internal_revenue_service number release date index number ---------------------------------------------- --------------------------------------- ------------------------------------ ---------- ----------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-162702-04 date date x state date ------------- ---------------------------------------------- legend ----------------------------------------------------------- dear --------------- for a written_determination granting relief under sec_1362 of the internal_revenue_code this letter is in response to your request on behalf of x dated november ------------------------- facts x was incorporated under the laws of state on date the shareholder of x intended that x elect to be treated as a s_corporation effective date however the election to be treated as a s_corporation was not timely filed law and analysis sec_1362 of the code provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 of the code provides guidance on when the s election becomes 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 was made if the corporation makes an election after the plr-162702-04 first two and one-half months of a corporation s taxable_year then the corporation will generally not be treated as an s_corporation until the following taxable_year sec_1362 of the code provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determined reasonable_cause existed for the failure to timely make the election then the secretary can treat such an election as being timely made for that taxable_year and effective as of the first day of that taxable_year x did not file a timely election to be treated as a s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election therefore x is entitled to relief under section b conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective date an original form_2553 along with a copy of this letter must be forwarded to the relevant service_center within sixty days from the date of this letter 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 the code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer s requesting it sec_6110 of pursuant to the power_of_attorney on file with this office we will send a copy of this ruling to your representative sincerely s dianna k miosi dianna k miosi chief branch passthroughs special industries copy of this letter copy for sec_6110 purposes enclosures cc


internal_revenue_service number release date index numbers --------------------------------------------------- ------------------------------- ------------------------------------------------------- --------------------------------------------- --------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ----------------- telephone number ------------------- refer reply to cc psi b03 plr-106566-11 date august x --------------------------------------------------------------------------------------------------- ----------------------- legend country --------- date ------------------- dear -------------- this letter responds to a letter dated date submitted on behalf of x by its authorized representative requesting that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a disregarded_entity under sec_301_7701-3 facts x was formed under the laws of country on date x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x intended to be classified as a disregarded_entity effective date however due to inadvertence form_8832 entity classification election was not timely filed law sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as plr-106566-11 either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-106566-11 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center to elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on the owner of x filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief being effective date to the extent appropriate these returns must include but are not limited to forms information_return of u s persons with respect to foreign disregarded entities such that these forms reflect the consequences of the relief granted in this letter 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 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative 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 plr-106566-11 by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by _______ s _______________ mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


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 7-plr-107665-00 date date legend decedent a daughter son b 6b trust 6c trust plr-107665-00 c state d e f g h i j court dear sir or madam in a letter dated date you requested rulings concerning the generation-skipping_transfer gst tax consequences of the clarification of a grandfathered trust this letter responds to your request the information submitted and representations made are summarized as follows decedent died testate in a survived by two children daughter and son collectively children clause sixth of decedent’s will provides that decedent’s residuary_estate is to be placed in equal trust funds so that there is one fund for daughter and her children and more remote descendants as are then living and one fund for son and his children and more remote descendants who are then living paragraph a of clause sixth of decedent’s will provides that unless sooner terminated by a complete distribution of funds by the trustee as provided in decedent’s will both trusts will terminate b years after the death of the survivor of daughter and her children and more remote descendants living at decedent’s death son and his children and more remote descendants living at decedent’s death and decedent paragraph b of clause sixth of decedent’s will sets forth the terms of the trust for the benefit of daughter and her children and more remote descendants the 6b trust paragraph c sets forth the terms of the trust for the benefit of son and his children and more remote descendants the 6c trust except for the beneficiaries the plr-107665-00 provisions of the 6b trust and the 6c trust collectively the trusts are identical those provisions are summarized as follows until the termination of the 6b trust and the 6c trust the trustees have the discretion to pay all or so much if any of the net_income and principal as the trustees in their discretion deem proper to and among children and their children and more remote descendants who may be living from time to time in such proportions and amounts as the trustees in their discretion deem proper with power to omit from participation any one or more of the persons among whom the trustees have power to make payment any income not distributed by the trustees in any calendar_year is to be added to principal on the termination of a_trust at the time set forth in paragraph a of clause sixth of decedent’s will the trustees are to distribute the principal per stirpes to children’s children and more remote descendants then living subject however to the power in the trustees in their discretion within c months after the termination of a_trust to increase or decrease the share of one or more distributees by such amounts as the trustees in their discretion deem appropriate in order to adjust any inequalities in distributions of income or principal previously made to any one or more of the distributees or any of their ancestors or descendants and the trustees in their discretion may in determining such amounts take into consideration the dates at which previous distributions have been made if at that time no child or more remote descendant of children is living the trustees are to distribute the trust fund per stirpes to the then living children and more remote descendants of children and if none of such persons is living to and among those persons who would under the statute of distributions in force in state when decedent’s will was executed be decedent’s next of kin if decedent died immediately after such time if at any time after decedent’s death and before the termination of the 6b trust and the 6c trust at the time set forth in paragraph a of clause sixth of decedent’s will neither daughter or son nor any child or more remote descendant of daughter or son is living then at that time the trustees are to add the 6b trust to the 6c trust or vice versa as the case may be if it is then in existence and if not the trustees are to pay and distribute the trust to and among those persons who would under the statute of distributions in force in state when decedent’s will was executed be decedent’s next of kin if decedent died immediately after the death of the last of children children’s children and children’s more remote descendants daughter died in d survived by e children all of whom are living one of daughter’s children has e children all of whom are adopted son died in f survived by g children all of whom are living one of son’s children has h children i of whom are adopted at this time no other descendants of decedent are adopted although it is possible that future adoptions may occur plr-107665-00 for many years it has been the practice of the trustees of the 6b trust to distribute all of the 6b trust net_income in equal shares to the e children of daughter similarly the trustees of the 6c trust have distributed all of the net_income of the 6ctrust in equal shares to the g children of son distributions of principal have been infrequent and have been made only under extraordinary circumstances at this point the trustees have made no distributions to any of the grandchildren of daughter or son following the deaths of the current distributees the trustees would like to continue their policy of equal distributions because however decedent’s will is silent as to whether the permissible beneficiaries of the trusts include adopted issue the trustees determined it was necessary to ascertain whether adopted issue are beneficiaries of the trusts the trustees therefore instituted judicial proceedings to obtain a determination that adopted grandchildren and more remote descendants are included as beneficiaries of the trusts on j the court entered an order that the terms children or more remote descendants ancestors or descendants and next of kin when used in the trusts created under clauses sixth b and sixth c of decedent’s will are confirmed and clarified to include any person legally adopted by a child or more remote descendant of decedent and the issue whether adopted or not or any such adopted person provided that this judgment takes effect on the issuance of a ruling by the internal_revenue_service that such clarification does not result in application of the federal generation- skipping transfer_tax to the trusts or any payments therefrom it is represented that the trusts were irrevocable on date and that there have been no additions actual or constructive to them since that date you have requested a ruling that the court’s order declaring the rights of the beneficiaries of the trusts will not cause the trusts to become subject_to the gst tax sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer made by the transferor to a skip-person sec_26_2601-1 of the generation-skipping_transfer_tax regulations provides that the tax does not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date the rule_of the preceding sentence does not apply to a pro_rata portion of any generation-skipping_transfer under an irrevocable_trust if additions are made to the trust after date sec_26_2611-1 provides that a generation-skipping_transfer is an event that is either a direct_skip a taxable_distribution or a taxable_termination the determination as to whether an event is a generation-skipping_transfer is made by reference to the most plr-107665-00 recent transfer subject_to the estate or gift_tax sec_2612 defines the term direct_skip to mean a transfer subject_to a tax imposed by chapter or of an interest in property to a skip_person sec_2613 defines the term skip_person to mean -- a natural_person assigned to a generation that is two or more generations below the generation assignment of the transferor or a_trust -- a if all interests in the trust are held by skip persons or b if -- i there is no person holding an interest in the trust and ii at no time after such transfer may a distribution including distributions on termination be made from such trust to a non-skip_person the trusts are generation-skipping trusts because they provide for distributions to more than one generation of beneficiaries below decedent’s generation because however the trusts were irrevocable on date and there have been no additions actual or constructive to them since that date they have been exempt from the gst tax pursuant to sec_26_2601-1 you have requested a ruling that the court order declaring the rights of the beneficiaries of the trusts will not cause the trusts to become subject_to the gst tax an amendment to an exempt trust that modifies or otherwise changes the quality value or timing of any of the powers or beneficial interests rights or expectancies originally provided under the terms of the trust will cause the trust to lose its exemption from the gst tax we believe that the judicial action in this case involved a bona_fide issue concerning the terms of the trusts and that the court order is consistent with applicable state law that would be applied by the highest court of state 387_us_456 accordingly based on the information submitted and the representations made we conclude that the court order does not alter the intended quality value or timing of the interests decedent created in the trusts further we conclude that the court’s declaration of the rights of the beneficiaries will not cause the trusts or any distributions from the trusts to be subject_to the gst tax provided no plr-107665-00 additions are made to the trusts except as ruled above we express or imply no opinion concerning the federal tax consequences of this transaction under the cited provisions of the code or any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative christine e ellison sincerely yours christine e ellison chief branch office of the assistant chief_counsel passthroughs and special industries


internal_revenue_service index numbers index number release date legend cc dom it a plr-119703-98 date foundation fraternity housing corporation chapter house university a landmark university b dear this is in reply to your ruling_request dated date on behalf of foundation this request was supplemented with additional information dated date date and date issue do donations by fraternity alumni and others to foundation a qualified charitable donee to be used in foundation’s discretion to maintain and preserve the facade and certain interior portions of chapter house which is listed on the national register of historic places and owned by housing corporation not a qualified charitable donee qualify as charitable deductions where a preservation and conservation_easement in the facade and certain interior portions of chapter house is to be granted to a sec_170 qualified_organization conclusion donations by fraternity alumni and others to foundation for the purpose of maintaining and preserving the facade and certain interior portions of chapter house qualify as charitable_contribution deductions under sec_170 subject_to the usual rules plr-119703-98 of that section including percentage limitations and substantiation requirements for any contribution of dollar_figure or more this ruling is conditioned however on housing corporation granting a preservation and conservation_easement in the facade and certain interior portions of chapter house to a qualified_organization under sec_170 and sec_1_170a-14 of the income_tax regulations facts foundation is a nonprofit corporation organized and operated exclusively for educational and charitable purposes foundation is exempt from taxation under sec_501 and is a publicly_supported_organization under sec_170 and sec_509 foundation is eligible to receive charitable donations under sec_170 fraternity is a national fraternity exempt from taxation under sec_501 housing corporation is a nonprofit organization_exempt_from_taxation under sec_501 housing corporation owns and maintains chapter house for the use and occupancy of members of the local chapter of fraternity most of the active members of the local chapter of fraternity reside in chapter house chapter house is listed on the national register of historic places and is located on the edge of the campus of university a on a heavily used public thoroughfare chapter house is a significant structure in a particular genre of architecture and sits on its original site with virtually all of its features unchanged chapter house has been featured in articles books and museum displays focusing on the genre of architecture to which it belongs chapter house is an important part of the local and state preservation community and is open to the public for tours in addition to formal group tours members of fraternity who live in chapter house provide ad hoc tours to members of the public upon request chapter house has been used by university a’s school of architecture for educational_purposes chapter house also has been used as a venue for lectures and gatherings by groups unrelated to fraternity landmark’s building also is a significant structure in the genre of architecture to which chapter house belongs and was built by the same architects that built chapter house landmark is part of university b which is exempt from taxation under sec_501 and is eligible to receive charitable donations under sec_170 landmark is a publically supported tax-exempt nonprofit plr-119703-98 organization whose purposes include the preservation and conservation of sites buildings and objects of national significance especially architectural works and furniture from the genre of architecture to which chapter house and landmark belong structural work is critically needed to maintain the historical and architectural aspects of chapter house foundation has determined that support of the historical preservation of chapter house will further its exempt purposes in order to meet this end foundation proposes to enter into a grant agreement with housing corporation and landmark under which foundation would provide funding to maintain and preserve the facade and certain interior portions of chapter house prior to receiving these grants however housing corporation proposes to grant a preservation and conservation_easement in the facade and the same interior portions of chapter house to a qualified_organization as defined by sec_170 as discussed below the recipient of the easement may be landmark or may be another charity the grant agreement under the grant agreement housing corporation is required to use the funds provided by foundation exclusively for the preservation and conservation of the facade and certain interior portions of chapter house the interior portions of chapter house subject_to the agreement are the same as those areas subject_to the easement described below namely the entryway living room dining room and main stairway the grant agreement requires housing corporation to develop detailed plans with the oversight and assistance of landmark and submit those plans to foundation for review landmark will have a supervisory role in the expenditure of the funds provided by foundation foundation will grant funds to housing corporation only after receiving written approval from landmark that the funds requested are appropriate and in accordance with the purposes of the agreement landmark will review the work done to ensure that the funds are used exclusively for historic preservation of chapter house and to protect the historical integrity of design materials and workmanship in chapter house the activities of housing corporation will be subject_to monitoring and inspection by foundation and landmark foundation proposes to fund the grants by expending funds that it currently has along with funds obtained from additional fund raising this fund raising will include solicitation of funds from fraternity alumni other sec_501 organizations and the general_public housing corporation also may solicit plr-119703-98 contributions to foundation for this project with foundation’s prior approval all funds received from alumni and others whether suggested for use for this particular project or otherwise will be expended in the sole discretion of foundation in furtherance of its educational and charitable purposes all donors will be notified in writing of foundation’s broad discretion to use the funds for other educational and charitable purposes the preservation and conservation_easement housing corporation proposes to grant to a qualified_organization a perpetual conservation_easement within the meaning of sec_170 and reg sec_1_170a-14 in the facade and certain interior portions of chapter house the purpose of the easement is to preserve certain architectural historic and cultural features of the facade and certain interior portions of chapter house and to maintain the property’s conservation and preservation values the interior portions of chapter house subject_to the easement are the entryway living room dining room and main stairway pursuant to the conveyance of the easement housing corporation will grant to a qualified_organization a property interest in chapter house the donee will be a qualified_organization as defined by sec_170 will have a commitment to protect the conservation purposes of the donation and will have the resources to enforce the restrictions imposed by the easement it is the hope of housing corporation that landmark will meet the requirements necessary to be the recipient qualified_organization and will be willing to accept the easement if landmark is unwilling or unable to accept the easement then housing corporation will find another qualified_organization to accept the easement if a qualified_organization other than landmark is the recipient of the easement then that organization must work in conjunction with landmark in landmark’s supervisory role of the implementation of the funding provided by foundation as described in the grant agreement the easement will place restrictions on housing corporation’s use and maintenance of chapter house under the terms of the easement housing corporation may not demolish remove or raze chapter house except in the case of extinguishment of the easement discussed below housing corporation also may not erect or allow anything to grow on the property surrounding chapter house that may impair the public’s view of chapter house plr-119703-98 pursuant to the easement the qualified_organization will have the right to access the entryway living room dining room and main stairway of chapter house for the purpose of conducting exhibits of those areas on two days per year up to six consecutive hours on each day the purpose of the exhibits is to allow the general_public to view and study the property the qualified_organization also has the right to access those portions of the interior of chapter house on one additional day per year for the purpose of photographing and studying the areas for use in public displays and publications on that particular day the qualified_organization may allow educational professional architectural and historical organizations to study and photograph the interior portions of chapter house that are subject_to the easement housing corporation must obtain the prior approval of the qualified_organization to increase or decrease the height of change the exterior construction materials or otherwise alter reconstruct or change the facade of chapter house or to erect any sign or advertisement with minor exceptions housing corporation also must receive prior approval to change the floor_plan of or significantly alter the entryway dining room living room and main stairway of chapter house housing corporation reserves the right subject_to the above restrictions to continue the general residential use and maintenance of chapter house and to continue to use chapter house for educational and nonprofit activities so long as such uses do not impair the conservation and preservation values of chapter house and are not inconsistent with the purpose of the easement upon demand of the qualified_organization housing corporation is required to certify that it is in compliance with the above restrictions the easement provides that the qualified_organization may with the consent of housing corporation inspect chapter house the easement further provides that the qualified_organization has the right to legally enforce the conservation restrictions by appropriate legal or equitable proceedings including but not limited to injunctive relief the easement provides that the obligations imposed on housing corporation and the qualified_organization by the easement shall be effective in perpetuity and shall run as a binding servitude with chapter house further if the qualified_organization transfers the easement the successor donee must be a qualified_organization as defined by sec_170 and must meet the requirements of reg sec_1_170a-14 the current condition of chapter house is documented in a report that will be attached to and become part of the easement the easement requires that plr-119703-98 housing corporation record the easement in the land records of the appropriate county the easement provides that if circumstances arise making impossible the continued use and ownership of chapter house consistent with the purpose of the easement then the easement may be extinguished by judicial proceedings in addition the qualified_organization must use any proceeds received upon extinguishment of the easement in a manner consistent with the purpose of the easement for purposes of determining the distribution of proceeds in the event of extinguishment or condemnation the easement provides that both parties are vested with real_property interests in chapter house and that the qualified organization’s percentage interest in chapter house will be determined by the ratio of the value of the easement to the value of the property without deduction for the value of the easement the value of the easement and the value of the property will be determined by appraisals made in accordance with reg sec_1_170a-14 that ratio shall remain constant and will be included in the records documenting the condition of chapter house at the time of conveyance law and analysis sec_170 provides subject_to certain limitations a deduction for charitable_contributions described in sec_170 payment of which is made within the taxable_year sec_170 defines a charitable_contribution as a contribution or gift to or for_the_use_of certain organizations meeting specific criteria including governmental units and domestic charities revrul_69_573 1969_2_cb_125 holds that a college fraternity that maintains a chapter house for active student members is exempt from federal taxation under sec_501 rather than sec_501 therefore contributions to the fraternity are not deductible under sec_170 revrul_69_573 citing 307_f2d_357 th cir and 60_f2d_50 2d cir states that although the typical college fraternity does in some degree contribute to the cultural and educational growth of its members during their student years that is not its primary purpose such an organization is primarily a social_club in that its major functions are to provide a meeting place for its members living quarters and the headquarters for their entertainment revrul_60_367 1960_2_cb_73 holds that contributions made to a college through a fund raising program for the purpose of acquiring or constructing a housing facility for use by a plr-119703-98 designated fraternity are deductible under sec_170 the college owns the houses and rents the dwellings to fraternity groups on short-term leases at rates closely comparable to the rentals charged by the college for similar housing facilities although donors are permitted to designate a particular fraternity the only practical benefit of the designation is that a specific chapter house might be finished ahead of the others the funds are not used for improvements on structures owned by anyone other than the college revrul_60_367 further states that in order for the gift to be deductible it must in reality be gift to the college and not a gift to the fraternity by using the college as a conduit i beneficiary of contributions similar to the issue in revrul_60_367 we must determine which organizations will be benefitted by the contributions to foundation only if the contributions are in reality to a qualified charitable donee will they qualify for the charitable_contribution_deduction under sec_170 foundation will be benefitted by the contributions it receives from fraternity alumni and others as foundation will maintain control of the funding which will be used in its discretion in furtherance of its educational and charitable purposes because foundation intends to use the funding to preserve and maintain the facade and certain interior portions of chapter house fraternity as the resident of chapter house will benefit from the contributions received by foundation without more the donations would not qualify for the charitable_contribution_deduction because the beneficiaries of the donations are foundation which is a qualified charitable donee and fraternity which is not a qualified charitable donee housing corporation however plans to grant a preservation and conservation_easement in the facade and certain interior portions of chapter house to a qualified_organization although housing corporation as a nonprofit organization will not get the benefit of a charitable deduction the grant of the easement if it meets the definition of a qualified_conservation_contribution under sec_170 and reg sec_1_170a-14 would serve the dual purpose of ensuring the perpetual preservation and conservation of those portions of chapter house covered by the easement and important to the charitable donation question will ensure that the donations will benefit a qualified charitable donee we now turn to an examination of whether the preservation and conservation_easement that housing corporation plans to grant to a qualified_organization is a qualified_conservation_contribution within the meaning of sec_170 and reg sec_1_170a-14 plr-119703-98 ii preservation and conservation_easement under sec_170 a qualified_conservation_contribution is a contribution of a qualified_real_property_interest to a qualified_organization exclusively for conservation purposes a qualified_real_property_interest sec_170 defines the term qualified_real_property_interest to include a restriction granted in perpetuity on the use of real_property sec_1_170a-14 of the regulations indicates that a qualified_real_property_interest includes a perpetual conservation restriction which is defined as a restriction granted in perpetuity on the use that may be made of real_property including an easement the instrument that housing corporation proposes to grant to a qualified_organization is an easement providing for perpetual restrictions on the use of real_property accordingly the interest to be granted in the easement is a qualified_real_property_interest within the meaning of sec_170 and reg sec_1_170a-14 b qualified_organization sec_170 provides that the term qualified_organization is one of the following a governmental_unit described in sec_170 an organization described in sec_170 a charitable_organization described in sec_501 that meets the public support_test of sec_509 or a charitable_organization described in sec_501 that meets the requirements of sec_509 and is controlled by an organization described in or in addition reg sec_1_170a-14 states that the qualified_organization must have a commitment to protect the conservation purposes of the donation and have the resources to enforce the restrictions foundation has represented that the recipient of the easement will meet these requirements sec_1_170a-14 of the regulations provides that the instrument of conveyance must prohibit subsequent transfers by the donee unless in the subsequent transfer the donee requires that the conservation_purpose continues to be carried out and the subsequent transferee meets the requirements necessary to be a qualified_organization under sec_170 and reg sec_1 c the deed of easement contains such a restriction accordingly this requirement would be met plr-119703-98 c conservation_purpose sec_170 defines the term conservation_purpose to include the preservation of a certified_historic_structure sec_170 defines the term certified_historic_structure to include a building listed in the national register chapter house is listed on the national register accordingly chapter house is a certified_historic_structure within the meaning of sec_170 and its preservation is a conservation_purpose within the meaning of sec_170 sec_1_170a-14 of the regulations provides that for the easement to be considered as having been granted for a conservation_purpose some visual public access to the donated property is required further if the donated property is not visible from a public way for example the subject of the easement is the interior of a building then the terms of the easement must provide that the general_public is given the opportunity on a regular basis to view the characteristics and features of the donated property consistent with the nature and condition of the property sec_1_170a-14 of the regulations provides examples of public access to donated property meeting the requirements of reg sec_1_170a-14 example describes a donation by a of an easement to the exterior and interior of his victorian period home that he and his family live in the view of a’s home is obscured by a high stone wall the easement provides that the house may be opened to the general_public from a m to p m on one sunday in may and one sunday in november each year for house and garden tours also the donee organization is given the right to photograph the exterior and interior of the house for use in publications and to permit persons affiliated with educational organizations professional architectural associations and historical societies to make appointments to study the property in this example the regulations concluded that the two opportunities for public visits per year when combined with the ability of the general_public to view the subject of the easement through photography the opportunity for scholarly study of the property and the fact that the house is used as a residence will enable the donation to satisfy the requirement of public access in the instant case similar to example above the subject of the easement is the exterior and part of the interior of a residence like example the easement at issue provides two opportunities for public visits per year the ability of the general_public to view the subject of the easement through photography and publications and the opportunity for scholarly study of the property in addition to those factors discussed in plr-119703-98 example the exterior of chapter house is visible from a heavily used public thoroughfare and the terms of the easement prohibit housing corporation from allowing anything to obscure the public’s view of the facade of chapter house based on these factors we conclude that there is sufficient public access to the subject of the easement such that the easement would be considered as having been made for conservation purposes within the meaning of reg sec_1_170a-14 d exclusively for conservation purposes sec_170 provides that the contribution must be exclusively for conservation purposes sec_170 provides that a contribution shall not be treated as exclusively for conservation purposes unless the conservation_purpose is protected in perpetuity sec_1_170a-14 of the regulations provides that any interest retained by the donor must be subject_to legally enforceable restrictions that will prevent use of the donor’s retained_interest that is inconsistent with the conservation purposes of the donation sec_1 170a- g i of the regulations provides that when the donor retains rights the exercise of which may impair the conservation interests associated with the property the donor must make available to the donee documentation sufficient to establish the condition of the property at the time of conveyance sec_1_170a-14 of the regulations states that the terms of the donation must provide that the donor notify the donee before exercise of any reserved rights the donee has a right of inspection to ensure compliance with the donation and the donee has rights to legally enforce the conservation restrictions sec_1_170a-14 of the regulations provides that if circumstances change making impossible or impractical the continued use of the property for conservation purposes then the easement will be treated as protected in perpetuity if the restrictions are extinguished by judicial proceedings and all of the proceeds received by the donee are used by the donee in a manner consistent with the conservation purposes of the original contribution sec_1_170a-14 of the regulations provides that the donor must agree that the donation of the perpetual conservation restriction gives rise to a property right with a fair_market_value that is at least equal to the proportionate value that the restriction at the time of the gift bears to the value of the property as a whole further that proportionate value of the donee’s property rights shall remain constant the easement in the instant case complies with these requirements it provides that the qualified_organization has rights to legally enforce the conservation restrictions requires plr-119703-98 housing corporation to file the easement in the appropriate county’s land records and provides the qualified_organization with the right of inspection under the terms of the easement housing corporation is required to provide to the qualified_organization documentation of the condition of chapter house at the time of conveyance and to notify and get the approval of the qualified_organization prior to exercise of any reserved rights further the easement provides for extinguishment pursuant to judicial proceedings limits the use of proceeds received by the donee as a result of extinguishment and meets the requisite percentage values which are to remain constant with respect to property rights accordingly the proposed donation would be considered as having been made exclusively for conservation purposes within the meaning of the relevant regulations e qualified_conservation_contribution based upon the facts submitted and representations made in your ruling_request we conclude that the contribution of the preservation and conservation_easement would meet the definition of a qualified_conservation_contribution within the meaning of sec_170 iii summary and conclusion as is the case in revrul_60_367 the proposed donations in the instant case are in substance donations to charitable donees-- namely foundation and the recipient of the preservation and conservation easement-- in furtherance of their exempt purposes the funding benefits foundation in that foundation maintains control of the funding which will be used in foundation’s discretion in furtherance of its educational and charitable purposes housing corporation plans to grant a preservation and conservation_easement in the facade and certain interior portions of chapter house to a qualified_organization having a commitment to protect the conservation purposes of the easement also fraternity’s and housing corporation’s policies with respect to public access to chapter house provide a public benefit although even with these policies they do not qualify as charitable donations see revrul_69_573 supra fraternity’s and housing corporation’s policies with respect to public access to chapter house provide a public benefit in that fraternity members give scheduled and ad hoc public tours of chapter house permit photography of chapter house for use in publications and permit university a and other organizations to use chapter house for educational and other purposes therefore amounts raised and expended by foundation to maintain and preserve the facade and certain interior portions of chapter house will further the exempt purposes of itself and of the qualified_organization that owns by virtue of the easement a real_property interest in plr-119703-98 chapter house the contributions will only incidently benefit fraternity accordingly if housing corporation grants an easement in the facade and certain interior portions of chapter house to a qualified_organization described in sec_170 and reg sec_1_170a-14 then the donations by fraternity alumni and others to foundation for the purpose of maintaining and preserving the facade and certain interior portions of chapter house qualify for the charitable_contribution_deduction under sec_170 subject_to the usual rules of that section including percentage limitations and substantiation requirements for any contribution of dollar_figure or more no opinion is expressed concerning the federal_income_tax consequences of these donations under any other provisions of the internal_revenue_code a copy of this ruling should be attached to taxpayer’s federal_income_tax returns for the tax years affected this ruling is directed only to the taxpayer who requested it sec_6110 provides that this ruling may not be used or cited as precedent sincerely assistant chief_counsel income_tax accounting by michael d finley chief branch enclosure copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c date number release date uilc tl-n-4277-99 cc dom fs p si internal_revenue_service national_office field_service_advice memorandum for san jose district_counsel from assistant chief_counsel field service cc dom fs subject research_credit this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend t year year year issues whether expenses_incurred in the manufacture of a wafer and mask set containing a prototype integrated circuit design are eligible for the credit under sec_41 when does research end for purposes of sec_41 conclusion the wafer and mask set are property of a character subject_to the allowance for depreciation and therefore are not supplies accordingly the expenses for the manufacture of the wafer and mask set are not eligible for the credit under sec_41 under the facts of this case research ends for purposes of sec_41 when the research no longer comes within the definition of qualified_research facts t designs develops manufactures and markets integrated circuits the majority of t’s employees are engineers in an integrated circuit the majority of the circuit area contains the circuitry required to perform the circuit function which can be memory logic or memory and logic before fabricating an integrated circuit a specific function and design must be established the circuit designer will start with a block functioning diagram of the circuit high levels of computer testing and simulation are required before the design is accepted after the design is accepted the block diagram is translated to a schematic diagram the diagram shows the number and location of the various circuit components while t designs and markets integrated circuit products it does not have its own fabrication or manufacturing plants to manufacture its integrated circuits rather t relies on third-party contract manufacturers to manufacture and package its products including new products or processes in the development stage the third party manufactures the wafer and mask set according to t’s specifications specifically t would provide the third-party manufacturer with design files and related information and the third-party manufacturer would prepare the wafers such third-party manufacturers and assembling plants are located primarily overseas integrated circuits are formed on a blank wafer surface of silicon a wafer of silicon is a business-card thick disk between four and inches in diameter the area on a wafer occupied by the integrated circuit is called a chip or a die generally there are several layers to each semi-conductor chip to make each layer a blue print or photomask mask is made from the mask the pattern of the circuit is placed onto the silicon wafer it can take up to to hours to manufacture one layer of a mask with million transistors thus it can take a mask manufacturer running its equipment hours a day almost a week to manufacture a mask set as the integrated circuit designs get more advanced larger and more complex patterns are required to be drawn on the masks each new design or reduction in the size of the die requires new mask tooling it typically takes a manufacturer running the fabrication plant hours a day six weeks to manufacture a finished wafer containing a new chip design in general the fabrication of integrated circuits onto the blank silicon wafer is an extremely complex and time-consuming process when the wafer is finished it is inspected a map is generated by a computer showing the location of good and bad chips the wafer is cut apart into individual die or chips and the good chips are selected for packaging the third-party wafer manufacturer to be profitable has a minimum run requirement in addition when designing a new chip t requires prototype wafers first silicon is the first set of silicon wafers produced for a new chip design this is the first time t’s engineers are able to see the physical results of their product and process design decisions the number of wafers and wafer lots fabricated during first silicon will vary based upon various engineering criteria t performs limited functionality tests on the first silicon to begin to assess the extent to which the initial product and process design choices were successful the results of these tests begin the process of determining the need for design changes three steps are used to measure whether the product meets t’s overall function requirements in product and process qualification the new component is tested to determine if it meets certain standards regarding its ability to operate in specific environments and whether t’s standards for expected product life are met yield which measures the number of good die out of the total die per wafer along with product characterization is a primary determinant of whether a new design meets t’s basic functional and economic requirements design changes are made throughout the development process in an attempt to increase the number of fully functional die per wafer design changes typically result in mask changes the new wafers are then tested the need for design changes identified and the process begins again thus the development process involves testing circuit redesign mask change notice purchase of new wafers fabricated pursuant to the mask change notice and the testing of the newly fabricated wafers this process continues until the yield that establishes commercial manufacturability is reached in year year and year t claimed the research_credit under sec_41 in computing the credit it included as a supply the cost of the wafers from first silicon to the time the chip was in volume production yield was stable and minimum engineering support was required law and analysis expenses_incurred in manufacture of wafer and mask a taxpayer is allowed a credit against tax for qualified_research_expenses paid_or_incurred in a trade_or_business sec_38 sec_41 the amount of the credit is equal to percent of the excess of the taxpayer’s qualified_research_expenses for the taxable_year over the base_amount and percent of the taxpayer’s basic_research_payments sec_41 qualified_research_expenses include amounts which are paid_or_incurred by the taxpayer during the taxable_year in carrying on any trade_or_business of the taxpayer for in-house research and contract_research_expenses sec_41 contract_research_expenses mean sec_65 percent of any amount_paid or incurred by the taxpayer to any person other than an employee of the taxpayer for qualified_research sec_41 qualified_research is research a with respect to which expenditures may be treated as expenses under sec_174 b which is undertaken for the purpose of discovering information which is technological in nature and the application of which is intended to be useful in the development of a new or improved business_component of the taxpayer and c substantially_all of the activities of which constitute elements of a process_of_experimentation for research that relates to a new or improved function performance or reliability or quality and does not relate to style taste cosmetic or seasonal design factors sec_41 d several activities are specifically excluded from the definition of qualified_research including research conducted outside the united_states sec_41 t relies on third-party contract manufacturers to manufacture and package its products including new products or processes in the development stage the third party manufactures the wafer and mask set according to t’s design specifications specifically t would provide the manufacturer with design files and related information and the third-party manufacturer would prepare the wafers it is our opinion that based on the facts provided the contract between t and the third- party manufacturer is not a contract for services but rather is a contract for wafers furthermore even if the contract could be construed as a contract for services there are no facts which would indicate the services provided by the third-party manufacturer qualify as contract_research_expenses because the third-party manufacturer is manufacturing wafers according to t’s design specifications the services it provides do not involve discovering information which is technological in nature the application of which is intended to be useful in the development of a new or improved business_component of t or that substantially_all of the third-party manufacturer’s activities constitute elements of a process_of_experimentation for research that relates to a new or improved function performance reliability or quality thus regardless of the extensiveness of the services provided by the third-party manufacturer in producing the chip to the extent any amounts could be considered as paid for its services such amounts are not amounts paid_or_incurred by t for qualified_research accordingly the amounts paid_by t to the third-party manufacturer for services could not constitute contract_research_expenses see sec_41 d finally even to the extent the services provided by an overseas third-party manufacturer could be considered as coming within the definition of qualified_research such amounts would not constitute qualified_research as research conducted outside the united_states is specifically excluded from the term qualified_research sec_41 qualified_research_expenses include amounts which are paid_or_incurred by the taxpayer during the taxable_year in carrying on any trade_or_business of the taxpayer for in-house_research_expenses sec_41 in-house_research_expenses include expenses for any amount_paid or incurred for supplies used in the conduct of qualified_research sec_41 supplies means any tangible_property other than land or improvements to land and property of a character subject_to the allowance for depreciation sec_41 the committee report provides that-- property which is of a character subject_to the depreciation allowance is not eligible for the credit whether or not amounts of depreciation are deductible during the year and whether or not the cost of such property can be expensed h_r rep no 97th cong 1st sess pincite accordingly any tangible_property of a character subject_to the depreciation allowance regardless of whether the taxpayer is claiming depreciation with respect to the property is not a supply chips are tangible_property of a character subject_to the allowance for depreciation see sec_167 sec_168 accordingly regardless of whether the chips are depreciable_property in the hands of t because they are of a character subject_to the allowance for depreciation they are not a supply for purposes of the research_credit accordingly the expenses for the manufacture of the wafer and mask set are not eligible for the credit under sec_41 completion of research for purposes of sec_41 qualified_research_expenses include amounts which are paid_or_incurred by the taxpayer during the taxable_year in carrying on any trade_or_business of the taxpayer for in-house research and contract_research_expenses sec_41 in-house_research_expenses include any wages paid_or_incurred to an employee for qualified_services performed by such employee sec_41 qualified_services means services consisting of engaging in qualified_research or engaging in the direct supervision or direct support of research activities which constitute qualified_research sec_41 qualified_research is research a with respect to which expenditures may be treated as expenses under sec_174 b which is undertaken for the purpose of discovering information which is technological in nature and the application of which is intended to be useful in the development of a new or improved business_component of the taxpayer and c substantially_all of the activities of which constitute elements of a process_of_experimentation for research that relates to a new or improved function performance or reliability or quality and does not relate to style taste cosmetic or seasonal design factors sec_41 d under sec_174 research and experimental expenses means-- expenditures incurred in connection with the taxpayer’s trade_or_business which represent research_and_development costs in the experimental or laboratory sense the term generally includes all such costs incident to the development or improvement of a product the term includes the costs of obtaining a patent such as attorneys’ fees expended in making and perfecting a patent application expenditures represent research_and_development costs in the experimental or laboratory sense if they are for activities intended to discover information that would eliminate uncertainty concerning the development or improvement of a product uncertainty exists if the information available to the taxpayer does not establish the capability or method for developing or improving the product or the appropriate design of the product whether expenditures qualify as research or experimental expenditures depends on the nature of the activity to which the expenditures relate not the nature of the product or improvement being developed or the level of technological advancement the product or improvement represents sec_1_174-2 in determining if the expenses at issue are research or experimental expenditures as used in sec_174 the focus of the inquiry is on the nature of the activity to which the expenditures relate ie the determination of the design methodology and development of the wafer or mask not the nature of the wafer or mask or level of technological advancement sec_1 a sec_174 covers costs incurred in developing the concept of a product revrul_73_275 1973_1_cb_134 it does not include expenditures_for the acquisition or improvement of depreciable_property sec_174 sec_1_174-2 see also 41_tc_582 aff’d 357_f2d_209 5th cir regulatory definition of research or experimental expenditures is reasonable and consistent with the intent of the statute to limit deductions to those expenditures of an investigative nature expended in developing the concept of a model or product agro science co v commissioner tcmemo_1989_687 aff’d 927_f2d_213 5th cir contracts did not require the taxpayer to invent or design any product kollsman instrument corp v commissioner tcmemo_1986_66 aff’d 870_f2d_89 2d cir contracts did not require the taxpayer to invent or design any product sec_174 does not apply to any expenditure for an acquisition or improvement of depreciable_property sec_174 sec_1_174-2 the determination of whether the research is undertaken for the purpose of discovering information that is technological in nature depends on whether the process_of_experimentation utilized in the research fundamentally relies on principles of the physical or biological sciences engineering or computer science-- in which case the information is deemed technological in nature--or on other principles such as those of economics--in which case the information is not to be treated as technological in nature h_r conf_rep no 99th cong 2d sess at ii-71 the term process_of_experimentation is a process involving the evaluation of more than one alternative designed to achieve a result where the means of achieving that result is uncertain at the outset this may involve developing one or more hypotheses testing and analyzing those hypotheses through for example modeling or simulation and refining or discarding the hypotheses as part of a sequential design process to develop the overall component thus for example costs of developing a new or improved business_component are not eligible for the credit if the method of reaching the desired objective the new or improved product characteristics is readily discernible and applicable as of the beginning of the research activities so that true experimentation in the scientific or laboratory sense would not have to be undertaken to develop test and choose among viable alternatives on the other hand the costs of experiments are eligible for the credit if the researchers are engaged in scientific experimentation h_r conf_rep no 99th cong 2d sess at ii-71 if the requirements of sec_41 are not met with respect to a product held_for_sale by t in its trade_or_business but are met with respect to one or more elements thereof the term business_component means the most significant set of elements of such product with respect to which all requirements are met thus the requirements are applied first at the level of the entire product held_for_sale by t in its trade_or_business if all aspects of the requirements of sec_41 are not met at that level the test applies at the most significant subset of elements of the product this shrinking back of the product is to continue until either a subset of elements of the product that satisfies the requirements is reached or the most basic element of the product is reached and such element fails to satisfy the test h_r conf_rep no 99th cong 2d sess at ii-72-73 insufficient information has been provided to make a determination as to which expenses associated with the design of the chip constitute qualified_research to the extent the expenses do constitute qualified_research several activities are specifically excluded from the definition of qualified_research including research conducted after commercial production of the business_component sec_41 sec_41 was added by the tax_reform_act_of_1986 with respect to the specifically provided excluded activities the conference_report states the following the conference agreement provides that activities with respect to a business_component after the beginning of commercial production of the component cannot qualify as qualified_research thus no expenditures relating to a business_component are eligible for the credit after the component has been developed to the point where it either meets the basic functional and economic requirements of the taxpayer for such component or is ready for commercial sale or use for example the credit is not available for such expenditures as the costs of preproduction planning for a finished business_component tooling-up for production trial production runs trouble-shooting involving detecting faults in production equipment or processes accumulation of data relating to production processes and the cost of debugging product flaws h_r conf_rep no 99th cong 2d sess at ii-74-75 case development hazards and other considerations expenses_incurred in manufacture of wafer and mask of the prototype wafers run per week generally no more than wafers are tested for each design change during the development process to the extent of the extra wafers which are sold because chips are tangible_property of a character subject_to the allowance for depreciation such expenses are not supplies and therefore not eligible for the credit under sec_41 it is unclear from the facts however whether the wafers tested are also sold to the extent any chip must be discarded the chip is not property of a character_subject_to_depreciation and would qualify as a supply for purposes of computing the research_credit sec_41 in addition congress’ purpose in enacting the credit was to encourage business firms to perform the research necessary to increase the innovative qualities and efficiency of the u s economy s rept no 99th cong 2d sess p as the wafers were necessary for t to perform the research necessary to increase the innovative qualities of chips they are consistent with congress’ purposes and may be considered a supply regardless of their character as a depreciable asset completion of research for purposes of sec_41 first silicon is the first set of silicon wafers produced for a new chip design t performs limited functionality tests on the first silicon to begin to assess the extent to which the initial product and process design choices were successful the results of these tests begin the process of determining the need for design changes three steps are used to measure whether the product meets t’s overall function requirements in product and process qualification the new component is tested to determine if it meets certain standards regarding its ability to operate in specific environments and whether t’s standards for expected product life are met yield which measures the number of good die out of the total die per wafer along with product characterization is a primary determinant of whether a new design meets t’s basic functional and economic requirements when commercial production begins is a factual question it is our opinion that based on the facts provided t has not begun commercial production until the prototype chips have met the function requirements our opinion is based on the fact that prior to this time the chip neither meets the basic functional and economic requirements of the taxpayer for such component nor is ready for commercial sale or use the fact that t is able to sell the chips from the first silicon and subsequent test runs does not establish that the chip has met t’s overall function requirements in fact the facts indicate the contrary while t’s engineers redesign the portions of the chip which did not work as originally conceptualized t announces the availability of the chip and sells the chip in its various stages of revision sale of such chips are made from the first silicon stage and continue until t determines that the chip is in the commercial production_stage the fact that t can sell the prototype chips does not establish that the chip was ready for commercial sale or use to the contrary the price charged for the chip prior to commercial production is high and t could not sell such chips at commercial volumes at this higher price furthermore there is no indication that t would obtain chips at each stage of the revision in excess of those required by the third-party wafer manufacturer or reasonably necessary to complete the redesign of the chip for the purpose of marketing the chips finally prior to the time the chip met t’s function requirements and was placed in commercial production testing had not been completed and no prototype of the chip t intended to design existed design changes are made throughout the development process in an attempt to increase the number of fully functional die per wafer design changes typically result in mask changes the new wafers are then tested the need for design changes identified and the process begins again thus the development process involves testing circuit redesign mask change notice purchase of new wafers fabricated pursuant to the mask change notice and the testing of the newly fabricated wafers this process continues until the yield that establishes commercial manufacturability is reached until such criteria has been met t has not completed the development of the intended chip and does not begin construction of additional copies or commercial production please call if you have any further questions by harve m lewis chief passthroughs special industries branch field service division


department of the treasury internal_revenue_service washington d c mar a ann tax_exempt_and_government_entities_division index no legend taxpayer a amount b ira x bank c dear this is in response to a request dated date as supplemented by correspondence dated date and date submitted on your behalf by your authorized representative for a letter_ruling to waive the day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representation have been submitted under penalties of perjury in support of the ruling requested taxpayer a was unemployed during the winter of and was unable to make payments on his house in date taxpayer a received a notice of foreclosure on his home taxpayer a also lost his automobile to repossession because of his failure to make payments taxpayer a’s total wages in were dollar_figure fy taxpayer a applied for a loan at several places but was turned down asa result on date taxpayer a withdrew amount b from ira x he maintained with bank c taxpayer a used amount b to pay his loan to stop the foreclosure of his house subsequent to using amount b to pay the loan on his home taxpayer a again applied for a loan at numerous mortgage companies but was turned down page taxpayer a then approached his mother and asked her to apply for a loan on her home taxpayer a’s mother’s application_for a loan was approved taxpayer a got money from his mother and deposited amount b back into ira x on date amount b was out of ira x for a total of days on date a telephone conference was held pursuant to section dollar_figure of revproc_2004_4 2004_1_irb_125 during which your authorized representative stated that amount b was distributed from taxpayer a’s ira x and not from a code sec_401 arrangement as stated in his initial request for a ruling dated date based on the above facts and representations taxpayer a requests that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution of amount b from ira x because the failure to waive such requirement would be against equity or good conscience sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shalt be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 page sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 i from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 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_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to compete 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 from the facts submitted it appears that you used amount b as a personal loan to pay off a personal debt it also appears from the facts submitted that at time amount b was distributed from ira x you did not have the intent to rollover the distribution to another ira the committee reports describing the legislative intent indicates that congress enacted the rollover provisions to allow portability between eligible retirement plans including ras using a distribution to settle personal debt is not consistent with the intent of congress to allow portability between eligible retirement plans since amount b was used for purposes other than a rollover as described in code sec_408 the request to waive the 60-day rollover period with respect to the distribution of amount b is denied under the circumstances presented in this case the failure to waive the 60-day rollover requirement would not be against equity or good conscience therefore with respect to your ruling_request we conclude that pursuant to code sec_408 the service declines to waive the 60-day rollover requirement with respect to the distribution of amount b from ira x and that amount b will not be considered a valid rollover_contribution under code sec_408 because of the 60-day requirement was not satisfied page 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 this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent pursuant to a power_of_attorney on file with this office a copy of this ruling fetter is being sent to your authorized representative if you have any questions please contact sincerely yours joyce e floyd manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice


department of the treasury washington dc internal_revenue_service number release date index no cc intl br1 plr-112678-03 telephone number person to contact refer reply to date date a date b date c year d country e date f dear this is in response to your letter dated b requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of u s citizenship did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination the information submitted for consideration is substantially as set forth below a was born in the united_states on date f he became a naturalized citizen of country e in year d a relinquished his u s citizenship expatriated on date c on the date of a’s expatriation his net_worth exceeded the threshold required under sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed under sec_877 and sec_877 for such taxable_year unless such plr-112678-03 page loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual's average income_tax_liability or the individual's net_worth on the date of expatriation exceeds certain thresholds see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_2_cb_29 modifying notice_97_19 1997_1_cb_394 a former u s citizen or former long-term_resident whose net_worth or average tax_liability exceeds the applicable_threshold will not be presumed to have a principal purpose of tax_avoidance if that former citizen or former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because a became a citizen of country e the country in which a’s spouse was born notice_98_34 requires that certain information be submitted with a request for a ruling that an individual's expatriation did not have for one of its principal purposes the avoidance of u s taxes a submitted all the information required by notice_98_34 including any additional information requested by the service after review of the submission based solely on the information submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 therefore a will not be presumed under sec_877 to have as one of his principal purposes for expatriating the avoidance of u s taxes it is further concluded that a will not be treated under sec_877 as having as one of his principal purposes of expatriating the avoidance of u s taxes 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 in addition no opinion is expressed as to a's u s tax_liability for taxable periods prior to his loss of u s citizenship or for taxable periods after his plr-112678-03 page loss of u s citizenship under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a's u s income_tax return for the year in which a obtained the ruling 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 sincerely yours ____________________ w edward williams senior technical reviewer branch office of associate chief_counsel international c director international attn area compliance sb_se psp prom