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 psi b04 - plr-108350-16 date date re --------------------------------------------------- legend date grantor spouse power_of_appointment committee -------------------------- ------------------------------------------------- ---------------------- ----------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ------------------------------------------------------------------------- ---------- ------------ ------------------------ ------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------- trust ------------------------------------------------------------------------------------------ state state trustee lifetime beneficiaries --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- -------------------------------------------- child child child a b c ------------------------------------------------ ----------------------------------------------- -------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------------- ----------------------------------------------------------------------------- plr-108350-16 x --- dear ----------------- this letter responds to your authorized representative’s letter of date requesting rulings under sec_671 sec_2501 sec_2514 sec_2041 and sec_1014 of the internal_revenue_code the facts submitted and representations made are as follows on date grantors grantor and spouse created an irrevocable_trust trust for the benefit of themselves their children child child child and grandchildren who have attained the age of x child child child and the grandchildren who have attained the age of x are referred to collectively as lifetime beneficiaries child child and child are minors a corporate trustee trustee is the sole trustee the situs of trust is state grantor and spouse are married and reside in state a community_property_state trust provides that all property transferred to trust is community_property or will be transmuted into community_property moreover any and all property transferred to trust prior to the death of the first spouse to die predeceased grantor is and shall retain its character as community_property during grantors’ lifetimes trustee must distribute such amounts of income and or principal to each grantor and lifetime beneficiary as directed by the power_of_appointment committee and or grantor as follows at any time trustee pursuant to the direction of a majority of the power_of_appointment committee with the written consent of either grantor may distribute to or for the benefit of any one or more of the grantors or the lifetime beneficiaries such amounts of income or principal including the whole thereof outright or in trust for any purpose at any time and from time to time grantor’s consent power at any time trustee pursuant to the direction of all of the power_of_appointment committee members other than the grantors may distribute to or for the benefit of any one or more of the grantors or the lifetime beneficiaries such amounts of income or principal for any purpose at any time and from time to time unanimous member power and at any time either grantor has the power in a nonfiduciary capacity at any time and from time to time to distribute to or for the benefit of plr-108350-16 any one or more of the lifetime beneficiaries such amounts of the principal including the whole thereof outright or in trust as the grantor deems advisable to provide for the health education maintenance or support of the lifetime beneficiaries grantor’s sole power the power_of_appointment committee may appoint income or principal equally or unequally and to or for the benefit of any one or more of the beneficiaries of trust to the exclusion of others any net_income not distributed by trustee will be accumulated and added to principal each grantor has consented to the exercise of the grantor’s consent power and the grantor’s sole power by the other grantor the power_of_appointment committee is initially composed of both grantors a b and c a b and c are personal_representatives of child child and child respectively until each child reaches majority age when a child reaches majority age the personal representative ceases to serve and the child becomes a member of the power_of_appointment committee further when a grandchild attains age x the grandchild becomes a member of the committee the members of the power_of_appointment committee in their capacities shall not serve or act in a fiduciary capacity the power_of_appointment committee ceases to exist upon the earlier of the last to die of grantors or the date the power_of_appointment committee has less than two members other than grantors while either grantor is living if at any time the power_of_appointment committee ceases to exist an independent_trustee may distribute any portion of trust property outright or in trust to or for the benefit of any lifetime beneficiary as the independent_trustee determines is advisable for any purposes an interested trustee may not make distributions from the trust all distributions of the income and principal from trust prior to the death of the first to die of grantors to a lifetime beneficiary will be funded equally from each grantor’s respective share of community_property held in trust at the time of the death of the first to die of grantors predeceased grantor you represent that the predeceased grantor will have a one-half community_property interest held in trust upon the death of the predeceased grantor trustee shall distribute the predeceased grantor’s entire one-half interest in the trust property to any one or more persons or charities in equal or unequal proportions other than the predeceased grantor’s estate the predeceased grantor’s creditors or the creditors of the predeceased grantor’s estate as predeceased grantor may appoint by will predeceased grantor’s testamentary power plr-108350-16 upon the death of the predeceased grantor any remaining property held in trust that has not been effectively appointed by will shall be distributed as follows a ten percent in equal shares in trust for each member of the power_of_appointment committee other than the surviving grantor b ten percent to one or more charities supported by grantors during their lifetimes and c the balance in further trust to grantors’ then living descendants and charities in such shares as trustee determines in its sole discretion upon the death of the surviving grantor trustee shall distribute all of the remaining trust property to any one or more persons or charities in equal or unequal proportions other than the surviving grantor’s estate the surviving grantor’s creditors or the creditors of the surviving grantor’s estate as the surviving grantor may appoint by will surviving grantor’s testamentary power upon the death of the surviving grantor any remaining property held in trust that has not been effectively appointed by will shall be distributed as follows a ten percent in equal shares in trust for each member of the power_of_appointment committee b ten percent to one or more charities supported by grantors during their lifetimes and c the balance in further trust to grantors’ then living descendants and charities in such shares as trustee determines in its sole discretion you have requested the following rulings as long as the power_of_appointment committee is serving no portion of the items of income deductions and credits against tax of trust shall be included in computing the taxable_income deductions and credits of grantors or any member of the power_of_appointment committee under sec_671 the contribution of property to trust by grantors will not be a completed_gift subject_to federal gift_tax any distribution_of_property by the power_of_appointment committee from trust to either grantor will not be a completed_gift subject_to federal gift_tax by any member of the power_of_appointment committee any distribution_of_property by the power_of_appointment committee from trust to any beneficiary of trust other than to either grantor will not be a completed_gift subject_to federal gift_tax by any member of the power_of_appointment committee other than the grantors no member of the power_of_appointment committee upon his or her death will include in his or her estate any property held in trust because such member is deemed plr-108350-16 to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust the basis of all community_property in trust on the date of the death of the predeceased grantor will receive an adjustment in basis to the fair_market_value of such property at the date of death of the predeceased grantor ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides for purposes of subpart e that the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the power in sec_674 regardless of by whom held sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party plr-108350-16 sec_674 provides that sec_674 shall not apply to a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant to its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof based solely on the facts and representations submitted we conclude that an examination of trust reveals none of the circumstances that would cause either grantor to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 or sec_677 as long as the power_of_appointment committee remains in existence and trust remains a united_states_person because none of the members of the power_of_appointment committee has a power exercisable by himself none shall be treated as the owner of any portion of the trust under sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of either grantor under sec_675 thus the circumstances attendant to the operation of trust will determine whether either grantor will be treated as the owner of any portion of trust under sec_675 this is a question of fact the plr-108350-16 determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2 and sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the gift_tax 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 sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in the donor no power to change its disposition whether for his own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor's descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by the donor in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom a trustee as such is not a person having an adverse_interest in the disposition of the trust property or its income plr-108350-16 sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer's gift was complete in when he relinquished his right to change the beneficiaries of the trust a’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case each grantor retained the grantor’s consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom the power_of_appointment committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power under sec_25 b a co-holder of a power is only considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in this case the power_of_appointment committee ceases to exist upon the last to die of grantors plr-108350-16 accordingly the power_of_appointment committee members do not have interests adverse to either grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore each grantor is considered as possessing the power to distribute income and principal to any beneficiary himself or herself because he or she retained the grantor’s consent power each grantor also retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard in this case the grantor’s sole power gives each grantor the power to change the interests of the beneficiaries even though each grantor's power is limited by an ascertainable_standard ie health education maintenance and support each grantor's power is not a fiduciary power accordingly the retention of the grantor’s consent power and the grantor’s sole power causes the transfer of property to trust to be incomplete for federal gift_tax purposes further each grantor retained either a predeceased grantor’s testamentary power or a surviving grantor’s testamentary power depending upon the order of death to appoint the property in trust to any persons other than to the grantor’s estates grantor’s creditors or the creditors of grantor’s estates under sec_25 b the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder for federal tax purposes finally the power_of_appointment committee members possess the unanimous member power over income and principal this power is not a condition_precedent to grantors’ powers each grantor’s powers over the income and principal are presently exercisable and not subject_to a condition_precedent each grantor retains dominion and control_over the income and principal of trust until the power_of_appointment committee members exercise their unanimous member powers accordingly the unanimous member power does not cause the transfer of property to be complete with respect to the income_interest for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantors is not a completed_gift subject_to federal gift_tax any distribution from trust to grantors is merely a return of grantors’ property therefore we conclude that any distribution_of_property from trust by the power_of_appointment committee to either grantor will not be a completed_gift subject_to federal gift_tax by any member of the power_of_appointment committee plr-108350-16 further upon the death of either grantor the fair_market_value of the property in trust is includible in his or her respective gross_estate for federal estate_tax purposes ruling sec_4 and sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor's estate the possessor's creditors or the creditors of the possessor's estate sec_25_2514-1 provides that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor's estate or the creditors of the estate or expressly not exercisable in favor or the possessor or his creditors or the possessor’s estate or the creditors of his estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor's power sec_25_2514-3 provides in part that a coholder of a power has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the plr-108350-16 death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides however that in the case of a power_of_appointment created after date if the power is not exercisable by the decedent except in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2041 provides however that in the case of a power_of_appointment created after date if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent -- such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent's power sec_20_2041-3 of the estate_tax regulations provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the decedent's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor plr-108350-16 of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the power held by the power_of_appointment committee members under the grantor’s consent power is a power that is exercisable only in conjunction with the creators either grantor or the survivor thereof accordingly under sec_2514 and sec_2041 the power_of_appointment committee members do not possess general powers of appointment by virtue of possessing this power further the power held by the power_of_appointment committee members under the unanimous member power is not a general_power_of_appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and sec_20_2041-3 the power_of_appointment committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than to either grantor pursuant to the exercise of these powers the grantor's consent power and the unanimous member power are not gifts by the power_of_appointment committee members instead such distributions are gifts by the grantors based on the facts and representations made we conclude that any distribution_of_property from trust by the power_of_appointment committee members to any beneficiary of trust other than either grantor will not be a completed_gift subject_to federal gift_tax by any member of the power_of_appointment committee further we conclude that any distribution_of_property from trust to a beneficiary other than to either grantor will be completed gifts by the grantors finally we conclude that the powers held by the power_of_appointment committee are not general powers of appointment for purposes of sec_2041 and accordingly no member of the power_of_appointment committee upon his or her death will include in his or her estate any property held in trust because such member is deemed to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust ruling sec_1014 provides in part that except as otherwise provided in this section the basis_of_property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent will if not sold exchanged or otherwise_disposed_of before the decedent's death by such person be the fair_market_value of the property at the date of the decedent's death sec_1014 provides that in the case of decedents dying after date property which represents the surviving spouse's one-half share of community_property held by the decedent and the surviving_spouse under the community_property_laws of any state is considered for purposes of sec_1014 to have been acquired from or to have passed_from_the_decedent if at least one-half of the plr-108350-16 whole of the community interest in such property was includible in determining the value of the decedent's gross_estate sec_2036 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 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 or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2038 provides that the value of the decedent's 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 in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the three-year period on the date of the decedent's death grantors reside in state a community_property_state trust provides that all transferred property to trust is community_property or will be transmuted into community_property moreover any and all property transferred to trust prior to the death of the predeceased grantor is and shall retain its character as community_property as concluded above upon the death of each of grantor his or her respective interest in trust as either the predeceased grantor or the surviving grantor will be includible in his or her respective gross_estate for federal estate_tax purposes accordingly based upon the facts submitted and representations made we conclude that the basis of all community_property in trust on the date of death of the predeceased grantor will receive an adjustment in basis to the fair_market_value of such property at the date of death of the predeceased grantor except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on the trust provisions permitting trustee to distribute income or principal to trustees of other trusts decanting plr-108350-16 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely enclosure copy for sec_6110 purposes lorraine e gardner lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index numbers ---------------------------------- ------------------------ ------------------------------------------- ---------------------------------- --------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------------- id no ------------------ telephone number ---------------------- refer reply to cc ita plr-122082-17 date date legend taxpayer -------------------------------------------------------------------- program ---------------------------------------- state --------------- b ------------------------------------- c ------------------------------------------- d ----------------------------------------------- e ------------------- f -------------------- g -------------- h --------- dollar_figurex -------- dollar_figurey -------- dear ------------------ this in reply to taxpayer’s request for a ruling that it is not subject_to an information reporting obligation under sec_6041 of the internal_revenue_code with respect to plr-122082-17 homeowners for grants that it provides to homeowners under program to h their homes to better withstand b because the grants are not gross_income to the homeowners under sec_61 facts taxpayer an integral part of state was established following d to mitigate c in state taxpayer established program to provide grants of up to dollar_figurex to or on behalf of eligible homeowners who wish to h their homes to protect against b the total cost of an h ranges from approximately dollar_figurex to dollar_figurey homeowners bear costs in excess of dollar_figurex program involves securing a house to its foundation and preventing lateral movement in the event of f the potential for significant harm reduction in terms of avoiding both property damage and ensuring safety of occupants motivated taxpayer to pursue program homes that undergo an h are more likely to withstand b reduce the likelihood of e following f and decrease g resulting from f specifically program provides grants to or on behalf of homeowners of owner-occupied residences whose houses meet requirements demonstrating a need for certain building-code-based structural reinforcements eligibility for program’s pilot phase is limited to certain taxpayer policyholders whose persistency as taxpayer policyholders age of dwelling construction and location of dwelling will allow taxpayer to reduce its cost of insuring eligible dwellings and reduce the expense of transferring the insured risk to reinsurers allowing taxpayer to provide these homeowners with a substantial discount on taxpayer premiums taxpayer represents that program is limited to homeowners and homes where it will i result in the greatest cost savings to taxpayer in terms of reinsurance loss payments and other expenses and ii save state resources by preventing catastrophic damage to communities program is not available to all state homeowners but is limited to individuals and families whose residences are particularly vulnerable to structural damage caused by an f income_taxation law and analysis sec_61 of the internal_revenue_code provides that except as otherwise provided gross_income means all income from whatever source derived under sec_61 congress intends to tax all gains and undeniable accessions to wealth clearly realized over which taxpayers have complete dominion 348_us_426 1955_1_cb_207 governmental grants are includible in gross_income under sec_61 unless excluded from gross_income by law see revrul_85_39 1985_1_cb_21 dividend payments alaska plr-122082-17 makes to all adult residents to encourage them to remain in the state and thereby reduce social economic and political instability are gross_income under sec_61 the corollary to sec_61's broad construction namely is the ‘default rule_of statutory interpretation that exclusions from income must be narrowly construed ’ 515_us_323 program results in a structural and substantial_improvement to the home that is more than just an incidental benefit to homeowners homeowners obtain the tangible benefits of a safer and more desirable home better able to withstand b an h reduces the possibility of e in the event of an f and minimizes the duration of any e thus grants that taxpayer provides to or on behalf of homeowners under program to h their homes to better withstand b are accessions to wealth that are includible in the recipients’ taxable_income under sec_61 unless excluded from income under the general welfare exclusion or sec_139 general welfare exclusion although sec_61 provides for broad includability in gross_income the service has consistently held that payments made to or on behalf of individuals by governmental units under legislatively provided social benefit programs for the promotion of general welfare are not includible in a recipient’s gross_income general welfare exclusion to qualify under the general welfare exclusion payments must i be made from a governmental fund ii be for the promotion of the general welfare that is based on individual or family need and iii not represent compensation_for services see revrul_2005_46 2005_2_cb_120 in 88_tc_1293 acq on another issue 1989_2_cb_1 the court noted that the general welfare exclusion has been applied when the grant was received under a program requiring the individual recipient to establish need and that the exclusion did not apply to g rants received under social welfare programs that did not require recipients to establish individual need revrul_76_144 1976_1_cb_17 holds that a grant received by individuals under the disaster relief act of to alleviate the suffering and damage resulting from a disaster is in the interest of general welfare and not includible in gross_income rev_rul rul 2003_1_cb_283 situation holds that payments individuals receive under a state's program to pay or reimburse unreimbursed reasonable and necessary medical temporary housing or transportation_expenses they incur as a result of a flood are excluded from gross_income under the general welfare exclusion although in general payments to businesses do not qualify under the general welfare exclusion because the payments are not based on individual or family need revrul_77_77 1977_1_cb_11 provides that nonreimbursable grants made under the indian financing act of to indians to expand profit-making indian-owned economic enterprises on or near reservations are excludable from gross_income under the general plr-122082-17 welfare exclusion in addition revproc_2014_35 2014_26_irb_1110 conclusively presumes that the individual need criterion of the general welfare exclusion is met for payments under certain programs of indian tribal governments in recognition of the unique circumstances of indian tribes and tribal governments including their inherent sovereignty and government-to-government relationship with united_states and their unique social cultural and economic issues the grants provided by taxpayer to or on behalf of homeowners under program to h their homes to better withstand b are not based on individual or family need instead taxpayer’s grants up to dollar_figurex are based on the location of the home in state in areas susceptible to f the home’s age and physical characteristics and the grant recipient having an insurance_policy with taxpayer in addition by contrast with the grants described in revrul_76_144 and revrul_2003_12 situation the grants provided by taxpayer to or on behalf of homeowners under program are not paid as a result of a disaster rather they are paid to eligible homeowners regardless of income to mitigate the effects of future disasters not to alleviate suffering and damage resulting from a disaster the conclusions applying the general welfare exclusion in revrul_77_77 and revproc_2014_35 are based on the unique social cultural and economic issues of indian tribes and their members see section dollar_figure of revproc_2014_35 program however is neither a program of an indian_tribal_government nor designed to help members of indian tribes thus program does not meet the general welfare exclusion as applied under revrul_77_77 or revproc_2014_35 accordingly program grants are not excludable from gross_income under the general welfare exclusion qualified_disaster mitigation payments sec_139 provides that gross_income shall not include any amount received as a qualified_disaster_mitigation_payment sec_139 defines qualified_disaster_mitigation_payment as meaning any amount which is paid pursuant to the robert t stafford disaster relief and emergency assistance act as in effect on the date of the enactment of this subsection or the national flood insurance act as in effect on such date to or for the benefit of the owner of any property for hazard mitigation with respect to such property the grants provided by taxpayer to homeowners under program to h their homes to better withstand b are not paid pursuant to the robert t stafford disaster relief and emergency assistance act or the national flood insurance act thus consistent with the principle the supreme court stated in schleier that exclusions from income must plr-122082-17 be narrowly construed the grants are not excludable from gross_income under sec_139 information reporting sec_6041 and sec_1_6041-1 of the income_tax regulations provide with exceptions not applicable here that all persons engaged in a trade_or_business and making payment in the course of such trade_or_business to another person of rent salaries wages premiums annuities compensations remunerations emoluments or other fixed or determinable gains profits and income aggregating dollar_figure or more in the taxable_year must file an information_return with the internal_revenue_service under sec_6041 the payor is required to furnish an information statement to the payee forms and are used for this reporting sec_1_6041-1 the sec_6041 information reporting requirement applies to payments made during the calendar_year to another person of fixed or determinable income sec_1_6041-1 sec_1_6041-1 provides that income is fixed when paid in amounts definitely predetermined income is determinable whenever there is a basis of calculation by which the amount to be paid may be ascertained as used in sec_6041 income means gross_income the information reporting requirements of sec_6041 may also apply to payments made by the united_states or a state sec_1_6041-1 clarifies that the term persons engaged in a trade_or_business in sec_6041 includes not only organizations engaged for gain or profit but also organizations the activities of which are not for the purpose of gain or profit for example the organizations referred to in paragraph i of sec_1_6041-1 sec_1_6041-1 provides in part that information returns on forms and of payments made by a state or political_subdivision agency_or_instrumentality thereof shall be made by the officer_or_employee of such state or political_subdivision agency_or_instrumentality thereof having control of such payments or by the officer_or_employee appropriately designated to make such returns each grant of dollar_figure or more that taxpayer which is described in sec_1_6041-1 provides to homeowners under program to h their homes to better withstand b is gross_income to homeowners that is fixed in amount under sec_1_6041-1 conclusion based strictly on the information submitted and the representations made we conclude that taxpayer is subject_to the information reporting requirements of sec_6041 and d with respect to homeowners for the grants taxpayer provides to homeowners under program to h their homes to better withstand b because they are includible in the homeowners’ gross_income plr-122082-17 this letter_ruling is directed only to the taxpayer requesting it and does not express or imply an opinion on the federal tax consequences of any aspect of this transaction other than that expressed in the preceding sentence sec_6110 provides that this letter_ruling may not be used or cited as precedent the rulings contained in this letter are based upon information and representations that taxpayer submitted under penalties of perjury 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 taxpayer must attach to any income_tax return to which it is relevant a copy of this letter or if it files its returns electronically include a statement providing the date and control number of this letter_ruling in accordance with the power_of_attorney on file with this office we are sending copies of this letter to your authorized representatives sincerely michael j montemurro chief branch office of associate chief_counsel income_tax accounting


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 psi b01 - plr-112251-04 date date --------------------------------- legend x --------------------------------------------------- country entity date dear ---------------- this letter responds to a letter dated date written on behalf of x requesting a ruling that x be granted 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 treated as a disregarded_entity for federal tax purposes facts --------- -------------------- ---------------------- according to the information submitted x is a country entity x intended to elect to be treated as a disregarded_entity for federal tax purposes effective date however the form_8832 entity classification election inadvertently was not timely filed x represents that it is an entity that is eligible to elect under sec_301_7701-3 to be a disregarded_entity for federal_income_tax purposes sec_301_7701-3 provides in part that a business_entity that is not law and analysis 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 plr-112251-04 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if a foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic_extension of time for making certain elections sec_301_9100-3 provides extensions of time for making elections 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 that granting relief will not prejudice the interests of the government sec_301 a conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity for federal tax purposes effective date to be valid the election must contain any consents required under sec_301_7701-3 and iii further a copy of this letter should be attached to the election plr-112251-04 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transactions described above under any other provision of the code this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely s heather c maloy heather c maloy associate chief_counsel passthroughs and special industries


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 tege eoeg teb presp-144249-06 date date dear -------------------------------- this letter is in response to your application_for an allocation of authority to issue dollar_figure------- ------------------in clean renewable energy bonds crebs under sec_54 of the internal_revenue_code the code pursuant to sec_54 of the internal_revenue_code the code and notice_2005_98 2005_52_irb_1211 and after review of your application submitted on date including supplements thereto we have determined that the projects described in appendix a attached hereto are qualified for purposes of sec_54 and will be owned by one or more qualified borrowers we allocate authority to ----------------------------------- ---------------- the issuer a qualified issuer under sec_54 to issue up to dollar_figure-------------- ------------------of clean renewable energy bonds crebs bonds issued pursuant to this allocation must be designated by the issuer as bonds for purposes of sec_54 for the projects described in appendix a up to the amount allocated for each project described in appendix a bonds so designated must be issued on or before date please be aware that in order for bonds to be crebs the applicable_requirements of the code including without limitation sec_54 notice_2005_98 and notice_2006_7 2006_10_irb_559 must be met please note that creb proceeds may be used to reimburse capital expenditures paid_by qualified borrowers for qualified projects only if the provisions of sec_54 are met sec_54 of the code imposes a limitation of dollar_figure on the amount of crebs which may be issued to finance qualified projects the limitation sec_54 provides that the limitation is to be allocated by the secretary of treasury in such manner as the secretary deems appropriate except that no more than presp-144249-06 dollar_figure of the limitation may be allocated to finance qualified projects of qualified borrowers which are governmental bodies section of notice_2005_98 2005_52_irb_1211 provides that the limitation will be allocated among qualified projects for which a share of such limitation has been requested beginning with the project s requesting the smallest share in dollar amount and continuing with the project s requesting the next-smallest share until the total limitation has been exhausted however in the event that dollar_figure has been allocated to qualified projects of qualified borrowers that are governmental bodies the remaining shares of the limitation will be allocated under the methodology described in the previous sentence only to qualified projects of qualified borrowers that are not governmental bodies for purposes of allocating the limitation among projects all qualified projects located at the same site and owned by the same qualified_borrower are treated as a single project and each project is treated as requesting a single allocation an allocation of shares of the limitation cannot be made with respect to the projects owned by the borrowers listed in appendix b because such borrowers are governmental bodies and dollar_figure has already been allocated to applications requesting a smaller share of the limitation to finance qualified projects owned by qualified borrowers that are governmental bodies an allocation of shares of the limitation cannot be made with respect to the project owned by the borrower listed in appendix c because the application failed to demonstrate that one or more of the requirements of notice_2005_98 notice_2006_7 or sec_54 of the code have been met we appreciate your submission of the application_for our consideration and encourage you to continue to pursue your plans for constructing clean renewable energy projects if you have any questions with respect to this allocation please contact --------------------- -------- or --------------------------- of the office of division counsel associate chief_counsel tax-exempt and government entities on -------------------- not a toll-free call except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter for purposes of the renewable_electricity_production_credit under sec_45 of the code no inference may be drawn from this allocation that any project listed in the appendices attached hereto is a qualified_facility or that electricity to be produced at such project s is electricity from a qualified_energy resource at a qualified_facility within the meaning of sec_45 presp-144249-06 this determination is directed only to the applicant named above sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any form 8038-g information_return for tax- exempt governmental obligations filed for bonds issued pursuant to this allocation the allocation contained in this letter is based upon information and representations submitted by the applicant for the creb allocation 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 application_for an allocation it is subject_to verification on examination sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-144249-06 borrower name appendix a project type project location --------------------------------- --------------------- solar_energy_facility --------------------------------- --------------------- solar_energy_facility --------------------------------- --------------------- solar_energy_facility --------------------------------- --------------------- solar_energy_facility --------------------------------- --------------------- solar_energy_facility --------------------------------- --------------------- solar_energy_facility --------------------------------- --------------------- solar_energy_facility --------------------------------- --------------------- solar_energy_facility --------------------------------- --------------------- solar_energy_facility total -------------------------------- ------------ -------------------------------- ------------------------------- -------------------------------- ---------------- -------------------------------- ------------- -------------------------------- ------ -------------------------------- ---------------- -------------------------------- --------------- -------------------------------- -------------------------- -------------------------------- ---------------- amount allocated dollar_figure----------- dollar_figure----------- dollar_figure----------- dollar_figure----------- dollar_figure------------- dollar_figure------------- dollar_figure------------- dollar_figure------------- dollar_figure------------- dollar_figure---------------- presp-144249-06 borrower name appendix b project type project location ------------------------------- ----------------------- solar_energy_facility ------------------------------- ----------------------- solar_energy_facility total -------------------------------- ----------------- -------------------------------- ----------------- amount requested dollar_figure------------- dollar_figure------------- dollar_figure--------------- presp-144249-06 borrower name appendix c project type project location ------------------------------- -------------------------- solar_energy_facility -------------------------------- -------------------------------- --------------- amount requested dollar_figure-------------


internal_revenue_service number release date index number ----------------------- ------------------------------------------ ------------------------------------- -------- ---------------------------------------- legend 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 fip b04 plr-121796-11 date date taxpayer -------------------------------------------------------------------- -------------------------- agreement date number a --------------------------------------------- ------------ --- insurance_companies ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------- dear ---------------- this is in response to your request for a letter_ruling regarding the application of sec_101 of the internal_revenue_code code to certain corporate-owned life_insurance policies contracts facts taxpayer represents the following facts taxpayer is a closely-held corporation the stockholders are also employees of taxpayer shareholders taxpayer and each shareholder have executed the plr-121796-11 agreement a purpose of the agreement is to facilitate continuity in the management of taxpayer by providing for the purchase of each shareholder’s interest in taxpayer upon the death or termination of such shareholder’s employment with taxpayer to fulfill this purpose the agreement provides that taxpayer will obtain life_insurance on the life of each shareholder and that taxpayer will be the owner and beneficiary of such life_insurance if the agreement is terminated or a shareholder disposes of his interest in taxpayer as allowed by the agreement a shareholder has the right to purchase from taxpayer any taxpayer-owned life_insurance covering his life if the life_insurance was not purchased taxpayer retained the right to surrender or otherwise dispose_of the life_insurance consistent with the agreement taxpayer purchased number a life_insurance contracts covering certain shareholders contracts from insurance_companies the contracts are listed in the appendix the process of purchasing these life_insurance contracts required each affected_shareholder to complete an application the application indicated that taxpayer was to be the owner and beneficiary and the amount of coverage being obtained prior to purchasing these life_insurance contracts taxpayer did not obtain from each affected_shareholder separate documentation eg a form or forms which advised such shareholder that taxpayer intended to insure the shareholder’s life and of the maximum face_amount for which the shareholder could be insured at the time the contract was issued provided the shareholder’s consent to being insured under the contract and that the coverage may continue after the shareholder terminates employment and informed the shareholder that taxpayer will be a beneficiary of any proceeds payable upon the death of the shareholder taxpayer obtained such separate documentation subsequent to purchasing these life_insurance contracts but not before the due_date of taxpayer’s u s income_tax return requested ruling taxpayer requests a ruling that pursuant to notice_2009_48 2009_1_cb_1085 the service will not challenge the application of sec_101 of the internal_revenue_code to the contracts listed in the appendix because taxpayer made a good_faith effort to comply with sec_101 law the pension_protection_act of public law 120_stat_780 added sec_101 to the code sec_101 applies to life_insurance contracts issued after date except for a contract issued after that date pursuant to a sec_1035 exchange for a contract issued before that date sec_101 provides that in the agreement was first executed on date when additional shareholders are admitted to taxpayer a joinder is added to the agreement plr-121796-11 case of an employer-owned_life_insurance_contract the amount of death_benefits excluded from gross_income under sec_101 shall not exceed an amount equal to the sum of the premiums and other_amounts paid_by the policyholder for the contract for this purpose an employer-owned_life_insurance_contract is a life_insurance_contract that i is owned by a person engaged in a trade_or_business and under which such person is directly or indirectly a beneficiary under the contract and ii covers the life of an insured who is an employee with respect to the trade_or_business on the date the contract is issued an applicable_policyholder is generally a person who owns an employer-owned_life_insurance_contract or a related_person as described in sec_101 sec_101 provides exceptions to the general_rule of sec_101 in the case of certain employer-owned life_insurance contracts with respect to which certain notice and consent requirements are met those exceptions are based either on i the insured's status as an employee within_12_months of death or as a highly_compensated_employee or highly_compensated_individual or ii the extent to which death_benefits are paid to a family_member trust or estate of the insured employee or are used to purchase an equity_interest in the applicable_policyholder from a family_member trust or estate the exceptions provided by sec_101 apply only if the notice and consent requirements of sec_101 are satisfied sec_101 specifies that its notice and consent requirements are met if before the issuance of the contract the employee2 a is notified in writing that the applicable_policyholder intends to insure the employee’s life and the maximum face_amount for which the employee could be insured at the time the contract was issued b provides written consent to being insured under the contract and that such coverage may continue after the insured terminates employment and c is informed in writing that an applicable_policyholder will be a beneficiary of any proceeds payable upon the death of the employee the service issued notice_2009_48 effective date that provided guidance in question and answer format concerning the treatment of employer-owned life_insurance contracts under sec_101 in question the service specified that the requirement of sec_101 to advise the employee of the maximum face_amount for which the employee could be insured requires the disclosure of a face_amount of life_insurance either in dollars or as a multiple of salary that the applicable_policyholder reasonably expects to purchase with regard to the employee during the course of the employee’s tenure additional notice and consent is required if the aggregate face_amount of the contracts exceed the amount of prior notice and consent in question the service see eg notice_2009_48 staff of jt comm on taxation 109th cong general explanation of tax legislation enacted in the 109th congress comm print in the case of an employer-owned_life_insurance_contract with respect to which the notice and consent requirements of the provision are met the income inclusion rule does not apply to an amount received by reason of the death of an insured individual who with respect to the applicable_policyholder was an employee at any time during the 12-month_period before the insured’s death or who at the time the contract was issued was a director or highly_compensated_employee or highly_compensated_individual plr-121796-11 provided a remedy for certain employer-owned life_insurance contracts that inadvertently failed to comply with the notice and consent requirements of sec_101 the notice indicates that the service will not challenge the applicability of an exception under sec_101 based on an inadvertent failure to satisfy the notice and consent requirements if the applicable_policyholder made a good_faith effort to satisfy those requirements such as by maintaining a formal system for providing notice and securing consents from new employees the failure to satisfy the requirements was inadvertent and the failure to obtain the requisite notice and consent was discovered and corrected no later than the due_date of the tax_return for the taxable_year of the applicable_policyholder in which the employer-owned_life_insurance_contract was issued in addition the notice stated that it is effective date and that the service will not challenge a taxpayer who made a good_faith effort to comply with sec_101 based on a reasonable interpretation of that provision before that date analysis taxpayer is an applicable_policyholder and the contracts are employer-owned life_insurance contracts for sec_101 to except the contracts from sec_101 the requirements of sec_101 needed to be met before the issuance of the contracts the requirements of sec_101 were met if before the issuance of the contracts each shareholder a was notified in writing that taxpayer intended to insure the shareholder’s life b was notified in writing of the maximum face_amount for which the shareholder could be insured at the time the contract was issued either in dollars or as a multiple of salary c provided written consent to being insured under the contract d provided written consent that such coverage may continue after the shareholder terminates employment and e was informed in writing that taxpayer will be a beneficiary of any proceeds payable upon the death of the shareholder here while taxpayer did not obtain from each shareholder separate documentation eg a form or forms which contained all of the information required by sec_101 considering all of taxpayer’s documentation as a whole for the contracts listed in the appendix all of the requirements of sec_101 were met before the issuance of the contracts a through the agreement and the application each shareholder was notified in writing that taxpayer intended to insure the shareholder’s life plr-121796-11 b through the application each shareholder was notified in writing of the maximum face_amount for which the shareholder could be insured at the time the contract was issued in dollars c by signing both the agreement and the application each shareholder consented to being insured under the contract d by signing the agreement each shareholder consented that such coverage may continue after the shareholder terminates employment and e through the agreement and the application each shareholder was informed in writing that taxpayer will be a beneficiary of any proceeds payable upon the death of the shareholder ruling we rule that for the contracts listed in the appendix taxpayer satisfied the requirements of sec_101 before the contracts were issued except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter no ruling was requested and none is made whether the shareholders are described by sec_101 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s john e glover senior counsel branch financial institutions products


t c summary opinion united_states tax_court linda carter zimmerman petitioner v commissioner of internal revenue respondent docket no filed date linda carter zimmerman pro_se ross m greenberg for respondent carluzzo special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority - respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax and a dollar_figure addition_to_tax under sec_6651 for that year the issues for decision are whether petitioner’s share of the gain realized from the sale of property jointly owned with her former spouse must be included in her income and whether petitioner had reasonable_cause for her failure_to_file a timely federal_income_tax return background some of the facts have been stipulated and are so found at the time the petition was filed petitioner resided in jacksonville florida petitioner and richard edward zimmerman jr petitioner’s former spouse were married in they separated prior to or during and an action for divorce was filed in the appropriate local court during that year the divorce proceeding they were divorced by final judgment of dissolution of marriage issued on date by the circuit_court in jacksonville duval county florida the divorce decree in petitioner and her former spouse purchased a townhouse in pensacola florida for dollar_figure the townhouse approximately dollar_figure of the purchase_price was financed they took title to the townhouse as tenants by the entireties and although the record contains no specific evidence on the point presumably they were jointly liable for the financed amount petitioner and her former spouse used the townhouse as their residence for a while but for the majority of the time that they owned it the townhouse was held for rent or rented to others in while the divorce proceeding was pending petitioner’s former spouse suggested that they sell the townhouse petitioner agreed subject_to her understanding that she would receive one-half of the proceeds from the sale on date the townhouse was sold for dollar_figure at that time petitioner lived in jacksonville florida and petitioner’s former spouse lived in maryland neither petitioner nor her former spouse attended the settlement the documents necessary to effectuate the transaction were mailed to petitioner who signed them and returned them by mail to the settlement attorney the sale of the townhouse produced a gain of dollar_figure although the details of the settlement have not been provided we assume that portions of the proceeds from the sale of the townhouse were used to satisfy any outstanding encumbrances on the property and to pay selling and or settlement fees in any event from the dollar_figure selling_price petitioner and her former spouse netted dollar_figure in the form of a single check payable to both the joint check petitioner wanted separate checks issued but for reasons not fully explained the joint check was issued q4e- shortly after the settlement the joint check was mailed to petitioner’s former spouse after receiving the joint check he traveled to jacksonville to have petitioner endorse it when they met for this purpose petitioner’s former spouse proposed that the proceeds of the check be divided on the basis of a percent split in his favor petitioner insisted upon the egqual division previously agreed upon and refused to endorse the joint check instead of returning to maryland with the joint check petitioner’s former spouse deposited the joint check without petitioner’s endorsement into a joint checking account the joint account the joint account had been established years before in connection with a loan made from a credit_union in jacksonville of which petitioner’s former spouse was a member it is unclear whether petitioner incurred any liability in connection with this loan or for that matter whether she was even aware of the existence of the joint account as of the date of the deposit the outstanding balance on the loan was approximately dollar_figure petitioner’s former spouse directed the teller who accepted the deposit to satisfy the outstanding balance on the loan from the proceeds of the joint check next petitioner’s former spouse a practicing attorney and former navy jag officer transferred the balance of the proceeds of the joint check from the joint account to his checking account he did so in increments of less than dollar_figure because of his belief as he explained in a deposition taken in connection with the divorce proceeding that by doing so he would not necessarily alert the irs and those that have interest in those amounts to look at the transaction as it turned out as of the date of trial almost years after the event petitioner had not actually received any of the proceeds from the sale of the townhouse pursuant to petitioner’s claim to her one-half share of the joint check made in the divorce proceedings the divorce decree recognizes that under florida law petitioner and her former spouse had equal rights to any income generated by the sale of the townhouse notes that petitioner’s former spouse improperly appropriated percent of the proceeds from the sale of the townhouse and grants petitioner the following relief petitioner’s former spouse shall pay to petitioner as and for lump sum alimony to reimburse her for the loss sustained by her as a result of petitioner’s former spouse’s misappropriation of of the proceeds from the sale of three properties for which petitioner’s former spouse claimed only one-half of the gain on his income taxes the sum of dollar_figure this sum shall be paid directly by petitioner’s former spouse to petitioner within five days of the date of the entry of this final judgement -- - the three properties referred to in the above-quoted paragraph include the townhouse elsewhere in the divorce decree the divorce court declared that petitioner should not have to pay any federal_income_tax attributable to the sale of the townhouse petitioner’s former spouse appealed the divorce decree in an opinion filed date the court_of_appeals of florida affirmed the decree except as to one item of relief not relevant here see zimmerman v zimmerman so 2d fla dist ct app petitioner’s federal_income_tax return was signed by her and the return preparer on date it was filed on date taking into account an extension petitioner’s return was due to be filed on or before date although no direct evidence on the point has been provided the record suggests that petitioner computed her federal_income_tax liability under the cash_method_of_accounting formally known as the cash receipts and disbursement method_of_accounting the adjusted_gross_income reported on her return consists entirely of her wages as an employee of the duval county school board she did not report any income from the sale of the townhouse or otherwise disclose the transaction on her return ' it is unclear what properties other than the townhouse the divorce court refers to in the above-quoted provision the reference to other properties might be an error in the notice_of_deficiency respondent determined that one- half of the gain realized from the sale of the townhouse is includable as long-term_capital_gain in petitioner’s income and adjusted her income for that year accordingly respondent also determined that petitioner is liable for the late filing addition_to_tax under sec_6651 because her return due to be filed on or before date was not filed until date discussion there is no dispute between the parties as to the amount of gain realized upon the sale of the townhouse furthermore consistent with florida law and as reflected in the divorce decree the parties agree that petitioner was entitled to receive one-half of the gain or at least one-half of the net_proceeds from the sale of the townhouse see ball v ball so 2d fla superseded by statute on other grounds as stated in robertson v robertson so 2d fla see also landay v landay so 2d fla petitioner does not appear to dispute as a general proposition that gains derived from dealings in property are included within the definition of gross_income see sec_61 nevertheless petitioner argues that she need not include any of the gain from the sale of the townhouse in her income --- - because the divorce decree in effect so states although petitioner’s ownership_interest in the townhouse was properly a matter before the divorce court her federal_income_tax liability was not state law determines the property ownership of a taxpayer federal_law controls the federal_income_tax consequences of transactions involving the property see agquilino v united_states 363_us_509 the divorce court did not adjust petitioner’s preexisting ownership_interest in the townhouse had it done so the federal_income_tax consequences resulting from the sale of the townhouse could have been affected see urbauer v commissioner tcmemo_1997_227 the relevant provisions in the divorce decree relied upon by petitioner in support of her argument might create a remedy for her as against her former spouse but because those provisions did not adjust her preexisting ownership_interest in the townhouse they are not controlling here see 13_tc_397 affd 200_f2d_560 2d cir urbauer v commissioner supra accordingly petitioner’s share of the gain realized from the sale of the townhouse cannot be excluded from her income because of certain provisions contained in the divorce decree petitioner next argues that she should not have to include any gain from the sale of the townhouse in her income because as of the close of that year she had not received any --- - of it initially we note that petitioner’s claim in this regard is not as a technical matter entirely correct although we cannot tell exactly how much a substantial part of the proceeds from the sale of the townhouse was used to satisfy the debt that petitioner incurred at the time that she and her former spouse purchased it payment to a taxpayer’s creditor on the taxpayer’s behalf is tantamount to payment to the taxpayer see 279_us_716 71_tc_371 in this case despite the reprehensible conduct of petitioner’s former spouse in connection with the net_proceeds from the sale of the townhouse the economic benefit petitioner enjoyed in the form of debt reduction cannot be ignored see 302_f2d_177 5th cir urbauer v commissioner supra furthermore the fact that petitioner did not receive any of the proceeds of the sale of the townhouse immediately after its sale was due at least in part to petitioner’s conduct although we sympathize with her it remains that it was her choice not to attend the settlement petitioner did not explain why she elected not to attend the settlement perhaps it was inconvenient for her to travel from the location where she was living at the time to the location where the settlement was conducted nevertheless she could have attended the settlement and ensured the receipt of the sale proceeds to which she was -- - legally entitled her right to do so provided her with the opportunity to exercise sufficient control_over her share of the proceeds so as to consider those proceeds received by her i ncome is received or realized when it is made subject_to the will and control of the taxpayer and can be except for his own action or inaction reduced to actual possession 74_f2d_147 8th cir under florida law and as expressly noted by the divorce court petitioner as a joint owner of the townhouse was entitled to one-half of the income attributable to the property in those instances where each spouse has an equal right to the income from the jointly held property the usual rule is that one-half of the income from the property is properly taxable to each spouse see urbauer v commissioner supra rosen v commissioner tcmemo_1994_40 rosenbaum v commissioner tcmemo_1992_287 affd per order 7th cir date finney v commissioner tcmemo_1976_329 the usual rule applies even to those situations such as here where one spouse does not actually receive any of the income attributable to the jointly held property petitioner authorized the sale of the townhouse the record contains no details of the settlement documents that petitioner signed and returned to the settlement agent nevertheless in the absence of anything in the record that suggests otherwise we assume that the typical documents were involved including some form or document wherein petitioner authorized the settlement agent to mail the joint check to her former spouse rather than to her having consented to and authorized the sale of the townhouse and the manner in which the transaction occurred she is responsible for the federal_income_tax consequences that stem from it respondent’s determination that petitioner must include in her income her share of the gain from the sale of the townhouse is therefore sustained respondent also determined that petitioner is liable for the addition_to_tax for her failure_to_file a timely federal_income_tax return taking into account an extension petitioner’s return was due to be filed on or before date see sec_6081 her return was not filed until date sec_6651 provides for an addition_to_tax in an amount equal to percent of the amount of the tax_shown_on_the_return for the first month plus an additional percent for each additional month or fraction of a month during which the failure_to_file continues up to a maximum of percent of the tax in the aggregate this addition_to_tax is applicable unless the taxpayer can demonstrate that the failure is due to a reasonable_cause and not due to willful neglect see 469_us_241 the evidence demonstrates that petitioner’s return was filed well beyond the date it was due petitioner did not explain why her return was filed after the date it was due there is nothing in the record that suggests that petitioner’s failure timely to file her return was due to reasonable_cause and not due to willful neglect consequently we sustain respondent's determination that she is liable for the addition_to_tax under sec_6651 a reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent