department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number tax_exempt_and_government_entities_division number release date date date u i l legend foundation state corporation date dear we have considered your ruling_request dated date you requested a five- year extension of time until date for disposing of certain excess_business_holdings facts you are a non-profit trust recognized as exempt from federal_income_tax under sec_501 of the internal_revenue_code_of_1986 as amended to which all subsequent section references are made unless otherwise indicated you are classified as a private_foundation under sec_509 you own shares of stock of corporation corporation is a large u s -based publicly traded corporation nearly all of the shares you own were received by you from a charitable_lead_annuity_trust that was established by one of your founders and a very small number were received as stock_dividends on shares that you owned at the time that the dividends were declared you have never acquired any shares by purchase at the time that you received your shares from the trust they did not constitute excess_business_holdings because the combined holdings of you and your disqualified persons were less than percent of corporation’s outstanding shares however since the second half of ee an increasing portion of the combined holdings has exceeded the percent level because corporation has engaged in repurchasing its shares on the open market at the time that corporation began to repurchase its shares it was not apparent whether foundation would continue to have excess_business_holdings or whether corporation might issue additional shares thereby reducing foundation’s holdings to permitted levels however foundation’s excess holdings have continued to increase as corporation has continued to repurchase shares in recognition of its excess_business_holdings situation over two years ago foundation’s governing body approved a plan for the disposition of a sufficient number of shares for its remaining shares not to be considered excess_business_holdings however before the plan could be implemented and executed the price of corporation’s shares declined by more than percent along with the general stock market decline that began in late the economic conditions that led to the general decline in stock market prices directly adversely affect most of corporation’s principal business activities the economic downturn and associated stock market decline caused foundation to reexamine its plan for disposition of corporation shares looking for alternative approaches to avoid the tax imposed by sec_4943 none of the possible alternative approaches were found to be satisfactory the timing of dispositions of corporation shares by foundation is affected by limitations imposed by federal securities laws and limitations imposed by corporation on all substantial shareholders to assure compliance with securities laws to avoid selling the necessary number of shares at substantially reduced prices and to comply with federal securities laws foundation in yey adopted a new disposition plan that it believes is compliant with rule 10b-5 under the securities exchange act of and other_securities laws the new plan is designed to dispose_of sufficient shares by date to avoid the imposition of any_tax under sec_4943 your request for a five-year extension of the five-year period under sec_4943 of the code for disposing of excess_business_holdings was submitted prior to the end of that period in your request you explained the difficulties you encountered as summarized briefly above in disposing of corporation shares prior to the end of the sec_4943 five-year period you also described your new plan to dispose_of a sufficient number of your corporation shares within an additional five-year period to avoid possessing any excess_business_holdings you submitted the new plan to state's attorney_general you do not expect to receive a response from the attorney_general but if you do you will provide a copy of it to this office ruling requested under sec_4943 the period during which foundation may dispose_of its corporation shares will be extended an additional five years to date law sec_4943 imposes an excise_tax on the excess_business_holdings of any private_foundation in a business_enterprise sec_4943 defines the term excess_business_holdings to mean with respect to the holdings of any private_foundation in any business_enterprise the amount of stock or other interest in the enterprise which the foundation would have to dispose_of to a person other than a disqualified_person for the remaining holdings of the foundation in such enterprise to be permitted holdings sec_4943 provides that the permitted holdings of any private_foundation in any incorporated business_enterprise are i percent of the voting_stock reduced by ii the percentage of the voting_stock owned by all disqualified persons sec_4943 provides that with certain exceptions not applicable here if after date there is a change in the holdings in a business_enterprise other than by purchase by the private_foundation or by a disqualified_person which causes the private_foundation to have excess_business_holdings in such enterprise the interest of the foundation in such enterprise immediately after such change shall while held by the foundation be treated as held by a disqualified_person rather than by the foundation during the 5-year period beginning on the date of such change in holdings sec_4943 provides that the irs may extend for an additional five years the initial five-year period under sec_4943 for disposing of excess_business_holdings in the case of an unusually large gift or bequest of diverse business holdings or holdings with complex corporate structures if a the foundation establishes that i it made diligent efforts to dispose_of such holdings during the initial five- year period and ii disposition within the initial five-year period has not been possible except at a price substantially below fair_market_value by reason of such size and complexity or diversity of holdings b before the close of the initial five-year period i the private_foundation submits to the irs a plan for disposing of all of the excess_business_holdings involved in the extension and ii the private_foundation submits the plan to the attorney_general or other appropriate state official having administrative or supervisory authority or responsibility with respect to the foundation's disposition of the excess_business_holdings involved and submits to the irs any response the private_foundation receives during the five-year period and c the irs determines that such plan can reasonably be expected to be carried out before the close of the extension period analysis you are a private_foundation described in sec_509 and subject_to sec_4943 you received a large number of corporation shares from a charitable_lead_annuity_trust established by one of your founders the shares that you hold became excess_business_holdings because corporation began repurchasing its shares on the open market thereby reducing the number of outstanding shares and increasing your percentage of the remaining outstanding shares under sec_4943 these shares are treated as held by a disqualified_person rather than foundation for a five-year period during the sec_4943 five-year period you have made diligent efforts to dispose_of these shares however due to securities law requirements limiting the timing and number of shares that could be sold and due to the substantial decline in the market_value of the shares relating to recent economic conditions you have been unable to dispose_of all your shares except at a price substantially below what you believe to be their fair_market_value before the end of the initial five-year period you submitted a request to the irs under sec_4943 for an additional five-year period within which to dispose_of your corporation shares in your request you described your plan for disposing of all your shares within an additional five-year period you also submitted the plan to the attorney_general of state from whom no response is expected although if a response is received you will send a copy to this office based on the information submitted we have determined that your plan to dispose_of a sufficient number of your corporation shares to eliminate any excess_business_holdings within an additional five-year period can reasonably be expected to be carried out therefore we conclude that you meet the requirements under sec_4943 for an extension of five years to dispose_of the necessary number of your corporation shares ruling under sec_4943 the period during which you may dispose_of the corporation shares is extended an additional five years until date this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records this ruling will be made available for public inspection under sec_6110 after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 provides it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely andrew f megosh acting manager exempt_organizations guidance group cc enclosure notice


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 b01 plr-132965-18 date date legend x ---------------------------------------------------- ------------------------------------------------------ year date ------- -------------------------- dear ----------------- this letter revokes plr plr-100339-16 issued to x on date in response to a request from your authorized representative dated date in plr-100339-16 the internal_revenue_service the service concluded that the requirements of sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations had been satisfied and granted x an extension of time of one hundred twenty days from the date of plr to make a sec_754 election for year the private letter ruling’s conclusions were based on information and representations submitted by your authorized representative since issuing the private_letter_ruling the service has determined that there was a misstatement or omission of controlling facts and that the facts provided to the service were materially different from the controlling facts on which the private_letter_ruling was based specifically you represented in your plr-132965-18 ruling_request that no return of the taxpayer who would be affected by the requested letter_ruling is under examination before appeals or before a federal court we have learned that your return for year was in fact under examination before appeals or before a federal court at the time your ruling_request was filed and that a decision was entered to settle that case in the tax_court on date the service is therefore retroactively revoking plr and is not exercising its discretionary authority to limit the retroactive effect of this revocation see sec_11 of revproc_2019_1 i r b section dollar_figure of revproc_2019_1 i r b provides in relevant part that where a letter_ruling is revoked or modified by a letter to the taxpayer the letter will state whether the revocation or modification is retroactive section dollar_figure further provides that if a letter_ruling is revoked or modified the revocation or modification applies to all years open under the period of limitation unless the service uses its discretionary authority under sec_7805 of the internal_revenue_code the code to limit the retroactive effect of the revocation or modification section dollar_figure of revproc_2019_1 i r b provides that an associate office will revoke a letter_ruling and apply the revocation retroactively to the taxpayer for whom the private_letter_ruling was issued if there has been a misstatement or omission of controlling facts or the facts at the time of the transaction are materially different from the facts on which the letter was based sec_7805 of the code provides that the secretary may prescribe the extent if any to which any ruling including any judicial decision or any administrative determination other than by regulation relating to the internal revenue laws shall be applied without retroactive effect x may file a new request for a private_letter_ruling in the future such a future request will be considered separate from the revoked request as such any new request must independently comply with the normal requirements for a private_letter_ruling this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-132965-18 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative we are also sending a copy of this letter to the appropriate operating division sincerely by joy c spies joy c spies 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 washington dc person to contact telephone number refer reply to cc psi 7-plr-115286-01 date date number release date index number legend a b c d f g h q r s t dear in a letter dated date you requested rulings regarding your purchase of oil_and_gas_properties you represented that a agreed to purchase certain interests in oil_and_gas producing properties and related production equipment from b production from the interests includes gas produced from the c formation which are qualified_fuels under sec_29 of the internal_revenue_code_of_1986 as amended a will claim the credit under sec_29 only with respect to production from wells which have been determined to produce qualified_fuel by the applicable regulatory authorities in accordance with the natural_gas policy act of as consideration for the subject interests a will pay b cash equal to d a will also be obligated to pay a dollar denominated production_payment and a time denominated production_payment retained by b the dollar denominated production_payment is payable solely out of q of the net_proceeds from the sale of hydrocarbons from the subject interests and will terminate when the total amount_paid equals r the time denominated production_payment entitles b to s of the net_proceeds less amounts paid to satisfy the dollar denominated production_payment the time denominated production_payment terminates on h in addition a is required to make payments to b equal to g of the value of the sec_29 credits generated by the plr-115286-01 subject interests recourse promissory note when the time denominated production_payment terminates the production from the subject interests is expected to equal f percent of the current at the time of creation of the production_payment estimate of the economically recoverable reserves in the subject interests when the production_payment was created the estimated present_value of the production from the subject interests after both of the production payments terminate was greater than of the present_value of the entire production stream from all the subject interests following termination of the production payments a will be entitled to of the income from production attributable to the subject interests as part of the assignment b reserved an interest the contingent_interest in any reserves that might exist after production of of the reserves currently estimated to exist b was granted options to re-acquire the subject interests for greater of dollar_figuret or fair_market_value during four different time windows or circumstances a entered into a management agreement with b for it will be compensated the agreement is typical of those in the industry the rulings requested are a has acquired the entire economic_interest of b in the transferred properties the production payments are properly characterized as purchase_money_mortgage loans under sec_636 of the code any sec_29 credit attributable to production from the properties after their sale to a is attributable to a sec_1_611-1 of the income_tax regulations provides that an economic_interest is possessed in every case in which the taxpayer has acquired by investment any interest in mineral in place and secures by any form of legal relationship income derived from the extraction of the mineral to which the taxpayer must look for a return of the taxpayer’s capital in 310_us_404 the taxpayer received payments which had to be satisfied out of any sale of the fee simple title of the land as well as production of the oil because the taxpayer was not looking entirely upon the oil production for a return on his investment the court found he did not have an economic_interest sec_1_614-1 provides that the term_interest means an economic_interest in a mineral deposit within the meaning of sec_1_611-1 the term includes working or operating interests royalties overriding royalties net profits interests and to the extent not treated as loans under sec_636 production payments plr-115286-01 sec_636 and sec_1_636-1 provide that a production_payment created and retained upon the transfer of the mineral_property burdened by the production_payment is treated as a purchase_money_mortgage loan on the burdened mineral_property sec_1_636-3 defines the term production_payment to mean a right to a specified share of the production from mineral in place if as and when produced or the proceeds from the production the right must be an economic_interest in the mineral in place it may burden more than one mineral_property and the burdened mineral_property need not be an operating_mineral_interest the right must have an expected economic life at the time of its creation of shorter duration than the economic life of one or more of the burdened mineral properties a right to mineral in place that can be required to be satisfied by other than the production of mineral from the burdened mineral_property is not an economic_interest in mineral in place a production_payment may be limited by a dollar amount a quantum of mineral or a period of time a right to mineral in place has an economic life of shorter duration than the economic life of a mineral_property burdened thereby if the right may not reasonably be expected to extend in substantial amounts over the entire productive life of the mineral_property sec_1_636-1 of the regulations states that the payer and payee shall determine their allowable deductions as if the production_payment were a loan and refers to sec_483 of the code sec_483 in turn refers to sec_1272 through for the treatment of original_issue_discount instruments sec_29 provides a credit for qualified_fuel as defined in sec_29 sold by the taxpayer to an unrelated_person during the taxable_year the production of which is attributable to the taxpayer a transaction will be classified as a sale_or_exchange of a mineral_interest in cases in which the owner of a continuing property interest assigns that interest and retains a non-continuing interest in production economic_interest that is an interest that is not coterminous with the productive life of the transferred property in this case b will retain production payments that are limited to a specified dollar amount and a specified time cut off based on a percentage of the reserves currently known to exist at the time the transaction is consummated if additional reserves are found to exist after all reserves currently known to exist have been produced b will acquire a contingent_interest which is a specified percentage of any such additional reserves the production payments are payable solely from production from the burdened properties and have economic lives of shorter duration than the economic lives of the burdened properties accordingly based on the information submitted and the representations made the production payments meet the requirements of sec_1 a and are treated as purchase_money_mortgage loans because the interest b retained in any additional reserves does not come into being unless and until the additional reserves not at present believed to exist are determined to exist it is not a plr-115286-01 continuing interest the recourse promissory note is to be paid from sources other than the subject properties following anderson because the recourse promissory note is payable from sources other than the subject properties the right to receive such payments does not constitute an economic_interest based solely on the representations made and the information submitted we conclude that a has acquired the entire economic_interest of b in the transferred properties the production payments are properly characterized as purchase_money_mortgage loans under sec_636 of the code any sec_29 credit attributable to production from the properties after their sale to a is attributable to a unless and until b reacquires the properties or the contingent_interest arises no opinion is expressed or implied regarding the determination of the buyer’s basis in the subject interests no opinion is expressed or implied regarding the determination of amounts attributable to the interest or principal pursuant to the production payments except as ruled above we express or imply no opinion as to the federal tax consequences of this transaction under any other provision of the code specifically we express or imply no opinion whether any fuel produced from the properties is qualified_fuel within the mean of sec_29 however we do point out that following true oil company v commissioner of internal revenue no 10th cir date production from any well which lacks a determination by a jurisdictional agency or review of such determination by ferc does not qualify for the credit under sec_29 sincerely joseph h makurath senior technician reviewer branch


t c memo united_states tax_court john p and carolyn l raney petitioners v commissioner of internal revenue respondent docket no filed date john p and carolyn l raney pro sese margaret a martin for respondent memorandum findings_of_fact and opinion wells judge respondent determined a deficiency of dollar_figure in petitioners' federal_income_tax unless otherwise indicated all section references are to the internal_revenue_code as in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions the issue to be decided is whether petitioners are entitled to exclude pursuant to sec_104 amounts received in settlement of a class action suit findings_of_fact some of the facts have been stipulated for trial pursuant to rule the parties' stipulations of fact are incorporated herein by reference and are found as facts in the instant case at the time they filed their petition in the instant case petitioners resided in el dorado hills california on date a class action lawsuit kraszewski v state farm gen ins co was filed against state farm general insurance co state farm mutual automobile insurance co state farm life_insurance co and state farm fire and casualty co state farm in the u s district_court for the northern district of california the class representatives alleged that state farm had engaged in statewide discrimination in california in the recruiting hiring and training of women for sales agent trainee positions in violation of title vii of the civil rights act of in the notice_of_deficiency respondent determined that for taxable_year petitioners were liable for self-employment_tax in the amount of dollar_figure and were entitled to a self- employment_tax deduction in the amount of dollar_figure subsequently the parties conceded that petitioners were not liable for the self-employment_tax and that petitioners were not entitled to the self-employment_tax deduction on date the district_court for the northern district of california certified a class in kraszewski to maintain the action see kraszewski v state farm gen ins co fair empl prac cas bna n d cal u s c sec 2000e et seq title vii the representatives sought backpay as well as injunctive and declaratory relief the district_court bifurcated the litigation into a liability and a remedy phase on date the court ruled in the liability phase that state farm was liable under title vii for classwide discrimination on the basis of gender see kraszewski v state farm gen ins co fair empl prac cas bna n d cal the court found that women who attempted to become trainee agents were lied to misinformed and discouraged in their efforts to attain the entry level sales position id pincite the court then ruled that the class action suit properly included all female applicants and deterred applicants who at any time since date have been are or will be denied recruitment selection and or hire as trainee agents by defendant companies within the state of california id pincite on date the court held that individual hearings were appropriate to determine the relief for class members the court decided that class members were entitled to show that they were actual victims of discrimination as to any of the vacancies at state farm which occurred during the period of liability and were filled by men on or around date petitioner carolyn l raney petitioner applied to become a state farm trainee agent but was not hired on date petitioner executed a final claim form in the class action suit challenging the date appointment of donald b buchanan petitioner subsequently became a claimant in the class action suit against state farm in november of petitioner and state farm entered into a settlement agreement and general release settlement agreement which provided in relevant part for and in consideration of the sum of dollar_figure less all required payroll deductions applicable to the period of trainee agency if any carolyn l raney does hereby completely release and forever discharge state farm from any claim or liability of any and every kind based on any federal state or local law statute or regulation hereinafter claim which arose prior to the execution of this settlement agreement and general release and which were raised or could have been raised in the above-captioned case as well as any and all claims arising out of or relating to any alleged discriminatory improper or unlawful act or omission of state farm in connection with any term or condition_of_employment or independent_contractor status or the process of securing or attempting to secure employee or independent_contractor status including without limitation recruitment selection hiring job assignment job transfer training promotion or termination which she may have filed or caused to be filed prior to the execution of this settlement agreement and general release before petitioner filed the final claim form on or around date a consent decree regarding monetary relief instatement relief and notice consent decree was filed in the class action suit in which the parties to the class action suit inter alia reached an agreement as to the remedy phase of the litigation section a of exhibit to the consent decree provides at par iv e c that negotiated settlements are not governed by the calculation rules for any of the types of damages available under this consent decree petitioner alleges that she had never seen the consent decree until she received a copy from respondent petitioner hereby agrees and promises that by entering into this settlement agreement and general release she is waiving any and all rights she may have under the terms of the consent decree regarding monetary relief instatement relief and notice in this action consent decree respecting instatement or rights to any other future class relief it is understood and agreed that this compromise settlement includes the compromise settlement of any and all legal evidentiary discovery and production issues regarding claim no petitioner further agrees and understands that petitioner will not bring any motions either individually or as part of the class relative to such claim no issues on date pursuant to the terms of the settlement state farm issued petitioner and her attorneys a check in the amount of dollar_figure state farm payment on their joint federal_income_tax return petitioners reported the state farm payment as gross_receipts in the amount of dollar_figure on their schedule c petitioners however also reported dollar_figure as a schedule c expense claiming that the amount was derived from a personal injury claim and therefore was excludable from gross_income pursuant to sec_104 respondent determined that the entire state farm payment should have been included in petitioners' gross_income opinion except as otherwise provided gross_income includes income from all sources sec_61 348_us_426 although sec_61 is to be broadly construed statutory exclusions from income must be narrowly construed commissioner v schleier u s ___ 115_sct_2159 pursuant to sec_104 gross_income does not include the amount of any damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal injuries or sickness the regulations provide that the term 'damages received whether by suit or agreement ' means an amount received through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution sec_1_104-1 income_tax regs accordingly to exclude damages from gross_income pursuant to sec_104 the taxpayer must establish that the underlying cause of action is based upon tort or tort type rights and the damages were received on account of personal injuries or sickness commissioner v schleier u s at ___ s ct pincite turning to the first requirement of commissioner v schleier supra we examine whether petitioner's claim was based upon tort or tort type rights citing 504_us_229 respondent argues that petitioner's claim which arose under title vii was not based upon tort or tort type rights petitioners however argue that petitioner's claim was based upon tort or tort type rights because as petitioner was never an employee or trainee of state farm the state farm payment could therefore only represent tort or tort type damages alternatively petitioners argue that petitioner's claim was based upon tort or tort type rights because there is no evidence in the settlement agreement that state farm intended to award backpay or any other pay additionally petitioners argue that as section a of exhibit to the consent decree recognizes damages other than title vii damages petitioner's claim was based upon tort or tort type rights where amounts are received pursuant to a settlement agreement the nature of the claim that was the actual basis for settlement controls whether such amounts are excludable from gross_income pursuant to sec_104 united_states v burke supra pincite the critical question is in lieu of what were damages awarded or paid 105_tc_396 87_tc_236 affd 835_f2d_67 3d cir determination of the nature of the claim is a factual inquiry 102_tc_116 affd in part revd in part and remanded 70_f3d_34 5th cir petitioners' first argument is that the state farm payment could only represent tort or tort type damages because petitioner was never an employee or trainee of state farm we disagree the district_court found state farm liable with respect to all female applicants and deterred applicants who at any time since date have been are or will be denied recruitment selection and or hire as trainee agents by defendant companies within the state of california significantly the court did not limit relief to employees of state farm the court found state farm liable under title vii to women who were denied recruitment selection and or hire as trainee agents petitioners' alternative argument is that because there is no evidence in the settlement agreement that state farm intended to award backpay or any other pay petitioner's claim was based upon tort or tort type rights although the settlement agreement does not contain a specific reference to title vii the surrounding circumstances convince us that pursuant to the settlement agreement the state farm payment was made to settle a claim under title vii petitioner was a claimant in a class action suit that alleged discrimination under title vii and sought backpay and injunctive and declaratory relief the district_court ruled that state farm was liable under title vii to all members of the class who had been discriminated against and ordered individual hearings although petitioner did not have a hearing to determine whether she was entitled to damages petitioner and state farm entered into a settlement agreement pursuant to which state farm paid dollar_figure to petitioner for petitioner's release of a claim arising out of or relating to any alleged discriminatory improper or unlawful act or omission of state farm in connection with recruitment selection hiring job assignment job transfer training promotion or termination additionally the settlement agreement expressly stated that it includes the compromise settlement of any and all legal evidentiary discovery and production issues regarding claim no accordingly we conclude that the settlement agreement represented a compromise and settlement of petitioner's rights pursuant to her claim against state farm alleging discrimination under title vii petitioners finally argue that because section a of exhibit to the consent decree recognizes damages other than title vii damages petitioner's claim was based upon tort or tort type rights we however conclude that petitioners have failed to establish that the state farm payment was attributable to a claim based upon tort or tort type rights under laws other than title vii consequently petitioners have failed to prove that any part of the state farm payment is excludable from gross_income accordingly based upon the record in the instant case we conclude that pursuant to the settlement agreement the state farm payment was intended to settle petitioner's claim against state farm under title vii claim no was the identification of petitioner's claim against state farm in the class action suit as petitioner's claim arose during and the class action suit was filed during the amendments to title vii made by sec_102 of the civil rights act of publaw_102_166 stat do not apply 511_us_244 we have considered all of petitioners' remaining arguments and find them to be without merit as we have concluded that petitioner's claim was not based upon tort or tort type rights we need not address the second requirement of commissioner v schleier supra regarding the nature of damages accordingly we conclude that petitioners are not entitled to exclude from gross_income any part of the state farm payment pursuant to sec_104 to reflect the foregoing decision will be entered under rule petitioners argue inter alia that pursuant to sec_3509 respondent should look to state farm for the tax_liability on the state farm payment petitioner however has never been an employee or trainee of state farm accordingly as to petitioner state farm has no duty to withhold taxes pursuant to sec_3509 our opinion herein is consistent with prior decisions of this court which similarly held that settlement proceeds received pursuant to the kraszewski litigation were not excludable from gross_income under sec_104 see clark v commissioner tcmemo_1997_156 martinez v commissioner tcmemo_1997_126 fredrickson v commissioner tcmemo_1997_125


t c memo united_states tax_court robert polly a gatlos petitioners v commissioner of internal revenue respondent docket no 15827-03l filed date robert and polly a gatlos pro sese jeffrey c venzie for respondent memorandum opinion marvel judge this matter is before the court on respondent’s motion for summary_judgment filed pursuant to rule and to impose a penalty under sec_6673 summary_judgment is a procedure designed to expedite 1all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the years at issue litigation and avoid unnecessary time-consuming and expensive trials fla peach corp v commissioner 90_tc_678 summary_judgment may be granted with respect to all or any part of the legal issues presented if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule a and b see 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read in a manner most favorable to the party opposing summary_judgment 85_tc_812 the facts material to the court’s disposition of the motion for summary_judgment are stated solely for purposes of deciding the motion and are not findings_of_fact for this case see sundstrand corp v commissioner supra pincite background this is an appeal from respondent’s determination upholding the proposed use of a levy to collect petitioners’ unpaid federal_income_tax liabilities for and when the petition in this case was filed petitioners resided in nottingham pennsylvania petitioners timely filed joint federal_income_tax returns for and showing balances due respondent assessed the income_tax liabilities shown on the returns as well as interest and the additions to tax for failure_to_pay_tax under sec_6651 petitioners made some payments that were applied to their and tax_liabilities but did not pay the liabilities in full following the receipt of a communication from petitioners in which petitioners claimed that they were not liable for any income_tax respondent sent petitioners a letter final notice - notice_of_intent_to_levy and notice of your right to a hearing dated date with respect to their unpaid and tax_liabilities the final notice was issued and signed by michael c sutton a revenue_officer who was a gs-11 employee of the internal_revenue_service on the date the final notice was issued on date respondent received a claim for relief from alleged notice of lien or levy from petitioners in which petitioners asserted various frivolous arguments because of the frivolous nature of petitioners’ arguments respondent initially refused to treat the claim as a timely request for a hearing under sec_6330 and initiated a levy action against petitioners however respondent subsequently determined that petitioners’ claim was a timely request for a sec_6330 hearing and released the levy by letter dated date appeals officer paula stanton advised petitioners that she had scheduled the requested hearing for date pincite a m in that letter appeals officer stanton warned petitioners that i cannot consider issues concerning the constitutionality of tax laws petitioners did not attend the hearing scheduled for date and did not contact appeals officer stanton to schedule a new hearing by letter dated date and labeled final opportunity appeals officer stanton warned petitioners that if she did not hear from them on or before date she would issue a determination_letter based on current information by letter dated date appeals officer stanton rescheduled the hearing requested by petitioners for date on date the hearing was held petitioner polly gatlos participated in the hearing at the hearing mrs gatlos challenged the constitutionality of the internal_revenue_code and refused to discuss collection alternatives petitioners raised no relevant issue at the july hearing on date respondent issued a notice_of_determination concerning collection action s under sec_6320 and or the notice_of_determination in the notice_of_determination respondent determined in pertinent part as follows the presiding appeals officer had had no prior involvement with respect to the unpaid liabilities respondent sent the notices required by sec_6330 and sec_6331 petitioners did not raise any spousal defenses or request a collection alternative the only argument raised by petitioners at the hearing was that the internal_revenue_code is unconstitutional the proposed levy balances respondent’s need for efficient tax collection with the taxpayers’ legitimate concern that any collection be no more intrusive than necessary on date this court filed petitioners’ petition in which petitioners contested the determination made by respondent in the notice_of_determination dated date in their petition petitioners gave the following reasons for seeking relief sec_7608 of the internal_revenue_code only provides revenue officers with the authority to enforce subtitle e taxes liquor tobacco and fire arms while the enforcement of laws relating to internal revenue other than subtitle e taxes are delegated in b to any criminal investagator sic of the intelligence_division or of the internal security division since the person executing the notice of 2the envelope in which the petition was mailed was postmarked date lien does not fall into the category of irs agent as defined in sec_7608 he can have no delegated authouity sic to issue notices of liens with the respect to income taxes revenue code sec_6331 authority of the secretary levy may be made upon the accrued salary and wages of any officer employee or elected official of the united_states we are not one of the person s listed in the code no commissioner signature on date respondent’s motion for summary_judgment and to impose a penalty under sec_6673 was filed by order dated date we required petitioners to file a response to respondent’s motion by date petitioners failed to file a response a sec_6330 discussion sec_6330 provides that no levy may be made on any property or right to property of any person unless the secretary3 has notified such person in writing of the right to a hearing sec_7701 provides the term ‘secretary’ means the secretary_of_the_treasury or_his_delegate sec_7701 provides a in general --the term or_his_delegate -- i when used with reference to the secretary_of_the_treasury means any officer employee or agency of the treasury_department duly authorized by the secretary_of_the_treasury directly or indirectly by one or more redelegations of authority to perform the function mentioned or described in the context and before the levy is made if the person makes a request for a hearing a hearing shall be held before an impartial officer_or_employee of the internal_revenue_service office of appeals sec_6330 at the hearing a taxpayer may raise any relevant issue including appropriate spousal defenses challenges to the appropriateness of the collection action and collection alternatives sec_6330 additionally at the hearing a taxpayer may contest the existence or amount of the underlying tax_liability if the taxpayer did not receive a notice_of_deficiency for the tax in question or did not otherwise have an earlier opportunity to dispute the tax_liability sec_6330 see also 114_tc_604 following a hearing the appeals_office must make a determination whether the proposed levy action may proceed in so doing the appeals_office is required to take into consideration the verification presented by the secretary the issues raised by the taxpayer and whether the proposed levy action appropriately balances the need for efficient collection_of_taxes with a taxpayer’s concerns regarding the intrusiveness of the proposed levy action sec_6330 the determination of the appeals officer under sec_6330 except a determination regarding the underlying tax_liability that is made pursuant to sec_6330 is reviewed for abuse_of_discretion sego v commissioner supra pincite where the underlying tax_liability is properly at issue the court reviews any determination regarding the underlying tax_liability de novo id a hearing officer may rely on a computer transcript or form_4340 certificate of assessments payments and other specified matters to verify that a valid assessment was made and that a notice_and_demand for payment was sent to the taxpayer in accordance with sec_6303 118_tc_162 absent a showing of irregularity a transcript that shows such information is sufficient to establish that the procedural requirements of sec_6330 have been met id pincite in this case the undisputed facts set forth in respondent’s motion declarations in support of the motion and attached exhibits establish that respondent has satisfied the requirements of sec_6330 appeals officer stanton who had had no prior involvement with respect to the unpaid tax_liabilities before the sec_6330 hearing as required by sec_6330 verified that proper assessments were made as reflected on computer transcripts attached to the motion for summary_judgment and in the notice_of_determination and that the requisite notices had been sent to the petitioners appeals officer stanton also considered petitioners’ argument and rejected it as not relevant and frivolous following the hearing appeals officer stanton made a determination upholding the proposed levy action after concluding that the proposed levy action appropriately balanced the need for efficient collection_of_taxes with petitioners’ concerns regarding the intrusiveness of the proposed levy action sec_6330 in their petition petitioners asserted three less-than- clear arguments in support of their contention that respondent’s determination was erroneous the revenue_officer who executed a related notice of lien was not delegated authority to issue a notice of lien with respect to income taxes under sec_7608 petitioners were not subject_to levy under sec_6331 the commissioner of internal revenue did not sign a document the identity of which petitioners did not specify we address these arguments briefly below authority to issue final notice_of_intent_to_levy petitioners’ argument has no merit for several reasons first the relevant notice is the final notice_of_intent_to_levy not a notice of lien that was not the subject of the notice_of_determination second the secretary or_his_delegate including the commissioner is authorized to issue a final notice_of_intent_to_levy 119_tc_252 citing sec_7701 and a i a the commissioner’s authority to issue a final notice_of_intent_to_levy has been delegated to gs-9 and above revenue officers everman v commissioner tcmemo_2003_137 citing delegation_order no rev date rev date michael c sutton the revenue_officer who issued the final notice_of_intent_to_levy to petitioners on date was classified as a gs-11 at the time he issued the notice the notice_of_intent_to_levy in this case was valid as it was issued to petitioners by a revenue_officer with delegated authority to do so petitioners are persons subject_to levy petitioners’ argument that they are not persons subject_to levy under sec_6331 is also without merit sec_6331 specifically authorizes the secretary to collect unpaid taxes from any person by levy upon all property and rights to property belonging to such person sec_7701 defines person to include an individual petitioners are individuals under sec_7701 and therefore are subject_to levy under sec_6331 no signature by commissioner although petitioners’ argument is unclear we shall interpret the cryptic reference no commissioner signature to mean that the final notice_of_intent_to_levy was invalid because it was not signed by the commissioner again petitioners’ argument has no merit this court has repeatedly rejected the argument that the commissioner is required to sign a final notice see eg craig v commissioner t c pincite there is no statutory requirement that a final notice_of_intent_to_levy must be signed everman v commissioner supra moreover even though there is no statutory requirement that the notice be signed the final notice_of_intent_to_levy in this case was issued and executed by revenue_officer michael sutton to whom the commissioner had delegated the requisite authority the petition does not set forth any other assignments of error with respect to the notice_of_determination any other argument made by petitioners before or during the hearing was frivolous was not raised in the petition and or is deemed to be conceded rule b we conclude therefore that there are no genuine issues of material fact and that respondent is entitled to the entry of a decision in this case as a matter of law b sec_6673 penalty sec_6673 authorizes this court to require a taxpayer to pay to the united_states a penalty not to exceed dollar_figure if it appears that the taxpayer has instituted or maintained a proceeding primarily for delay or that the taxpayer’s position is frivolous or groundless sec_6673 applies to proceedings under sec_6330 115_tc_576 in proceedings under sec_6330 we have imposed the penalty on taxpayers who have raised frivolous and groundless arguments with respect to the legality of the federal tax laws see eg 118_tc_365 affd 329_f3d_1224 11th cir eiselstein v commissioner tcmemo_2003_22 yacksyzn v commissioner tcmemo_2002_99 in this case the record for purposes of respondent’s motion clearly establishes that the only arguments made by petitioners during the administrative processing of this case were frivolous and or groundless in their claim for relief from alleged notice of lien or levy petitioners argued among other things that they are not liable for income_tax and they challenged the secretary’s delegation of authority to irs employees to collect unpaid taxes in their letter to respondent dated date petitioners again raised several frivolous arguments including an argument that their tax_liabilities were invalid because the sixteenth_amendment does not authorize a direct nonapportioned income_tax on citizens at the hearing mrs gatlos again raised frivolous arguments regarding the constitutionality of the income_tax in their petition petitioners continued to assert frivolous and or groundless arguments after respondent filed his motion for summary_judgment and we issued an order requiring petitioners to respond petitioners did not comply with our order and did not file the required response petitioners’ conduct as summarized in this opinion demonstrates that this proceeding was instituted and maintained primarily for delay moreover every argument made by petitioners during the administrative appeal and in this court was frivolous and or groundless consequently a penalty under sec_6673 is warranted we shall require petitioners to pay to the united_states a penalty under sec_6673 of dollar_figure an appropriate order and decision will be entered


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 b05 plr-136863-17 date june legend distributing --------------------------------------------------------------- --------------------------------------------------------- ------------------------------------------- controlled --------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------- controlled --------------------------------------------------------------- --------------------------------------------------------- ------------------------------- controlled --------------------------------------------------------------- --------------------------------------------------------- ------------------------------------------------------------ controlled --------------------------------------------------------------- --------------------------------------------------------- ------------------------------------------- shareholder a -------------------------------------------------------------------------------- ----------- ------------------------------------------------------------------------------------- --------------------------------------------------------- shareholder b ---------------------------------------------------------- --------------------------------- shareholder c -------------------------------- plr-136863-17 ---------------------------------------------------------- shareholder d ---------------------------------------------------------- ------------------------------ shareholder e ---------------------------------------------------------- --------------------------------- shareholder f ---------------------------------------------------------- ------------------------------ shareholder g ---------------------------------------------------------- --------------------------------- a b c d e f g state a ----- ----- -------- ------- ----- ----- --- -------- business a -------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------- ---------------- business b -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ ------- ---------------- business c -------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------- plr-136863-17 ---------------- business d -------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------- ------------------------------------------------------------------------ date year ----------------- ------ dear --------------- this letter_ruling responds to your letter dated date submitted by your authorized representative requesting rulings on certain u s federal_income_tax consequences of a proposed transaction described below the proposed transaction the information provided in that request and in later correspondence is summarized below this letter_ruling is issued pursuant to revproc_2017_52 2017_41_irb_283 regarding one or more covered transactions under sec_355 of the internal_revenue_code the code this office expresses no opinion as to any issue not specifically addressed by the rulings below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification on the information representations and other data may be required as part of the audit process this office has made no determination regarding whether any of the distributions as defined below i satisfy the business_purpose requirement of sec_1 b ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in any of the controlled corporations or any successor of a controlled_corporation within the meaning of sec_1 8t see sec_355 and sec_1_355-7 summary of facts distributing is a state a corporation distributing’s single class of common_stock is owned as follows shareholder a owns a shareholder b owns b shareholder c plr-136863-17 owns b shareholder d owns c shareholder e owns c shareholder f owns d and shareholder g owns d collectively shareholder a shareholder b shareholder c shareholder d shareholder e shareholder f and shareholder g are referred to as the shareholders shareholder b and shareholder c are siblings shareholder d shareholder e shareholder f and shareholder g are siblings shareholder b shareholder c shareholder d and shareholder e are the four members of distributing’s board_of directors prior to the transaction at issue distributing formed controlled controlled and controlled each a state a corporation and contributed a portion of its assets to each controlled_corporation distributing owns all of the single class of common_stock of each of controlled controlled and controlled distributing filed a consolidated tax_return for year and all subsequent years as the common parent of an affiliated_group_of_corporations that includes controlled controlled and controlled the distributing group on date distributing formed controlled a state a corporation together with controlled controlled and controlled the controlled corporations as part of the formation of controlled distributing caused controlled to transfer assets used in business d to controlled in exchange controlled issued all of its single class of common_stock to distributing controlled has been a member of the distributing group since its formation the transfer of business d assets from controlled to controlled caused controlled to recognize gain under sec_311 that was deferred under sec_1_1502-13 the deferred gain controlled is engaged in business a and was engaged in business d prior to date controlled is engaged in business b controlled is engaged in business c controlled is engaged in business d distributing has submitted financial information indicating that business a business b business c and business d have had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years distributing has no assets other than stock in each of the controlled corporations distributing and each of the controlled corporations use the cash_method_of_accounting plr-136863-17 proposed transaction serious disputes arose among the shareholders which adversely affected the business operations of distributing to eliminate the shareholder disputes distributing has proposed the following transactions the distributions i distributing will distribute all of the stock of controlled to shareholder a shareholder b and shareholder c in exchange for all of their stock in distributing distribution ii distributing will distribute all of the stock of controlled to shareholder d in exchange for all of shareholder d’s stock in distributing distribution iii distributing will distribute all of the stock of controlled to shareholder e in exchange for all of shareholder e’s stock in distributing distribution iv distributing will distribute all of the stock of controlled to shareholder f and shareholder g in exchange for all of their stock in distributing distribution v immediately after the distributions distributing will liquidate immediately after the distributions shareholder a will own approximately e of the stock of controlled shareholder b will own approximately f of the stock of controlled and shareholder c will own approximately f of the stock of controlled shareholder d will own all of the stock of controlled shareholder e will own all of the stock of controlled shareholder f will own g of the stock of controlled and shareholder g will own g of the stock of controlled representations with respect to each of the distributions except as set forth below distributing has made all of the representations in sec_3 of the appendix to revproc_2017_52 2017_41_irb_283 distributing has made the following alternative representations set forth in sec_3 of the appendix to rev_proc representation sec_3 a a a a a distributing has not made the following representations which do not apply to the proposed transaction representation sec_4 plr-136863-17 distributing has made the following modified representation representation immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations specifically controlled will recognize the deferred gain when either controlled or controlled ceases to be a member of the distributing group rulings based solely on the information and representations submitted we rule as follows on each of the distributions the shareholders will not recognize gain_or_loss and no amount will be otherwise included in income upon the receipt of the controlled stock sec_355 distributing will not recognize gain_or_loss upon the distribution of the controlled stock to the shareholders sec_355 the aggregate basis of the controlled stock received by each shareholder immediately after the distribution will equal the shareholder’s aggregate basis in the distributing stock surrendered in the distribution allocated in the manner described in sec_1_358-2 see sec_358 and b the holding_period of the controlled stock received by each shareholder will include the holding_period of the distributing stock with respect to which the distribution of the controlled stock is made provided that the distributing stock is held as a capital_asset on the date of the distribution sec_1223 earnings_and_profits if any will be allocated between distributing and each of controlled in accordance with sec_312 sec_1_312-10 and sec_1 e the deferred gain will be taken into account as a result of the distributions sec_1_1502-13 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transaction under any provision of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically addressed by this letter plr-136863-17 procedural statements this ruling letter is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to the federal_income_tax return of each taxpayer involved for the taxable_year in which the transaction covered by this ruling letter is consummated 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 this letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _william w burhop____ william w burhop senior technician reviewer branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c date number info release date uilc genin-132497-02 cc tege eoeg et1 memorandum for director internal_revenue_service center kansas city mo attn entity control from office of division counsel associate chief_counsel tax exempt and government entities subject railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion concerning the following businesses under the railroad retirement act and the railroad unemployment insurance act the acts the rrb ruled that became an employer under the acts effective date but then ceased to be an employer under the acts effective on that date merged with then became an employer under the acts on date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that became an employer under the railroad_retirement_tax_act rrta effective date and ceased to be an employer under the rrta on date we further concur with the rrb that became an employer under the rrta effective date please take the appropriate action regarding these businesses will e mcleod cc


internal_revenue_service department of the treasury number release date index numbers re washington dc person to contact telephone number refer reply to cc psi - plr-168982-02 date march legend h w trust trustee company date date date date year year m x shares law firm accounting firm lawyer - - - - - - - - - - - - - - - - dear this is in response to your letter dated date and other correspondence requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make allocations of generation-skipping_transfer gst tax exemptions to transfers to a_trust the facts and representations submitted are summarized as follows plr-168982-02 on date h and w established trust an irrevocable_trust for the benefit of their children and their lineal_descendants the trustee of trust is trustee article iii paragraph of trust provides that the trustee may in his absolute discretion accumulate the net_income or any portion thereof of the trust and add it to the trust principal or may pay it or any portion of it to or use it for the benefit of any one or more of a class of beneficiaries comprised of the grantors’ issue from time to time living during the existence of the trust the trustee shall be under no duty to equalize payments of income among said beneficiaries article iii paragraph provides that the trustee may pay to or use for the benefit of any one or more of the grantors’ issue from time to time living during the existence of the trust so much of the principal of the trust as the trustee in his absolute discretion may deem necessary or advisable for their health support maintenance and education after taking into consideration the income and other resources known to the trustee to be available to them the trustee shall be under no duty to equalize payments of principal among said beneficiaries article iii paragraph provides that after the death of the last to die of the grantors or at such earlier time as the trustee in his absolute discretion determines the trustee shall divide the then remaining balance of the trust into equal trust shares one trust share for each then living child of the grantors and one trust share for each deceased child of the grantors with then living issue a_trust share created for a deceased child of the grantors with then living issue shall be further divided into separate trust shares by right of representation for said deceased child’s then living issue each trust share so created for a child or more remote issue of the grantors such child or more remote issue hereinafter referred to as the beneficiary shall be designated with the name of such beneficiary and shall be held administered and distributed as a separate trust as provided in paragraph sec_3_3 through paragraph provides that the trustees may in their absolute discretion accumulate the net_income or any portion thereof of such trust share and add it to principal or may pay it or any portion of it to any one or more of a class of beneficiaries comprised of said beneficiary and his issue who are from time to time living the trustees shall be under no duty to equalize payments of income among said beneficiary and his issue and the trustees shall give paramount consideration to said beneficiary in making such payments paragraph provides that whenever the trustees determine that the income and other resources known to the trustees to be available to said beneficiary and his issue are not sufficient for their reasonable health support maintenance and plr-168982-02 education including but not limited to the purchase or improvement of a home for said beneficiary commensurate with said beneficiary’s income and standard of living the trustees may pay to any one or more of them or use for their benefit so much of the principal of such trust share as the trustees in their absolute discretion may determined to be required for those purposes the trustees shall be under no obligation to equalize the payments of principal among said beneficiary and his issue in making such payments paragraph provides that after the death of said beneficiary the trustees shall distribute the remaining balance of his trust share to such person or persons among the grantors’ then and thereafter living issue upon such conditions and estates in trust or otherwise in such manner and at such time or times said beneficiary appoints or directs in his will specifically referring to this power_of_appointment in default of such appointment or to the extent it is not effectively exercised the trustees shall divide the remaining balance of such trust share into separate trust shares by right of representation for said deceased beneficiary’s then living issue or if said beneficiary has no then living issue the trustees shall divide said remaining balance into separate trust shares by right of representation for the then living issue of said deceased beneficiary’s parent who was issue of the grantors if the parent of said deceased beneficiary who was issue of the grantors has no then living issue said remaining balance shall be divided into separate trust shares by right of representation for the then living issue of said deceased beneficiary’s nearest ascendant who was issue of the grantors and who has issue then living or if there is no such ascendant with issue then living said remaining balance shall be divided into separate trust shares by right of representation for the then living issue of the grantors each trust share so created shall be added to the corresponding trust share then existing for the individual who is issue of the grantors for whom said trust share was created or if such a corresponding trust share is not then existing said trust share shall be held and administered as a separate trust share designated with the name of such individual under this article article vi paragraph provides in part that the grantors’ purpose in creating trust is to conserve the principal of trust except as otherwise expressly provided herein and to achieve savings in income taxes generation-skipping_transfer taxes and death taxes on date h and w transferred to trust x shares of stock of company valued at dollar_figurem h and w retained accounting firm to prepare their tax returns for year accounting firm filed a protective extension of time for filing a gift_tax_return on date for h and w in a correspondence dated date accounting firm requested trustee to notify accounting firm if there were any reportable gifts for year and that barring any reply from trustee a second extension would not be filed trustee mistakenly believed that the transfers to trust on date would not have gift_tax implications accordingly plr-168982-02 trustee did not respond to the date correspondence and therefore accounting firm did not to file h’s and w’s respective gift_tax returns reporting the year transfers or allocating a portion of h’s and w’s gst_exemption to their respective transfers law firm drafted trust in year recently h and w engaged lawyer for estate_planning services lawyer requested copies of h’s and w’s prior gift_tax returns and learned that no gift_tax returns were prepared or filed to report the date gifts that h and w made to trust you have requested that the service grant an extension of time under sec_2642 and sec_301_9100-1 and sec_301_9100-3 to allocate h’s and w’s gst_exemption under sec_2642 to the transfers to trust in year sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 united_states gift and generation-skipping_transfer_tax return sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or plr-168982-02 before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the plr-168982-02 taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore h and w are granted an extension of time of days from the date of this letter to make allocations of h’s and w’s available gst_exemption with respect to the transfers on date to trust each allocation will be effective as of date the date of their respective transfers to trust and the value of the transfers to trust for purposes of determining the amount of gst_exemption to be allocated to trust shall be its value as finally determined for purposes of chapter the allocations should be made on form sec_709 and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the form sec_709 a copy is enclosed for this purpose the rulings contained in this letter are based upon information and representations submitted by the taxpayer s and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


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-115099-14 date date x y z --------------------------------------------------------------------------------------------------------------------------- ---------------- ------------------------------------ country ---------- date date date year ------------------- --------------------------------------------------------------------------------------------------------------------------- --- ------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- ----- dear ------------------- this letter responds to a letter dated date and subsequent information submitted on behalf of x by its authorized representatives requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes the information submitted provides that x was organized 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 however x failed to timely file form_8832 entity classification election to be treated as a disregarded_entity effective date plr-115099-14 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 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 guidance on the classification of a foreign eligible_entity for federal tax purposes unless the entity elects otherwise a foreign eligible_entity is treated as an association if all members have limited_liability a foreign eligible_entity with a single owner may elect to be treated as a disregarded_entity pursuant to the rules under sec_301_7701-3 a foreign eligible_entity with two or more members is treated as a partnership if at least one member does not have limited_liability a foreign eligible_entity with two or more members may elect to be treated as a partnership pursuant to the rules under sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may make an entity classification election by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed sec_301_9100-1 provides that the commissioner in exercising the commissioner's discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than 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 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards by which the commissioner will determine whether to grant an extension of time to make an election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 describes the conditions under which the commissioner will grant requests for relief that do not meet the requirements of sec_301_9100-2 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 granting relief will not prejudice the interests of the government based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 as a result we grant x an plr-115099-14 extension of time of one hundred twenty days from the date of this letter to file form_8832 with the appropriate service_center to elect to be classified as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on x and the owners of x filing all required federal_income_tax and information returns consistent with the requested relief being effective date before the earlier of the expiration of the statute_of_limitations of any_tax year affected by the granting of the requested relief or days from the date of this letter because x is requesting relief effective date to elect to treat x as a disregarded_entity pursuant to sec_301_7701-3 x is deemed to liquidate on date therefore pursuant to sec_1 b the calendar_year tax_return ending date of y x’s owner on date must include in income as a deemed_dividend the all_earnings_and_profits_amount as defined sec_1 d with respect to its stock in x these tax returns must also include all required forms information_return of u s persons with respect to disregarded entities for x in addition y must include a form_8865 return of u s persons with respect to certain foreign_partnerships in their year federal_income_tax return that reflects its contribution of x classified as a disregarded_entity to z a copy of this letter should be attached to any such returns except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item either discussed or referenced in this letter the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination plr-115099-14 we are directing the ruling only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by ____________________________ bradford r poston senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes