payments effected through payroll deductions also during petitioner made payments attributable to his children’s life_insurance premiums clothing expenses medical_expenses and child care expenses including the costs of summer camp and after-school activities on his federal_income_tax return petitioner claimed a dollar_figure alimony deduction according to the notice petitioner’s alimony deduction is limited to dollar_figure discussion it is well settled that deductions are a matter of legislative grace and that the taxpayer must establish entitlement to any deduction claimed rule a 503_us_79 292_us_435 in the case of an individual sec_215 allow s as a deduction an amount equal to the alimony payments paid during such individual’s taxable_year the definition of alimony for purposes of sec_215 is found in sec_71 sec_215 in general and as relevant here sec_71 defines the term alimony as any cash payment if the payment is received by a spouse under_a_divorce_or_separation_instrument the divorce_or_separation_instrument does not state the record does not reveal how this amount was computed except it appears that this is the amount of alimony income reported on the federal_income_tax return of petitioner’s former spouse for purposes of sec_71 the term spouse includes a former spouse sec_71 the phrase divorce_or_separation_instrument as used in sec_71 includes continued that the payment is neither includable in gross_income nor allowable as a deduction the payor and payee spouses are not members of the same household when the payment is made and the payment obligation terminates at the death of the payee spouse and there is no liability to make either a cash or a property payment as a substitute for the payment after the death of the payee spouse sec_71 however provides that the term alimony as used in sec_71 does not include any payment which the terms of the divorce_or_separation_instrument fix as a sum which is payable for the support of children of the payor spouse further sec_71 provides that if the amount of spousal support to be paid under a separation agreement or divorce decree is to be reduced either on the happening of a contingency specified in the agreement relating to a child eg attaining a specified age or leaving for school see sec_71 or at a time that can clearly be associated with such a contingency see sec_71 an amount equal to the amount of the reduction will be treated as child_support sec_71 and b berry v commissioner tcmemo_2005_91 continued the separation agreement and the modifying order see sec_71 the parties agree with respect to the principles just stated but they disagree as to whether the portion of the alimony deduction disallowed in the notice fits within the definition of alimony petitioner takes the position that payments made pursuant to the separation agreement and or the modifying order satisfy all of the requirements of sec_71 and therefore the payments constitute alimony within the meaning of sec_71 and sec_215 according to petitioner the alimony deduction here in dispute properly includes amounts for unallocated amounts for the support and maintenance of his children and his former spouse life_insurance for his children summer camp for his children his children’s medical_expenses clothing allowance and after-school activities and credit for reduction in principal respondent disagrees according to respondent petitioner is not entitled to an alimony deduction in excess of dollar_figure because none of the payments fit within the definition of alimony see sec_71 and or all of the payments constitute child_support within the meaning of sec_71 we consider each category of payment separately this apparently relates to an amount_paid on the mortgage on the marital residence biweekly child_support payments the modifying order states that petitioner’s basic child_support obligation is dollar_figure bi-weekly for the support of his child e r the modifying order further states that petitioner and his former spouse voluntarily stipulated to child_support for the child payable by carl raisig to eileen raisig via the support collection unit in the amount of dollar_figure bi-weekly in accordance with the modifying order petitioner made biweekly support payments during the explicit language of the separation agreement and the modifying order lead to the inescapable conclusion that the biweekly payments constitute child_support and not alimony according to petitioner however 407_f3d_186 3d cir where support payments are unallocated as in this case the entire amount is attributable to the payee spouse’s income aff’g tcmemo_2003_163 supplemented by tcmemo_2003_275 allows for the avoidance of what would seem to be an inevitable result relying upon kean petitioner argues that the biweekly support payments do not qualify as child_support because the separation agreement does not explicitly fix the amount we have considered petitioner’s other arguments and find them unpersuasive of child_support and therefore the unallocated support payments must be alimony see sec_71 in kean v commissioner f 3d pincite the u s court_of_appeals for the third circuit held that when the terms of a divorce_or_separation_instrument do not fix a sum of money as child_support or provide that the payments are reduced on the happening of a contingency event related to the child or at a time related to such an event the support payments are unallocated and the entire amount is attributable to the payee spouse’s income petitioner’s reliance upon kean of course is misplaced the facts in this matter are readily distinguishable from those in kean the kean case addresses the situation where the support payments are unallocated as between the children and the spouse and no contingency exists with respect to an event related to the children that reduces the support payments even a cursory reading of the separation agreement and the modifying order unambiguously demonstrates that these divorce instruments provide that the biweekly support payments are for the support of petitioner’s child e r furthermore petitioner’s obligation to make the biweekly support payments ceases upon the occurrence of an emancipation event as set forth in the separation agreement see sec_71 it follows that the biweekly support payments are child_support under sec_71 and and are not deductible as alimony life_insurance premiums the separation agreement requires petitioner to provide life_insurance for the benefit of his children in 726_f2d_948 2d cir aff’g tcmemo_1982_681 the court_of_appeals for the second circuit held that in order for premium payments on a life_insurance_policy to constitute income to an ex- wife and accordingly be deductible by an ex-husband there must be a absolute ownership of the policy by the wife and b an irrevocable designation of the wife as beneficiary see 340_f2d_887 2d cir holding that ownership of the policies is necessary to support a deduction aff’g tcmemo_1963_346 301_f2d_279 2d cir aff’g 36_tc_507 240_f2d_584 2d cir aff’g in part rev’g in part 23_tc_630 and 22_tc_612 see also revrul_70_218 1970_1_cb_19 neither prong of the two-point test enumerated in sperling is satisfied here first petitioner’s former spouse was not the absolute owner of the life_insurance_policy rather pursuant to the separation agreement she was the irrevocable trustee of the policy second there was no irrevocable designation of petitioner’s former spouse as beneficiary of the life_insurance_policy the separation agreement designated petitioner’s infant issue of the marriage as the beneficiaries accordingly the life_insurance premiums_paid in are not deductible as alimony summer camp medical_expenses clothing allowance and after-school activities the separation agreement required petitioner to make payments to petitioner’s former spouse in for summer camp expenses for e r unreimbursed medical and dental expenses for his children a clothing stipend of dollar_figure paid twice a year for t r and e r and after-school activities and tutoring for e r petitioner again relying kean v commissioner f 3d pincite argues that because the separation agreement does not explicitly fix the amount of child_support for the aforementioned expenses payment of those expenses constitutes alimony and the payments can be used to pay petitioner’s ex-wife’s debts and therefore cannot be considered child_support again respondent disagrees and so do we upon the emancipation of one child the dollar_figure clothing stipend shall be reduced to dollar_figure first the separation agreement provides a fixed payment either in terms of an amount of money or a part of the payment for each of the aforementioned expenses for the support of petitioner’s child or children see sec_71 second with respect to clothing and medical_expenses the separation agreement contains explicit contingencies which if satisfied reduce petitioner’s requirement to make related payments see sec_71 the existence of the contingencies triggers application of sec_71 which requires the payments made for clothing and medical_expenses be treated as child_support accordingly payments made for the aforementioned expenses do not constitute alimony within the meaning of sec_71 or sec_215 reduction in principal petitioner claims that he made a dollar_figure payment for credits for reduction in principal in and that the payment is deductible as alimony as noted sec_71 defines the term alimony to include among other requirements any cash payment if the payment is received by a spouse under a divorce instrument nothing in the record suggests that petitioner was obligated to make this payment pursuant to the separation agreement the modifying order or any other document that would fit within the definition of a divorce instrument that being so for our purposes we treat this payment as voluntary and therefore not contemplated within the definition of alimony see sec_71 55_tc_1134 accordingly petitioner is not entitled to a deduction for alimony payments claimed on his return to the extent the payments exceed dollar_figure to reflect the foregoing an appropriate order will be issued


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jun tep ral ty u i l xxxxxx xxxxxx xxxxxx legend taxpayer a xxxxxx taxpayer b xxxxxx plan x xxxxxx employer m xxxxxx amount n xxxxxx amount o xxxxxx account y xxxxxx bank c xxxxxx bank d xxxxxx account z xxxxxx date xxxxxx date xxxxxx date xxxxxx date xxxxxx xxxxxx page date xxxxxx date xxxxxx date xxxxxx dear xxxxxx this is in response to a letter dated date as supplemented by correspondence dated january and date in which your authorized representative requests on behalf of your deceased spouse and you a waiver of the day rollover requirement contained in sec_402 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalties of perjury in support of your request taxpayer a now deceased received a distribution of amount n from plan x prior to her death at age taxpayer b the surviving_spouse of taxpayer a asserts that taxpayer a intended to roll over amount n retirement arrangement ira taxpayer b asserts that taxpayer a’s failure to accomplish a rollover of amount n within the 60-day period prescribed by sec_402 of the code was due to taxpayer a’s hospitalization and subsequent death into an individual taxpayer a participated in plan x a public employee retirement_system through her employment with employer m on date taxpayer a submitted to employer m an application_for retirement effective date four months after date as part of the retirement application process employees have the option to choose among certain payment methods for the distribution of their account balances in plan x taxpayer a opted to receive a partial lump sum pls payment and monthly payments a copy of the partial lump sum option distribution election form election form taxpayer a completed and signed on date was submitted sec_3 of the election form lists five a - e distribution options for a pls payment four of which are for direct_rollover of a pls payment to an eligible_retirement_plan including an ira taxpayer a’s election form shows that she checked option 3a the sole non- rollover option which instructed employer m to transfer electronically to the same financial_institution and account as her monthly benefit payments were to be sent the pls payment less the mandatory percent federal withholding from the taxable_portion xxxxxx page to request a direct_rollover of a pls payment an employee must also complete sec_2 of the election form taxpayer a’s election form shows that sec_2 had been completed but was deleted by being covered over with white-out taxpayers a and b filed joint income_tax returns a copy of a tax planner worksheet prepared by the accountant approximately one month after taxpayer a applied for retirement from employer m was submitted to the service to show that amount n was not listed on the worksheet as includible in income for the taxable_year it is asserted that the prospective non-inclusion of amount n in the couple’s income for tax filing purposes indicates that taxpayer a intended to roll over amount n of plan x into an ira two months after date taxpayer a became ill and was hospitalized taxpayer a remained hospitalized on date the effective date of her retirement it is represented that taxpayer a executed a durable_power_of_attorney effective date naming taxpayer b as her agent on date employer m distributed_amount o representing the taxable_portion of taxpayer a’s partial lump sum payment minus percent federal_income_tax withholding from plan x in accordance with the election form completed by taxpayer a employer m wired amount o to bank c where bank c correctly deposited amount o into account y a joint checking account it maintained on behalf of taxpayers a and b during the 60-day period following the distribution of amount o taxpayer a died on date in the hospital where she had remained since becoming ill several months earlier on date taxpayer b transferred amount o plus other funds to account z at bank d a credit_union account on date taxpayer b consulted with his tax adviser and was informed that amount n should have been rolled over to an ira during the 60-day period based on the above facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement contained in sec_402 of the code with respect to the distribution to taxpayer a of amount n from plan x sec_402 of the code provides that if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to the employee in an eligible_rollover_distribution and the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent transferred shall not xxxxxx page be includible in gross_income for the taxable_year in which paid sec_402 a states that such rollover must be accomplished within days following the day on which the distributee received the property an individual_retirement_account constitutes one form of eligible_retirement_plan sec_402 of the code provides in relevant part that the secretary may waive the 60-day requirement under sec_402 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_402 of the code revproc_2003_16 2003_4_irb_359 provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 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 although the information presented clearly shows that taxpayer a was herself physically unavailable to accomplish a timely rollover of amount n into an ira there is insufficient documentation to show that taxpayer a had an intent to make such a rollover the documents taxpayer a completed for the distribution of her benefits from plan x do not support taxpayer b’s assertion that taxpayer a intended to roll over amount n into an ira since taxpayer a chose the only non-rollover option on the election form the tax planning discussion is not sufficient to establish intent given that it conflicts with the actual election form executed by taxpayer a therefore pursuant to sec_402 of the code the service hereby declines to waive the 60-day rollover requirement with respect to the distribution of amount n or any portion thereof from plan x this ruling assumes that plan x satisfied the qualification requirements of sec_401 of the code at all times relevant to this transaction 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 which may be applicable thereto xxxxxx page this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent 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 wish to inquire about this ruling please contact xxxxxx i d xxxxxx by telephone at se t ep ra t4 please address all correspondence to sincerely yours plu bo taschaunrtg laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc xxxxxx xxxxxx xxxxxx


internal_revenue_service number release date index number ------------------- --------------------------------- ------------------------------------ --------------------------------------- ------------------------------ - department of the treasury washington dc person to contact ------------------------- id no telephone number --------------------- refer reply to cc fip br1 - plr-133443-03 date date ------------------------------------ legend taxpayer ---------------------------------------------------------------------- trust ----------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- beneficiaries ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------ a llc property a ---------------------------------------------------------------- llc property b ------------------------------------------------------------------------------ b c ----------------------------------------------------------------------- ----------------------------------------------------------------------- ------------------------------ ---------------------------- ------ ---- --- ---------------------- -------------------------- --------------------------------------- ------------------------------------------------ ------------------------------------------------------------------------ this is in reply to a letter dated date and subsequent submissions plr-133443-03 llc property c ---------------------------------------------------------------- lp lp2 date dear ---------- requesting a private_letter_ruling on behalf of taxpayer you have requested a ruling that in determining taxpayer’s gross_income under sec_856 of the internal_revenue_code taxpayer will not take into account its allocable share of certain amounts attributable to llc to the extent that such amounts are attributable to ground_rents received by llc from llc and do not exceed taxpayer’s allocable share of deductions attributable to the ground_rents paid_by llc facts taxpayer is a domestic_corporation that is wholly-owned by trust trust has several wholly-owned subsidiaries the subsidiaries that are either inactive or own interests in partnerships or limited_liability companies treated as partnerships that directly or indirectly own real_estate taxpayer intends to elect reit status for its taxable_year taxpayer represents that prior to the effective date of its conversion to a reit trust will distribute free of any liens pledges encumbrances or other restrictions at least c percent of the common_stock of taxpayer to the beneficiaries in equal proportions taxpayer’s primary assets include an a percent indirect interest in llc which owns property a an a percent indirect interest in llc which owns property b and a b percent interest in llc which owns property c taxpayer owns its interest in llc and llc indirectly through wholly-owned subsidiary corporations that own interests in entities that are classified as partnerships for federal tax purposes upon conversion taxpayer’s wholly-owned subsidiaries through which it owns interests in property b and property c will be treated as qualified reit subsidiaries the remaining interests in llc llc and llc are owned by third party investors that are unrelated to taxpayer pursuant to the partnership_agreement for lp1 dated date through which the office building owned by llc is leased to tenants that are unrelated to the partnership_agreement for lp2 dated date through which taxpayer plr-133443-03 taxpayer indirectly owns its interest in property c partnership income and losses that are not associated with a capital_transaction are to be allocated in accordance with the partner’s percentage interests in the partnership a capital_transaction is defined by the partnership_agreement as the sale of the land held by the partnership insurance recoveries and condemnation awards upon damage or destruction of the land or a refinancing of the property to the extent that a capital_transaction arises net gains or net losses from such transaction are to be allocated to the partners in accordance with the partner’s respective percentage interest in the partnership indirectly owns its interest in property b also provides that income and losses of the partnership with the exception of those recognized from a capital_transaction as defined above are to be allocated in accordance with the partner’s percentage interests in the partnership to the extent that a capital_transaction occurs net gains from the transaction will be allocated first to the partners so that their capital accounts are proportionate to their percentage interests and thereafter in accordance with their percentage interests in the partnership taxpayer the subsidiaries or the third-party investors that hold interests in the building however the land underlying the office building is leased by llc under a ground lease from llc consequently a portion of taxpayer’s a percent allocable share of the gross rents from the office building through its interest in llc is paid to llc as ground_rents taxpayer is allocated its proportionate share of the ground_rents received by llc from llc also for purposes of determining its taxable_income taxpayer is allocated a deduction for its a percent share of llc 2’s ground rent expense accordingly taxpayer’s gross_income for federal tax purposes includes both its share of the rents from property b and its share of the ground_rents from property c which are funded by the rents from property b llc is thus a tenant of llc and a related_party to taxpayer within the meaning of sec_856 because of taxpayer’s greater than ten percent profits interest in llc based on expected ground_rents including increases the portion of taxpayer’s gross_income attributable to its allocable share of the llc ground_rents will exceed five percent of taxpayer’s gross_income law and analysis must be derived from among other sources rents_from_real_property must be derived from among other sources rents_from_real_property sec_856 provides that at least percent of a reit's gross_income sec_856 provides that at least percent of a reit's gross_income sec_856 provides that rents_from_real_property include subject_to under sec_1_856-3 of the income_tax regulations a reit that is a partner in a sec_856 provides that for purposes of sec_856 and plr-133443-03 partnership is deemed to own its proportionate share of each of the assets of the partnership and to be entitled to the income of the partnership attributable to that share for purposes of sec_856 the interest of a partner in the partnership's assets is determined in accordance with the partner's capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership retain the same character in the hands of the partners for all purposes of sec_856 exclusions provided in sec_856 a rents from interests_in_real_property b charges for services customarily furnished or rendered in connection with the rental of real_property whether or not such charges are separately_stated and c rent attributable to personal_property leased under or in connection with a lease of real_property but only if the rent attributable to the personal_property for the taxable_year does not exceed percent of the total rent for the tax_year attributable to both the real and personal_property leased under or in connection with the lease the term rents_from_real_property does not include any amount received or accrued directly or indirectly from any person if the reit owns directly or indirectly in the case of a person that is not a corporation an interest of percent or more in the assets or net profits of such person prescribed by sec_318 apply in determining the ownership of stock assets or net profits of any person except that a percent should be substituted for percent in subparagraph c of paragraphs and of sec_318 and b sec_318 shall be applied in the case of a partnership by taking into account only partners who own directly or indirectly percent or more of the capital interest or the profits interest in a partnership d and a consequently if taxpayer’s allocable share of the ground_rents received by llc from llc is treated as income under sec_856 that income will be excluded from rents_from_real_property as related_party rents under sec_856 pursuant to sec_1_856-3 taxpayer will be allocated a percent of the gross_income derived by llc from property b taxpayer also will be allocated b percent of the gross_income derived by llc from the ground_rents of property c because the only source_of_income for llc is the ground_rents paid_by llc taxpayer’s allocable share of the income from llc2 will be double counted to the extent of taxpayer’s b taxpayer owns more than percent of llc through attribution under sections sec_856 provides that for purposes of sec_856 the rules this ruling is directed only to the taxpayer requesting it taxpayer should attach plr-133443-03 percent indirect capital interest in llc if it is included in taxpayer’s allocable share of llc 3’s gross_income for purposes of sec_856 accordingly based upon the information submitted and representations made for purposes of determining taxpayer’s gross_income under sec_856 amounts paid to llc by llc as ground_rents for property c will be disregarded to the extent that those amounts do not exceed taxpayer’s allocable share of deductions attributable to the ground_rents paid_by llc2 to llc except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code specifically we do not rule whether taxpayer will otherwise qualify as a reit under part ii of subchapter_m of chapter of the code a copy of this ruling to each tax_return to which it applies sec_6110 of the code provides that this ruling may not be used or cited as precedent sincerely _________________ kate sleeth assistant to the chief branch financial institutions and products enclosures copy of this letter copy for sec_6110 purposes cc office of associate chief_counsel


t c summary opinion united_states tax_court rubin whitfield jr petitioner v commissioner of internal revenue respondent docket no 6573-01s filed date rubin whitfield jr pro_se marty j dama for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 in effect when the petition was filed ’ the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority petitioner petitioned for review under sec_6330 of a determination by respondent's appeals_office that respondent's action to collect unless otherwise indicated section references hereafter are to the internal_revenue_code as amended by levy federal income taxes owing by petitioner for the year should proceed that determination was preceded by respondent's issuance to petitioner of a notice_of_intent_to_levy and of petitioner's right to a hearing in connection with an assessed balance of income taxes for of dollar_figure and statutory additions of dollar_figure some of the facts were stipulated those facts with the exhibits annexed thereto are so found and are made part hereof at the time the petition for review was filed petitioner was a legal resident of italy texas a notice_of_deficiency was issued to petitioner for and respondent's determinations in that notice were never judicially challenged or litigated by petitioner petitioner was in due course assessed for the amounts determined in the notice_of_deficiency ’ in his petition for review petitioner alleges that he had previously entered into an agreement with a representative of respondent to the effect that if he made the equivalent of monthly payments over a 12-month_period totaling dollar_figure hi sec_2 the notice_of_deficiency was not offered into evidence at trial it appears that petitioner had not filed a tax_return for however after the notice_of_deficiency was issued petitioner filed a return that mirrored the determinations in the notice_of_deficiency in his petition and at the hearing petitioner did not allege or contend that he never received the notice_of_deficiency account would be considered paid in full and all penalties and interest would be abated no written evidence or documentation of such an agreement was presented at trial however there was offered into evidence respondent's taxpayer account record of petitioner which reflected the following credits and payments on petitioner's account for withholding credit dollar_figure payment by levy dollar_figure payment dollar_figure payment dollar_figure payment dollar_figure payment dollar_figure total dollar_figure these payments however did not totally satisfy petitioner's liability for which respondent issued the notice_of_intent_to_levy for collection of the balance of the assessment penalties and interest due by petitioner pursuant to petitioner's request a hearing was conducted by respondent's appeals_office a summary and recommendation of the hearing was offered into evidence at trial that summary and recommendation states that petitioner's claim that he had a settlement agreement described above was considered however petitioner's claim to the existence of such an agreement was dismissed for the reason there is no evidence in the file that supports the taxpayer's assertion the summary and recommendation further states that during the hearing there was a discussion of possible payment alternatives and following the hearing the appeals_office twice sent forms to be completed and returned by petitioner that would set forth petitioner's proposals for alternative payments petitioner never followed through with the process whereupon respondent's appeals_office concluded that petitioner was not entitled to relief sec_6331 provides that if any person liable to pay any_tax neglects or refuses to pay such tax within days of notice_and_demand for payment the secretary may collect such tax by levy upon the taxpayer's property sec_6330 generally provides that the secretary cannot proceed with the collection_of_taxes by way of a levy until the taxpayer has been given notice and an opportunity for administrative review in the form of an appeals_office hearing sec_6330 provides for an appeals_office due process hearing to address collection issues including among other things not pertinent here alternative means of collection the determination of the appeals_office may be reviewed judicially upon the timely filing of a petition in this court or in an appropriate united_states district_court when the validity of the underlying tax_liability is not at issue such as in this case this court reviews the appeals_office determination for abuse_of_discretion and does not review the determination on a de novo basis 114_tc_176 the record here does not support a finding that there was an abuse_of_discretion by respondent's appeals_office in denying relief to petitioner petitioner's claim that he had an agreement for an installment_payment method with an abatement by respondent of a portion of the deficiency_interest and penalties was not established moreover the appeals_office considered that contention and determined there was no basis for petitioner's claim nothing was presented by petitioner to the court that would establish an abuse_of_discretion by the appeals_office in reaching this conclusion petitioner was offered two opportunities by the appeals_office to submit proposals for alternative means of collection by respondent petitioner did not submit any alternative collection methods for consideration by respondent again there was no abuse_of_discretion by the appeals_office in its determination that the levy should proceed accordingly the notice_of_determination by the appeals_office will be sustained reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


department of the treasury internal_revenue_service washington d c date may uniform issue list of- c0 tq legend x a w dear applicant this is in reply to your ruling_request of date you have requested approval of a proposed set- aside of your income under the suitability test of sec_4942 of the internal_revenue_code and sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations you t are exempt from federal_income_tax under sec_501 c of the code and are a private_foundation under sec_509 of the code you propose to set_aside x of your income pursuant to sec_4942 of the code your specific project for the income is the fencing in of a tiparian area to control livestock access and other activities designed to benefit a river you represent that all of the amounts to be set_aside for this specific project will be paid out for this project within months from the time when your first amount of income is set_aside you indicate that this project can better be accomplished by the use of a set-aside of your income rather than by immediate payment of your funds because the field work project could not begin due to inclement weather sec_501 of the code provides for the exemption from federal_income_tax of nonprofit_organizations organized and operated exclusively for charitable and or the other exempt purposes stated in that section sec_509 of the code describes organizations exempt from federal_income_tax under sec_501 c of the code that are private_foundations subject_to the private_foundation provisions of chapter of the code sec_4942 of the code imposes excise_tax on any private_foundation that does not expend qualifying distributions for exempt purposes at least equal to its distributable_amount for its tax_year sec_4942 of the code provides that in general a qualifying_distribution is any amount including reasonable and necessary administrative expenses paid to accomplish or to acquire an asset used directly in carrying on one or more of the purposes described in sec_170 of the code which includes charitable purposes sec_4942 of the code provides that an amount of income that is set_aside for a specific project within one or more purposes of sec_170 of the code may be treated as a qualifying_distribution if the amount meets the set-aside_requirements of sec_4942 of the code sec_4942 of the code provides in pertinent part 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 private_foundation establishes to the satisfaction of the secretary that the amount set_aside will be paid for the specific project within five years and that the suitability test for a set-aside under sec_4942 of the code is met sec_4942 of the code provides a suitability test in which the private_foundation at the time of the set-aside must establish to the satisfaction of the secretary that the specific project is one that can better be accomplished by the set-aside of income rather than by the immediate payment of funds sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations provides that the amounts of income set_aside for a specific project for one or more of the purposes in sec_170 or sec_170 of the code may be treated as qualifying distributions for the tax_year s in which such amounts are set_aside but not in the tax_year in which actually paid if the requirements of sec_4942 of the code are met the foundation establishes to the satisfaction of the commissioner that the amount set_aside will be paid for the specific project within months after it is set_aside and the set-aside otherwise meets the suitability test of sec_53_4942_a_-3 of the regulations sec_53_4942_a_-3 of the regulations provides that its suitability test for a set-aside is met if the foundation establishes that the specific project is one in which relatively long-term grants or expenditures must be made the regulation cites as an example of a suitable project a plan to provide matching grants sec_53_4942_a_-3 of the regulations provides that a private_foundation must obtain internal_revenue_service approval of its set-aside of income under the suitability test by applying before the end of the tax_year in which the amount is set_aside you have sought timely approval of your set-aside of income in advance of the time when the amounts of income are to be set_aside as required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations your set-aside of x for a specific project is within the charitable purposes of sec_170 of the code as required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations you represent that your amounts of income to be set_aside for this specific project will be paid out for this project within months from the time when the first amount is set_aside as required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations your project is better accomplished by this set-aside of income rather than by immediate payment under the suitability test of sec_4942 of the code and sec_53_4942_a_-3 of the regulations because this set-aside will permit you to engage in stream conservation efforts thus your specific project of stream conservation meets the requirements for a set-aside of income under the suitability test of sec_4942 of the code and sec_53_4942_a_-3 of the regulations accordingly we rule that your amounts of income of up to x dollars to be set_aside for stream conservation will be qualifying distributions under sec_4942 of the code and sec_53_4942_a_-3 of the regulations in your tax_year s when such amounts are set_aside sec_53_4942_a_-3 of the regulations provides that any set-aside approved by the internal_revenue_service must be evidenced by the entry of a dollar amount in your books_and_records as a pledge or obligation to be paid at a future date or dates further the amount of the set-aside must be taken into account in determining your minimum investment retum see sec_53_4942_a_-2 of the regulations and any income attributable to a set- aside must be taken into account in computing your adjusted_net_income see sec_53_4942_a_-2 of the regulations because this ruling letter could help to resolve any questions please keep it in your permanent records and include a copy in your annual return form_990-pf this ruling letter is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely signed gerland a oarter garland a carter manager exempt_organizations technical branch oals


internal_revenue_service index nos number release date cc dom fi p plr-115774-98 date re legend taxpayer bank bank dear this is in reply to a request dated date submitted on behalf of taxpayer for an extension of time under sec_301_9100-3 of the procedure and administration regulations to complete its compliance with the requirements of revproc_97_18 1997_1_cb_642 revproc_97_18 provides an exclusive automatic procedure for certain banks to follow in changing from the sec_585 reserve_method of accounting for bad_debts to the sec_166 specific charge- off method in order to elect s_corporation status for the tax_year taxpayer a bank_holding_company and a calendar_year taxpayer elected to become an s_corporation by timely filing a form_2553 election by a small_business_corporation effective for its tax_year in addition taxpayer elected to treat its two wholly-owned subsidiaries bank and bank as qualified subchapter_s subsidiaries effective for the tax_year bank and bank as qualified subchapter_s subsidiaries plr-115774-98 must change from the sec_585 reserve_method of accounting for bad_debts to the sec_166 specific_charge-off_method in and revproc_97_18 applies to this change in changing from the sec_585 reserve_method to the sec_166 specific_charge-off_method bank sec_1 and complied only partially with the requirements of revproc_97_18 their failure to comply completely with these requirements was an inadvertent error of the independent firm that prepared taxpayer’s s_corporation federal_income_tax return taxpayer has requested an extension of time under sec_301_9100-3 to complete the compliance with revproc_97_18 sec_301_9100-1 of the regulations provides in part that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i of the regulations sets forth rules that the internal_revenue_service generally will use to determine whether under the facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_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 sec_301_9100-3 provides special rules for accounting_method regulatory elections this section provides in relevant part that the interests of the government are deemed to be prejudiced by granting an extension of time except in unusual and compelling circumstances if the accounting_method regulatory election is subject_to the procedure described in sec_1_446-1 requiring the advance written consent of the commissioner or if the accounting_method regulatory election for which relief is requested requires an adjustment under sec_481 plr-115774-98 based on the information provided and the representations made it is held that taxpayer is deemed to have acted reasonably and in good_faith and that granting an extension of time to allow taxpayer to complete its compliance with revproc_97_18 would not prejudice the interests of the government under the provisions of sec_301_9100-3 accordingly taxpayer is granted an extension of time until days after the date of this letter to complete its compliance with revproc_97_18 no opinion is expressed as to the tax treatment of the transaction under the provisions of any other sections of the code and regulations which may be applicable thereto or the tax treatment of any conditions existing at the time of or effects resulting from the transaction which are not specifically set forth by the above ruling further no opinion is expressed as to whether taxpayer's tax_liability is not lower in the aggregate for all years to which the regulatory election applies than taxpayer's tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon an audit of the federal_income_tax returns involved the district director's office will determine taxpayer's tax_liability for the years involved if the district director's office determines taxpayer's liability is lower that office will determine the federal_income_tax effect a copy of this letter will be forwarded to the district_director this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer’s authorized representative sincerely yours assistant chief_counsel financial institutions products enclosure copy of this letter plr-115774-98 sec_6110 copy


internal_revenue_service number release date index no cc dom p si - plr-101666-00 date x a b d1 year dear this responds to your letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year the shareholders of x are a and b a as x's president represents that x relied on its attorney to prepare the necessary documents for purposes of obtaining s_corporation status however the service has no record of a form_2553 election by a small_business_corporation for x x filed its tax_return using form_1120s u s income_tax return for an s_corporation and the shareholders of x filed their respective tax returns based on x being an s_corporation sec_1362 of the code provides that if-- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's first taxable_year year accordingly provided that x makes an election to be an s_corporation by filing a form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours j thomas hines acting branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number --------------------------------- ------------------------------------ --------------------------- ------------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- ------------------- telephone number --------------------- refer reply to cc psi b02 plr-140221-08 date date legend x ------------------------------------------------------------------------------------------------------ ----------------------- state ------------ d1 ----------------------- dear ------------------ this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x's authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was formed in state on d1 it was intended for x to be an s_corporation effective d1 however no form_2553 election by a small_business_corporation was timely filed for x accordingly x requests a ruling that it will be treated as an s_corporation effective d1 sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the plr-140221-08 corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective d1 within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning d1 a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer who requested it sec_6110 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 is being sent to x's authorized representative sincerely melissa liquerman branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-111229-99 date date legend x state d1 this responds to the letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 x’s shareholders intended that x be a subchapter_s_corporation effective d1 however an s_corporation_election under sec_1362 was not timely filed s_corporation sec_1362 provides that a small_business_corporation may elect to be an law and analysis sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made cc dom p si plr-111229-99 sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed for making such election for such taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year x’s s_corporation_election was not filed timely for the election to be effective as of d1 nevertheless x has established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and assuming that x otherwise qualifies as a subchapter_s_corporation as of d1 we conclude that x will be recognized as an s_corporation effective as of d1 x should file a completed form_2553 with a copy of this ruling attached reflecting its election of subchapter_s_corporation status as of d1 with the applicable service_center within days of the date of this letter the form_2553 submitted to this office is enclosed herewith except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this ruling is being sent to the authorized representative sincerely dianna k miosi chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc intl br 3-plr-117990-98 date december 11th ty legend corp x corp y date a this is in response to a letter dated date and supplemented by a letter dated date that was submitted on your behalf by your authorized representative requesting a ruling that corp x be permitted to use the tax book method of asset valuation for purposes of apportioning interest_expense for its short tax_year beginning on date and ending on date a the ruling contained in this letter is 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 a ruling it is subject_to verification on examination before being acquired by corp y corp x was a domestic_corporation that was the publicly traded parent of an affiliated_group of financial services corporations that filed a consolidated federal_income_tax return on a calendar_year basis corp x began using the fair_market_value_method of asset valuation for allocating and apportioning interest_expense on its consolidated federal_income_tax return and has continued to use cc intl br 3-plr-117990-98 the fair_market_value_method of asset valuation for each taxable_year thereafter for tax years beginning in an affiliated_group_of_corporations could choose either the fair_market_value or the tax_book_value_method of asset valuation without regard to which method it had used in and without securing the consent of the commissioner in corp x elected pursuant to sec_1_861-9t of the income_tax regulations to apportion its interest_expense based upon the fair_market_value_method of asset valuation as set forth in sec_1_861-9t corp x now wishes to utilize the tax_book_value_method of asset valuation as set forth in sec_1_861-9t for its short taxable_year ending on date a on date a corp x was acquired by corp y in a tax-free transaction corp y is a domestic_corporation that is the publicly traded parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return on a calendar_year basis corp y’s consolidated federal_income_tax return will include corp x for part of the year corp x will file a separate consolidated federal_income_tax return for the pre-acquisition portion of the calendar_year federal_income_tax returns for both corporations are stated to be due on date sec_864 of the internal_revenue_code provides that all allocations and apportionments of interest_expense shall be made on the basis of assets rather than gross_income sec_1_861-8t of the regulations also provides that taxpayers with interest_expenses are required to apportion their interest_expenses on the basis of assets such apportionment must be made on the basis of either the tax book_value of those assets or the fair_market_value of the assets once a taxpayer uses the fair_market_value_method of apportioning interest_expense the taxpayer and all related_persons must continue to use such method until the commissioner expressly authorizes a change in the method of asset valuation sec_1_861-9t sets forth the rules specific to the apportionment of interest_expense sec_1_861-9t provides that if the taxpayer chooses the fair_market_value_method of asset valuation the taxpayer must establish the fair market values of its assets to the satisfaction of the commissioner otherwise the commissioner may determine the appropriate values or require the taxpayer to use the tax_book_value_method of apportionment sec_1_861-9t sets forth the rules for determining the fair_market_value of the taxpayer's assets under the fair_market_value_method corp x requests permission to change to the tax_book_value_method of asset valuation pursuant to sec_1_861-8t and sec_1_861-9t for its short tax_year beginning on date and ending on date a cc intl br 3-plr-117990-98 the reasons for corp x’s desire to change its method of asset valuation for purposes of apportioning interest_expense are stated to be the use of the tax_book_value_method will decrease complexity and avoid potential disagreement with the service with respect to the fair_market_value of assets the taxpayer will be able to avoid the cost of having fair_market_value studies performed and greater certainty of tax results will be available to both the taxpayer and the service based solely upon the information submitted the representations made and the reasons given for this request it is held that corp x may change to the tax_book_value_method of asset valuation for the purpose of interest_expense apportionment for its short tax_year beginning on date 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 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant sincerely international barbara a felker branch chief office of associate chief_counsel


ae tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c date dec contact person uil identification_number telephone number tbo by employer_identification_number legend x i t h z e f q h i i n h m n oo p g dear sir or madam this is in response to a ruling_request dated date submitted on your behalf by your authorized representatives you are requesting that the commissioner exercise his discretionary authority under sec_301_9100-1 of the miscellaneous income_tax regulations and grant you an extension of time for making a regulatory election as more fully set forth below facts x has been recognized as exempt under sec_501 of the internal_revenue_code code and is a private_foundation described in sec_509 of the code x provides grants to further the charitable purposes of organizations that are recognized as exempt under sec_501 x represents that for its m tax_year it made qualifying distributions as defined by sec_4942 of the code in excess of its distributable_amount as defined by sec_4942 these excess amounts have been treated as distributions out of corpus in accordance with sec_4942 and sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations and carried over into succeeding years x also has carryovers of excess qualifying distributions from its n and o tax years four substantial contributors a b c and d have taken charitable deductions of up to fifty percent of their adjusted gross incomes on each of their individual income_tax returns with respect to their charitable_contributions of cash to x during the tax_year at issue the election necessary to satisfy the requirements of sec_170 of the code in order to permit a b c and d to take such deductions at the fifty percent limit however was never made all of x's excess qualifying distributions have been carried forward into succeeding years however no portion of the amounts carried forward thus far has been used for any other purpose x represents that it relied on the advice of outside accountants as to matters relating to its tax obligations x retained y to assist it in preparing its form_990-pf return of private_foundation and to counsel it on matters related to the preparation of its tax returns and their underlying schedules with respect to tax_return preparation and related matters under the terms of the relationship between x and y x was required to supply y with accurate financial and other data relating to its operations y was then obligated to organize this data and to prepare tax returns for and to provide tax_advice to x with an eye to ensuring that x continuously qualified as a tax-exempt private_foundation and avoided the chapter excise_tax on undistributed_income including in particular computation of the foundation's minimum_investment_return distributable_amount and qualifying distributions as defined in sec_4942 of the code y also represented a b c and d and prepared each of their individual income_tax returns for the tax_year at issue during the m tax_year x received cash contributions totaling dollar_figuree dollar_figuref from each of a b c and d and miscellaneous contributions of dollar_figureg x made qualifying distributions in the amount of dollar_figureh well in excess of x's required distributable_amount of dollar_figurei calculated at five percent of the average monthly values of x's liquid_assets the excess qualifying distributions of dollar_figurej were treated as distributions out of corpus under sec_4942 of the code and were carried over to future years along with x's excess distributions carryovers from its n and o tax years which totaled dollar_figurek bringing x's total excess distributions carry forward to dollar_figurel x satisfied its minimum distribution requirement and therefore it was unnecessary for x to make an election pursuant to sec_4942 to avoid the excise_tax on undistributed_income a b c and d deducted their charitable_contributions on their corresponding individual income_tax returns based on the fifty percent limitation x was unaware that it was necessary for x to make the election permitted by sec_1_170a-9 of the regulations and sec_4942 and the regulations thereunder in order to satisfy the requirements of sec_170 y did not inform x of the necessity of such election and failed to make the election on x's form_990-pf thus x did not elect to make use of its excess qualifying distributions from the n o or m tax years in conjunction with a b c and d's individual income_tax returns during p each of a b c and d retained the services of z to provide tax_advice with respect to an audit of their o through g individual income_tax returns z was neither involved in the preparation of x's n m and r forms 990-pf nor asked to review those returns before they were filed z had the opportunity to review those returns in relation to their representation of a b c and d z determined that x should have made the election permitted by sec_1_170a-9 v of the regulations and sec_4942 of the code and the regulations thereunder to treat certain excess qualifying distributions from the n and m tax years as current distributions out of corpus in x's m tax_year in order to have satisfied the requirements of a distributing foundation under sec_170 thus substantiating a b c and d's charitable deductions of up to fifty percent of their adjusted gross incomes rather than thirty percent if x fails to make the required election necessary to satisfy the requirements of sec_170 a b c and d will lose a portion of their charitable deductions in their related tax_year however because the period for making the election expired at the time the form_990-pf was due including extensions x ruling_request under sec_301_9100-1 and sec_301_9100-3 of the regulations to seek an extension of time for making the election pursuant to sec_170 b e ii of the code sec_1_170a-9 of the regulations and sec_4942 and the regulations thereunder for x's m tax_year x's m tax_year is closed by the period of limitations on assessment is filing this private letter law sec_301_9100-1 of the regulations generally provides that the commissioner in his discretion may grant a reasonable extension of time to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and sec_301_9100-1 of the regulations defines regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting of relief will not prejudice the interests of the government sec_301_9100-3 of the regulations provides that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer's receipt of a ruling granting relief under this section the irs may condition a grant of relief on the taxpayer providing the irs with a statement from an independent auditor other than an auditor providing an affidavit pursuant to paragraph e of this section certifying that the interests of the government are not prejudiced under the standards set forth in paragraph c i of this section sec_53_4942_a_-3 of the regulations provides that in order to satisfy the distribution_requirements under sec_170 of the code the election permitted by this section must be made by attaching a statement to the return the foundation is required to file under sec_6033 with respect to the taxable_year for which such election is to apply under sec_53_4942_a_-3 the election must be made by filing a statement with the commissioner during the taxable_year in which such qualifying_distribution is made or by attaching a statement to the return the foundation is required to file under sec_6033 with respect to the taxable_year in which such qualifying_distribution was made analysis because x has complied with the procedural requirements set forth in subsection e of sec_301_9100-3 by providing evidence including certain affidavits and a statement from an independent auditor which establishes that it acted reasonably and in good_faith while relying on a qualified_tax professional and that granting such relief will not prejudice the interests of the government relief under sec_301_9100-3 was recommended to the commissioner ruling of relief based on the information submitted and the representations made therein the commissioner through his delegate has exercised his discretionary authority under sec_301_9100-3 of the regulations and has granted the requested extension of time to make the election to treat your excess qualifying distributions as distributions made out of the undistributed_income of a designated prior taxable_year or as current distributions out of corpus for the m tax_year pursuant to sec_170 of the code sec_1_170a-9 of the regulations and sec_4942 of the code and the regulations thereunder this ruling is directed only to x the organization that requested it it is applicable only to the ruling requested sec_6110 of the code provides that this ruling may not be used or cited 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 isbscd shast ctlaciaa d manager exempt_organizations technical group


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc fip 4-plr-159526-01 date date company u company v company w state x state y country z dear this is in response to the date letter submitted by the representatives of company u company v and company w requesting a ruling concerning the federal_income_tax treatment of certain assets held by a variable life_insurance_contract separate_account additional information was submitted by the representatives in a letter dated date facts company u company v and company w are stock life_insurance_companies that are subject_to tax under sec_801 of the internal_revenue_code and are organized and operated under the laws of state x state y and country z respectively company w has made an election under sec_953 to be taxed as a domestic_corporation companies u v and w hereinafter collectively referred to as insurer file a consolidated_income_tax_return on a calendar_year basis and each company reports its income on an accrual_method insurer intends to offer variable life_insurance contracts contracts in each of the states the district of columbia and outside the united_states the contracts will be issued as individual contracts or as certificates under group_life_insurance contracts the contracts will qualify as life_insurance contracts under sec_7702 to avoid certain registration requirements the contracts will be sold only to qualified purchasers or to no more than one hundred accredited investors the assets supporting the contracts will be segregated from the assets that support insurer’s traditional life_insurance products insurer will maintain a separate_account the separate_account for the assets supporting the contracts and the income deductions assets and liabilities associated with this separate_account will be maintained separately from insurer’s other accounts insurer represents that the segregated_asset_account will at all times meet the asset diversification test set forth in sec_1_817-5 of the income_tax regulations the separate_account will be divided into various unitized sub-accounts each sub-account will have a distinct investment objective and will account for its assets and liabilities separately from the assets of other sub-accounts at the time of purchase the contract owner will specify the premium allocation among the available sub-accounts and may change this allocation for subsequent premiums at any time subject_to certain restrictions a contract owner may make transfers from and to a sub-account these restrictions include transfers must be made on specified days insurer may limit the amount of transfer and transfers are limited to twelve per contract_year although insurer has the right to change this limit a contract owner will have no voting rights with respect to any securities held by any sub-account although other investment options may be available in the future the only sub- accounts that will be available immediately are a variable money market fund and a number of private investment partnerships pip which are entities taxed as partnerships such as private partnerships limited_liability companies and business trusts and sold in private_placement offerings no pip will be a publicly_traded_partnership under sec_7704 nor will any pip be registered under a federal or state law regulating the offering or sale of securities as is the case with the contracts pips will be sold only to accredited investors and will be offered only to qualified purchasers or to no more than one hundred accredited investors each pip has a as defined pincite u s c sec_80a-2 a as defined in regulation d of the securities act of general_partner or an investment manager that selects the pip’s specific investments no contract owner may be a general_partner or an investment manager of a pip offered as an investment option under the contract in addition no contract owner may independently hold any interest in a pip offered as an investment option under the contract requested ruling insurer has requested the following ruling insurer will be considered for federal_income_tax purposes as the owner of interests in private investment partnerships that are held as an asset of any unitized sub-account underlying a contract law and analysis sec_61 provides that the term gross_income means all income from whatever source derived including gains derived from dealings in property interest and dividends sec_817 defines a variable_contract as a contract that provides for the allocation of all or part of the amounts received under the contract to an account that pursuant to state law or regulation is segregated from the general asset accounts of the company and that provides for the payment of annuities or is a life_insurance_contract sec_817 provides that for purposes of subchapter_l and sec_7702 relating to definition of life_insurance_contract a variable_contract other than a pension contract that is otherwise described in sec_817 and that is based on a segregated_asset_account shall not be treated as a life_insurance_contract for any period and any subsequent period for which the investments made by such account are not in accordance with regulations prescribed by the secretary adequately diversified sec_1_817-5 are the regulations prescribed by the secretary that set forth the diversification requirements for variable_contracts sec_817 provides in certain situations a look-through_rule for meeting the diversification requirements if all of the beneficial interests in a regulated_investment_company or trust are held by one or more a insurance_companies or affiliated companies in their general account or in segregated_asset accounts or b fund managers or affiliated companies in connection with the creation or management of the regulated_investment_company the diversification requirements of sec_817 are applied by taking into account the assets held by such regulated_investment_company sec_1_817-5 provides that if the look-through_rule applies a beneficial_interest in an investment_company partnership or trust will not be treated as a single investment of the segregated_asset_account instead a pro_rata portion of each asset of the investment_company partnership or trust is treated for purposes of sec_1_817-5 as an asset of the segregated_asset_account sec_1_817-5 provides examples illustrating the provisions of sec_1 f sec_7702 provides that for a life_insurance_policy to be treated as a life_insurance_contract for federal tax purposes the contract must be a life_insurance_contract under the applicable law and must satisfy either the cash_value_accumulation_test of sec_7702 or the guideline premium and cash_value_corridor_test of sec_7702 and d revrul_77_85 1977_1_cb_12 concludes that if a purchaser of an investment annuity_contract selects and controls the investment_assets in the separate_account of the life_insurance_company issuing the contract then the purchaser is treated as the owner of those assets for federal_income_tax purposes thus any interest dividends or other income derived from the investment_assets are includible in the gross_income of the purchasers in revrul_80_274 1980_2_cb_27 depositors in certain savings and loan associations could transfer cash existing passbook accounts or certificates of deposit to an insurance_company in exchange for annuity_contracts the insurance_company deducted expenses and premium taxes and then deposited the net amounts received into a separate_account at each policyholder’s savings and loan association these amounts were then invested in the association’s certificates of deposit for a term designated by the policyholder except for the ability to withdraw the deposit from a failing savings and loan the insurance_company could not dispose_of the deposit or convert the deposit into a different asset the ruling concludes that if a purchaser of an annuity_contract can select and control the certificates of deposit supporting the contract then the purchaser is considered the owner of the certificate of deposit for federal_income_tax purposes revrul_81_225 1981_2_cb_12 describes four situations in which investments in mutual funds pursuant to annuity_contracts are considered to be owned by the policyholder rather than by the insurance_company issuing the annuity_contracts and one situation in which the insurance_company is considered the owner of the mutual_fund shares in situation the investment_assets in the segregated account underlying the annuity_contracts consist solely of shares in a single publicly available mutual_fund managed by an independent investment_advisor situation is similar to situation except that the mutual_fund is managed by the insurance_company or one of its affiliates situation also is similar to situation except that the segregated_asset_account underlying the annuity_contracts consists of five sub-accounts on which the performance of the annuity_contract would depend the policyholder retains the right to allocate or reallocate funds among the five sub-accounts during the life of the annuity_contract situation is similar to situation except that the shares of the mutual_fund are not sold directly to the public but are available only through the purchase of an annuity_contract or by participation in an investment plan account of the type described in revrul_70_525 1970_2_cb_144 situation also is similar to situation except that the shares in the mutual_fund are available only through the purchase of an annuity_contract revrul_81_225 concludes that the policyholders in situations have sufficient control and other incidents_of_ownership to be considered the owners of the mutual_fund shares for federal_income_tax purposes the ruling reaches the opposite conclusion in situation stating that the sole function of the mutual_fund in situation is to provide an investment vehicle to allow the insurance_company to meet its obligations under its annuity_contracts and that the insurance_company possesses sufficient incidents_of_ownership to be considered the owner of the underlying portfolio of assets of the mutual_fund revrul_81_225 concludes that in situation the insurance_company not the policyholder is treated as the owner of the mutual_fund shares for federal_income_tax purposes in revrul_82_54 1982_1_cb_11 the purchasers of certain annuity_contracts retained the right to direct the issuing insurance_company to invest in the shares of any or all of three mutual funds that were not available to the public one mutual_fund invests primarily in common stocks another in bonds and a third in money market investments policyholders are free to allocate their premium payments among the three funds and have an unlimited right to reallocate contract values among the funds prior to the maturity_date of the annuity_contract the ruling concludes that the policyholders’ ability to choose among general investment strategies for example between stock bonds or money market instruments either at the time of the initial purchase or subsequent thereto does not constitute sufficient control so as to cause the policyholders to be treated as the owners of the mutual_fund shares in 749_f2d_513 8th cir rev’g 578_fsupp_398 n d iowa the united_states court_of_appeals for the eighth circuit upheld the investor_control theory of revrul_81_225 the taxpayers in christoffersen purchased a variable_annuity contract that reflected the investment return and market_value of assets held in a separate_account that was segregated from the general_asset_account of the issuing insurance_company the taxpayers had the right to direct that their premium payments be invested in any one or all of six publicly traded mutual funds taxpayers could reallocate their investment among the funds at any time taxpayers also had the right upon seven days notice to make withdrawals or to surrender the contract or to apply the accumulated value under the contract to provide annuity payments the court_of_appeals held that the taxpayer not the insurance_company that issued the annuity_contract owned the mutual_fund shares for federal_income_tax purposes thus the taxpayers were required to include in gross_income any gains dividends or other income derived from the mutual_fund shares insurer argues that the availability of the same investment both inside and outside a variable_contract is not a sufficient reason to treat the contract holder as the owner of the investment insurer claims that to treat a variable_contract holder as the owner of assets held by the insurance_company under the variable_contract the non-tax economic rights and benefits that accrue to the contract holder must be substantially identical to the non-tax economic rights and benefits that would accrue to the contract holder as direct owner of the assets accordingly revrul_81_225 does not apply to insurer’s contracts the underlying assets of the segregated_asset_account are not available to the general_public because the pips are limited to purchase by only certain investors in addition the death_benefit provisions and mortality charges create material economic differences between the direct ownership of any asset and the ownership of that asset through a variable life_insurance_contract in addition insurer argues that sec_7702 established a uniform definition of the term life_insurance_contract and that the specificity of sec_7702 precludes the application of the investor_control theory to assets held by a life_insurance_company under a life_insurance_contract that satisfies the requirements of sec_7702 finally insurer argues that sec_1_817-5 and g evidence that a variable life_insurance_contract holding an investment in a nonregistered partnership may qualify for favorable tax treatment even though persons other than insurance_company separate_accounts hold interests in that nonregistered partnership and that the drafters of sec_1_817-5 could not have intended a policyholder of such a contract absent any additional circumstances to be considered the owner of the investment under the investor_control rules in the legislative_history of the deficit_reduction_act_of_1984 pub_l_no which contained both sec_817 and sec_7702 congress expressed its intent to deny life_insurance treatment to any variable_contract containing segregated accounts backed by publicly available funds the conference agreement allows any diversified fund to be used as the basis of variable_contracts so long as all shares of the funds are owned by one or more segregated_asset accounts of insurance_companies but only if access to the fund is available exclusively through the purchase of a variable_contract from an insurance_company in authorizing treasury to prescribe diversification standards the conferees intend that the standards be designed to deny annuity or life_insurance treatment for investments that are publicly available to investors h_r conf_rep no pincite approximately two years after the enactment of sec_817 the treasury_department issued proposed and temporary regulations under sec_817 relating to the minimum level of diversification applicable to the investments underlying variable_annuity and life_insurance contracts the preamble to the regulations stated as follows the temporary regulations do not provide guidance concerning the circumstances in which investor_control of the investments of a segregated_asset_account may cause the investor rather than the insurance_company to be treated as the owner of the assets in the account for example the temporary regulations provide that in appropriate cases a segregated_asset_account may include multiple sub- accounts but do not specify the extent to which policyholders may direct their investments to particular sub-accounts without being treated as owners of the underlying assets guidance on this and other issues will be provided in regulations or revenue rulings under sec_817 relating to the definition of variable_contracts fr the text of the temporary regulations served as the text of proposed_regulations in the notice of proposed rulemaking see fr date the final regulations adopted with certain revisions not relevant here the text of the proposed_regulations thus the final regulations do not provide guidance concerning the extent to which policyholders may direct the investments of a segregated_asset_account without being treated as the owners of the underlying assets based on these authorities we conclude that revrul_81_225 was not preempted by either sec_817 or sec_7702 we also conclude that sec_1_817-5 of the regulations is consistent with revrul_81_225 under revrul_81_225 the contract holders in the present case own for federal_income_tax purposes interests in pips that support the contracts’ sub-accounts because these interests are available for purchase not only by a prospective purchaser of the contract but also by other members of the general_public under revrul_81_225 situation a variable_contract holders' right to allocate or reallocate premium payments and contract values among five publicly available mutual funds is sufficient to treat the contract holders as the owners of the mutual_fund shares because t he mutual_fund shares are available for purchase not only by the prospective purchaser of the deferred variable_annuity but also by other members of the general_public the policyholder’s position is substantially identical to what his or her position would have been had the mutual_fund shares been purchased directly like the mutual_fund shares in revrul_81_225 situation the interests in pips that support the contracts’ sub-accounts are available for purchase not only by a prospective purchaser of the contract but also by other members of the general_public treating the contract holders as the owners of interests in pips that support the contracts’ sub-accounts is consistent with congress’ intent to deny annuity or life_insurance treatment for investments that are publicly available to investors accordingly we conclude that a contract holder rather than insurer is the owner of any interest in a private investment_partnership that is held as an asset of any unitized sub-account underlying a contract thus the earnings and or gains from the interest in a private investment_partnership that is held as an asset of any unitized sub- account underlying a contract is includible in the contract holder’s gross_income under sec_61 except as expressly provided herein no opinion is expressed concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by insurer 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 this ruling is directed only to the taxpayer who requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely s donald j drees jr senior technician reviewer branch office of associate chief_counsel financial institutions products