internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-103744-00 date date re legend decedent taxpayer date date date grandchild grandchild grandchild trustee charity dear this is in response to your authorized representative’s letter dated date requesting rulings that taxpayer’s disclaimer with respect to a fractional share of taxpayer’s interest in trust principal constitutes a valid disclaimer under sec_25_2511-1 of the gift_tax regulations and does not constitute a gift under sec_2501 of the internal_revenue_code facts decedent died testate on date pursuant to the terms of decedent’s will the plr-103744-00 residue of decedent’s estate was distributed to an irrevocable_trust trust for the benefit of decedent’s three grandchildren grandchild grandchild and grandchild article eighth section a of decedent’s will provides generally that during the trust term two-thirds of the trust income will be distributed for the use and benefit of grandchild during his life upon grandchild 1's death and until the termination of trust the trust income allocated to grandchild will be used for the benefit of grandchild 1's issue who are living at each respective date of income distribution if grandchild is not survived by any issue the trustees are directed to pay or apply such income in equal shares for the use and benefit of grandchild and grandchild during their respective lives in the event that either grandchild or grandchild shall be deceased or shall thereafter die during the trust term the trustees are directed to pay or apply the income which such deceased grandchild would have received if living for the use and benefit of the issue of such deceased grandchild who are living at each respective date of income distribution article eighth section b of decedent’s will provides generally that during the trust term the remaining one-third of the trust income will be distributed for the use and benefit of grandchild during her life upon grandchild 2's death and until the termination of trust the trust income allocated to grandchild will be used for the benefit of grandchild 2's issue who are living at each respective date of income distribution if grandchild is not survived by any issue the trustees are directed to pay or apply such income in equal shares for the use and benefit of grandchild and grandchild during their respective lives in the event that either grandchild or grandchild shall be deceased or shall thereafter die during the trust term the trustees are directed to pay or apply the income which such deceased grandchild would have received if living for the use and benefit of the issue of such deceased grandchild who are living at each respective date of income distribution article eighth section f provides that trust will terminate upon the death of the last to die of grandchild grandchild and grandchild upon the termination of trust the trustees are directed to assign transfer and distribute the principal and all undistributed_income of trust to and among the persons then entitled to the income in the shares and proportions to which they are so entitled however if the grandchild dying last was currently receiving income at the time of his or her death the issue of such grandchild shall be entitled to share collectively in the principal and undistributed_income of trust in the same percentage as such grandchild was sharing in the income at the date of his or her death in the event that no person is entitled to the principal of the trust under article eighth section f the trustees are directed to assign transfer and pay the principal and all undistributed_income of trust to charity plr-103744-00 grandchild died on date survived by his two children grandchild and grandchild taxpayer one of grandchild 1’s surviving children currently is entitled to receive a portion of grandchild 1’s two-thirds income_interest in trust during the trust term if either taxpayer or his issue is alive when trust terminates taxpayer or his issue is entitled to receive a proportionate share of the principal and undistributed_income of trust upon termination it is represented that taxpayer first learned of the existence of trust after the death of his father grandchild on date less than nine months after the death of grandchild taxpayer disclaimed a fractional share of his interest in the principal of trust taxpayer however retained his right to his share of trust income and his remaining interest in trust principal taxpayer has received and accepted distributions of income from trust since grandchild 1’s death but has neither received nor accepted any distributions of principal ruling_request sec_1 taxpayer’s disclaimer of a fractional share of his interest in trust principal is a valid disclaimer under sec_25_2511-1 of the gift_tax regulations and taxpayer’s disclaimer of a fractional share of his interest in trust principal will not constitute a gift under sec_2501 of the internal_revenue_code law and analysis sec_2501 imposes a tax for each calendar_year on the transfer of property by gift by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 shall apply 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_2511-1 provides that the gift_tax also applies to gifts indirectly made thus any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax sec_25_2511-1 provides that in the case of taxable transfers creating an interest in the person disclaiming made before date where the law governing the administration of the decedent’s estate gives a beneficiary heir or next- of-kin a right completely and unqualifiedly to refuse to accept ownership of property transferred from a decedent a refusal to accept ownership does not constitute the making of a gift if the refusal is made within a reasonable_time after knowledge of the existence of the transfer the refusal must be unequivocal and effective under the local plr-103744-00 law there can be no refusal of ownership of property after its acceptance in the absence of facts to the contrary if a person fails to refuse to accept a transfer to him of ownership of a decedent’s property within a reasonable_time after learning of the existence of the transfer he will be presumed to have accepted the property in any case where a refusal is purported to relate to only a part of the property the determination of whether or not there has been a complete and unqualified refusal to accept ownership will depend on all of the facts and circumstances in each particular case taking into account the recognition and effectiveness of such a purported refusal under local law thus for a disclaimer to be recognized for federal gift_tax purposes with respect to a property interest created in a pre-1977 transfer it must be recognized under local law made within a reasonable_time after knowledge of the existence of the transfer made before the acceptance of the property transferred and unequivocal the supreme court has recognized that under the regulations an interest must be disclaimed within a reasonable_time after obtaining knowledge of the transfer creating the interest to be disclaimed rather than a reasonable_time after the distribution or vesting of the interest 455_us_305 the requirement in the regulations that the disclaimer must be made within a reasonable_time is a matter of federal rather than local law jewett u s pincite whether a period of time is reasonable under the regulations is dependent on the facts and circumstances presented see eg 70_tc_430 aff’d 455_us_305 with respect to property interests created after date sec_2518 and the regulations thereunder set forth the requirements that must be met for a disclaimer to be treated as a qualified_disclaimer for federal gift_tax purposes while sec_2518 and the regulations thereunder do not govern the disclaimer of property interests created before date they are nevertheless instructive to the extent they represent a uniform federal rule for disclaimers that is applicable to the estate_tax the gift_tax and the tax_on_generation-skipping_transfers sec_2518 provides that if a person makes a qualified_disclaimer with respect to any interest in property then such interest is treated as if it had never been transferred to the disclaimant under sec_25_2518-2 example a established a_trust for the benefit of b then age pursuant to the terms of the trust the current income of the trust is to be paid quarterly to b additionally one-half the principal is to be distributed to b when b attains the age of years the balance of the principal is to be distributed to b when b attains the age of years b received a distribution of income on date on date b disclaimed b’s right to receive both the income from the trust and plr-103744-00 the principal of the trust b’s disclaimer of the income_interest is not a qualified_disclaimer for purposes of sec_2518 because b accepted income prior to making the disclaimer b’s disclaimer of the principal however does satisfy sec_2518 sec_25_2518-3 provides that a disclaimer of an undivided portion of a separate interest in property which meets the other requirements of a qualified_disclaimer under sec_2518 and the corresponding regulations is a qualified_disclaimer an undivided portion of a disclaimant’s separate interest in property must consist of a fraction or percentage of each and every substantial interest or right owned by the disclaimant in such property and must extend over the entire term of the disclaimant’s interest in such property and in other_property into which such property is converted in sec_25_2518-3 example e died testate on date under the provisions of e’s will e’s shares of stock in x y and z corporations were to be transferred to a_trust the trust provides that all income is to be distributed currently to f and g in equal parts until f attains the age of years at that time the corpus of the trust is to be divided equally between f and g f disclaimed the entire income_interest in the trust while retaining the interest f has in corpus g disclaimed g’s entire corpus interest while retaining g’s interest in the income from the trust if the remaining requirements of sec_2518 are met either disclaimer will be a qualified_disclaimer sec_25_2518-3 provides that if the requirements of sec_2518 are met the disclaimer of all or an undivided portion of any separate interest in property may be a qualified_disclaimer even if the disclaimant has another interest in the same property in general each interest in property that is separately created by the transferor is treated as a separate interest for example if an income_interest in securities is bequeathed to a for life then to b for life with the remainder_interest in such securities bequeathed to a’s estate and if the remaining requirements of sec_2518 are met a could make a qualified_disclaimer of either the income_interest or the remainder or an undivided portion of either interest under sec_25_2518-3 example c created a_trust which provides that all current income is to be distributed equally between d and e for the life of d d also is given a testamentary general_power_of_appointment over the corpus d disclaimed the testamentary power to appoint an undivided one-half of the trust corpus assuming the remaining requirements of sec_2518 are satisfied d’s disclaimer is a qualified_disclaimer under sec_2518 in this case taxpayer represents that he executed a written disclaimer and delivered it to trustee within nine months of learning of the existence of the transfer creating the interest accordingly we conclude that taxpayer’s disclaimer was made within a reasonable_time after knowledge of the existence of the transfer under sec_25_2511-1 taxpayer also represents that he has neither received nor accepted any distributions of principal therefore if the disclaimer is valid and effective under the plr-103744-00 governing local law and such validation is consistent with applicable state law as would be applied by the highest court of the state and if the other requirements of sec_25_2511-1 are satisfied taxpayer’s disclaimer of a fractional share of his interest in trust principal is a valid disclaimer under sec_25_2511-1 and does not constitute a transfer subject_to gift_tax under sec_2501 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 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 specifically no opinion is expressed concerning whether taxpayer’s disclaimer is effective and valid under the governing state law this ruling is directed only to the taxpayer s 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 sincerely assistant chief_counsel passthroughs and special industries by robert honigman acting assistant branch chief branch enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------------------------- ---------------------- ---------------------------- --------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------------------------------- telephone number -------------------- refer reply to cc psi b04 plr-132264-15 date date legend settlor spouse year year date date date date trust trust lp corporation a b c d -------------------------------------------------- -------------------------------------------------- ------ ------ ---------------- ----------------- --------------------- -------------------------- ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- ---------------------------- ------------------------------------------------------------ ---------- --------- dear --------------------------- this letter responds to your authorized representative’s letter dated date requesting a ruling that the automatic allocation rules under sec_2632 of the internal_revenue_code apply to the transfers made by settlor and spouse in year and year the facts and representations submitted are as follows plr-132264-15 on date in year a date after date settlor established trust and trust it is represented that trust and trust are trusts within the meaning of sec_2632 paragraph of each trust provides in relevant part that after the deaths of settlor and spouse the trustees are to apportion the remaining trust fund into equal trust shares as follows one such equal trust share to be allocated to each of the then living children of settlor and one such equal trust share to be allocated to the family group composed of the then living issue of any child of settlor who is then deceased in the case of each trust share allocated to a living child of settlor the trustees are to make distributions of income and principal to the beneficiary and the living issue of such beneficiary as trustees determine in their sole and complete discretion on date settlor transferred an a percent interest in lp a limited_partnership to trust and b shares of non-voting common_stock of corporation to trust on date in year settlor transferred c shares of non-voting common_stock of corporation to trust on date in year settlor transferred a d percent interest in lp to trust on date in year settlor transferred several promissory notes to trust settlor and spouse retained tax professionals to prepare their year and year form sec_709 united_states gift and generation-skipping_transfer_tax returns on the year form sec_709 settlor and spouse consented under sec_2513 to treat the gifts made by each in year as made by both of them the year form sec_709 were timely filed the year transfers to trust and trust were incorrectly reported on form sec_709 schedule a part 1-gifts subject only to gift_tax instead of schedule a part 3-indirect skips furthermore the automatic allocation of the gst_exemption was not reported on schedule c on settlor’s year form_709 the year transfers to trust were incorrectly reported on form_709 schedule a part 1-gifts subject only to gift_tax instead of schedule a part 3-indirect skips furthermore the automatic allocation of the gst_exemption was not reported on schedule c schedule d did not reflect that any current or previous gst_exemption had been allocated to any current or previous transfer including the year transfers you have requested the following rulings settlor’s available gst_exemption was automatically allocated to the year transfers to trust and trust spouse’s available gst_exemption was automatically allocated to the year transfers to trust and trust plr-132264-15 settlor’s available gst_exemption was automatically allocated to the year transfers to trust law and analysis rulings sec_2513 provides generally that if the parties consent a gift made by one spouse to any person other than his or her spouse shall for gift_tax purposes be considered as made one-half by the donor and one-half by the donor’s spouse sec_2601 imposes a tax on every 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 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 sec_2642 provides the method for determining the inclusion_ratio sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount 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 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_2632 provides that if any individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred sec_2632 provides that the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by chapter made to a gst_trust sec_2632 provides in relevant part that the term gst_trust means a_trust that could have a generation-skipping_transfer with respect to the transferor unless the trust falls within any of six enumerated exceptions plr-132264-15 sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in relevant part that an indirect_skip is a transfer of property to a gst_trust as defined in sec_2632 provided that the transfer is subject_to gift_tax and does not qualify as a direct_skip in the case of an indirect_skip made after date to which sec_2642 does not apply the transferor’s unused gst_exemption is automatically allocated to the property transferred but not in excess of the fair_market_value of the property on the date of the transfer the automatic allocation is effective whether or not a form_709 is filed reporting the transfer and is effective as of the date of the transfer to which it relates an automatic allocation is irrevocable after the due_date of the form_709 for the calendar_year in which the transfer is made in this case the terms of trust and trust satisfy the definition of a gst_trust under sec_2632 therefore the transfers that settlor and spouse made to trust and trust in year and the transfers that settlor made to trust in year satisfy the definition of indirect skips under sec_2632 and sec_26_2632-1 pursuant to sec_2632 the gst_exemption of settlor and spouse was automatically allocated to the transfers that they made to trust and trust in year and year accordingly based upon the facts submitted and the representations made we conclude that settlor’s available gst_exemption was automatically allocated to the year transfers to trust and trust spouse’s available gst_exemption was automatically allocated to the year transfers to trust and trust settlor’s available gst_exemption was automatically allocated to the year transfers to trust in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by 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 plr-132264-15 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely leslie h finlow leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc dom corp - plr-103033-00 date date number release date p sec_1 sec_2 sec_3 distributing controlled newco sec_4 sec_5 s6 s7 s8 s9 s10 sec_11 sec_12 f1 f2 f3 f4 f5 f6 f7 f8 f9 f10 f11 f12 f13 plr-103033-00 f14 a b c d e f g h i j k l m financial advisors business a business b business b1 business b2 business c country y this letter responds to your date request for rulings on the federal_income_tax consequences of a proposed transaction the facts submitted in this request and later correspondence are summarized below the rulings contained in this letter are based upon the 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 a ruling verification of the information representations and other data may be required as part of the audit process summary of facts publicly traded p is the common parent of a consolidated_group of domestic and foreign subsidiaries that engage in business a business b including business b1 and business b2 and business c the p group p owns all of sec_1 sec_2 and sec_3 a percent of f1 b percent of f2 and c percent of f3 all f subsidiaries in this summary of facts are foreign entities plr-103033-00 sec_1 owns all the stock of newco f4 and f5 d percent of distributing a country y corporation e percent of controlled a country y corporation f percent of f6 g percent of f7 and h percent of f8 the remaining stock of distributing and controlled less than one percent is owned by p and sec_3 f4 owns i percent of f9 and is disregarded as an entity separate from sec_1 for federal tax purposes distributing owns j percent of f13 sec_2 owns all the stock of sec_4 sec_5 s6 s7 s8 s9 s10 sec_11 sec_12 and f10 k percent of f11 l percent of f12 and m percent of f14 distributing directly conducts business b2 and business c we have received financial information indicating that each of these businesses has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years business b1 operates as a division within the p group and is not considered a core business by p management consequently business b1 management must obtain approval from p management including financing authority before pursuing its own business opportunities ordinarily this approval is not given unless the business b1 suggestion also will benefit business c therefore to allow business b1 management greater freedom to address the business b1 needs it is proposed that the assets of this business and related business b2 be aggregated in a separate corporation newco and that stock of newco be sold to the public this will provide business b1 with needed growth capital and although newco will continue as a member of the p group will limit p’s ability to interfere in decision-making by imposing on p a fiduciary obligation to the minority public shareholders of newco in detailed and reasoned letters the financial advisors of p have concluded that this offering would yield a significantly greater return if among other reasons the business b1 and business b2 assets were combined in a domestic_corporation owned by p rather than a foreign_corporation owned by foreign distributing proposed transaction the proposed transaction will consist of the following steps i sec_1 will transfer the stock of f5 f6 f7 and f8 business b1 ventures to newco ii sec_1 and sec_2 will merge into p this will give p percent each of distributing and controlled and sec_3 percent iii f4 will transfer the stock of f9 a business b1 venture to newco iv distributing will transfer all of its assets and liabilities including business c the wanted assets to controlled except for the assets and liabilities that relate to distributing’s business b2 and the j percent interest in f13 a business b1 venture the plr-103033-00 separation v p will contribute to newco a the stock of distributing which will then hold only the f13 stock and the business b2 assets b the stock of sec_4 sec_5 s6 s7 s8 s9 s10 sec_11 sec_12 f1 f2 f3 f10 f11 f12 and f14 all business b1 ventures and c its other business b1 assets including all related personnel vi newco will sell up to percent of its stock in an initial_public_offering leaving p with percent or more of the newco stock vii there is a reasonable likelihood that p will distribute the stock of newco to its shareholders within_12_months the rulings given below do not require this distribution however representations p has submitted the following representations concerning the separation as recast below in ruling a no part of the consideration distributed by distributing in the distribution as defined below in ruling is being received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation b the five years of financial information submitted on behalf of distributing for business b2 and business c represents the corporation’s present operation of each business and with regard to each business there have been no substantial operational changes since the date of the last financial statements submitted c immediately after the distribution the gross assets of business b2 as directly conducted by distributing will have a fair_market_value equal to at least five percent of the total fair_market_value of all the gross assets of distributing including the stock of its subsidiaries d immediately after the distribution the gross assets of business c as directly conducted by controlled will have a fair_market_value equal to at least five percent of the total fair_market_value of all the gross assets of controlled including the stock of its subsidiaries e following the distribution distributing and controlled each will continue the active_conduct of its business independently and with its separate employees f except as part of the proposed transaction described above there is no plan or intention by the shareholders or security holders of distributing to sell exchange transfer by gift or otherwise dispose_of any of their stock in or securities of either plr-103033-00 distributing or controlled after the transaction g there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 1996_1_cb_696 h the distribution is not part of a plan or series of related transactions within the meaning of sec_355 of the internal_revenue_code pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of distributing or controlled entitled to vote or percent or more of the total value of shares of distributing or controlled i there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business j the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing each equals or exceeds the liabilities assumed as determined under sec_357 by controlled k the liabilities assumed as determined under sec_357 in the transaction were incurred in the ordinary course of business and are associated with the assets being transferred l no intercorporate debt will exist between distributing and controlled at the time of or after the distribution m payments made in connection with all continuing transactions between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length n distributing controlled and p are not investment companies as defined in sec_368 and iv o in connection with the various domestic and foreign restructuring transactions contemplated in the ruling_request none of p sec_1 sec_2 or their domestic subsidiaries will transfer property directly or indirectly to a foreign_corporation in an exchange described in sec_367 p in connection with the various domestic and foreign restructuring transactions contemplated in the ruling_request none of p sec_1 sec_2 or their domestic subsidiaries will transfer directly or indirectly any intangible_property to a foreign plr-103033-00 corporation in an exchange described in sec_367 q in connection with the various domestic and foreign restructuring transactions contemplated in the ruling_request none of p sec_1 sec_2 or their domestic subsidiaries will transfer property to a foreign_partnership which would be subject_to the reporting requirements of sec_6038 r distributing and controlled each will be a controlled_foreign_corporation cfc within the meaning of sec_957 before and immediately after the separation s p has elected to treat f4 as an entity that is disregarded as a separate_entity for u s tax purposes accordingly f4 will not be a cfc before or immediately after f4 transfers f9 to p f9 does not have more than percent u s ownership and will not be a cfc before or immediately after such transfer t f5 will be a cfc before and immediately after sec_1 transfers its stock to newco f6 and f7 do not have more than percent u s ownership and are not cfcs u sec_4 sec_5 s6 s7 s8 s9 s10 sec_11 and sec_12 are u s entities f1 f2 f3 f11 f12 and f14 do not have more than percent u s ownership and are not cfcs f8 and f10 will be cfcs before and immediately after p transfers their stock to newco v in connection with the proposed transaction it is not contemplated that any of the entities will license any property rights to another entity involved in the various transactions w none of p sec_1 sec_2 or newco has been or will be a united_states_real_property_holding_corporation usrphc as defined in sec_897 at any time during the five-year period ending on the date of the proposed transaction and none of them will be a usrphc immediately thereafter x none of distributing controlled f1 f2 f3 f4 f5 f6 f7 f8 f9 f10 f11 f12 or f14 is a passive_foreign_investment_company as defined in sec_1297 y the notice requirements of sec_1_367_b_-1 of the income_tax regulations will be met with regard to the proposed transaction z there are no dual resident corporations involved in the proposed transaction based solely on the information submitted and the representations set forth rulings plr-103033-00 above we rule as follows for federal_income_tax purposes the transaction described above in step iv the separation will be treated as if distributing had i formed controlled ii transferred the wanted assets to controlled in exchange for percent of the controlled stock and the assumption by controlled of related liabilities the contribution and iii distributed the controlled stock to p the distribution see revrul_77_191 c b the contribution followed by the distribution will be a reorganization under sec_368 distributing and controlled each will be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing on the contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the contribution sec_1032 the basis of each wanted asset received by controlled will equal the basis of that wanted asset in the hands of distributing immediately before the contribution sec_362 the holding_period of each wanted asset received by controlled from distributing will include the period during which that wanted asset was held by distributing sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of p on its receipt of the controlled stock in the distribution sec_355 the holding_period of the controlled stock received by p will include the holding_period of the distributing stock on which the distribution is made provided p holds the distributing stock as a capital_asset on the date of the distribution sec_1223 p will recognize no gain loss or deemed_dividend as a result of the contribution or the distribution sec_1_367_b_-5 the earnings_and_profits of distributing to the extent attributable to the distributing stock under sec_1_1248-2 or sec_1_1248-3 whichever is applicable that were plr-103033-00 accumulated in taxable years beginning after date during the period p held the distributing stock or was considered as holding it by reason of the application of sec_1223 while distributing was a controlled_foreign_corporation will be attributable to such stock held by newco sec_1_1248-1 the transfer of wanted assets by distributing to controlled in exchange for controlled stock is a reorganization to which sec_1_367_b_-4 applies the transfer of controlled stock to p is a distribution to which sec_1 b - a and c apply the earnings_and_profits of the foreign_subsidiary corporations to the extent attributable to their stock under sec_1_1248-2 or sec_1_1248-3 whichever is applicable that were accumulated in taxable years beginning after date during the period p or sec_1 held their stock or was considered as holding it by reason of the application of sec_1223 while the foreign subsidiaries were cfcs will be attributable to such stock held by newco sec_1_1248-1 caveats we express no opinion about the tax treatment of the proposed transaction under any other provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered in the above rulings in particular no opinion is expressed regarding a the transfers described above in steps i and iii b the mergers described above in step ii c the treatment of sec_3 in the separation d the contributions described above in step v e whether any or all of the above-referenced foreign_corporations are passive foreign investment companies within the meaning of sec_1297 and the regulations to be promulgated thereunder if it is determined that any or all of the above-described foreign_corporations are passive foreign investment companies no opinion is expressed on the application of sec_1291 through to the proposed transactions in particular in a transaction in which gain is not otherwise recognized regulations under sec_1291 may require gain recognition notwithstanding any other provision of the code f the federal_income_tax consequences of the various foreign restructuring transactions described above other than the separation in particular no opinion is plr-103033-00 expressed about the application sec_1248 to any foreign restructuring transaction temporary or final regulations relating to one or more of the issues addressed in this ruling including regulations under sec_358 and sec_1297 have yet to be adopted therefore this ruling letter may be modified or revoked if adopted temporary or final regulations are inconsistent with any conclusions reached herein see dollar_figure of revproc_2000_1 2000_1_irb_4 which discusses in greater detail the revocation or modification of ruling letters however when the criteria in dollar_figure of revproc_2000_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances procedural statements this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to the federal_income_tax return of each taxpayer involved for the taxable_year in which the proposed transaction is completed under a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely assistant chief_counsel corporate by wayne t murray senior technician reviewer branch


internal_revenue_service index number number release date department of the treasury p o box ben franklin station washington dc contact person telephone number refer reply to cc dom p si - plr-116715-98 date date legend partnership agency general_partner project state city a b c plr-116715-98 d e f g h i j k l m n o p q r s t dear this letter responds to your authorized representative’s letter dated date that was submitted on behalf of agency and partnership requesting a letter_ruling under sec_42 of the internal_revenue_code and sec_1_42-13 of the income_tax regulations to correct an administrative error in an allocation of the low-income_housing_credit dollar amounts agency and partnership represent that the facts are as follows plr-116715-98 facts partnership is a state limited_partnership that was formed on a for the purpose of owning and operating the project a residential_rental_project consisting of e units located in city partnership expects that all of the units in the project will qualify for low- income housing credits pursuant to sec_42 on b partnership submitted an application to agency for a reservation of c low- income housing credits in the amount of dollar_figured the application reflected a site plan calling for e units in f buildings on g the project received a reservation letter from agency tentatively reserving low-income_housing credits in the amount of dollar_figureh to f buildings in the project subsequent to the submission of the application_for low-income_housing credits and receipt of the reservation letter but before i the site plan for the project was reconfigured by partnership’s architect the final site plan called for the construction of j residential buildings consisting of e units and k common building the reconfiguration of the project arose from partnership’s need to accommodate a l foot right-of-way in favor of a local utility provider in the original project design the general_partner and the architect were aware of the utility right-of-way that was situated m feet on the project site and m feet on the adjoining neighbor’s property however it was the general partner’s and the architect’s understanding that the utility would agree to a modification of its right-of-way to permit the full use of the project site after receipt of the reservation letter of c low-income_housing credits the utility informed the general_partner and the architect that it would not permit a modification of its l foot right-of-way thus to accommodate the right-of-way it would have required partnership to increase the density of the project to such an extent so as to make the project unsightly and reduce its function to the ultimate detriment of the residents in order to accommodate the utility right-of-way and produce a functional apartment complex general_partner on behalf of partnership acquired an additional n acre lot adjacent to the project site utilizing this additional acreage the architect was able to accommodate the utility right-of-way moreover the additional acreage allowed the architect to reduce density by the addition of o buildings and the conversion of an existing house on the additional lot to an administrative office manager’s building general_partner informed the staff of agency of the acquisition by partnership of the additional lot and the increase of the project to j buildings from f buildings in the original design and agency staff had no objection partnership submitted a carryover certification on p to agency showing it would have an accumulated basis in the project as of i equal to at least dollar_figureq representing approximately r percent of the reasonably anticipated basis in the project of dollar_figures plr-116715-98 nothing in the carryover certification indicated that the number of buildings in the project had changed by p partnership and general_partner were aware that the finalized plans called for the project to have j residential buildings however the preparer of partnership’s carryover certification was unaware of this change and believed that the project was to consist of f residential buildings and completed the carryover certification accordingly agency issued a carryover allocation on i in the amount of dollar_figureh per year in the c carryover allocation f building identification numbers bins were assigned to the f originally contemplated residential buildings the carryover allocation did not reflect the change in the project configuration from f residential buildings to j residential buildings in t partnership’s counsel discovered that the project consisted of j residential buildings rather than the original f upon discovery of the error partnership’s counsel informed general_partner that general_partner needed to contact agency about the appropriate procedure to correct the error shortly thereafter general_partner contacted agency and was informed by agency that a private_letter_ruling would be necessary to correct the error partnership then began to assemble the information necessary to obtain approval of agency’s board_of commissioners for agency to file a request for a private_letter_ruling and enable the drafting and submitting of the request for a private_letter_ruling as a result of the modifications made to the original site and the original site plan the number and location of the buildings that are to be used on the certificates of occupancy will no longer match the number assigned by agency for purposes of providing a carryover allocation thus the forms low-income_housing_credit allocation certification to be issued to the project will not reflect the correct number of buildings in the project agency and partnership at the time of the c carryover allocation intended for e units to be considered in the project the existing building-by-building carryover allocation does not allow partnership to maximize the credits allocated to the project as reconfigured on the additional acreage and seriously affects the project’s financial feasibility thus the c carryover allocation inaccurately reflects the intent of agency and partnership at the time of the carryover allocation document was prepared the correction of the administrative error or omission will have no effect on the housing_credit ceiling under sec_42 or on agency’s unused housing_credit carryover that is assigned to the secretary under sec_42 in connection with the above statement of facts agency represents that it intended to make a project-based allocation to the project pursuant to sec_42 the number of buildings in the project was not material to the allocation for the project and the fact that the project had j residential buildings rather than f would not have affected a the amount of credit allocated to the project b the ranking of the project plr-116715-98 in agency’s c allocation round or c any other aspect of the carryover allocation for the project ruling requested agency and partnership request the internal_revenue_service to rule that agency can amend the c carryover allocation to include bins for the o buildings added to the project and allocate the appropriate amount of low-income_housing tax_credit to each of the j buildings in the project not exceeding dollar_figureh for the entire project as required under sec_1_42-13 agency and partnership hereby agree to such conditions as the secretary considers appropriate if the above ruling_request is granted law and analysis under sec_42 state and local housing_credit agencies may correct administrative errors and omissions concerning allocations and recordkeeping within a reasonable period of time after their discovery sec_1_42-13 defines an administrative error or omission as a mistake that results in a document that inaccurately reflects the intent of the agency at the time the document is originally completed or if the mistake affects a taxpayer a document that inaccurately reflects the intent of the agency and the affected taxpayer at the time the document is originally completed sec_1_42-13 however provides that an administrative error or omission does not include a misinterpretation of the applicable rules and regulations under sec_42 in the present case partnership committed an administrative omission when the carryover certification failed to reference j buildings this omission was not a misinterpretation of the applicable rules and regulations under sec_42 however this omission did result in a document ie c carryover allocation that did not accurately reflect the intent of agency and partnership at the time the document was executed the intent of agency was to allocate the same amount of credit to the project notwithstanding the number of the buildings in the project further the change does not affect the amount of housing_credit_dollar_amount allocated to the project nor the ranking of the project in agency’s c allocation round nor any other aspect of the carryover allocation for the project thus a correctable administrative omission occurred in this situation under the represented facts the carryover allocation is the credit allocating document under sec_1_42-13 the secretary must pre-approve a correction of an administrative error or omission if the correction is not made before the close of the calendar_year of the error or omission and the correction requires a numerical change to the credit_amount allocated for the building or project in the present case the plr-116715-98 correction would involve a numerical change to the credit_amount allocated to the f buildings that received bins based solely on the representations and the relevant law and regulations set forth above we conclude as follows partnership committed an administrative omission when the carryover certification submitted to agency failed to indicate the increase in the number of buildings in the project as a result of the change in the site plan because of that administrative omission the c carryover allocation inaccurately reflects the intent of agency and partnership when the c carryover allocation was executed agency will correct the administrative omission within a reasonable period of time after agency became aware of the administrative omission agency will issue o additional bins to accurately reflect that there are j buildings in the project and agency will allocate low-income_housing tax_credit to each of the j buildings in the project not exceeding dollar_figureh for the entire project to correct this administrative omission agency must do the following amend the c carryover allocation to include bins for the o additional buildings in the project and to allocate the appropriate amount of low-income_housing tax_credit to each of the j buildings in the project not exceeding dollar_figureh for the entire project the new bins do not have to be in sequential order with the existing f bins and the existing f bins shall continue in effect on the amended c carryover allocation agency should indicate that it is making the correction under sec_1_42-13 and attach a copy of the amended c carryover allocation to an amended form_8610 annual low-income_housing_credit agencies report for c and file the amended form_8610 with the service when completing the amended form_8610 the agency should follow the specific instructions on the form_8610 under the heading amended reports no opinion is expressed or implied regarding the application of any other provisions of the code or regulations specifically we express no opinion on whether plr-116715-98 the project qualifies for the low-income_housing tax_credit under sec_42 nor the validity of the project’s costs included in eligible_basis in accordance with the powers of attorney filed with this request we are sending copies of this letter_ruling to agency’s authorized representative and partnership’s authorized representatives 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 yours kathleen reed assistant to the branch chief branch office of assistant chief_counsel passthroughs and special industries enclosure copy


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 xxxxkxkxxxxx xxxxxkxxxxx xxxxxkxxxxxk xxxxxkkxxxxk uniform issue list legend settlor company date date date date date date date date date date date date dear this is in response to your ruling_request regarding federal tax consequences under various sections of the internal_revenue_code of the proposed transactions described below facts 120_stat_780 the act you were created by settlor to support one or more you were formed as a charitable_trust recognized as an organization described in sec_501 internal_revenue_code and classified as a supporting_organization described under sec_509 prior to the enactment on date of the pension_protection_act of pub_l_no xxxxxxxxxxxxxxxxxxaxxaxxx organizations described under sec_509 or specifically you are engaged primarily in investing and managing non-exempt use property and making grants to your supported organizations your supported organizations are five specified organizations that have been recognized as organizations described in sec_501 and they are classified as public_charities under sec_509 and a your support of these organizations is contingent upon their continuing to be classified by the internal_revenue_service service as public_charities as a result of the amendments made by the act and the proposed sec_1_509_a_-4 you stipulate that you are a non-functionally integrated type_iii_supporting_organization assuming that the final regulations do not substantially change the definition and thus are treated as a private_foundation that is subject_to the excess_business_holdings rules of sec_4943 effective for tax years beginning after date you stipulate that sec_4943 applies to your tax_year beginning date you represent that you and all of your disqualified persons with respect to you on date together held more than percent of the company’s voting_stock these holdings which might qualify for the present holdings provisions under sec_4943 and sec_4943 are not the focus of this ruling since date you have come to own all the voting_stock of the company by reason of its redemptions of the voting_stock held by others you received your initial interest in the company as a result of a large bequest from settlor that bequest from settlor was unusually large with an estimated value at that time of over twenty million dollars the remaining stock was owned by individuals and the company’s employee_stock_ownership_plan esop the participants of esop consisted of the company’s employees you represent that esop participants had put option rights and as such could compel the company to redeem the company's voting_stock that is distriputable to the esop participants after date the company continued to redeem shares from the esop periodically as required these redemptions further increased your percentage interest in the company’s voting_stock the esop participants exercised their put options on date date date and date on date the company terminated the esop by redeeming all of the remaining shares held by the esop the esop’s cash assets were then distributed to the esop participants you represent that you and your disqualified persons did not transfer cash or other_property or make or guarantee a loan to the company to redeem the shares held by the esop participants on date the company also redeemed the shares of the remaining shareholders the individuals on date you became the company's sole shareholder as of the date of the act company a closely_held_c_corporation had a number of activities including the direct operation of a business ownership of commercial real_estate directly and through a subsidiary ownership of a sport’s related subsidiary and ownership in a publicly held company two of your trustees serve on the company’s board_of six directors you developed a plan plan to restructure the company and its affiliates pursuant to the plan the company will dispose_of the retail businesses and restructure real_estate holdings and rental operations to ensure that the company derives at least of its gross_income from passive sources you have already begun executing the plan since date specifically the company has disposed of or has discontinued operating businesses xxxxxxkxxxxxaxxxxxxxxxxxx has restructured real_estate holdings to facilitate generation of income derived from passive sources has amended lease agreements to ensure that the rental income is derived from passive sources and has transferred to you assets that produce income derived from passive sources the company has submitted pursuant to the ruling_request the detailed plan and the steps it is taking in order to accomplish such restructuring you state that pursuant to the plan you will reduce your excess_business_holdings by restructuring the company’s assets and operations so that you and all disqualified persons may own an interest of more than in the company and its affiliates however you represent that you will restructure the company’s assets and operations so that the company its affiliates and any other enterprises will receive at least of its gross_income in the form of income derived from passive sources within the meaning of sec_4943 if you cannot restructure so company shall receive at least of its gross_income in the form of income derived from passive sources you will reduce your ownership in the company to not more than the company will either sell real properties properties managed by third party management companies or if it is in the best interest of the company not to sell the ownership or interest the company will ensure that income from such properties comes from passive sources irrespective of your effort to carry out the plan you represent that you have faced challenges preventing you from fully executing the plan including properties encumbered with third-party leases memberships and sponsorship agreements which adversely affect the marketability however in time you will be able to address and resolve these challenges you represent that the company sold shares of a publicly-held company it owns and company is considering using the proceeds from this sale to improve the assets it is trying to dispose hoping that such improvements will render such assets more marketable you submitted your ruling_request and plan to dispose_of your excess_business_holdings to your state attorney_general who responded with no objection to your ruling_request and plan ruling requested based on the above facts you requested a ruling that the periods for disposing of excess_business_holdings under sec_4943 with respect to each of the increases in your holdings in the company’s voting_stock that arose between date and date as a result of the company's redemptions from the company's esop be extended for additional five-year periods law sec_4943 imposes excise_taxes on the excess_business_holdings of any private_foundation in a business_enterprise sec_4943 provides that the term excess_business_holdings means with respect to the holdings of any private_foundation in any business_enterprise the amount of stock or other xxxxxxkxxxxxxxxxxxxaxxxxxk interest in the enterprise which the foundation would have to dispose_of to a person other than a disqualified_person in order for the remaining holdings of the foundation in such enterprise to be permitted holdings sec_4943 provides in part that the permitted holdings of any private_foundation in an incorporated business_enterprise are percent of the voting_stock reduced by the percentage of the voting_stock owned by all disqualified persons sec_4943 provides that any interest in a business_enterprise which a private_foundation holds on date if the private_foundation on such date has excess business holding shall while held by the foundation be treated as held by a disqualified_person rather than by the private_foundation during the 15-year period beginning on such date if the foundation and all disqualified persons have more than a percent voting_stock interest on such date sec_4943 provides that if 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 sets forth a similar rule for a change in holdings which causes an increase in excess_business_holdings sec_4943 provides that the service may extend for an additional five years the initial five-year period 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 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 it made diligent efforts to dispose_of such holdings b before the close of the initial five-year period i the private_foundation submits to the service 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 service any response the private_foundation received during the five-year period and c the service determines that such plan can reasonably be expected to be carried out before the close of the extension period sec_4943 provides that the term business_enterprise does not include a trade_or_business at least percent of the gross_income of which is derived from passive sources for purposes of sec_4943 gross_income from passive sources includes the items excluded by xxxxxxxxxxaxxnxxnxaxxax sec_512 and sec_4943 provides that an organization which is described in paragraph shall be treated as a private_foundation sec_4943 provides that an organization is described in this paragraph if such organization is- a a type_iii_supporting_organization other than a functionally_integrated_type_iii_supporting_organization or b an organization which meets the requirements of subparagraphs a and c of sec_509 and which is supervised or controlled in connection with one or more organizations described in paragraph or of sec_509 but only if such organization accepts any gift or contribution from any person described in sec_509 sec_53_4943-6 provides that sec_4943 applies where a foundation has excess holdings in a business_enterprise determined without regard to sec_4943 or immediately prior to a change in holdings other than by purchase by the foundation or disqualified_person sec_53_4943-6 provides that as a general_rule except as otherwise provided in subparagraph of this paragraph any increase in holdings in a business_enterprise that is the result of a readjustment as defined in sec_53_4943-7 shall be treated as acquired other than by purchase sec_53_4943-7 provides that for purposes of this section the term readjustment includes but is not limited to a redemption among others sec_53_4943-7 describes a prohibited_transaction in relevant part as any transaction involving a private_foundation that has holdings in a business_enterprise which acquires or redeems its own stock using cash or other_property transferred to the acquiring business_enterprise eg as a contribution_to_capital or as a loan made or guaranteed by the private_foundation its disqualified persons or both or where such purchase of stock is a device to acquire or expand excess_business_holdings as determined by all the facts and circumstances in the case sec_53_4943-10 provides that the term business_enterprise includes the active_conduct_of_a_trade_or_business including any activity which is regularly carried on for the production_of_income from the sale_of_goods or the performance of services and which constitutes an unrelated_trade_or_business under sec_513 sec_53_4943-10 provides that the term business_enterprise does not include a trade_or_business at least percent of the gross_income of which is derived from passive sources sec_53_4943-10 provides that gross_income from passive sources for purposes xxxxxxxxxxxxxxxxxxaxxxxx of this paragraph includes the items excluded by sec_512 relating to dividends interest and annuities sec_512 relating to royalties sec_512 relating to rent and sec_512 relating to gains or losses from the disposition of certain property any income classified as passive under this paragraph does not lose its character merely because sec_512 or sec_514 relating to unrelated_debt-financed_income applies to such income analysis you have asked for additional five-year periods within which to dispose the excess_business_holdings you have as a result of the five redemption transactions that occurred on date sec_2 and each which increased your business holdings because of the proximity in time of the various redemptions we think it is reasonable to deal with them jointly we are not addressing the ownership that you held prior to the act thus the issue is whether you merit the additional five-year periods permitted under sec_4943 generally sec_4943 imposes a tax on the excess_business_holdings of any private_foundation in a business_enterprise sec_4943 provides in part that the permitted holdings of any private_foundation in an incorporated business_enterprise are percent of the voting_stock of any incorporated business_enterprise reduced by the percentage of the voting_stock owned by all disqualified persons generally anything above this percent is excess_business_holdings see sec_4943 because you own percent of the company’s voting_stock this would constitute excess_business_holdings absent exceptions however because you did not purchase the voting_stock and instead had increased stock holdings due to redemptions pursuant to the esop see sec_53_4943-6 and sec_53_4943-7 the increase in excess_business_holdings due to the redemptions are treated as being held by a disqualified_person not you during the five-year period beginning on the date of such holding see sec_4943 you represent that you did not finance the company’s buy back of the esop shares or make a loan or guarantee a loan used in the buy back rather the company funded the buy back of the esop shares without any financial assistance from you a prohibited_transaction is any transaction involving a private_foundation that has holdings in a business_enterprise which acquires or redeems its own stock using cash or other_property transferred to the acquiring business_enterprise or as a loan made or guaranteed by the private_foundation its disqualified persons or both see sec_53_4943-7 because you did not finance the company’s buy back of the esop participants’ shares you did not participate in a prohibited_transaction in addition the company's buy back of the esop participants shares is not a device to acquire or expand excess_business_holdings as determined by all the facts and circumstances in the case see sec_53_4943-7 in that the esop participants had the put options and had the right to exercise them which they did exercise with all the shares under your sole control it will be easier for you to dispose the company’s assets you assert that by the end of the five-year period provided under sec_4943 you will have excess_business_holdings thus you began planning how to eliminate the excess_business_holdings however based on the complexity of the company's assets and holdings you stated that you would be unable to dispose the excess_business_holdings within the initial five-year xxxxxxxxxxxxxxxxxxxxxxx periods following each of the redemptions thus for each of the redemptions you have asked for additional five-year periods in addition to the initial five-year periods to dispose the excess_business_holdings under sec_4943 the service may extend for an additional five years the initial five-year period 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 shows 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 the private_foundation submits i to the service a plan for disposing of all of the excess_business_holdings involved in the extension and ii 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 service any response the private_foundation received during the five-year period and c the service determines that such plan can reasonably be expected to be carried out before the close of the extension period under the excess_business_holdings rules of sec_4943 a private_foundation and all disqualified persons combined are limited to holding ownership of a corporation’s voting_stock or other interest in a business_enterprise however the term business_enterprise does not include a trade_or_business of which at least of the gross_income is derived from passive sources see sec_4943 you represent that you will restructure the company's assets and operations so that the company its affiliates and any other enterprises will receive at least of its gross_income in the form of income derived from passive sources within the meaning of sec_4943 you represent that if you cannot restructure the company's assets and operations to meet this requirement you represent that you will own not more than of the company as required under sec_4943 from the beginning of the initial five-year periods of each of the redemptions after date you began making diligent efforts to dispose holdings you knew will be excess holdings after the initial five-year periods you ceased the operation of the company’s retail businesses you were also able to sell two sport-related real properties because most of the company’s assets shares are not readily disposable you are considering using the proceeds from your sale of a public-held company’s shares to improve the company’s assets if such improvements will make such assets readily and easily marketable your efforts to address anticipated excess_business_holdings issues have been further complicated by the unusual size of your holdings in company and the diverse and complex nature of the holdings while your incremental percentage increase in your interest in the company's voting_stock created by the company’s redemptions from the esop created an excess business holding issue you represent that there is virtually no market for small minority interests in a closely held company your trustees have concluded that in order to dispose_of the incremental increase in your percentage increase in the company created by the redemptions it would in all likelinood have to dispose_of the entire company disposing of a significant company during a challenging market for real_estate has been difficult such xxxxxxxxxxxxxxxxxxxxxxx disposition therefore of the company by sale has not been possible except at a price substantially below fair_market_value because of the size and complexity of the holdings before the expiration of the five-year periods for each of the redemptions you submitted to the service a plan of how you will dispose the excess_business_holdings within the additional five- year periods upon the completion of the plan the company will derive of its gross_income from passive sources or will dispose_of the assets so that you will not own more than of the company the appropriate state attorney_general had no objection to your ruling_request and your submitted plan based on the information you submitted we conclude that the plan reasonably can be carried out before the conclusion of the additional five-year periods for each of the redemptions therefore because you meet the requirement of sec_4943 you are entitled to additional five- year periods in addition to the initial five-year periods you already have for each of the redemptions to dispose_of your excess_business_holdings rulings based on the information submitted we rule as follows the 5-year period for disposing of excess_business_holdings under sec_4943 with respect to the increases in your holdings in the company’s voting_stock that occurred on date is extended an additional years under sec_4943 to date the 5-year period for disposing of excess_business_holdings under sec_4943 with respect to the increases in your holdings in the company’s voting_stock that occurred on date is extended an additional years under sec_4943 to date the 5-year period for disposing of excess_business_holdings under sec_4943 with respect to the increases in your holdings in the company’s voting_stock that occurred on date is extended an additional years under sec_4943 to date the 5-year period for disposing of excess_business_holdings under sec_4943 with respect to the increases in your holdings in the company's voting_stock that occurred on date is extended an additional years under sec_4943 to date the 5-year period for disposing of excess_business_holdings under sec_4943 with respect to the increases in your holdings in the company's voting_stock that occurred on date is extended an additional years under sec_4943 to date xxxxxxxxxxxxxxxxxxxxxxx please note that we make no determination as to whether you qualify as a ‘non-functionally integrated type iii supporting organization’ in this private_letter_ruling we also make no determination as to the status of your stock ownership including whether or not it is subject_to the transition_rules other than the specified redemptions as outlined above 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 that it may not be used or cited by others as precedent 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 with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records 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 service we are sending a copy of this letter to your authorized representative sincerely theodore r lieber manager exempt_organizations technical group enclosure notice


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-132744-05 date date ------------------ ------------ ------------------------------------------ legend parent ----------------------------------------------------------- electing sub ------------------------------------------------------------------ state a date date date tax professional -------------------------------------------------------------------- ------------------------------------------------------------------------------- dear -------------- and electing sub parent and electing sub are requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election to restore value under sec_1_382-8 of the income_tax regulations hereinafter referred to as the election additional information was submitted in this letter responds to a letter dated date submitted on behalf of parent ----------------------------- -------------------------- ---------------------- ------------------- parent experienced a sec_382 ownership_change on date prior to the ownership plr-132744-05 correspondence dated september and date the material information submitted for consideration is summarized below parent a state a corporation is the common parent of an affiliated_group which files a consolidated federal_income_tax return at the time of the transaction electing sub was a component_member of parent’s controlled_group within the meaning of sec_1_382-8 and and was a controlled_foreign_corporation as defined in sec_957 of the internal_revenue_code electing sub has not been engaged in the conduct_of_a_trade_or_business in the united_states and has not filed a united_states income_tax return change parent’s consolidated_group had generated a net_operating_loss nol in accordance with the value adjustment rules of sec_1_382-8 parent’s value was reduced for purposes of computing the sec_382 limitation sec_1_382-8 sec_382 provides that the amount of the taxable_income of any new_loss_corporation for any post-change_year which may be offset by pre-change losses shall not exceed the sec_382 limitation for such year under sec_382 the sec_382 limitation is determined by multiplying the value of the old_loss_corporation by the applicable long-term_tax-exempt_rate a special rule designed to prevent double counting by controlled groups is set forth in sec_1_382-8 sec_1_382-8 requires that the value of the stock of each component_member of the controlled_group be reduced by the value of the stock owned by that component_member in any other component_member component members of a controlled_group can elect under sec_1_382-8 to restore some or all of the value to another component_member the election to restore value is made by following the procedures set forth in sec_1_382-8 the election was required to be filed with parent’s income_tax return for its tax_year ending date however for various reasons parent and electing sub failed to make a valid election subsequent to date the last day for timely filing the election it was discovered that a valid election had not been filed thereafter this request was submitted under sec_301_9100-3 for an extension of time to file a valid election the period of limitations on assessments under sec_6501 has not expired for the taxable_year for which the election should have been filed or for any subsequent taxable_year 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 election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of under sec_301_9100-1 the commissioner has discretion to grant a reasonable sec_301_9100-1 defines the term regulatory election as including an information affidavits and representations submitted by parent electing sub in this case the time for filing the election is fixed by the regulations ie plr-132744-05 time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when it is established that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the government’s interests sec_301_9100-3 sec_1_382-8 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent and electing sub to file the election provided parent and electing sub establish that they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent and electing sub reasonably relied on a qualified_tax professional who failed to make or advise either parent or electing sub to make the election and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 and the representations that have been made we conclude that parent and electing sub have established that they acted reasonably and in good_faith in failing to timely file the election the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-3 until days from the date on this letter for parent and electing sub to file the election the regulation taxpayer’s return for the taxable_year in which the ownership_change occurred must be amended to attach the election the election statement should commence with the following language prescribed by sec_1_382-8 this is an election under sec_1_382-8 of the income_tax regulations to restore all or part of the value of insert name and e i n of the electing member to insert name and e i n of the corporation to which value is restored the election statement must be signed by the persons specified in the regulation also the election must include all the other information required by the regulation see sec_1_382-8 as to who must sign and what information must be included the above extension of time is conditioned on the taxpayers’ parent’s and the consolidated_group members’ tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been based on the facts and information submitted including the affidavits submitted the election must be filed in accordance with sec_1_382-8 in accordance with a copy of this letter should be attached to the election statement except as expressly provided herein no opinion is expressed or implied plr-132744-05 made timely taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that taxpayers’ tax_liability is lower sec_301_9100-3 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular we express no opinion with respect to whether or when an ownership_change occurred whether sec_382 applies to any ownership_change whether parent and electing sub are or were members of a controlled_group the value of any corporation the amount of value if any that may be restored whether parent is or was a loss_corporation and the amounts of any nols in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling statements and representations made by parent electing sub and tax professional under penalties of perjury however the director should verify all essential facts moreover notwithstanding that an extension is granted under sec_301_9100-3 to file the election any otherwise applicable penalties and interest continue to apply k provides that that it may not be used or cited as precedent being sent to your authorized representative _ken cohen____________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate pursuant to a power_of_attorney on file with this office a copy of this letter is for purposes of granting relief under sec_301_9100-3 we relied on certain this letter is directed only to the taxpayer s who requested it section sincerely


department of the treasury internal_revenue_service washington d c date number info release date cc tege eoeg et1 - genin-135122-03 uilc memorandum for director internal_revenue_service center cincinnati oh attn technical unit from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - genin-135122-03 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 that the following business ceased to be an employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that ceased to be an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business will e mcleod cc


department of the treasury internal_revenue_service washington d c date cc el gl br3 dl-120516-98 number release date uilc memorandum for chief special procedures branch from lawrence h schattner chief branch general litigation subject claim for damages this responds to your memorandum to district_counsel district dated date this document is not to be cited as precedent legend taxpayer district_office x service employee chief of collection amount a dollar_figure amount b dollar_figure amount c dollar_figure amount d dollar_figure date a issues whether there has been a violation of sec_7433 whether the taxpayer has filed a proper administrative claim under sec_7433 dl-120516-98 if the administrative claim is proper what information should the service request in order to evaluate the amount of the claim conclusions there does not appear to be a violation of sec_7433 the taxpayer has properly filed an administrative claim under the provisions of sec_301_7433-1 the taxpayer seeks actual damages of amount b liquidated_damages for direct disclosures of amount c and liquidated_damages for publication as a result of disclosure to a newspaper of amount d the alleged unlawful collection actions apparently took place after date therefore the taxpayer can only recover the lesser_of dollar_figure or the sum of his direct economic damages the taxpayer has not provided documentation for direct economic damages incurred as the proximate result of the alleged unlawful collection actions the taxpayer has also not described in detail the injuries suffered as the proximate result of the alleged unlawful collection actions while these facts are necessary to evaluate a claim under sec_7433 the taxpayer would need to establish as an initial matter that a specific code provision or regulation was violated in connection with the collection of his taxes facts a service employee sued the government alleging that the chief of collection for the district discriminated against white males and females in the promotion process the service employee is represented by an attorney the taxpayer in the attorney taxpayer owed delinquent taxes totaling approximately amount a the collection case was assigned to a revenue_officer who was supervised by the service employee the chief of collection believed that the taxpayer’s representation of the service employee in the suit against the government constituted a conflict of interest and testified to that effect during the civil trial in his letter to the service dated the taxpayer states that the contents of his tax file were disclosed in the civil trial and at meetings with the district_director the taxpayer’s claim states that a number of actions appear to be inappropriate collection actions he states that he continues to receive collection notices for an erroneous amount of taxes alleged to be owed he also alleges that the injuries that he has sustained have primarily been to his reputation and business and that service employees who considered retaining him in employment matters sought other counsel as a result of the disclosure of his individual tax case dl-120516-98 law and analysis under sec_7433 a taxpayer may bring a civil_action for damages up to dollar_figure if in connection with the collection of any federal tax an officer_or_employee of the service recklessly or intentionally disregards any provision of the code or the regulations promulgated thereunder sec_7433 was amended by sec_3102 the internal_revenue_service restructuring and reform act of rra to allow civil actions for damages up to dollar_figure where an officer_or_employee of the service negligently disregards any provision of the code or the regulations promulgated thereunder however the amendments to sec_7433 enacted by rra apply to actions of officers or employees of the service after date therefore the provisions of sec_7433 prior to amendment by rra apply to this case since the alleged unlawful collection actions appear to have taken place prior to date accordingly the taxpayer can not recover damages for negligent disregard of the code or regulations sec_7433 provides that the amount of damages awarded may be reduced if the court determines that the plaintiff has not exhausted the administrative remedies available within the service this provision applies to proceedings commenced after date however rra sec_3102 provides that the amendments to sec_7433 apply to actions of officers or employees of the service after the date of enactment which was date accordingly the plaintiff is not required to exhaust administrative remedies since the actions complained of occurred after date and prior to date but the court could reduce the amount of damages for failure_to_exhaust_administrative_remedies sec_301_7433-1 contains the procedures for filing an administrative claim for damages the claim must be sent in writing to the district_director and marked for the attention of the chief special procedures function of the district in which the taxpayer resides the claim must include the name current address current home and work telephone numbers and any convenient times to be contacted and the taxpayer’s identification_number the grounds for the claim including copies of substantiating documents or correspondence with the service a description of the injuries incurred by the taxpayer including any substantiating documentation the dollar amount of the claim including damages not yet incurred but which are reasonably foreseeable and any substantiating documentation and the signature of the taxpayer or duly authorized representative under sec_7433 the taxpayer must show that the service intentionally or recklessly disregarded the code or the regulations in order for disregard or misconduct to be reckless the actor must have intentionally acted or failed to act either knowing or knowing facts that would lead a reasonable man to realize that it is highly probable that harm will result see 57a am jur 2d negligence dl-120516-98 reckless misconduct differs from negligence negligence consists of mere inadvertence or a failure to take precautions while reckless misconduct involves a conscious choice of a course of action or inaction conduct cannot be in reckless disregard unless the conduct itself is intended see 57a am jur 2d negligence in the instant case it does not appear that any unlawful actions were taken in connection with the collection of the taxpayer’s individual tax_liability the conference memoranda which are contained in the documents that we reviewed show that the taxpayer’s individual tax account was discussed at these meetings in the context of the conflict of interest issue however there is nothing in the documents that we reviewed or in the taxpayer’s letter that show that any specific unlawful collection action took place the taxpayer alleges that he continues to get collection notices for erroneous amounts of taxes and that he has not received an explanation for the reassignment of his tax case to office x after the chief of collection was detailed to office x neither of these allegations if true would be unlawful collection actions and would not fall within the meaning of reckless or intentional disregard of the code or regulations for purposes of sec_7433 therefore unless the taxpayer can produce some substantiating documents or evidence of specific unlawful collection actions it does not appear that he is entitled to recover under sec_7433 case development the taxpayer’s letter dated should be treated as an administrative claim however more information is required in order to evaluate the claim the taxpayer has not yet provided you with substantiating documents or evidence of damage to his business sec_7433 only allows recovery for direct economic damages the taxpayer can not recover for damages to his reputation unless it results in actual economic loss more importantly he can not recover under sec_7433 for unlawful disclosure of his tax case unless the disclosure was made in connection with the collection of his tax_liability see generally schipper v united_states et al ustc big_number e d n y vacating and remanding ustc e d n y the taxpayer has only alleged that the illegal disclosures or browsing occurred during the investigation of the conflict of interest case and the service employee’s discrimination suit thus even assuming that the disclosures were illegal such disclosures were not made in connection the collection of the taxpayer’s liability and therefore would not be actionable under sec_7433 the taxpayer also alleges that the collection activities regarding his account were made for retaliatory purposes in violation of the taxpayer_bill_of_rights and the irs rules of conduct however the taxpayer admits that the service initiated collection action against him before he was retained by the service employee even dl-120516-98 assuming the collection notices contained the incorrect amount of taxes owed that fact does not suggest a retaliatory motive nor does it explain why it is inappropriate to pursue a collection matter begun before the taxpayer was retained for a liability which the taxpayer does not deny owing and which presumably remains unpaid in part hence the facts provided so far by the taxpayer do not support a finding that the collection action was initiated or pursued against him for retaliatory motives even if the taxpayer could establish retaliatory motives the taxpayer has not specified what provision of the code or regulations would be violated by initiating a collection action based on such improper motives you should review service records and determine what collection actions have been taken if the attorney submits additional substantiating documents or evidence regarding unlawful collection actions you should submit the case to us for additional evaluation if you have any further questions please call cc assistant regional_counsel gl midstates region