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 corp plr-138035-08 date date legend parent -------------------------------------------------------- ----------------------------------- llc ----------------------------------------------- subsidiary -------------------------------------------------------- -------------------------------------------------------------------- subsidiary -------------------------------------------------------- ---------------------------------------- subsidiary -------------------------------------------------------- ----------------------------------------------------------------- subsidiary -------------------------------------------------------- ---------------------------------- subsidiary -------------------------------------------------------- --------------------------------- subsidiary -------------------------------------------------------- ------------------------------ subsidiary -------------------------------------------------------- ------------------------------- plr-138035-08 date a date b date c date d date e date f x ----------------------- ------------------ ----------------------- -------------------- ----------------------- -------------------------- --- company official ----------------------------- ------------------------------------------------------------ ------------------------------------------------------------------ dear ---------------- this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election parent is requesting an extension for it and its includible subsidiaries to make an election to file a consolidated federal_income_tax return with parent as the common parent under sec_1_1502-75 of the income_tax regulations the election for the taxable_year ended date f additional information was received in letters dated october and date the material information is summarized below parent was formed on date a by llc an entity taxable as a partnership for federal_income_tax purposes on date b and date c parent formed subsidiary and subsidiary respectively as wholly owned subsidiaries to acquire the stock of subsidiarie sec_1 and subsidiarie sec_1 and were acquired by subsidiar-y on date d in exchange for cash and approximately x of the outstanding_stock of parent subsidiary was acquired by subsidiary on date e in exchange for cash a note debt assumption and a small amount of stock of parent parent intended to file the election but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election plr-138035-08 under sec_301_9100-1 the commissioner has discretion to 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 except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under 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 relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_1502-75 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent and its includible subsidiaries to file the election provided parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent and company official explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service and that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent and its includible subsidiaries to file the election by filing a consolidated_return with parent as the common parent and attaching a form_1122 for each of the includible subsidiaries for the taxable_year ended date f the above extension of time is conditioned on the taxpayers’ parent’s and its subsidiaries tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 plr-138035-08 we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayer however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 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 alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


office_of_chief_counsel internal_revenue_service memorandum number release date cc intl br7 jsalinas pocan-137900-04 uilc date date to ---------------------- ------------------------------------------------------------------- ---------------------------------------- small_business self-employed from ricardo a cadenas chief branch international subject calculation of military cover over amounts to guam with regard to jointly-filed income_tax returns this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issues in the case where a military employee is married to and filing jointly with a working non-military spouse should the entire net tax shown on the jointly filed account be covered over to guam under sec_7654 internal_revenue_code of or should only the tax attributable to the military employee be covered over would the definition of the term net collections as it relates to sec_7654 include the income taxes imposed on the income attributable to the non-military spouse of a jointly-filed return does the military member’s state of legal residence designation convey to their non-military spouse pocan-137900-04 conclusions the response to this question varies according to the specific facts and circumstances surrounding a jointly-filed income_tax return therefore please refer below to the discussion of various factual situations the term net collections under sec_7654 generally includes the income taxes imposed on the income attributable to the non-military spouse on a jointly- filed return however please see below for further discussion of the issue the state of legal residence or home of record of members of the u s armed_forces does not generally apply to the non-military spouse under the scra however please see below for further discussion of the issue facts our responses in this memorandum focus specifically on guam notwithstanding because the commonwealth of the northern mariana islands the cnmi covenant provides that the income_tax rules of the cnmi are to mirror the internal_revenue_code the code in the same manner as those laws are in force in guam our analysis concerning guam applies equally to the cnmi based on the legal principles discussed below we will analyze various scenarios involving the processing of joint returns where the u s armed_forces employs one spouse who is either a bona_fide_resident of guam or who is stationed in guam and files a joint_return with the internal_revenue_service if under sec_7654 income_tax amounts deducted and withheld from income attributable to military personnel stationed in guam are previously covered over to guam then the amounts determined in each of the fact patterns described below should be adjusted to prevent duplicate cover over the fact patterns we consider are as follows fact pattern the military employee is stationed in guam during a full calendar_year the military employee and his non-military spouse are both residents of a u s state eg texas see cnmi covenant article vi revenue and taxation sec_601 also because neither the cnmi nor guam has entered a tax implementing agreement with the federal government regarding rules for the prevention of tax_evasion the elimination of double_taxation and the exchange of tax information the internal_revenue_code of continues to apply to these possessions see h_r rep no reprinted in u s c c a n accordingly unless otherwise stated all references to the code shall be to the internal_revenue_code of pocan-137900-04 both husband and wife live and work in guam the couple files a joint_return with the irs pursuant to sec_935 fact pattern the military member is stationed in guam and he and his non-military spouse are both residents of guam both husband and wife live and work in guam the couple files a joint_return with the irs fact pattern the military member is a resident of guam and is stationed in a u s state eg texas the military member is married and husband and wife are residents of guam for tax purposes both spouses live and work in texas the couple files a joint_return with the irs law and analysis under the provisions of sec_935 of the code residents of guam are required to file income_tax returns with guam but not with the united_states similarly citizens of guam who are not otherwise citizens of the united_states are required to file an income_tax return only with guam see sec_935 residents of the u s mainland who derive income from guam are not required to file income_tax returns under guam’s territorial tax law they satisfy any potential guamanian income_tax_liability on guam- source income by filing with the united_states see id sec_935 also allows the filing of a joint_return for guam taxpayers it provides that the residence and citizenship of the spouse who has the greater adjusted_gross_income agi for the taxable_year determines where the joint_return shall be filed see sec_935 sec_7654 provides for the division of income taxes between the united_states and guam and states that net collections attributable to guam-source income shall be covered into the treasury of guam see sec_7654 however this section only applies to individuals for a taxable_year if sec_935 applies to such individual and in the context of a joint_return such individual and his spouse have an agi of dollar_figure or more and gross_income of dollar_figure or more derived from sources within the jurisdiction either the united_states or guam with which the individual is not required under sec_935 to file his return for the year see sec_7654 with respect to any inconsistency between sec_7654 the regulations and the organic act of guam sec_301_7654-1 states as follows sec_7654 and this section set forth the general procedures to be followed by the government of the united_states and the government of guam in the division between the two governments of revenue derived from collections of the income taxes imposed for any taxable_year pocan-137900-04 beginning after date to the extent that sec_7654 and this section are inconsistent with the provisions of sec_30 of the organic act of guam u s c 1421h relating to duties and taxes to be covered into the treasury of guam and held in account for the government of guam such sec_30 is superceded the united_states covers over to guam the net collections of income_tax on the compensation paid to military personnel stationed in guam even though they have no income_tax_liability to guam with respect to such compensation by reason of the servicemembers civil relief act the scra see sec_7654 thus there is always cover over with respect to the income_tax revenue generated from the compensation of the military spouse who is stationed in guam without the application of the threshold amounts referenced in sec_7654 see sec_301 c ii in determining net collections of income taxes an allocation may be necessary based upon the source_of_income reported on the joint_return either the united_states or guam in accordance with procedures set forth in sec_301_7654-1 the code source_rules indicate that source of compensation is determined by reference to the location where the services are performed compensation_for_personal_services performed in the united_states is considered as having a source within the united_states see sec_861 likewise compensation_for_personal_services performed in guam is considered guam-source income sec_908 of the american jobs creation act publaw_108_357 which added sec_937 to the internal_revenue_code_of_1986 affects the rules on residency in u s possessions including guam and the cnmi sec_937 also provides rules for determining when income is considered to be from sources within a u s possession and whether income is effectively connected with the conduct_of_a_trade_or_business within any u s possession sec_937 is applicable for tax_year and beyond with a transition_period for residency reporting that includes an individual’s three taxable years ending before the end of such individual’s tax_year we limit our analysis to the cover over of income taxes between the united_states and guam where the residency of the individual is established and do not purport to analyze factors bearing on residency under sec_937 conclusion to fact pattern in this situation husband and wife should file a joint income_tax return where they are considered residents for the taxable_year according to the single-filing rule_of sec_935 therefore husband and wife would appropriately file their joint_return with the irs service_center corresponding to texas the scra app u s c sec residence for tax purposes provides that military personnel will maintain their state or territorial domiciliary status for tax purposes while they are absent from the state or territory in question on military duty pocan-137900-04 both spouses earn income while working in guam and there is withholding by the united_states on the compensation paid on account of the military spouse under sec_7654 the u s treasury would cover the tax revenue from the income on the military member over to the guam treasury if both spouses report and pay taxes to the irs for their full tax_liability shown on a joint income_tax return an allocation may occur depending on whether the threshold amounts of sec_7654 are met where the couple has an agi that does not meet the minimum threshold amounts an allocation would be necessary and the u s treasury would cover over to guam the portion of the income_tax revenue on the joint_return attributable to the income of the military spouse and not cover over the portion of the income_tax revenue attributable to the income of the non-military spouse see sec_301_7654-1 in contrast where the couple has an agi that meets the minimum threshold amounts the tax revenue from the income of the spouses shall be allocated by source here where both husband and wife live and work in guam an allocation would not be necessary and the u s treasury would cover over to guam the income_tax revenue on the joint_return attributable to the income of both spouses see sec_7654 d if the joint_return filed with the irs indicates that the guamanian employer withheld income taxes from the wages of the non-military spouse and paid such amounts to the guam treasury then the irs would need to make an adjustment in its determination of net collection to be covered over reflecting that such withholding amount has already been paid to guam conclusion to fact pattern in this situation husband and wife should file a joint income_tax return where they are considered residents for the taxable_year according to the single-filing rule_of sec_935 thus they should have filed their joint_return with the guam treasury nonetheless we are addressing the situation where the couple erroneously files a joint income_tax return only with the irs the cover over determination is substantially the same as that of fact pattern above however apart from the cover over determination by the irs the guam treasury may seek compliance from the taxpayers who fail to comply with tax filing obligations owed to guam both spouses earn income while working in guam and the united_states withholds on the compensation paid on account of the military spouse the u s treasury would cover over to the guam treasury the net collection of income taxes attributable to the compensation paid to the military member if the joint_return filed with the irs indicates that the guamanian employer withheld income taxes from the wages of the non-military spouse and paid such amounts to the guam treasury then an adjustment is necessary in computing cover over to guam to account for the fact that guam has received a portion of the total_tax liability corresponding to the joint_return thus the cover over amount should equal the total_tax liability shown on the joint_return less withholding amounts already paid to guam pocan-137900-04 if however both spouses report and pay taxes to the irs for their full tax_liability shown on a joint income_tax return an allocation may occur depending on whether the threshold amounts of sec_7654 are met where the couple has an agi that does not meet the minimum threshold amounts an allocation would be necessary and the u s treasury would cover over to guam the portion of the income_tax revenue on the joint_return attributable to the income of the military spouse and not cover over the portion of the income_tax revenue attributable to the income of the non-military spouse in contrast where the couple has an agi that meets the minimum threshold amounts the tax revenue from the income of the spouses shall be allocated by source here where both husband and wife live and work in guam an allocation would not be necessary and the u s treasury would cover over to guam the income_tax revenue on the joint_return attributable to the income of both spouses see sec_7654 d conclusion to fact pattern in this situation husband and wife should file a joint income_tax return where they are considered residents for the taxable_year according to the single-filing rule_of sec_935 thus the couple should have filed their joint income_tax return with the guam treasury nonetheless we are addressing the situation where the couple erroneously files a joint income_tax return only with the irs aside from the cover over determination by the irs discussed below the guam treasury may seek compliance from the taxpayers that fail to comply with tax filing obligations owed to guam under the scra the military spouse is not considered to have lost residency in or to be absent from guam for tax purposes when present in the united_states on military orders thus the portion of the income_tax revenue on the joint_return attributable to the income of the military spouse would be covered over to the treasury of guam the irs has historically covered over to guam net collections of taxes with respect to members of the armed_forces who maintain a home of record in guam without the limitations of the agi thresholds of sec_7654 the compensation earned in the united_states by the non-military spouse is considered u s -source income accordingly the portion of the total amount of tax indicated on the joint_return corresponding to the non-military spouse would be considered allocable to u s source income and that portion of the tax is not subject_to cover over we note that if husband and wife had correctly filed a joint_return with guam and paid the income_tax to guam then the portion of income_tax reported on the return and attributable to the non-military spouse would require the treasury of guam to cover over such amount to the u s treasury in cases where the thresholds of sec_7654 are met would the definition of the term net collections as it relates to sec_7654 include the income taxes imposed on the income attributable to the non-military spouse of a jointly-filed return pocan-137900-04 the term net collections under sec_7654 generally includes the income taxes imposed on the income attributable to the non-military spouse on a jointly-filed return where a joint_return has been filed as provided for in sec_935 and b and sec_1_935-1 and one spouse is not an individual described in sec_935 or then net collections shall include income taxes collected on account of a joint_return only when the spouse with the higher agi is an individual as described in sec_935 a or net collections shall not include income taxes collected on account of a joint_return when the spouse indicating the higher agi is not an individual as described in sec_935 or we note however that sec_7654 provides for additional cover over with respect to income taxes deducted and withheld from the compensation paid to certain military personnel stationed in guam thus there is cover over to guam with respect to such an individual notwithstanding that he or she may not indicate the higher agi on a joint_return there are many possible variations in facts so please refer to the above fact patterns that describe some commonly occurring situations does the military member’s state of legal residence designation convey to their non-military spouse the state of legal residence or home of record of members of the u s armed_forces does not generally apply to the non-military spouse under the scra however in a situation where the non-military spouse is a resident of a state eg texas and both spouses move from texas to a u s possession eg guam it is possible that both spouses could claim that they are residents of texas for federal tax purposes see sec_1_935-1 also note that we refer to the residence of the spouse with the higher agi in making the determination of whether a joint_return should be filed with the united_states or guam see sec_935 case development hazards and other considerations --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------- this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions pocan-137900-04 by _____________________________ ricardo a cadenas


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 b01 plr-131958-12 date december taxpayer property department a b c d e f g h year dear ------------ -------------------------- --------------------------------------------- --------------------------------------------- --------------------------------- --------------------------------------------- ---- ----- ----- --- --- --- ----------- --- ------- this is in response to your letter dated date requesting rulings on behalf of taxpayer you have requested rulings that i the boat slips at the property constitute plr-131958-12 real_estate_assets within the meaning of sec_856 of the internal_revenue_code_of_1986 as amended the code ii taxpayer’s rental income from the boat slips at the property constitutes rents_from_real_property within the meaning of sec_856 and and iii the employment of the dock master at the property will not cause otherwise qualifying_income to be excluded from the definition of rents_from_real_property under sec_856 and facts taxpayer intends to acquire a leasehold interest in the property the lessor of the property is department and the term of the lease is a years with a possibility of extension until year taxpayer will hold its interest in the property through one or more partnerships or llcs each of which will be treated as a partnership or disregarded_entity for federal_income_tax purposes the property is comprised of residential_rental_property units the apartments as well as a marina containing boat slips and end ties the marina after substantial renovation the property will consist of b apartments c boat slips and d end ties the boat slips will range in size from e feet up to f feet and are accessed by means of large floating docks the floating docks will be held in place by fixed pilings that are attached to the harbor floor in addition to replacing the existing boat slips and gangways the marina renovations will also include new boat slip security gates locker storage boxes and cleats and a new electrical system freshwater system fire suppression system and sewage pumpout system the boat slips at the marina will be leased independently of the apartments so that a tenant may lease only at the apartments only at the marina or both at the marina and the apartments marina tenants will lease the boat slips for a minimum of g and are required to post a security deposit when they sign a lease approximately h percent of the marina tenants are expected to be live aboard tenants who will reside on their boats although the live aboard tenants will receive no special services or amenities marina tenants will have access to restrooms showers and lockers but will not have access to the clubhouse or other common amenities provided to apartment tenants however marina tenants will be provided with a deck box adjacent to each boat slip for storage purposes marina tenants will tie their boats to the floating docks at the marina and all marina tenants will have access to the ocean from their boat slips marina tenants will have access to certain utilities sewage electricity and water will be sub- metered by the utility company to each tenant’s individual boat slip and dumping services will be provided at the dock all utilities will be separately metered to each marina tenant the marina will employ a dock master who will manage all aspects of the marina such as leasing collecting rents enforcing rules serving late rent notices filing unlawful detainer actions advertising maintaining income receipts ensuring compliance with apartment rules and managing tenant relationships plr-131958-12 marina boat slips are leased to tenants as a lease of premises namely a lease of a slip via standard lease agreements the marina lease agreements for a minimum duration of g the marina lease agreements contain typical real_estate lease terms such as the lessee’s provision of a security deposit rental payments due on the first day of each month lessor’s right to enter the premises during an emergency lessee’s obligation to carry liability insurance prohibitions on assignment and a landlord’s right to retake possession of each leased slip by legal action after a payment default additionally the marina lease agreements state clearly that they are personal to the lessee and non-assignable and that if a lessee sells its interest in a boat housed at the marina the new owner and or possessor shall have no right to the slip finally taxpayer represents that in accordance with sec_856 the portion of the boat slip rental income attributable to the floating docks and any other personal_property at the marina for the taxable_year does not exceed percent of the total rental income from the marina lease agreements for the taxable_year attributable to both the real and personal_property leased in connection with such rental income for this purpose the rental income attributable to personal_property for the taxable_year is that amount which bears the same ratio to the total rental income for the taxable_year as the average of the fair market values of the personal_property at the beginning and at the end of the taxable_year bears to the average of the aggregate fair market values of both the real and the personal_property at the beginning and at the end of such taxable_year issue law and analysis sec_856 provides that at the close of each quarter of its tax_year at least percent of the value of a reit’s total assets must be represented by real_estate_assets cash and cash items including receivables and government securities sec_856 provides that the term real_estate_assets for purposes of sec_856 means real_property including interests_in_real_property and interests in mortgages on real_property and shares or transferable certificates of beneficial_interest in other reits that meet the requirements of sec_856 through sec_856 provides that the term interests_in_real_property includes fee ownership and co-ownership of land or improvements thereon leaseholds of land or improvements thereon options to acquire land or improvements thereon and options to acquire leaseholds of land or improvements thereon but does not include mineral oil or gas royalty interests sec_1_856-3 of the income_tax regulations the regulations provides in part that the term real_estate_assets means real_property sec_1_856-3 provides that real_property includes land or improvements thereon such as buildings or other inherently permanent structures thereon including items which are structural plr-131958-12 components of such buildings or structures in addition the term real_property includes interests_in_real_property local law definitions will not be controlling for purposes of determining the meaning of real_property for purposes of sec_856 and the regulations thereunder under the regulations real_property includes for example the wiring in a building plumbing systems central heating or central air- conditioning machinery pipes or ducts elevators or escalators installed in a building or other items which are structural_components of a building or other permanent structure the term does not include assets accessory to the operation of a business such as machinery printing press transportation equipment which is not a structural_component of the building office equipment refrigerators individual air-conditioning units grocery counters furnishings of a motel hotel or office building etc even though such items may be termed fixtures under local law sec_1_856-3 provides that a reit that is a partner in a 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 partner's interest in the partnership's assets is determined in accordance with the partner's capital interest in the partnership revrul_71_286 1971_2_cb_263 considers whether air rights over real_property are considered interests_in_real_property and real_estate_assets within the meaning of sec_856 the term air rights is defined as the long-term leasehold or fee simple ownership of the space above the ground that a landowner can occupy or use in connection with the land plus necessary easements on the surface for support of structures erected in such air space the revenue_ruling holds that such air rights are considered interests_in_real_property and real_estate_assets within the meaning of sec_856 the right to use a geographically fixed plot of water and the seabed underneath it is directly analogous to air rights the value of the air rights derives from the ability to build new_construction for future occupancy or use in a given space or to restrict others from building in this space water rights by contrast convey the present right to occupy or use a space here taxpayer’s marina lease agreements convey rights to a slip a slip in the nautical sense is defined by merriam-webster as a ship’s or boat’s berth between two piers thus referring to the water space in which a ship or boat is berthed in the case of both air rights and water rights there is a real_property interest in the space immediately above solid ground air rights govern the space above land while water rights govern the space above the seabed in the present case taxpayer will acquire an interest in a long-term ground lease with department to occupy the marina and apartments like the rights to use and occupy the space above land constitute a real_property interest for purposes of sec_856 the rights to use and occupy the space above the seabed equally constitute a real_property interest under sec_856 plr-131958-12 issue sec_2 and sec_856 provides that at least percent of a reit’s gross_income must be derived from among other sources rents_from_real_property sec_856 provides that at least percent of a reit’s gross_income must be derived from among other sources rents_from_real_property sec_856 provides that rents_from_real_property include subject_to 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 sec_1_856-4 provides that for purposes of sec_856 and c the term rents_from_real_property includes charges for services customarily furnished or rendered in connection with the rental of real_property whether or not the charges are separately_stated services rendered to tenants of a particular building will be considered customary if in the geographic market in which the building is located tenants in buildings of a similar class are customarily provided with the service in particular geographic areas where it is customary to furnish electricity or other utilities to tenants in buildings of a particular class the submetering of those utilities to tenants in the buildings will be considered a customary service sec_1_856-4 of the regulations provides that the trustees or directors of a reit are not required to delegate or contract out their fiduciary duty to manage the trust itself as distinguished from rendering or furnishing services to the tenants of its property or managing or operating the property thus the trustees or directors may do all those things necessary in their fiduciary capacities to manage and conduct the affairs of the trust itself including establishing rental terms choosing tenants entering into renewal of leases and dealing with taxes interest and insurance relating to the reit’s property the trustees may also make capital expenditures with respect to the reit’s property as defined in sec_263 sec_856 provides that any impermissible_tenant_service_income is excluded from the definition of rents_from_real_property sec_856 defines impermissible_tenant_service_income to mean with respect to any real or personal_property any amount received or accrued directly or indirectly by the reit for services furnished or rendered by the reit to tenants at the property or for managing or operating the property plr-131958-12 sec_856 provides that if the amount of impermissible_tenant_service_income exceeds one percent of all amounts received or accrued during the tax_year directly or indirectly by the reit with respect to the property the impermissible_tenant_service_income of the reit will include all of the amounts received or accrued with respect to the property sec_856 provides that the amounts treated as received by a reit for any impermissible tenant service shall not be less than percent of the direct_cost of the reit in furnishing or rendering the service sec_856 provides certain exclusions from impermissible_tenant_service_income sec_856 provides that for purposes of sec_856 services furnished or rendered or management or operation provided through an independent_contractor from whom the reit does not derive or receive any income shall not be treated as furnished rendered or provided by the reit and there shall not be taken into account any amount which would be excluded from unrelated_business_taxable_income under sec_512 if received by an organization described in sec_511 sec_512 provides in part that there shall be excluded from the computation of unrelated_business_taxable_income all rents_from_real_property and all rents from personal_property leased with such real_property if the rents attributable to such personal_property are an incidental amount of the total rents received or accrued under the lease determined at the time the personal_property is placed_in_service sec_1_512_b_-1 provides that payments for the use or occupancy of rooms and other space where services are also rendered to the occupant such as for the use or occupancy of rooms or other quarters in hotels boarding houses or apartment houses furnishing hotel services or in tourist camps or tourist homes motor courts or motels or for the use or occupancy of space in parking lots warehouses or storage garages do not constitute rent from real_property generally services are considered rendered to the occupant if they are primarily for his convenience and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only the supplying of maid service for example constitutes such service whereas the furnishing of heat and light the cleaning of public entrances exits stairways and lobbies and the collection of trash are not considered as services rendered to the occupant taxpayer represents the services described above are usual or customary services that are rendered in connection with the operation or maintenance of the property and are not rendered primarily for the convenience of tenants the limited activities in which taxpayer is involved are not services rendered for the convenience of tenants under sec_1_512_b_-1 trustees or directors of taxpayer also may perform fiduciary functions as provided in sec_1_856-4 accordingly based on the information submitted and representations made the services furnished by taxpayer through its dock master in connection with the leasing of the marina will not plr-131958-12 cause any amounts received from tenants of the marina to be treated as other than rents_from_real_property under sec_856 conclusion based on the information submitted and the representations made we conclude that i the boat slips at the property constitute real_estate_assets within the meaning of sec_856 of the code ii taxpayer’s rental income from the boat slips at the property constitutes rents_from_real_property within the meaning of sec_856 and and iii the employment of the dock master at the property will not cause otherwise qualifying_income to be excluded from the definition of rents_from_real_property under sec_856 and 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 otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code this ruling is directed only to the taxpayer requesting it taxpayer should attach 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely diana imholtz diana imholtz branch chief branch financial institutions products


dept fone sevice washington d-c qoaa t epeat jul uniform issue list legend taxpayer a ira x financial_institution m financial_institution n amount b dear this is in response to your request dated date as supplemented by correspondence dated date in which you request a waiver of the 60-day rollover requirement contained in sec_408 and sec_402 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a under age represents that she received a distribution from ira x totaling amount b from financial_institution m on january taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to the failure of a representative of financial_institution n to follow her instructions taxpayer a represents that amount b has not been used for any other purpose taxpayer a withdrew amount b from ira x on january intending to rollover this amount into an ira to be established d atfinancial institution n taxpayer a who was recently divorced also wished to have her page legal name on her newly established ira changed to her maiden name after discussions with a representative of financial_institution n and completing the paperwork he sent her taxpayer a forwarded the check in amount b financial_institution n with the understanding that a rollover ira account would be established however it was not until taxpayer a was preparing her calendar income taxes that she discovered a non-ira account was established year instead of an ira account to based on the facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution of amount b contained in sec_408 of the code the code’ sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 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 the 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 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers page sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date 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 complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with her assertion that a failure to accomplish a rollover within the day period prescribed by sec_408 was due to the failure of a representative of financial_institution n to follow her instructions therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution to taxpayer a of amount b from ira x pursuant to this ruling letter taxpayer a is granted a period of days measured from the date of the issuance of this letter rollover_contribution of an amount equal to amount b to another ruling to make a ira or iras described in code sec_408 provided all other requirements of code sec_408 except the 60-day requirement are met with respect to such ira contribution the contribution will be considered a rollover_contribution within the meaning of code sec_408 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 letter 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 page if vau wish to inquire about this ruling please contact d at se t ep ra t3 please address all correspondence to sincerely yours on vy frances v sloan manager employee_plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose


number release date id office uilc cca_2009031310005637 -------------- from ------------------- sent friday date am to ----------------- cc ----------- subject re court of federal claims case doj enters into settlement agreements under section c by having the taxpayer partner send a letter making an offer and by doj sending a counter letter constituting an acceptance thus this exchange of letters constitutes a settlement agreement that is independently binding on the partner converts the settled partnership items for that partner to nonpartnership_items thereby removing that partner from the litigation under sec_6226 and starts the one year period for assessment doj does not use forms or to execute settlements the procedure above is different from a stipulated decision which does not convert partnership items and does not become final and binding until the appeal period expires in that regard under section g the principles of sec_7481 apply to make the district_court decision final when the period for appealing that decision expires there is nothing in section g that directly substitutes sec_7483 the appeal period for tax_court cases to district_court cases which have a day appeal period nor is their any policy reason for doing so a case becomes final as a practical and policy matter when it can no longer be appealed


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 b09 plr-105848-06 date date - legend grantor_trust date date spouse child child child child date date grandchild grandchild grandchild grandchild grandchild grandchild grandchild grandchild grandchild date great-grandchild great-grandchild great-grandchild great-grandchild great-grandchild --------------------- ----------------------------------------------------------------------------------- ----------------------- ------------------------- -------------------------- ------------------------ --------------------- ------------------------ ---------------------------------- ------------------------------------ -------------------------- --------------------- ---------------------------- ------------------------ ------------------------- ------------------------ ----------------------- -------------------------- -------------------------- ----------------------------------------- ------------------------------------ ----------------- ------------------------------------ -------------------- ---------------------------- ----------------------- -------------------- ------------------ -------------------- ----------------------- ---------------------------------- --------------------------- ---------------------- plr-105848-06 great-grandchild great-grandchild date great-grandchild great-grandchild date great-grandchild ------------------------------ great-grandchild ----------------------------- great-grandchild --------------------- great-grandchild --------------------------------- great-grandchild ------------------------ date date court ---------- -------------------------- ------------------ ----------------------------------------------------------------------------------- this letter responds to your letter dated date and prior ------------------------------------------ -------------------------- ------------------ court date state dear ---- correspondence requesting rulings under sec_61 sec_661 sec_1001 sec_1015 sec_1223 sec_2036 sec_2037 sec_2038 sec_2501 and sec_2601 of the internal_revenue_code grantor created trust on date trust was amended on date both date and date are prior to date the taxpayer represents that trust was irrevocable on date and no additions actual or constructive have been made to trust after date spouse grantor and spouse had four children child child child and child spouse died on date the last surviving child of grantor died on date grantor had nine grandchildren grandchild grandchild grandchild grandchild grandchild and grandchild grandchild grandchild and grandchild grandchild died on date survived by seven children great-grandchild great- grandchild great-grandchild great-grandchild great-grandchild great- grandchild and great-grandchild grandchild died on date survived by two children great-grandchild and great-grandchild grandchild died on date survived by five children great-grandchild great-grandchild great- grandchild great-grandchild and great-grandchild grandchild died on date without issue accordingly the current income beneficiaries of trust are grandchild grandchild grandchild grandchild grandchild great- grandchild great-grandchild great-grandchild great-grandchild great- trust was created for the benefit of spouse and the issue of grantor and article first e of the trust agreement provides that upon the death of the the beneficiaries have engaged in extensive litigation to determine the proper plr-105848-06 grandchild great-grandchild great-grandchild great-grandchild great- grandchild great-grandchild great-grandchild great-grandchild great- grandchild and great-grandchild survivor of the group consisting of the spouse child child child and child trust shall continue for a period of twenty-one years and shall be held for the benefit of the lawful issue of grantor’s children during that period income from trust shall be paid to the issue at least quarterly per capita trust will terminate on the expiration of the twenty-one year period and the principal shall be distributed in equal shares among the lawful issue of grantor’s children in direct proportion to their respective shares of the trust income immediately prior to termination if any of the lawful issue of grantor’s children die while receiving income from trust then that person’s lawful issue shall take in equal shares if more than one the share of the income that the issue’s parent was receiving at the time of death on termination that latter issue shall take that proportionate part of corpus equivalent to the proportionate part of the income from the trust they were receiving immediately prior to the termination of trust interpretation of article first e relating to distribution of the principal on termination of trust on date court held that the trust agreement was ambiguous and could be interpreted in many conflicting ways court then held based on extrinsic evidence including grantor’s contemporaneously executed will that grantor intended to include only his immediate grandchildren when he referred to the issue of his children in article first e accordingly on termination trust principal should be distributed in equal shares to grantor’s grandchildren the issue of a deceased grandchild will share per stirpes the share that their deceased parent would have taken if living court affirmed this decision on date and the supreme court of state denied further appeal court has directed the trustee subject_to a favorable private_letter_ruling from the service to divide trust into nineteen separate shares in direct proportion to each current income beneficiary’s share of income collectively the nineteen subtrusts accordingly the subtrusts created for grandchild grandchild grandchild grandchild and grandchild will each receive of the principal of trust the subtrusts created for great-grandchild and great-grandchild will each receive of the principal of trust the subtrusts created for great-grandchild great- grandchild great-grandchild great-grandchild and great-grandchild will each receive of the principal of trust the subtrusts created for great- grandchild great-grandchild great-grandchild great-grandchild great- grandchild great-grandchild and great-grandchild will each receive of the principal of trust the taxpayer represents that the distribution of assets among the trusts will be made on a pro_rata basis the terms of the nineteen subtrusts will be identical to the terms of trust except that the sole current income_beneficiary of each subtrust will be the beneficiary for whom the subtrust is held following the death of any the trustee of trust has requested the following rulings that the proposed plr-105848-06 income_beneficiary the successor beneficiaries of his or her subtrust shall be determined under article first e in the same manner and with the same effect as if trust had not been divided into the nineteen subtrusts rulings requested division of trust into nineteen subtrusts will not affect the status of trust as exempt from the gst tax and will not cause any distributions from or termination of any interests in trust or any of the nineteen subtrusts to be subject_to the gst tax will not cause any beneficiary to be considered as having made a taxable gift and will not constitute a taxable gift to any beneficiary under sec_2501 will result in each of the nineteen subtrusts being treated as a separate taxpayer under sec_643 will not result in any amount of trust property having been deemed to be paid credited or distributed to any beneficiary under sec_661 or sec_1_661_a_-2 will not result in the realization by trust or any beneficiary of any income gain_or_loss under sec_61 or sec_1001 will result in the assets of each of the nineteen subtrusts having the same basis under sec_1015 and the same holding_period under sec_1223 as the assets had in trust and will not cause the value of trust or any of the nineteen subtrusts to be includible in the estate of any beneficiary under sec_2036 sec_2037 or sec_2038 ruling taxable_distribution taxable_termination and a direct_skip under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation-skipping_transfer_tax provisions do not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added regulations provides that except as provided in sec_26_2601-1 or c any trust in existence on date is considered an irrevocable_trust except as provided in sec_26_2601-1 or c which relate to property includible in a grantor’s gross_estate under sec_2038 and sec_2042 in the present case is considered to have been irrevocable on date because neither sec_2038 nor sec_2042 applies sec_2611 defines the term generation-skipping_transfer to include a sec_26_2601-1 of the generation-skipping_transfer_tax sec_2601 imposes a tax on every generation-skipping_transfer sec_26_2601-1 provides rules for determining when a modification sec_26_2601-1 provides that a modification of the governing plr-105848-06 judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status the rules contained in sec_26_2601-1 are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy sec_26_2601-1 b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided in the original trust furthermore a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered a shift in a beneficial_interest in a_trust established an irrevocable_trust for the benefit of his two children a and b and their issue under the terms of the trust the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a’s issue and one for the benefit of b and b’s issue the trust for a and a’s issue provides that the trustee has the discretion to distribute trust income and principal to a and a’s issue in such amounts as the trustee deems appropriate on a’s death the trust principal is to be distributed equally to a’s issue per stirpes if a dies with no living descendants the principal will be added to the trust for b and b’s issue the trust for b and b’s issue is identical except for the beneficiaries and terminates at b’s death at which time the trust principal is to be distributed equally to b’s issue per stirpes if b dies with no living descendants principal will be added to the trust for a and a’s issue the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the divisions does not extend the time for vesting of any beneficial_interest in the trust beyond the period sec_26_2601-1 example provides that in grantor the facts in this case are similar to those presented in example the trustee in this case trust is a generation-skipping_transfer_trust because it provides for plr-105848-06 provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter of the internal_revenue_code distributions to more than one generation of beneficiaries below the grantor’s generation date and date are prior to date and trust was irrevocable on date trust therefore is exempt from the generation- skipping transfer_tax pursuant to sec_26_2601-1 proposes to divide trust into nineteen subtrusts one for each current income_beneficiary trust will be split based on each beneficiary’s proportionate interest in trust and the assets will be divided on a pro-rata basis the proposed division of trust into nineteen subtrusts does not shift a beneficial_interest in any trust to a beneficiary who occupies a lower generation than the person who held the beneficial_interest prior to the modification in addition the division does not extend the time for vesting of any beneficial_interest in trust beyond the period provided in the original trust we therefore conclude that the proposed division of trust into nineteen subtrusts will not affect trust’s status as exempt from the gst tax accordingly distributions from or terminations in interest in trust or any of the subtrusts will not be subject_to the gst tax ruling by gift during the calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible the date of the gift is considered the amount_of_the_gift adequate_and_full_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift and is included in computing the amount of gifts made during the calendar_year interests after the proposed division that they had as beneficiaries under trust so there is no direct transfer of assets because the beneficial interests rights and expectancies of the beneficiaries are substantially_similar both before and after the proposed transaction no transfer of property will be deemed to occur as a result of the sec_2501 imposes a tax for each calendar_year on the transfer of property sec_2512 provides that if the gift is made in property the value thereof at sec_2512 provides that where property is transferred for less than an in this case the beneficiaries of the resulting subtrusts will have the same sec_661 provides that in any taxable_year a deduction is allowed in plr-105848-06 division accordingly we conclude that the division of trust and the pro_rata allocation of assets among the nineteen subtrusts as proposed is not a transfer direct or indirect of property that will be subject_to the gift_tax imposed by sec_2501 ruling sec_3 and sec_643 provides that two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of the trusts is the avoidance of federal_income_tax computing the taxable_income of a_trust other than a_trust to which subpart b applies for the sum of the amount of income for such taxable_year required to be distributed currently and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed for such taxable_year but such deduction shall not exceed the distributable_net_income dni of the estate_or_trust sec_1_661_a_-2 of the income_tax regulations provides that gain_or_loss is realized by the trust or estate or the other beneficiaries by reason of a distribution_of_property in_kind if the distribution is in satisfaction of a right to receive a distribution of a specific dollar amount of specific property other than that distributed or of income as defined under sec_643 and the applicable regulations if income is required to be distributed currently beneficiary to whom an amount specified in sec_661 is paid credited or required to be distributed by an estate_or_trust described in sec_661 the sum of the following amounts the amount of income_for_the_taxable_year_required_to_be_distributed_currently to such beneficiary whether distributed or not and all other_amounts properly paid credited or required to be distributed to such beneficiary for the taxable_year that while the nineteen subtrusts will have the same grantor they will have different primary beneficiaries therefore based on the facts and representations submitted the nineteen subtrusts will be treated as separate trusts for federal_income_tax purposes under sec_643 additionally because the creation of the nineteen subtrusts is a modification of trust for federal_income_tax purposes the nineteen subtrusts are treated as a continuation of trust therefore the transfer of assets from trust to the nineteen subtrusts will not be treated as a distribution or termination under sec_661 and will not result in the realization by trust the subtrusts or by any beneficiary of trust or the subtrusts of any income gain_or_loss ruling sec_5 and based solely on the facts submitted and the representations made we conclude sec_662 provides that there shall be included in the gross_income of a sec_1_1015-2 provides that in the case of property acquired after sec_1001 provides that the gain from the sale_or_other_disposition of sec_1015 provides that if property is acquired after date by sec_61 provides that gross_income includes gains derived from dealings plr-105848-06 in property property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized sec_1_1001-1 provides that except as otherwise provided in subtitle a the gain_or_loss realized from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained a transfer in trust other than by a transfer in trust by a gift bequest or devise the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized by the grantor on such transfer date by transfer in trust other than by a transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made if the taxpayer acquired the property by a transfer in trust this basis applies whether the property be in the hands of the trustee or the beneficiary and whether acquired prior to termination of the trust and distribution of the property or thereafter held property however acquired there shall be included the period for which such property was held by any other person if under chapter of subtitle a the property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in his hands as it would have in the hands of such other person see also sec_1_1223-1 a partition of jointly owned property is not a sale_or_other_disposition of property if the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result of the transaction thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 issue of when a sale_or_exchange has taken place that results in realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interests in sec_1223 provides that in determining the period for which a taxpayer has 499_us_554 concerns the the supreme court in cottage savings u s pincite concluded that it is consistent with the supreme court’s opinion in cottage savings to find that plr-105848-06 one group of residential mortgage loans for another lender’s interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution sec_1_1001-1 of the regulations reasonably interprets sec_1001 and stated than an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite in cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans the interests of the beneficiaries of the resultant trusts will not differ materially from their interests in the original trust the proposed transaction will not change the interests of the beneficiaries instead the beneficiaries will be entitled to the same benefits after the proposed transaction as before the proposed transaction is similar to the kinds of transactions discussed in revrul_56_437 since the original trusts are to be divided but all other provisions of the trusts will remain substantially identical thus the proposed transaction will not result in a material difference in the kind or extent of the legal entitlements enjoyed by the beneficiaries the division of trust with the pro_rata division of the assets of the trusts among the nineteen subtrusts will not cause gain_or_loss to be realized by the trust or the beneficiaries for purposes of sec_1001 because sec_1001 does not apply to the division of the trust assets under sec_1015 the basis of the trust assets will be the same after the partition as the basis of those assets before the partition furthermore pursuant to sec_1223 the holding periods of the assets in the hands of the new trusts will include the holding periods of the assets in the original trust ruling value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone based upon the facts submitted and the representations made we conclude that sec_2036 provides that the value of the gross_estate shall include the sec_2037 provides that the value of the gross_estate shall include the plr-105848-06 or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceeds five percent of the value of such property sec_2038 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for adequate_and_full_consideration in money or money’s worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend revoke or terminate or where the decedent relinquished any such power during the year period ending on the date of the decedent’s death in order for to apply the decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth under which the decedent retained an interest in or power over the income or corpus of the transferred property in the present case the proposed division of trust does not constitute a transfer within the meaning of the beneficiaries of the resulting trusts will have the same interest after the division as they had as beneficiaries before the division we therefore conclude that the proposed division will not cause the interest of any beneficiary of trust or the resulting trusts to be includible in the beneficiary’s gross_estate under concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer s requesting it sec_6110 except as expressly provided herein no opinion is expressed or implied the rulings contained in this letter are based upon information and plr-105848-06 being sent to the taxpayer’s representative pursuant to the power_of_attorney on file with this office a copy of this letter is sincerely melissa c liquerman melissa c liquerman branch chief branch passthroughs special industries enclosure copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-163042-02 date date x trust a b c d e f g h estate d1 d2 plr-163042-02 d3 year year state accountants dear this letter responds to a 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 under the laws of state on d1 x elected to be an s_corporation effective d2 on d3 estate transferred shares of x to trust following the transfer the shareholders of x were trust a b c d e f g and h a x’s president represents that trust was intended to be a qualified_subchapter_s_trust qsst however no qsst election was timely filed on behalf of trust therefore x’s s election terminated on d3 trust distributed all its income as required by sec_1361 trust’s beneficiary reported her allocable share of x’s income consistent with the treatment of trust as a qsst in year accountants became x’s accounting firm in year accountants discovered that no qsst election was timely filed on behalf of trust a represents that the circumstances resulting in the termination of x’s s_corporation_election were inadvertent sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 as in effect for taxable years beginning on or before december provided that a small_business_corporation cannot have as a shareholder a person other than an estate and other than a_trust described in sec_1361 who is not an individual plr-163042-02 sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under sec_1361 such trust shall be treated as a_trust described in sec_1361 and for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qsst or his legal_representative may elect to have sec_1361 apply sec_1361 provides that an election under sec_1361 shall be effective up to days and months before the date of the election sec_1_1361-1 of the income_tax regulations provides that the current income_beneficiary of the trust must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax return the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that the termination shall be effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the representations made and the information submitted we conclude that x’s s_corporation_election terminated on d3 under sec_1362 of the plr-163042-02 code because the beneficiary of trust failed to timely file an election under sec_1361 we further conclude that the termination of x’s s election was an inadvertent termination within the meaning of sec_1362 accordingly pursuant to the provisions of sec_1362 x will be treated as an s_corporation effective d2 and thereafter provided x’s election to be an s_corporation was not invalid and provided that the election was not otherwise terminated under sec_1362 in addition from d3 and thereafter trust will be treated as a qsst described in sec_1361 and the beneficiary of trust will be treated for purposes of sec_678 as the respective owner of the x stock held by trust provided that the beneficiary of trust files a qsst election effective for d3 for trust with the appropriate service_center within days following the date of this letter if trust x or its shareholders fail to treat x as described above this ruling shall be null and void a copy of this letter should be attached to the qsst elections except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provision of the code specifically no opinion is expressed on whether x is otherwise eligible to be treated as an s_corporation or whether trust is an eligible qsst under sec_1361 this ruling letter 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 the power_of_attorney on file with this office a copy of this letter is being sent to x’s representative sincerely yours carolyn hinchman gray senior counsel branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes